According to Euromonitor, the total value of the global beauty & personal care market in 2018 was already $488 billion with an annual growth rate of 6%. A growth rate of 6% is also expected for the coming years until 2023. The Beauty & Cosmetics sector is characterized by change. The industry is becoming even more fragmented than in the past.
Emerging brands are driving the fragmentation of the industry
The five leading companies in the key regions of Western Europe, North America and Asia-Pacific are experiencing an erosion of their combined share, particularly in skin care and color cosmetics, as these categories become increasingly fragmented.
While born-digital brands are rising fast to challenge the top positions of established multinationals, established brands need innovation to stay at the top.
After many decades of stable outperformance, the fast-moving consumer goods (FMCG) sector is at a crossroads. Consumer preferences have turned the long-standing FMCG marketing play book upside down. Digital technologies dominate and revolutionize the way consumers interact with brands today and how they buy the products. In this context, established brands will have to think about how to keep up with change.
The beauty & personal care industry can rightly be described as the spearhead of the industry. This industry is a harbinger of the changes that will take place in other segments, albeit with a certain time lag.
Let’s look at a few studies and a few figures together to see what dimensions this has and what effects and opportunities it has for the label and packaging market
Of the $488 billion of the total beauty & personal care market, approximately $250 billion is in beauty alone (bath & shower, perfumes, hair care, make-up, skin care). While in 10 years the large legacy brands grew by about 4%, the born-digital brands grew by 16% per year. Especially in the area of color cosmetics. Today they have a 10% share of the entire Color Cosmetics cake. By comparison: 10 years ago, they used to have 4%.
Ms Nini Zhang, Vice President for the Luxury, Beauty and Apparel segment at Credit Suisse also confirms these figures in an interview with the Wall Street Journal:
The profits of indie brands are not limited to the prestige niche. They also make big profits in make-up, the fastest growing segment of the entire global beauty industry. Make-up “has always been dominated by giant conglomerates, but the fastest growth belongs to independent brands,” “In color cosmetics, independent brands make up only 10% of the market, but are growing four times faster than their old competitors,” says Nini Zhang.
Part of their pitch: They focus on organic ingredients and customized products.
At stake is a share of the global cosmetics market that is expected to reach $805.61 billion by 2023, according to Orbis Research.
In a 2017 report on the cosmetics industry, Deloitte said that “small is the new big” and noted that “global brands are losing share, while small brands and disruptors are gaining.
From 2010 to 2015, the market share of the top 10 prestige brands fell from 46% to 40%, according to Deloitte. Niche and independent brands grew from 20% to more than 25% over the same period.
This competition from the born digital sector, or indie brands, naturally did not leave the big players unaffected. In recent years, no less than $3 billion in venture capital has been invested by the big players and other investors in the so-called born-digital, indie or independent brands.
But what do these developments mean for the label and packaging market?
- These born digital, indie or independent brands are in the middle and especially in the upper price range.
- They are predominantly regional or national
- Batch sizes are small to medium
- The need for differentiation is relatively high, which is associated with high-quality product features; which among other things also means:
- Shorter job lengths
- Personalized products
- Sustainable product features
FMCG companies need to understand how their consumers are changing and should then adapt their marketing and channel strategies to suit.
And the label and packaging industry needs to understand FMCG developments well and respond proactively and must answer to these changes with workflow automation, efficiency improvements and investment in hybrid systems.
And as we can see, profitable growth is also possible in niche segments – away from the mass market.