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September 17, 2009
A presentation at:
RUSSIA:The Jewel of the European Personal Care MarketRUSSIA:The Jewel of the European Personal Care Market
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Russian Cosmetics & Toiletries Market
Competition
Retail Distribution
Outlook
Global Market Overview
Agenda
About Kline
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Russian Cosmetics & Toiletries Market
Competition
Retail Distribution
Outlook
Global Market Overview
Agenda
About Kline
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We serve clients around the globe
About Kline
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Kline has an extensive series of market research reports that covervarious markets
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About Kline
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Indian Cosmetics & Toiletries Market
Competition
Retail Distribution
Outlook
Global Market Overview
Agenda
Kline & Co.
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0
50
100
150
200
250
300
2003 2004 2005 2006 2007 2008
US$ Billion retail
CAGR: 5.1%CAGR: 5.1%
The global personal care market surpassed US $280 billion at theretail level in 2008
Global Market Review
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0.0
2.0
4.0
6.0
8.0
10.0
12.0
2004 2005 2006 2007 2008 2009-a
Change, %
Growth has slowed considerably due to the economic crisis
Global Market Review
a- projected.
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Emerging markets are advancing at the fastest pace
Argentina
Brazil
China
Russia
DOUBLE-DIGIT
GROWTH
India
Mexico
Poland
South Korea
MODERATEGROWTH
Canada
France
Germany
Italy
Japan
Spain
United Kingdom
United States
BELOWAVERAGE
GROWTH
Global Market Review
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Russia has been moving up the ranks
2003 Rank 2008
United States 1 United States
Japan 2 Japan
France 3 China
Germany 4 Brazil
United Kingdom 5 FranceChina 6 Germany
Italy 7 United Kingdom
Brazil 8 Russia
South Korea 9 South Korea
Russia 10 Italy
Global Market Review
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The emerging markets have significant upside potential when it comes
to per capita spending
Country Per capita spending (US$)
France 245.31
Japan 232.67
Spain 215.79
United Kingdom 215.44
Germany 189.63
Italy 184.98
Canada 167.61
United States 163.39
South Korea 155.46
Brazil 98.05
Poland 92.58
Russia 88.83
Mexico 79.84
Argentina 41.25
WORLD 40.51
China 11.94
India 5.40
Global Market Review
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Russian Cosmetics & Toiletries Market
Competition
Retail Distribution
Outlook
Global Market Overview
Agenda
Kline & Co.
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Macroeconomic developments
High growth in GDP and real disposableincome
− Russian consumers are now prepared topay good money for good products
− Rising inflation is starting to slow downgrowth and resulting in price hikes
Consumers have a higher purchasing powersince the majority own a house without the
burden of mortgage repayments, havinginherited housing from the state following thecollapse of communism
The wealth of the Russian population has
seen substantial growth in recent years− Salaries have increased by 15% in the
past two years and are forecast tocontinue double-digit growth for the nextseveral years
Russian Cosmetics & Toiletries Market
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Drivers of the Russian personal care market
Increasingprosperity
Consumerexpectation
Societal pressuresand increased
desire to look good
Aging population
Marketing effortsundertaken by
pharma companies
Highly effectivecosmetics
becoming moreaffordable
HIGHGROWTH IN
PERSONALCARE
Russian Cosmetics & Toiletries Market
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Russia’s C&T usage is similar to the world, but skews slightly stronger
toward basic toiletries and oral care
0%
10%20%
30%
40%
50%60%
70%
80%
90%100%
World Russia
Fragrances
Hair care
MakeupOral care
Skin care
Toiletries
Russian Cosmetics & Toiletries Market
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Russia’s unique usage patterns
Facial treatments
World proportion: 19.4%
Russia proportion: 8.1%
Facial treatments
World proportion: 19.4%
Russia proportion: 8.1%
Lipsticks and lip glosses
World proportion: 3.8%
Russia proportion: 7.8%
Lipsticks and lip glosses
World proportion: 3.8%Russia proportion: 7.8%
ToothpastesWorld proportion: 5.6%
Russia proportion: 10.3%
Toothpastes
World proportion: 5.6%
Russia proportion: 10.3%
Russian Cosmetics & Toiletries Market
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Consumer dynamics
Consumers are becoming less price sensitive, choosing qualityover price
− As regional centers develop, consumers are activelyswitching from low cost generic products to higher cost
branded products Consumers previously were drawn to colorful packaging but are
now more interested in the ingredients and functionalcharacteristics
Consumers consistently choose locally made skin care as theybelieve they are more natural and better suited to Russian skin.
This belief is slowly changing. Russian consumers can be characterized into two distinct
segments:
− The older generation believes natural ingredients are morehealthy, is skeptical of foreign-made products containingchemicals, and does not trust advertising or salespeople
− The younger generation tends to want the advice of retailstore staff, is heavily influenced by western advertisingcampaigns, and buys popular brands as a status symbol
There is increasing interest in health care, naturalness and newtechnologies
Russian Cosmetics & Toiletries Market
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0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008
17
The Russian C&T market reached $8.5 billion at the manufacturers’ level
in 2008. Growth has been robust over the past five years
$US Billion Mfr.
CAGR: 13.2%CAGR: 13.2%
Russian Cosmetics & Toiletries Market
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Russia outpaces world growth in all categories by a substantial margin
Fragrances Hair care Skin care Makeup Other
toiletries
Oral care
Change, % 2007 vs 2008
Russia World
Percentage growth
Russian Cosmetics & Toiletries Market
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Hot product trends and key new launches
Products with natural ingredients are increasingly in demand
Beauty salons and spas are becoming an increasinglyimportant part of the market
Major shift toward unscented deodorants, as consumers cannow afford to also buy a luxury fragrance
Value-added products in demand (e.g., color cosmetics,men’s grooming products, baby care, anti-aging, and anti-cellulite products)
More sophisticated and niche products are gaining marketshare (e.g., shampoo and bath and shower products for men)
Baby fragrances from local manufacturers emerge as a newsegment
Lip balms containing a patented combination of ingredientsclaims to curb appetite and leads to weight loss
Cosmeceuticals and nutricosmetics both gaining ground
Russian Cosmetics & Toiletries Market
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Products with natural and organic ingredients are growing in popularity
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Russian Cosmetics & Toiletries Market
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HAIR CARE PRODUCTS: Snapshot
0
2
4
6
8
10
12
Percentage
growth
Hair Coloring
Products
Hair styling
products andsprays
Conditioners Shampoos
Change, % 2007 vs 2008
Henkel Procter & Gamble Unilever L’Oréal Oriflame
Shampoos
Hair coloringproducts
Conditioners
LEADING PLAYERS
SALES GROWTH BY CATEGORY
SALES SHARE BY CATEGORY
Hair stylingproducts
and sprays
Russian Cosmetics & Toiletries Market
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Shampoos and hair coloring product represent 70% of sales in this
product category
Two-in-one products are declining in popularity and products addressing particular hairproblems, such as dandruff and hair loss are growing in strength in terms of sales
More than 50% of Russian women use colorants and have a preference for permanentcolors
Despite the fact that Russian consumers still consider imported to be of better qualitythan those produced locally, the hair coloring segment sees increased interest in localproducts due to new product launches, improvement in quality and increasedproduction volumes
The long Russian cold winters are an obstacle against the fast growth of the styling
products as people spend around 6 months of the year wearing hats to protectthemselves from cold
Russian consumers in the cities like to buy modern sophisticated products such asgels, wax, cream and balm, whereas sprays are more preferred outside big cities
There is little brand loyalty for hair care products among Russian consumers
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Russian Cosmetics & Toiletries Market
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MAKEUP PRODUCTS: Snapshot
02
4
6
8
10
12
14
16
18
Percentage
growth
Face makeup Lipsticks & lip
glosses
Eye makeup Nail polishes
Change, % 2007 vs 2008
Avon
Oriflame L’Oréal Faberlic
Lipsticks andlip glosses
Eyemakeup
Facemakeup
Nailpolishes
LEADING PLAYERS
SALES GROWTH BY CATEGORY
SALES SHARE BY CATEGORY
Russian Cosmetics & Toiletries Market
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Makeup is the second leading category in Russia
Lipsticks and lip glosses account for more than 40% of category sales
Lipstick is considered by Russian women as the main feature of all makeup; it is themost popular makeup product
Russian women are becoming increasingly selective in choosing makeup products as
quality and reputation became the most important criteria when choosing a particularbrand of makeup products
Direct sales companies like Avon, Oriflame and Faberlic lead the makeup market inRussia
Growth is mainly fueled by the improvement in the income of the Russian consumers
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Russian Cosmetics & Toiletries Market
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OTHER TOILETRIES: Snapshot
0
5
10
15
20
25
Percentage
growth
Shaving Products Personal CleansingProducts
Deodorants andantiperspirants
Change, % 2007 vs 2008
Evyap Procter & Gamble Unilever Beiersdorf
Personalcleansing products
Deodorantsand
antiperspirantsShaving
products
SALES SHARE BY CATEGORY
LEADING PLAYERS
SALES GROWTH BY CATEGORY
Russian Cosmetics & Toiletries Market
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Personal cleansing products is the leading product category while
shaving products are the fastest growing
Bar soaps are the most significant contributor to sales in the personal cleansingproducts category, however this market is already close to the saturation point and isgrowing at the slowest pace of all personal cleansing product segments
Russian women comprise the largest group of consumers of deodorants andantiperspirants
Aerosols, roll-ons, and solid sticks are the three product forms that are the most popularamong Russian consumers
Russia represents a large market for shaving products, as there are over 54 millionmales in Russia over the age of 15
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Russian Cosmetics & Toiletries Market
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ORAL CARE PRODUCTS: Snapshot
Colgate-Palmolive
Procter & Gamble Kalina
0
2
4
6
8
10
1214
16
Percentage
growth
Toothpastes Mouthwashes Toothbrushes
Change, % 2007 vs 2008
Toothbrushes
Toothpastes
SALES GROWTH BY CATEGORY
SALES SHARE BY CATEGORY
Mouth-washes
LEADING PLAYERS
Russian Cosmetics & Toiletries Market
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The collaboration with dental experts and pharmacists in order to improve
the awareness of dental issues helped to grow sales within the product class
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Russian Cosmetics & Toiletries Market
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SKIN CARE PRODUCTS: Snapshot
0
5
10
15
20
25
Percentage
growth
Men's skincare
Sun care Facialtreatments
Hand/bodylotions
Baby care
Change, % 2007 vs 2008
Kalina Johnson & Johnson L’Oréal Beiersdorf Mary Kay
Facial treatments
Baby careHand/bodylotions
Sun care LEADING PLAYERS
Men’sskin care
SALES GROWTH BY CATEGORY
SALES SHARE BY CATEGORY
Russian Cosmetics & Toiletries Market
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Growth in income, an increase in the Russian birth rate, and the aging
of the Russian population are the main factors of growth in this sector
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Russian Cosmetics & Toiletries Market
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FRAGRANCES: Snapshot
12
12.5
13
13.5
14
14.5
Percentage
growth
Fragrances for Men Fragrances for Women
Change, % 2007 vs. 2008
LVMH
L’Oréal Procter & Gamble Chanel
Fragrances for men
Fragrances for women
SALES GROWTH BY CATEGORY
SALES SHARE BY CATEGORY
LEADING PLAYERS
Russian Cosmetics & Toiletries Market
R i C ti & T il t i M k t
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Fragrances account for more than 10% of market sales in Russia
Russian consumers purchase Western (particularly European) brands as a sign ofaffluence
The luxury trade class is the largest with more than 75% of market share.
Eau de toilette products are the most popular format among Russian consumers
There is a continuing shift in the sales channels for fragrances in favor ofspecialized shops that position themselves as boutiques
The markets in Moscow and St. Petersburg are the most important markets inRussia, although there is increasing development in other cities and regions
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Russian Cosmetics & Toiletries Market
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Russian Cosmetics & Toiletries Market
Competition
Retail Distribution
Outlook
Global Market Overview
Agenda
Kline & Co.
Competition
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On the competitive front
Multinationals are increasing their presence in Russia,including in-country manufacturing
− Foreign companies report larger sales than Russian
brands across all beauty segments, with the exceptionof skin care
Local Russian manufacturers are fighting back againstforeign companies
Direct sales has traditionally had a strong position in theless developed regions
As competition in both Moscow and Saint Petersburg
intensifies, both specialty retail networks andmanufacturers are seeing new growth opportunities openup over the coming five years in Russia’s vast and oftenuntapped regions
Competition
Competition
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Procter & Gamble is the leading player in the Russian market.Multinational companies account for more than 60% of industry sales
Procter &GambleAvonL’Oréal
SchwarzkopfHenkel
Oriflame
All other
Competition
Competition
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Local companies account for 38% of total market sales
TOP 10 LOCAL MARKETERS
Kalina
Faberlic
Svoboda
Nevskaya Kosmetika
Novaya Zarya
Krasnaya Linia
Fratti
Rokolor
Unicosmetic
Arnest
11
22
33
44
55
66
77
88
99
1010
Competition
Competition
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Local manufacturers compete in the mass market and middle market
segments
37
Compet t o
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Russian Cosmetics & Toiletries Market
Competition
Retail Distribution
Outlook
Global Market Overview
Agenda
Kline & Co.
Retail Distribution
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Retail development
The Russian beauty retail market has been restructuringsince the nineties
Retails focus shifted to the regions as a new market toconquer, leading to fast expansion and many door openingespecially in the last three years.
Open markets are constantly losing their market share toother channels especially mass merchandisers
Department stores are facing tough times especially thelower end ones
Specialty stores channel reshuffles as giant Arbat Prestigeleft the market in 2008
New distribution channels for cosmetics and toiletries,such as the Internet and drogueries or drug stores, haveappeared and are growing in popularity
Pharmacies are increasing their focus onparapharmaceuticals, in particular skin care products, withnon medical products reaching as much as 40% in some
pharmaceutical chains.
Retail Distribution
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Direct marketing: the biggest winner
The bulk of sales is generated by person-to-person sales represented predominantlyby Avon and Oriflame.
Makeup is the leading product class in this channel followed by skin care.
The economic crisis has had a positive effect on the direct sales channel as many
manufacturers such as Avon and Faberlic have witnessed a significant increase inthe number of their consultants.
The boom in sales through the Internet as a way of direct marketing also played arole in the growth of the channel.
Retail Distribution
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Specialty stores: fast expansion through the regions
Second largest distribution channel forcosmetics and toiletries in Russia
The big expansion in the regions and theincrease in the income of the Russianconsumer were the main drivers for thechannel’s growth
Offer a special shopping experience aswell as in-store beauty treatment corners
and beauty institutes Professional aestheticians, consultants,
and makeup artists provide clients expertadvice on various products
Big focus on online sales and loyalty
programs Main channel for sale of prestige brands
Share of mass brands is growing
Retail Distribution
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Department stores: interesting format but losing popularity
Specialty department stores repositionedthemselves as luxury destinations
Traditional department stores are facing
many difficulties in Russia mainly thelack of interest among the Russianconsumers to such store formats as itreminds them of the “Univermags” of theSoviet era and the poor quality ofproducts that these were offering
Lower end department stores,“Univermags”, are facing increasingcompetition from shopping centers andmass merchandisers
Other toiletries and hair care productsare the dominating product categories inthis channel and they are sold mainly inlow end department stores
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Russian Cosmetics & Toiletries Market
Competition
Retail Distribution
Outlook
Global Market Overview
Agenda
Kline & Co.
Outlook
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Plenty of potential left
The increasing wealth and purchasing power of the Russian consumers will boost thesales of cosmetics and toiletries
Beauty retailers will continue expanding in the regions and differentiating themselves
Big opportunities in emerging channels of distribution such as drogueries and mass
merchandisers
Expansion of mass merchandisers and supermarkets in the regions will provideadditional opportunities and convenience for consumers to purchase products
More opportunities for private label, exclusive, and niche brands
Outlook
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Economic prosperity will drive further changes in buying patterns
The aging of the Russian population willfurther boost the demand for anti-agingproducts
Interest in niche brands will continueincreasing
Interest in natural and organic cosmetics willkeep on growing
Men’s products will continue to grow as animportant target segment across categories
Demand for added value products atcompetitive prices will further grow
With changes in the lifestyle, spa proceduresand professional hair care and skin careproducts will become even more popular
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Quest ions
& Answers
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Americas____________
Asia___________
Europe___________
Kline & Company, Inc.
Overlook at Great Notch150 Clove RoadLittle Falls, NJ 07424-0410Phone: +1-973-435-6262Fax: +1-973-435-6291
www.KlineGroup.com
If you require additional information about the contents of this document or theservices that Kline provides, please contact:
Kl ine is a worldwide consulting and research firm dedicated
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Carrie MellageDirector, Consumer ProductsPhone: +1-973-435-3412E-mail: Carrie.Mellage@KlineGroup.com
Kristy AltenburgClient Relations Supervisor, North America
Phone: +1-973-435-3367E-mail: Kristy.Altenburg@KlineGroup.com