Rising Income and Attention to Well-Being Spark Global Demand for Personal Care Products
The years-long rise in living standards in China and other Asian emerging markets is having a transformative impact on consumer buying habits. As the ranks of the middle class have expanded, so have their wages and disposable income. And as with their counterparts elsewhere in the world, emerging market consumers are increasingly interested in quality-of-life issues, such as the healthiness of the food they eat and quality of the medical care they receive. This dynamic is especially pronounced in personal care, a broad category that ranges from household goods to cosmetics.
Asian shoppers have a growing affinity for products such as skin creams and diapers, particularly for higher-end items that are now within their financial reach. This attention to personal care is being paced by demographics, as people of all ages focus on physical well-being and want products perceived as safe, authentic and high quality.
“The desire to have a better life is definitely benefiting the beauty and personal care segment,” says Qiuwei Lin, a Capital Group analyst who covers the Chinese consumer sector. “Attention to personal happiness is likely to grow over time.”
There is an increasing awareness among all age groups of the need to take care of themselves. For example, many older consumers have switched from basic moisturizers to anti-wrinkle creams. Meanwhile, the sway of pop culture and ubiquity of social media have made younger people highly attuned to even the slightest shifts in beauty and fashion trends. Millennials also place a much greater emphasis on health-related concerns than did their parents. Hence, they’re willing to pay slightly higher prices for face creams or other products deemed better for their skin.
Many of these financial and demographic trends are still at an early stage in China and other emerging markets, such as Indonesia, Thailand and Vietnam. This presents opportunities for both international companies, whose penetration in some of these markets is low, and smaller Asian-based companies that have keen insight into customer preferences. Indeed, the region’s roughly $225 billion personal care market has been expanding at a robust pace in recent years.
It’s notable that this growth has come at a time when economic expansion in China has begun to moderate. This illustrates the defensive nature of the sector and its tendency to be resilient during rough economic periods. That’s due partly to the “lipstick effect,” or the habit of consumers to cut back on expensive purchases during lean economic times while continuing to spend on small-ticket items seen as affordable luxuries.
Consumers are willing to pay up for better quality.
One of the more notable trends in the personal care sector is the embrace of higher-end products. In fact, half of the sector’s recent growth stems from a rise in average sales prices as consumers have traded up to more expensive brands. This is most evident in China, where there is a sharp divergence in the growth rates of premium and low-end products. Consumption at the high end is being propelled by middle- and upper-middle-class consumers. Conversely, demand for down-market goods is weaker because lower-income jobs are more tied to old-economy industries such as manufacturing, which are suffering greater fallout from China’s economic slowing.
The interest in higher-end goods stems partly from millennials, whose zeal for beauty products has helped turn that segment into a fast-growing slice of the personal care industry. Sales of premium cosmetics, for example, are growing 4% to 5% a year — one of the few categories in the high-end product world to experience that type of global growth.
Large and small companies are competing for market share.
These dynamics are not only helping local firms, but also U.S. and European multinationals that have long had a presence in China and Southeast Asia.
“Innovative companies with strong R&D and proven marketing expertise are in a good position to gain market share globally,” says Saurav Jain, a Capital Group analyst who covers household and personal products in Europe. “And companies that own a broad collection of small- to medium-size brands can target multiple product segments without running into the type of consumer fatigue that sometimes
affects big brands.”
The rising demand for personal products in Asia is also favorable for a handful of small but fast-growing Korean and Japanese brands that are pursuing aggressive expansion. These smaller companies are especially skilled in the use of social media and quick to react to rapidly changing consumer tastes. The newer entrants are benefiting from e-commerce, which has made it easier to penetrate new markets by reducing distribution barriers. These companies are also getting a hand from the current popularity of boutiques that carry goods from only one brand, and from specialty shops, which are devoted to specific segments such as infants or cosmetics.
There is enormous potential in the personal care sector in the coming decade. China is a $100 billion-a-year market that is likely to grow quickly. The prospects there are stoked by an increase in global travel by Chinese citizens that has raised awareness of foreign brands.
Over a longer period, India also offers a big opportunity thanks to its young and expanding populace. For example, India’s diaper market is only 5% the size of China’s even though India’s infant population is almost twice as big. Currently, many Indian parents use diapers only when they leave their homes. Per capita diaper usage in India is on par with that of China 15 years ago. As Indian incomes grow, demand is expected to follow an upward trajectory.
In the near term, the potential for all these markets will depend partly on global economic conditions. Though the personal care sector is relatively resilient during soft economies, stronger growth would boost sales even further. Over the long run, this sector is poised to benefit from the promising economic and demographic trends taking hold throughout Asia.
The above article originally appeared in the Spring 2017 issue of Quarterly Insights magazine.