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The fragrances market is among the largest within cosmetics and toiletries globally; with sales totalling US$30.5 billion in 2006 it is exceeded only by skin care, hair care and colour cosmetics. Historically, it has been one of the least dynamic markets, dragged down by declining unit prices, over-saturation of new products and low brand loyalty in key value countries including the US.
However, fragrances put in a strong performance in 2006 (almost 6% growth in US$ fixed exchange rate terms) capping off a 3-year trend of growth acceleration. Feeding this is economic prosperity in the emerging markets, but also increased demand in the maturing, developed countries for which celebrity scents and youth-oriented fragrances are largely credited. Forecasts suggest these improved fortunes will continue in the mid to longer term. Here Euromonitor International explores the drivers and trends which are expected to buoy growth to 2011.
The emerging regions are becoming increasingly important to the worldwide fragrances market. Latin America and Eastern Europe alone account for almost a third of global sales and almost doubled in value between 2002 and 2007 to an estimated US$9.3 billion.
Their influence is also evidenced by the growing portion of global sales being accounted for by the mass segment. At US$18 billion, premium fragrances make up almost 60% of the market but it is mass brands that are contributing most to growth, both in percentage and absolute terms. Although there have been moves towards masstige and premium fragrances in Latin America, there is still a strong preference for mass brands right across the region, and they outsell premium perfumes in Eastern Europe too.
Asia-Pacific, such an important driving force behind growth in other beauty markets, is less significant in fragrances. With predicted sales of around US$2 billion in 2007, the region accounts for less than 7% of the worldwide market and has historically achieved growth at below the global average. This is primarily due to cultural norms, where consumers prefer to be odourless and associate heavy scents with the masking of body odour. Japan, for example, is one of the wealthiest countries in the world yet annual per capita spend on fragrances is less than half that of Russia and three times lower than the figure in Brazil.
Western Europe and North America are the most significant value markets, accounting for almost 60% of global sales. Both regions are marked by competitive markets, high launch rates and short shelf lives for new scents. Despite these difficulties, companies are succeeding in lifting value growth in Western Europe at least.
Premium fragrances are driving growth in both Western Europe and North America but dynamism is, in the main, coming from the lower end of the segment and from discounting. In the US, for example, manufacturers are exploiting the migration of consumers towards mass retailers with innovative strategies to suit this channel. Elizabeth Arden introduced Curious Britney Spears into the mass channel with a 30ml bottle, bringing price points down to capture a younger audience.
Innovation is central to the fragrances market where launch rates are high and globalisation, besides opening up new markets to international players, is providing opportunities for new product development. Rather than trying to convert new country markets to international trends, for example, some companies are creating brands tailored to a particular local market or ethnic group.
In autumn 2007, for example, Disney launched a Pirates of the Caribbean cologne in the US, specifically targeting Hispanic boys aged 4-11. The reverse is also happening, with manufacturers taking a trend from abroad and introducing it into another market to stimulate new demand. The introduction of baby fragrances by premium brands such as Bulgari and Burberry in countries where there is no traditional usage, such as the US and UK, is just one example of this trend.
As in the rest of the cosmetics and toiletries market, women are the primary consumers and women’s fragrances account for almost two-thirds of total sales. However, the men’s segment has seen a surge in demand in the past two years, the result of changing male grooming patterns, which mean the average man now spends longer in the bathroom and a larger proportion of his income on shaving products and toiletries. Manufacturers’ efforts to attract men away from inexpensive body sprays, through the introduction of new lines, partner scents and widespread advertising have also helped to spur value sales.
Targeting the younger age groups, and teens particularly, is a more recent development and one which holds strong potential for premium fragrances. Today’s 13-19-year-olds (of which there were approximately 860 million globally in 2007) have far more spending power than any generation before them, and are serviced by a teenagers’ products market worth almost US$250 billion globally per year, according to Euromonitor International estimates. Not only are they more affluent, today’s teens are generally more sophisticated consumers than ever before, boding well for premium fragrances.
Ralph Lauren, Christian Dior, Yves Saint Laurent and blah are just a few of the high-end fragrance franchises that have begun targeting a younger demographic. Valentino joined their ranks in late 2006 with the launch of Rock ‘n Rose, the aim of which is to inspire a new generation of young Valentino women. A year on and the fashion house has followed up with a line extension, Rock ‘n Rose Couture. Now Burberry has unveiled plans for a new youth fragrance called The Beat to update the label’s image with a more energetic, trendy edge.
Celebrity scents are the biggest phenomenon to hit the global fragrances market in recent years. By riding on an established image with a pre-existing consumer base, fragrance makers can cut back on marketing, an important saving in a launch-heavy sector that involves high innovation costs. Although it can be risky to rely on a celebrity’s image, too easily tarnished by today’s ubiquitous media, the trend currently shows no signs of abating. Thirty new celebrity scents hit the UK shelves alone in 2007. According to the UK’s The Perfume Shop, they account for 40% of the total market and have enjoyed a sales boom of 2000% since 2004.
Celebrity fragrances are primarily positioned towards younger women and teens but increasingly manufacturers are expanding the trend to new demographics. Sarah Jessica Parker Lovely aims at the 30+ age group and Danielle Steele’s eponymous scent targets the older set. Men’s celebrity fragrances have become the latest area for innovation and Sean John Unforgiveable became the first to break into the global top 10 premium men’s scents in 2006.
Coming years could also see the beginnings of what some industry sources suggest is an inevitable backlash against celebrity scents. Driving this will be consumers, as their growing sophistication makes them more likely to be persuaded by interesting scent combinations and innovative delivery formats rather than savvy marketing campaigns. However, manufacturers may also start pushing for this shift. Celebrity brands do not tend to have longevity, and in fragrances particularly, extending shelf life has become vital in an increasingly fickle market.
There is some evidence that this is already beginning to happen, as speciality fragrances emerge as a fast-growing niche. Le Labo, for example, is an ultra high-end but unbranded fragrance range which was created as a reaction against mass-produced premium scents. Fragrances are mixed on site upon purchase and are only available in selected retailers and the company’s own “labs”. The proliferation of bespoke fragrances is further evidence of this trend towards exclusivity over broad-appeal brands.
Even more compelling is the fact that some heavyweight scent brands are moving towards a narrower but higher-value consumer base. Procter & Gamble’s Vice President of fine fragrances, Markus Strobel, said the company would be aiming for “fewer, bigger and better launches”. Other firms, Bulgari and Gucci being just two examples, are taking tighter control over the distribution of their fragrances to keep them out of mass retail channels.
The global fragrances market is set to grow by around 3% to 2011 to US$35 billion. While premium fragrances will remain the largest segment with steady growth of 2% a year over the forecast period, mass fragrances will be the more dynamic, with a CAGR of 4%, driven by new demand in the emerging markets.
One area of the market that has been less well explored is the link between fragrances and wellbeing. Yet aromatherapy is a long-established notion and holistic beauty products are becoming a lucrative new niche. To date, attempts to tap into this trend have largely come from gimmicky novelties such as pheromone containing “love potions”.
The House of Rose offers an anti-ageing perfume which claims to make the wearer appear six years younger, and Smiley, by Ora-ïto, purports to be the first ever anti-depressant fragrance. Perfumes based on food scents, so-called gourmand fragrances such as Jo Malone’s Pomegranate Noir, are the closest the mainstream market has got to the holistic trend.
However, going forward this could become an important source of innovation and some big name players, including Procter & Gamble, have already declared their intention to better educate consumers on the aromatherapy benefits of certain scent ingredients.