China, the 2nd cosmetics market in Asia and the 5th in the world, has been a paradise for French cosmetic brands so far. This could change, sooner than later and transform heaven into hell with a country closing its doors to favour local brands. With a 60% owned by foreign companies cosmetic market, China doesn’t have much of a choice to do otherwise
The Chinese Cosmetics market
With a trade volume of 14 billion euros in 2012, cosmetics, according to Ubifrance, is the most dynamic consumer goods sector in China. This market is an Eldorado that could turn into hell for the other actors of the French beauty sector. The leaders of the Cosmetic Valley – the competitive pole of French cosmetics – have rung the alarm. The Chinese intend to develop their industrial sector to make local champions emerge. They announced two major projects of national investment: one dedicated to beauty, and the other to perfume. The development of an industrial park dedicated to beauty is launched in the coastal city of Wenzhou (east). On 7.3 hectares, it aims to accommodate 800 companies with laboratories and testing centres to test products, and services related to packaging and raw materials. A “Chinese Grasse” could emerge in Kunming. With a cluster dedicated to the fragrance and flavours of 220 hectares, cosy museum, international university, but also local and international specialists from the extraction of plants to the production of cosmetics. Hoping to develop three to five recognized brands internationally in the decade, and generate a turnover of EUR 12 billion in twenty years.
An highly concentrated market
On site, some see only mere announcement of the local authorities, hoping to attract private investors and public funds. These projects are still in very early phases. Chinese won’t continue to let 60% of the domestic market of beauty in the hands of foreign groups (even 80% in the mid-range and luxury sectors!): The American Procter & Gamble, the French L’Oréal, The Japanese Shiseido, the Anglo-Dutch Unilever…
Shanghai Jahwa, China’s leader, only has the tenth part of this highly concentrated market, despite a large number of actors and Chinese SMEs. It does not stop there, Jahwa has a very popular brand portfolio in China, covering premium range and entry-level products. Herborist, one of its flagship brands, inspired by the traditional pharmacopoeia, is distributed since 2011 by Sephora in France, 100% owned by a subsidiary of Ping An, the first insurer in the country, Jahwa has a strong investment capacity. Having achieved a turnover of 636 million dollars last year, it will implement international stores to distribute Herborist.
The Chinese offensive is effective
These new ambitions made China’s exportations to France in cosmetics increased by 5.9% between 2005 and 2011, reaching 2.2 billion euros. Including France, the seventh destination of these shampoos, toothpastes, shaving products or bath, deodorant … The United States is the first customer. Except in the hair care segment, few of the locals are really able to compete with foreigners with their low to mid-range cosmetics. Yet some Chinese actors gradually part from other manufacturers. Their niche is the quality and promising segments like anti-aging, with natural ingredients coming from Traditional Chinese medicine.
French manufacturers don’t take lightly the arrival of those newcomers. Indeed, These very modern brand are way more dynamic and have a better understanding of the market dynamics.
Strategic partnerships
The hexagonal historic expertise arouses the appetite of Chinese. French beauty products are synonymous in their eyes of technology and cared design, but also of higher quality, particularly in terms of safety and environmental responsibility. Threat … or asset for the French cosmetics actors? They want to develop brands for the domestic market but make them on our French lines and plants to benefit from the image of Made in France. Consumers do not want the cosmetics to be made in China! It might be more the case in ten years…
Even French SMEs decline Chinese bids, like Filorga a laboratory specialized in cosmetic and skin aging products. But Filorga does not exclude strategic partnerships to distribute its products there. Chinese ambitions are also reflected in an increased protectionism. With a market share of 32.77%, France remains the leading supplier of beauty of the country, ahead of Japan and the United States. But imports are increasingly difficult.
Western companies’ strategies consist in buying companies and produce locally. The perfumer Coty has thus seized in 2010 T Joy, a popular cosmetic manufacturer in China. L’Oréal, has two factories in Suzhou and Yichang. The Cosmetic Valley is still the world’s leading resource centre in perfumery and cosmetics. A rare first place he should not … give to the Chinese.
Do you want to know more?
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