Increased sourcing from Hong Kong and the Mainland.*

In the quest for quality products at competitive prices, India has been sourcing a number of cosmetic products from the Chinese mainland and Hong Kong. Over the past five years, imports from the Mainland have grown over 500% to US$17.6 million, while imports from Hong Kong have grown 98% to US$1.07 million.

The business is in its infancy but, from a low base, the opportunities look attractive for a great deal of growth, as lifestyle options change for India's growing middle-income sector.

The leaders of the global cosmetics industry are already making India a springboard for higher Asian returns. France has been a traditional supplier, with imports increasing over 170% in the last five years to US$19.39 million. Imports from Thailand during 2006/2007 were the highest at US$28.3 million, growing over 300% over the past five years. Imports from the US and the UK have also recorded significant growths of 60% and 100% respectively from 2002 through 2007.

Essential oils account for around 18% of India's cosmetics imports and the Chinese mainland is a big supplier in this category, with a share of over 40%. Imports from the Mainland grew almost 400% over the past five years, to reach US$7.7 million. France is another important supplier of such oils.

Perfumes account for about 8% of total cosmetics and toiletries imports to India but have grown over 300% in the last five years, to US$11.4 million. The Chinese mainland accounts for a share of around 10%, while France's share is 40%.

Face creams and moisturisers account for around 12% of total cosmetics imports into India. From 2006 to 2007, imports were US$21 million, growing over 300% when taken over the last five years. The Mainland supplies 16% of total imports of such products, while France's share is 14%. Hong Kong has a share of 0.57%, even as its exports to India in this category have grown 200% over the past five years.

Hair care imports at US$33.1 million account for 18% of total cosmetics imports from the Chinese mainland and Hong Kong - but that's only in the opening phase of the developing trade. Hong Kong's exports to India in this sector were around US$90,000 in the year to 2007, even as exports grew 800% in the last five years.

The Chinese mainland's share is still a very small 3.5%, but its exports of US$1.1 million represented robust growth of over 1000% over the last five years. Thailand is the largest exporter of hair care products to India, with a 65% share of imports, at US$21.6 million. Exports from Thailand have grown 232% over the same five years.

Prospects for Hong Kong and Mainland companies

More brands find the way to market.

Strong retail growth in India is certainly creating a space for more branded cosmetics products. This sector is also ensuring that brands reach the tier-two and -three cities, where income growths are much higher, disposable incomes are larger and the demand has been repressed due to want of options.

Import duties on cosmetics remain high, at around 40%, but this is being reduced gradually.

The market expects that logistics companies such as Hong Kong's Li & Fung will enter the Indian market successfully. The company has sourcing offices in India at present. But while there has been speculation that Reliance Retail and Li & Fung will join hands, there has been no tangible progress on this front to date.

India, with its competitive production costs, could be an attractive destination for Li & Fung to set up a manufacturing base, as in Malaysia and Indonesia, observers say. Li & Fung's recent takeover of Hong Kong's CGroup, a health, beauty and cosmetics supply chain company, could well mean exploring new markets like India.

Either way, it would be a market well worth playing for. Pegged at US$950 million (for branded cosmetics), the Indian cosmetics market is set to grow to as much as US$1.4 billion within the next three years. According to Venugopal Dhoot, executive director of India's chambers association, ASSOCHAM: "India's per capita consumption of cosmetics and toiletries for well-known branded products stands at just US$0.6, as against US$40 in Hong Kong, US$10 in Malaysia and Taiwan, US$12 in Japan and US$1.5 in China."

According to a study conducted by ASSOCHAM, only 20 million consumers in India use branded products by Unilever, Procter & Gamble, Godrej and Dabur. Most of these are personal care products such as toothpaste, hair oils, soaps and face washes.

Urban and rural market penetration levels for a number of these products remain low. For instance, for a utility item such as toothpaste, the market penetration is around 50%, for skin care and hair wash products around 33%, with extremely low levels for perfumes, deodorants and make-ups, with consumption restricted only to the major cities.

Demand factor is there.

Rising incomes and better market penetration strategies by fast-moving consumer goods operators (introducing small packs, sachets for shampoos, moisturisersand hair oils) are among the factors resulting in the demand growth for cosmetics and toiletries. These also include high levels of urbanisation and an increase in the female workforce, as well as greater brand consciousness.

Colour cosmetics represent the fastest growing segment, with lipsticks and nail enamels accounting for 65% of these cosmetics. Prices range from US$2.5 to US$7.5 in the low- and mid-priced branded segment.

Prices of high-end brands are in the range of US$13 to US$30.

In skin care, the fast-shifting products continue to be facial creams, moisturisers and facial cleansers, in the range of US$1.5 to US$10. Steady promotion by companies such as L'Oréal, Lakmé, Ponds and others has created a market for specialised skin care products like sunscreen lotions and anti-aging creams. Olay has been the latest entrant in this market.

In hair care, shampoos and hair oils are the dominant products, with Unilever, Procter & Gamble, Dabur and Marico being the important players. Shampoos are in the range of US$1.5 to US$12. Hair oils are in the range of US$0.5 to US$3.

Again, strong brand promotion has led to a growth in the market for hair colouring and styling products. But this demand is largely restricted to a small section of the urban consumer market, with prices in the range of US$1.4 to US$25.

Indian men, who used to shy away from cosmetics (other than the traditional shaving creams and lotions, and perfumes and deodorants), comprise a growing market, especially in hair gels, moisturisers and fairness creams. The consumption of perfumes, deodorants and after-shaves lotions (US$5 to US$25), is also increasing in the urban areas.

Herbs and natural ingredients have been India's age-old cosmetics stand-by and corporations are now introducing such products into the market. Companies such as Dabur, Biotique, Himalaya, Shehnaz Hussai and Emami have been the pioneers in this segment, each operating in a different niche.

Brands making their presence felt

Despite the small size of the market, the brand segment has been dominated mainly by Unilever, Procter & Gamble, Godrej, Colgate-Palmolive, Dabur and Lakmé Lever in the mass segment. These companies enjoy shares of over 65% in the various product groups.

However, the development of the luxury segment has been the work of international brands. This segment has witnessed the entry of a large number of reputable international brands over the past decade. Revlon entered the market as a joint venture with the Modi Group while L'Oréal India has now set up manufacturing facilities in the country, and recognises India as one among the five most important markets globally.

Other high end brands in the country include Nina Ricci, Chambor, Shiseido, Issey Miyake, Tommy Hilfiger, Elizabeth Arden, Pupa, Max Factor and Max Mara. However, market penetration remains very low, catering to a small section of the urban cosmetics consumer base, even as these international brands (numbering around 80), account for around 20% of the branded cosmetics market.

Most of the brands have entered India through distributors such as Baccarose Perfumes & Beauty Products.

Retail revolution in cosmetics.

There's no doubt that a retail revolution is going on in the cosmetics sector. At US$300 billion, it is set to touch US$427 billion by 2010. Retailers are now increasingly concentrating on tier-two and tier-three cities, which also means adjusting pricing strategies to meet the expectations of a very price-conscious market segment.

In perfumes and toiletries, this has meant the advent of a number of branded products, in a price range of US$7.5 to US$40. These perfumes and toiletries are being sourced from various parts of the world such as Poland and South Africa.

For instance, Shoppers' Stop's HyperCity Retail, has introduced a large section dedicated to perfumes, in the less-expensive price range. Future Group (Pantaloon Retail), which has as its mission to offer quality goods to India's consumers, plans to bring Faces Cosmetics, a Canadian company, to the Indian market.

This trend is expected to grow stronger, as direct selling companies are also finding India an interesting market. Oriflame, which now sells locally-manufactured products in the country, has focused on quality and price, giving the middle class Indian woman a better deal to get the cosmetics she wants.

from special correspondent Reena Mittal, Mumbai

(*Image courtesy of Xinhua News Agency)