China’s cosmetics market, 2010

January 2011
Li & Fung Research Centre
In this issue:

I. Market Overview p. 3

II. Competitive landscape p.7

III. Latest developments p.12

IV. Snapshots of sub-sector performance p.22

V. Appendix p.28

2
I. Market Overview

3
 China’s cosmetics retail value showed steady growth
in 1-3Q 2010
• According to National Bureau of Statistics, China’s cosmetics retail value
reached 74.0 billion yuan in 2009, showing nominal growth of 16.9% year-on-
year (yoy).

• In 1-3Q 2010, the retail value of China’s cosmetics registered a slower nominal
growth of 16.3% yoy.
Retail value of cosmetics by wholesale and retail enterprises above designated size*, 2005-2009
80.0 74.0 30%
70.0
59.7 25%
60.0
48.8 20%
Billion yuan

50.0

% yoy
38.7
40.0 33.5 15% yoy growth
FY09 1Q10 1H10 1-3Q10
30.0 (%)
10%
20.0
5%
10.0 Cosmetics 16.9 15.6 15.8 16.3
0.0 0%
2005 2006 2007 2008 2009

Sales value Growth

Source: National Bureau of Statistics of China (NBS)
*Designated
4
size: with annual sales of 5 million yuan or above and with an employment of or over 60.
Retail price of cosmetics in China on a rising trend

• Cosmetics retail price has been on a rising trend since July 2010.

Retail Price Indices of Cosmetics in China, January 2009 – October 2010 (Same
Month of Preceding Year =100)
101.4
101.2
101.0
100.8
100.6
100.4
100.2
100.0
99.8
99.6
99.4
v
09

10
n

n
l

Au l
Ja c
g
p

g
p
r

M r
ar

ar
b

b
ct

ct
ay

ay
Ju

Ju
Ap

Ap
No
Ju

Ju
Au
Se

De

Se
Fe

Fe
O

O
M

M
n-

n-
M
Ja

Source: NBS 5
Increasing margin pressure on cosmetics
enterprises

• Although retail price has been on a rising trend, industry players

said that it has lagged behind the cost increase.
• Increase in costs such as rental, labor, logistics, advertisement,
and slotting fee etc. are exerting heavy pressure on cosmetics
enterprises.
• Many cosmetics players, especially those with poorer brand equity,
have witnessed their profit margin eroding.

6
II. Competitive landscape

7
Foreign players have a strong foothold in the
mid-range to high-end segments

• Comparatively, foreign players have a more extensive brand portfolio

than domestic players. (See Appendix)
• Foreign players have a strong foothold in the mid-range to high-end
segments.
• China has become one of the most important markets for many foreign
cosmetics companies.
– Greater China is the second largest market for Procter & Gamble, after
the North American market. According to Access Asia, the sales of P&G
in China reached 13.23 billion yuan in 2009, with a market share of 19%.
– L’Oréal International sees China as its major growth engine: Garnier
recorded a sales growth rate of 61.2% yoy in China in 2009; L’Oréal Paris
recorded 25.5% yoy growth in China market’s sales in 2009.

8
Foreign enterprises have acquired a number of
renowned domestic brands

• As a shortcut to acquire resources such as brand equity, local

connections and distribution channels, a number of foreign
cosmetics players have been actively exploring merger and
acquisitions (M&As) opportunities. A number of well-known local
brands were acquired by foreign brands over the past years.

• Homegrown cosmetics brands that had been acquired by foreign

companies:
– Acquisition of Dabao (大寳) by Johnson & Johnson in 2008
– Acquisition of C-Bons (絲寳) by Beiersdorf in 2007
– Acquisitions of Yue-sai (羽西) and Mininurse (小護士) by L’Oréal in
2004

• In December 2010, Coty Inc., one of the leading global beauty

companies, had agreed to acquire a majority stake (~400 million
USD) in domestic skincare group TJoy Holdings Ltd (丁家宜). The
acquisition is expected to close in January 2011.
9
Domestic brands are more popular in lower-end
segments

• Domestic brands generally priced lower and target the mass and
lower-end segments.

• They have less extensive brand portfolio compared with foreign

counterparts. (See Appendix)

• Though generally weaker in brand building and supply chain

management, a number of domestic players have strived hard to
move up the value ladder.

• Some are developing new brands to target higher-income

consumers.
– e.g. the launch of Herborist (佰草集) and ShanghaiVive (雙妹) by
Shanghai Jahwa co. Ltd (上海家化).

10
Many new players are tapping the market

• An increasing number of retailers in China such as Wal-Mart,

Watsons, Sephora and Sasa have launched private label cosmetics
products in recent years to improve profitability.

• Brands from other industries also jump on the bandwagon to offer

cosmetics products.
– For example, Swedish apparel brand H&M launched a new line of
Ecocert certified organic-ingredient-based skin care products in 2010,
including shower gel, body scrub, moisturizer, hand cream and lip
balm etc.
– Fujifilm introduced its skincare products (Astalift) to mainland China
and Hong Kong markets in 2010. The brand Astalift is also available in
Taobao Mall, one of China’s most popular online shopping platforms.

11
III. Latest developments

12
Department stores, supermarkets and hypermarkets
remained the major distribution channels
• According to Access Asia, department stores(56.2%), hypermarkets
and supermarkets (20.2%) were the major distribution channels for
cosmetics and toiletries* by sales in China in 2009.
• Some other emerging channels that are gaining popularity:
– Professional stores
Watsons, Sasa, Sephora and Cosmart (歌詩瑪)
– Beauty parlors
Herborist SPA (佰草集漢方SPA), Chlitina (克麗緹娜) and Natural
Beauty SPA (自然美SPA生活舘)
– Online retailing platforms
Corporate websites L’Oréal, DHC, Lancôme, Estée Lauder, Clinique,
Biorthem
Integrated B2C online retailing Joyo Amazon
platforms Taobao mall (http://beauty.tmall.com/)
Professional online stores strawberrynet.com, Sasa.com, www.sephora.cn
• Many players have opted for multi-channel operations
*Include Baby Care, Bath & Shower, Deodorants, Hair Care, Make-up and Colour cosmetics, Men’s Toiletries, Oral Hygiene,
Perfumes & Fragrances, Skin Care and Sun Care. 13
Cosmetics retailers are accelerating their
penetration into China

• Sephora, which has already established presence in more than 20

cities including Shanghai, Beijing and Tianjin, had planned to open 100
stores by the end of 2010. It has begun to expand to many 2nd- or 3rd-
tier cities such as Wuxi, Wenzhou, Changsha and Changshu.
• Management of Sasa said in 2010 that it planned to increase the store
number to 100 in two and half years.
• Watsons, the leading health and beauty retail chain in Asia, has
opened more than 700 outlets in more than 100 cities of mainland
China as of December 2010. Watsons aims to have 1,000 outlets by
the end of 2011, covered more than 100 cities of mainland China.

14
Massive advertising by cosmetics companies

• According to CTR, the cosmetics and toiletries industry was the

biggest spender (67.1 billion yuan), during 1-3Q 2010 on advertising
in China when compared to other industries.

• Cosmetics players have spent huge sums of money on advertising

in China. According to CTR, P&G was the biggest spender (25.0
billion yuan) on advertising in China during 1-3Q 2010, followed by
LO’réal (9.1 billion yuan) and Unilever (8.3 billion yuan).

– P&G has been the biggest spender at the annual auction for prime
time advertising slots of the China Central Television (CCTV) for the
past few years. Advertising on China’s largest national television
network enables P&G to promote brand awareness.
– Thus far, celebrity endorsement is one of the most popular methods
for players to create noise in the market.

15
Male grooming market is growing fast

• The male grooming market is growing very fast and still has much
untapped potential. According to HKTDC, men’s cosmetics
accounted for 12.7% of the total cosmetics market in 2008. The
segment is expected to grow exponentially for the next few years.

• The sales of male specific skincare products of brands such as

Nivea, L’Oréal, Biotherm and Garnier etc has been growing rapidly.

• LO’réal reported that sales in men’s skincare products in China rose

by 27% in 2009 and the company expected it to increase by 40% in
2010, five times the increase of women’s skincare products.

• Domestic companies such as TJoy (丁家宜), Bawang (霸王), GF (高

夫), Softto (索芙特) and Inoherb (相宜本草) etc. are increasingly
keen to offer cosmetics for men as well.

16
More players tap into the cosmeceuticals market

• Many players (including pharmaceutical companies) have

introduced cosmeceuticals in the past few years.

• Companies such as Beijing Tongrentang (北京同仁堂), Shanghai

Jahwa (上海家化), Jiangsu Longliqi (江蘇隆力奇),Yunnan Baiyao (雲
南白藥), China Shenghuo Pharmaceutical (昆明聖火藥業), Herborn
(本草堂),Herborist (佰草集), Inoherb (相宜本草) and Shiseido have
tapped the cosmeceuticals market.

• Distribution channels for cosmeceuticals include mainly drug stores,

dispensary chains and counters in department stores.

17
Demand for natural and organic cosmetics is growing

• Demand for natural and organic products is growing amid

increasing awareness of sustainability.

• Aveda, Origins, Yves Rocher, Clarins, Sisley, Jurlique, and

L’Occitane are some well-known brands that offer natural and
organic ingredient-based cosmetics products.

18
More stringent regulations on cosmetics

• The State Food and Drug Administration (SFDA) issued the

Regulations on Naming of Cosmetics (化妝品命名規定), which was
effective from February 2010.
– Wordings, such as names of well-known traditional Chinese herbalists
(e.g. Huatuo 華佗, Bianque 扁鵲), are prohibited. Besides, the
products should not include wordings such as “anti bacteria”, “detox”,
“anti-allergy”, “fat burning” and “truly natural” in their names.

• Implemented by China’s General Administration of Quality

Supervision, Inspection and Quarantine (AQSIQ), the Instruction for
Use of Products of Consumer Interest – General Labeling of
Cosmetics (消費者使用説明- 化妝品通用標簽 ) was effective from
July 2010.
– Cosmetics companies are required to display detailed information
such as ingredients, expiry date etc on the labeling.

19
 Buying cosmetics products abroad is popular

• Chinese tourists spent a fairly large proportion on shopping (32%), as

compared to food (12%) and accommodation (11%). Cosmetics are
top on their buying list.
• With increasing income, Renminbi appreciation against US dollar and
easing travel restrictions, many Chinese consumers shop for
cosmetics products abroad.
• Luxury cosmetics products in mainland are generally more expensive
than that in overseas markets. Currently, a consumption tax of 30% is
levied on luxury and high-end cosmetics in China. Mainland tourists
like to travel abroad to purchase cosmetics due to cheaper price and
more product varieties.
• Please refer to our newsletter China’s Outbound Tourism :
“http://www.lifunggroup.com/eng/knowledge/research/china_dis_issue
75.pdf” for more information.

20
Other trends to watch

• Multi-functional products (e.g. color cosmetics with skincare function,

BB Cream etc.) are gaining popularity.

• More players now try to incorporate advanced biotechnologies in

new product developments, e.g. sulphate-free shampoo.

• Kids’ cosmetics market is still underdeveloped. Major players

include Frog Prince (青蛙王子), Coati (小浣熊), Mentholatum,
Yumeijing (鬱美淨) and Johnson & Johnson.

21
IV. Snapshots of sub-
sector performance

22
Background

• The China National Commercial Information Centre (CNCIC)

conducts monthly survey to around 200 major department stores* in
China to study the performance of different cosmetics sub-sectors.

• In this newsletter, performance of 5 sub-sectors is examined:

– Shampoos and conditioners
– Other hair care products
– Skincare products
– Color cosmetics
– Fragrances

*Note: It is noteworthy that the CNCIC data covers sales in major department stores only.
Retailers of other formats such as specialty stores are growing in popularity. The actual overall
market share of cosmetics brands may deviate from the CNCIC data.

23
China’s cosmetics market is relatively concentrated

• Top 10 players in the 5 major sub-sectors achieved over 70% of the

market share in department stores in 2009.

• Top 10 players in the shampoos and conditioners sub-sector

achieved more than 95% of the market share in 2009.
Market share of top 10 brands of selected sectors, 2009

100 95.19
Share of total sales value (%)

90 79.85
80 71.82 70.70 72.10
70
60
50
40
30
20
10
0
Shampoos and Other hair care Skincare products Color cosmetics Fragrances
conditioners products

Source: China National Commercial Information Centre (CNCIC) 24

 Performance of selective product sectors

Shampoos, conditioners and 2-in-1 conditioning Other hair care products (colorants, hair mask &
shampoos: share of total sales value, 2009 styling agents): share of total sales value, 2009

Share of total sales value(%) Share of total sales value (%)

0 5 10 15 20 25 30 0 2 4 6 8 10 12 14 16 18 20

Head & Shoulders 海飛絲 (P&G) 25.24 Youngrace 溫雅 17.95

(Youngrace Cosmetics Group)

Pantene Pro-V潘婷 (P&G) 20.41

Decolor 迪彩 12.48
(Guangzhou Decolor Cosmetics)
Maestro 美濤
Rejoice 飄柔 (P&G) 17.68 11.04
(C-Bons Group*)

Slek 舒蕾 (C-Bons Group*) 10.12

L’Oréal 歐萊雅 (L'Oréal ) 10.31

Bawang 霸王 (Bawang International) 6.88

章華(Savol) 6.37

*Beiersdorf acquired 85% stake in C-BONS Hair Care in 2007.

Source: CNCIC

25
 Performance of selective product sectors (Cont’d)

Skin care products: share of total sales value, 2009 Color cosmetics: share of total sales value, 2009

Share of total sales value (%) Share of total sales value (%)

0 2 4 6 8 10 12 14 16 18 20 0 5 10 15 20 25 30

Olay玉蘭油 (P&G) 19.02 Maybelline 美寶蓮 (L'Oréal ) 27.20

L’Oréal 歐萊雅 (L'Oréal ) 17.98 L'Oréal 歐萊雅 (L'Oréal ) 12.62

Aupres 歐珀萊 (Shiseido) 16.22 Aupres 歐珀萊 (Shiseido) 6.13

Christian Dior 迪奧 CD
Lancôme 蘭蔻 (L'Oréal ) 7.96 5.79
(Christian Dior (China) Fragrance &

Estée Lauder 雅詩蘭黛 (Estée Lauder) 5.31 Olay 玉蘭油 (P&G) 4.87

Source: CNCIC

26
 Performance of selective product sectors (Cont’d)

Facial cleanser for men: share of total sales value, 2009 Fragrances: share of total sales value, 2009

share of total sales value (%) Share of total sales value (%)
0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25
Nivea 妮維雅
(Beiersdorf)
38.31 Chanel 香奈兒 (Chanel SA) 19.75

Bioré 碧柔 16.02
Christian Dior 迪奧 CD
16.08
(Kao) (Christian Dior (China) Fragrance & Cosmetics)

L’Oréal 歐萊雅 (L'Oréal ) 14.30 BOSS (Hugo Boss AG) 9.24

Mentholatum 曼秀雷敦 (Mentholatum) 13.16

Burberry 巴寳莉 (Inter Parfums) 6.81

TJOY 丁家宜 (Nanjing Jianong Chemical Co Ltd) 6.03

Lancôme 蘭蔻 (L'Oréal ) 5.07

Source: CNCIC

27
V. Appendix

28
Foreign cosmetics enterprises and their major brands in China

Company Name Brands

歐萊雅
L’Oréal L’Oréal Paris 巴黎歐萊雅 植村秀
shu uemura
Garnier 卡尼爾 喬治 阿瑪尼
Giorgio Armani
Maybelline New York 美寶蓮紐約 理膚泉
La Roche-Posay
L’Oréal Professional歐萊雅專業美 小護士
Mininurse
髮 Yue Sai羽西
Kérastase 卡詩 Vichy 薇姿
Lancôme 蘭蔻 Matrix美奇絲
Biotherm 碧歐泉 Skinceuticals
Helena Rubinstein HR 赫蓮娜
Kiehl’s
P&G 寶潔 Head & Shoulders 海飛絲 Vidal Sasson 沙宣
Rejoice 飄柔 Clairol Herbal Essences 伊卡璐
SK-II Wella 威娜
Pantene 潘婷 Camay 卡玫爾
Olay 玉蘭油
Shiseido 資生堂 Shiseido 資生堂 Shiseido Eudermine 紅色蜜露
Shiseido Men 資生堂男士 Za 姬芮
Clé de peau beauté 珂麗柏蒂 Aqua Label 水之印
Revital 悅薇 Be 彼嘉
UV White 優白 Aquair 水之密語
Anessa 安熱沙 Perfect 洗顔專科
Aupres 歐珀萊 Kuyura 可悠然
Supreme Aupres 思魅歐珀萊 Super Mild 惠潤
Urara 悠萊 Maquillage 心機彩妝
Elixir 怡麗絲爾 Tessera 欣香
Elixir Superieur 怡麗絲爾優悅活顏 Hand Cream 美潤護手霜
Melanreduce 臻白無瑕 Handasui 肌水
Asplir 愛泊麗 Tsubaki 絲蓓綺
Whitia 白娣顔 Pure & Mild 泊美
Selfit 珊妃 Shanghai Bouquet 上海花漪
UNO 吾諾 Qi 綺怡
PF-Cover 無瑕修顏 Zen 世紀禈香氛
DQ 蒂珂
Unilever 聯合利華 Vaseline 凡士林 Pond’s 旁氏
Lux 力士 Clear 清揚
Dove 多芬 Rexona 舒耐
Hazeline 夏士蓮
Johnson & Johnson Clean & Clear 可伶可俐 Dabao 大寶*
強生 Neutrogena 露得清 Johnson’s body care 強生美肌
Johnson’s Baby 強生嬰兒
Estée Lauder 雅詩 Estée Lauder 雅詩蘭黛 La Mer 海藍之謎
蘭黛 Aramis 雅男士 Bobbi Brown 芭比波朗
Clinique 倩碧 Tommy Hilfiger 唐美希緋格
M.A.C. 魅可 Donna Karan Cosmetics 唐娜凱倫
Beiersdorf 拜 爾 斯 NIVEA 妮維雅 La Prairie 莱珀妮
道夫 Nivea for men Eucerin
Florena
C-Bons Hair Care** Slek 舒雷 Hairsong 順爽
Sdew 風影 Maestro 美濤
Kanebo 佳麗寶 Impress 印象之美 Aqua 雅呵雅
Lunasol 日月晶采 Aqua Sprina 雅呵雅絲睿
Sui sai水之璨 Freeplus 芙麗芳絲
金炫光燦
Coffret D’or Kate
馥蘭哲兒極致系列 Dew Superior 潤活極致系列
Blanchir Superior
Kao 花王 Kao 花王 Asience 亞羨姿
Bioré 碧柔 Sifoné 詩芬
碧柔男士
Men’s Bioré Feather 花王飛逸
Sofina蘇菲娜
Kosé 高絲 Kosé 高絲 Avenir 艾文莉
美諦高絲
Beauté de Kosé Recipe-O 蘭哲歐
Prédia 貝締雅 Junkisei 潤肌精
Sekkisei雪肌精 White St 妍哲
雪肌精 Supreme Nature & Co. 娜蔻
Sekkisei Supreme
Refine 萊菲 Moisture Skin Repair
Astalution
Grandaine 葛倫黛娜
Esprinque Precious
Junkisui純肌粋
Seikisho清肌晶
白澄
* Johnson & Johnson has completed the acquisition of Beijing Dabao Cosmetics Co. Ltd. in
2008.
** Beiersdorf acquired 85% stake in C-BONS Hair Care in 2007.
Source: Li & Fung Research Centre and respective company websites
 Domestic cosmetics enterprises and their major brands in China

Company Name Brands

Shanghai Jahwa Co Ltd Maxam 美加淨 Gf 高夫
上海家化集團 Chinfié清妃 Liushen 六神
Herborist佰草集 Cocool 珂珂
雙妹
ShanghaiVive
Sichuan Jahwa Cortry Cortry 可采 LiveliCutee 伶采
Cosmetics Co. Ltd*
四川家化可采化妝品股份有限
公司
Jiangsu Longliqi Group Co Ltd Longliqi 隆力奇 YaFei 婭妃
江蘇隆力奇集團 Yuzhibao 浴之寶 Dragon Beauty 龍美人
Evergreen 雅妍
Arche Cosmetics Co., Ltd BNS 繽麗 Effi玉麗
廣東雅倩化妝品有限公司 Ariar 清逸 維鮮
Airiny
Cathy 佳雪
Zhuhai Sunrana Cosmetics Sunrana 姍拉娜
Co. Ltd
珠海姍拉娜化妝品有限公司
Bawang International Bawang 霸王 Men’s Bawang 霸王男士
霸王國際集團 Herborn 本草堂 Royal Wind 追風
Shanghai Huayin Commodity Bee & Flower 蜂花
Co Ltd
上海華銀日用品有限公司
Guangzhou Houdy Cosmetics Houdy 好迪 Coian 可靚
Co Ltd Sincir 信婷 童樂
廣州市好迪化妝品有限公司
Tongle

Guangzhou Decolor Decolor 迪彩 Crystal 晶彩

Cosmetics Co Ltd Luxe-Lotus 蓮尚 Lotuses 千蓮薈
廣州市迪彩化妝品有限公司 Enevous 伊儂華 Nenuph 藍蓮花
Foshan Shunde Modern Xian Dai 現代
Health Care Products Co Ltd
佛山市順德現代保健用品有限
公司
Shanghai Savol Health & Savol 章華
Cosmetics Co Ltd
浙江章華保健美髮實業有限公
司
Nanjing Jianong Chemical Co TJOY** 丁家宜 TJOY for men 丁家宜
Ltd 植物純萃
南京珈儂生化有限公司**
Lafang Group Lafang 拉芳 繽純
拉芳集團
Bétrue
Raclen 雨潔 Sunfeel 聖峰
Scenty 現代美 Mese 美多絲
*Shanghai Jahwa has acquired 51% stake in Cortry in 2008.
** Coty has agreed to acquire TJOY in 2010 and is expected to close in January 2011.
Source: Li & Fung Research Centre and respective company websites
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