Kantar Worldpanel

New beauty era

Beauty industry is booming in China as consumers in the country become more affluent. Beauty segment has been able to maintain a double-digit growth rate for years,while the growth of total FMCG noticeably decreases to single digits.

Premiumization and regime sophistication are the key drivers of beauty segment’s increasing growth, especially the former: consumers are buying across all price tiers,with premium items increasing the share of basket. Those who start to add luxury brands into shopping repertoire contribute 46% of sales growth for these brands.

In terms of regimen sophistication, the average number of cosmetic items purchased per buyer increases continuously from 2012 to 2016. Facial masks have advanced from the 6thmost important skin-caring regimen to the 4thin 4 years, illustrates how sophisticated Chinese consumers have become. With the increasing interests in intensive skin repairing, essence is very likely to be the next big hit with the surge in both sales and penetration. 20-34 year-old age group is the major driver of such trend, accounting for 52% of essence buyers, 10% higher than total skin care benchmark.In order to win, brands must excel in two areas: creating a star SKU, and to have strong and consistent brand claims.

Looking ahead, Korea serves as a good reference for beauty industry development. One of the most dominant trends in Korea now is the “situational” care for micro moments.

On the surface, the consumers seem to be reducing their steps and contracting their consumption in beauty products especially in skin cares. Such development is led by the popularity of multi-function or hybrid categories like cushion (foundation + sun protection) or BB/CC cream leading to the fewer steps.

Nearly 31% of consumers claim to have reduced their skincare products while the volume has grown more than 20% in recent years. This is an indication that “situational”care is trending as consumers are addressing various beauty occasions instead of sticking to a fixed routine.Unlike in the past where the majority of women had fixed regimen with little variation regardless change of Seasons and Day/Night, nowadays the regimen changes to best tailor to different occasions with fewer steps.

Fewer steps lead to several changes in consumers’behavior—consumers seek for greater effectiveness when regimen is shortened, hence many professional brands,specialty brands, Derma brands are in rising demands as a result.

In addition, formats play a key role as well. Pure ingredients, condensed/intense format such as oil, balm and in-between formats like oil serum, milky toner are to name a few that are fast developing under the demands of effectiveness.

What does this all mean then?

Basically, consumers’ loyalty will go to products rather than brands. It is more important to develop star products than to grow the overall brand. Having a full portfolio may not be as relevant as it used to be to reach more consumers or to build basket. You can specialize in only 1 or 2 categories and still win the market. Lastly, personalizing the brand to individual level can also help by making the products more fun, relevant and with limited editions will keep your brand interesting and fresh.

Another dominant trend in Korea is that consumers are pursuing convenience and customization:

–31% of them use less skincare products;

–multi-function is king, growing from 8% to 17% from 2011 to 2015, among them “anti-ageing + whitening”dominates 66% of total sales value;

–formats and benefits keep diversifying;

–lifestyle and living environment are believed to be leading factors that impact skin condition;

–professionalism sells—which is seen in fast growth of derma, treatments, ampules, and high-tech ingredients;

– instant results desired—sensory products for contouring keep soaring.

Considering what is happening in both China and in Korea, we believe that situational care leads the way to the future of beauty market, meaning that consumers will change their beauty routine according to the needs and emotions at the moment. Today, brands may still be able to get ahead by winning consumer’s loyalty, but in the future, only those who are able to breathe with consumers through highs and lows in life will win.

Omni-channel deployment

Cosmetics channel landscape is undergoing a considerable shift in China, with domestic offline trade starts to decline in penetration from end of 2015 and the loss expanded to 1.2% up to 2016 Q2. This is the first time that domestic offline starts to lose shoppers in addition to frequency. At the same time, online shopping and overseas purchase continue to gain momentum—online volume grows by a vigorous 4.2%, overseas by 0.9% in 2016 Q2 vs one year ago.

Annual penetration of online shopping rises to reach 26.3% by Q2 2016, compared to 22.1% in 2015 and 17.8% in 2014. Average spending also grows, from RMB 308 (annual per buyer) in Q2 2014 to RMB 366 in 2016.The major contribution comes from new value created by e-commerce, including premium products and more sophisticated regimens. However, it deserves attention that the switching from offline trade is expanding from 10% in 2015, in terms of source of total online growth, to 21% in 2016.

Annual penetration of overseas purchase reaches up to 6.2% by Q2 2016 versus 5.3% same period in 2015 and 3.5% in 2014, meaning more than 100 million people have travelled abroad and shopped in beauty sectors in a single year. Looking deeper, there has been particularly strong growth in tier-2 and tier-3 cities. Spending through this channel is significantly high, RMB 675 a year by Q2 2016 for instance, constituting 42% of these consumers’ annual spending on cosmetics, thus actually squeezing the basket in other channels.

For offline cosmetics stores to capture value, it takes transformation given that organic growth of this channel is hardly pressed. This is proven successful among some single-brand or multi-brand chain stores that have succeeded in attracting more buyers by engaging them well. Friendly shelf designs, trendy portfolio promotions,sensory experience enhancements and lifestyle claims have all helped in building up value.

On average, Chinese consumers shop at 2.5 channels with 6.4 trips a year for cosmetics purchases, 23% of them are omni-channel users buying from at least 3 types of trade. Their average spending, RMB 1,314 a year, is way ahead of other groups. 15-29 year-old age group is key component, accounting for 58% of these omni shoppers.

Consumers go for different trades for different purposes,for example, they shop online to try something new while going to cosmetics stores to try on makeups. Whether a brand could win in this new ecosystem really depends on its insights of the changing landscape and knowledge of how shoppers are shaping it with their behaviors.

Managing mobile

No other market relies on mobile devices like China.55% of Chinese consumers regard smart phones the most influential media on their buying decisions, compared to one-third in the US and the UK. And it is at the early stages of the purchase cycle when they are most affected.Though still weak for incremental reach, mobile is very powerful in conversing younger targets.

Media would be particularly effective if used right by: 1) targeting based on real purchase instead of on demographics only; 2) using lifestyle APPs to reach more young women and engage with them.

A real case of example shows that, after adding on 6 emerging APPs, a brand successfully increased 1.9% reach rate among category buyers and 4.8% in niche sector buyers.

It is a truly critical question for companies in China:what role does mobile play in media campaigns? How to allocate media budget to affect the highest returns? It should not be too hard to answer if only one knows how effective each type of media contributes to sales, from analysis like the one from Kantar Worldpanel.

Mobile might not have yet reached much of total population, but it offers far greater return on investment.Taking haircare for example, mobile platform is about 1.6 times as efficient as PC in driving sales per one-thousand households reached.

Win over young consumers—“girl magnet” guidebook

Girls in their 20s play key role for personal care sales.14.3% of total population contributes 38% of makeup sales value. The potential of its growth can be explosive—makeup adoption penetration among Chinese female in their 20’s is 53% points behind their counterparts in Korea,one of the most advanced beauty markets in Asia.

What characterizes them, the most influential beauty products buyers in China? A clear profile emerges from Kantar Worldpanel beauty index, showing that they:

–have an urge to be trendy and pretty by investing regularly on beauty products;

–use a variety of niche categories, with more cosmetics steps;

–are sophisticated users of advanced cosmetics;

–are keen to try new products;

–are good at mix-and-match brands;

–are big fans of Korean cosmetics;

–embrace natural concepts;

–are inclined to purchase premium sectors;

–are omni-channel users and embrace e-commerce.

While girls in their 20s play a major role for beauty brands in China, it is however gradually shrinking as birth rate peaked in 1987 and fell ever since until 2013. Brands need to anticipate the impact of demographic change and drive category development based on consumer needs—which are changing along the life stages. Below are some findings from Kantar Worldpanel Individual Purchase Panel, which shed lights on how girls’ behaviors change as they enter into the next stage of life:

–they will take more steps skincare regimen;

–they start to seek self-pampering rather than just having fun;

–they will look for benefits of high effectiveness,hydration, anti-aging.

We see successful companies adopt strategies like multibrands and line-extension to meet different needs across age groups. As to the keys to stay in winning position, our suggestions include:

–drive consumer-needs-based category development and product innovation to overcome demographic structure change;

–accelerate young consumer recruitment in niche category; improve market segmentation and upgrade consumers in high-penetration category;

–differentiate and specialize brand/product/function strategy tailored to each age group to lead and create needs.

We see what had happened in advanced markets is now happening in China, in a much faster manner. The same will replicate in other parts of emerging Asia as their consumers climb up the social ladder. Beauty companies still have plenty of opportunities to thrive in a fast evolving China by tapping into consumers’ knowledge, and applying the tricks with a twist to other developing markets.