High-speed growth of the cosmetics market in China

While the Chinese economy grows at its slowest pace in 25 years, its Cosmetics market grew an impressive 12.8%

With the Chinese economy already in the slow, sustainable growth pattern dubbed the “New Normal”, the fast moving consumer goods (FMCG) market has followed suit with a marked slowdown.  According to data from Kantar Worldpanel, the FMCG market growth was 3.5% in 2015, the lowest growth seen in a generation. By contrast, the cosmetics market enjoyed an impressive growth of 12.8%, justifying further investigation. Jason Yu, General Manager of Kantar Worldpanel China, recently shared a report revealing the cosmetics market trend and development in China, the highlights of which are detailed below.

Premiumisation Accelerates

According to the report, the high-speed growth of the cosmetics market was mainly driven by upgraded purchasing, meaning that increasingly consumers are willing to pay higher prices for more premium products or buying a wider range of products. Within the skincare market, masstige brands are the key contributor to this premiumisation trend. Across categories (facial skincare, hand & body care) and city tiers consumers tend to choose products with higher prices. In the makeup market, an enlarged buyer base and premiumisation are two key drivers to the market growth. Data shows that only 45 urban families out of every 100 have purchased makeup products in 2015, demonstrating a huge market potential for makeup manufacturers in China. Furthermore, the trend of “nude look” has successfully attracted consumers’ attention, pushing up the growth of BB cream, lipstick, eyeliner, eyebrow and cushion products.

Chinese brands are playing the pivotal role in this market growth. In the past 3 years, international brands growth has stagnated and their market share has been squeezed from all fronts - even in the upper city tiers where they were previously dominant. Chinese brands occupied half the seats among the top ten cosmetics players in 2015 in contrast to two seats in 2013. Here we summarize the five forces behind Chinese brands’ fast growth:

Masstige-Premiumisation: Massitge brands, brands between mass and prestige in price positioning, grew 8% in value in 2015, with 70% of the value growth contributed by Chinese brands.

Natural + High-Tech: Chinese brands have evolved from single emphasis, i.e. herbal or natural concepts, to multi-emphases blending the “high-tech” elements into product communication - promoting a more effective solution for enhanced skincare results.

The Fashion Of Hydration: The hydration benefit in skincare products has become a fashion nowadays; products with hydration emphasis took up 27% volume amongst total facial cream in 2015, up from 21% two years ago. However, Chinese brands, i.e. Chando, are the critical drivers in this fashion.

Youth – The Future & The Present: Chinese brands have particular popularity amongst post-90s shoppers and further energize the total category, engaging more young consumers in the buying of cosmetics products.

Mask Fever: The mask fever phenomenon has now been around for several years. In 2015, 48% of Chinese urban households purchased a facial mask, higher than South Korea and Taiwan where the skincare market is normally more mature. Chinese brands are the major force in this rapid development.

3 take-outs and recommendations from Kantar Worldpanel

1. Premiumisation remains strong in the Chinese FMCG market: Cosmetics continues to have potential to further accelerate this trend.

2. Chinese brands become more dominant in the market through masstige offerings, attracting young shoppers and creating fashionable trends. Retailers can enhance their cooperation with Chinese brands to capture these trends.

3. Further enhance consumers’ shopping experience: Providing premium brands and services is crucial for retailers in order to attract more consumers and achieve growth. Instinctual route design, feasible brand/product portfolio, the correct store size and an innovative store design satisfying entertainment needs – are set to be key trends for retailers tomorrow.