China underwent significant transformation and expansion in its beauty and personal care industry over the past decade, thanks to its large population and rapid economic development. Total sales of beauty and personal care stood at US$24 billion in 2010, more than triple the size in 2000.
The fast-expanding middle class of consumers in China has had a significant impact on spending patterns in beauty and personal care, particularly in the premium segment. The internet boom in the country is also looking to reshape the distribution of beauty and personal care products, driving consumption in the untapped interior of China.
Young and expanding middle-class consumers drive value growth
Rapid economic development in China has significantly increased disposable income levels per household, with consumers having nearly doubled the amount of disposable income per household compared to five years ago. The number of middle-class households has never been expanding as fast as today. According to Euromonitor International’s Countries and Consumers database, the number of households with disposable income of between US$5,000 and US$15,000 stood at 153 million in 2010, nearly triple the number of households with the same income levels in 2005.
China’s middle class is unusually young compared to those of most developed markets, whose highest earners tend to be middle aged. In China, higher-paying jobs often require a higher level of education and training than the levels older generations have obtained, meaning that China’s wealthiest consumers are typically 25-44-year-olds rather than 45-54-year-olds, as seen in the US. This group of consumers in China demands a better shopping experience and higher product quality. These consumers are also more brand conscious and less price sensitive.
In addition to the changing consumer perception of beauty and personal care products, from being seen as luxury items to daily necessities, the growing number of women in the workforce has made Chinese women a strong shopping force for beauty and personal care products, thanks to improved financial independency. More interestingly, a trend towards concentrating spending in areas thought to best maximise utility by sacrificing spending in other areas, or “trading-off”, is becoming increasingly popular among Chinese urbanites. Examples of this trend include young professionals climbing up the social ladder and spending their disposable incomes on the latest designer clothes or premium beauty and personal care products at the expense of essential food items. This trend will positively impact the future growth of premium products in China, as these consumers, who are at the lower spectrum of disposable income levels, will match the spending of more affluent consumers in China.
Internet boom will help push consumption in the interior of China
As the world’s fourth largest beauty and personal care market, behind the US, Japan and Brazil, consumers’ per capita spend on beauty and personal care products in China, standing at US$18 in 2010, is well below the average of developed markets and much lower than in the other hot emerging market, Brazil, which registered per capita spend of US$192 in the same year. China’s beauty and personal care market is still at a very low level of development and is far from approaching saturation point. Diverse regional disparity in disposable income levels and spending has largely resulted in this.
China is not a single unified market. It has a 2-tiered market structure – urban and rural – and consumer spending on beauty and personal care products is largely concentrated in regions along its eastern coastline, where consumers are more affluent and accessibility to beauty and personal care products is more developed, with products available in supermarkets/hypermarkets, department stores and beauty specialist retailers. While direct selling is notably popular in China and has the advantage of penetrating inland regions more easily, there is a boom in internet retailing, which is having an influential impact on consumer spending patterns and is expected to drive up consumption in the interior of China over the forecast period.
The value share held by internet retailing within beauty and personal care products indeed expanded from under 1% in 2005 to 3% in 2010, as the number of Chinese internet users hit 419 million during the year, the highest globally. With broadband internet penetration standing at close to 90% in 2010 and looking to increase further as the Chinese government pushes through internet penetration in rural areas, consumer spending in the interior of China will be considerably stimulated over the next few years. The rapid adoption of smartphones and other mobile devices is also encouraging mobile-commerce in the country.
While the online business for beauty and personal care products looks optimistic over the forecast period, there are drawbacks accompanying the fast development of the digital world. For one, underdeveloped logistics in China are a big headache for many companies conducting e-commerce. Secondly, there is an increasing amount of content about brands and products that manufacturers are unable to control, threatening the effective of their marketing efforts. Good relationships with delivery companies and perhaps a willingness to back these up with additional good-will gifts for high season orders, coupled with close monitoring of online content, should help companies to improve their standing in the market.
Over 2010-2015, Euromonitor International expects China to be one of the most valuable markets for beauty and personal care, with absolute value growth set to reach over US$10 billion, accounting for around one fifth of global value growth for the world’s beauty and personal care market. Beauty and personal care’s value is anticipated to reach US$34 billion by 2015. The growth pattern will replicate the current trend, with skin care continuing to account for the bulk of value growth, while men’s grooming and baby care products will continue to be the most dynamic categories.