Russian Market: Mystery Or Land of Fortune?

Analytical overview of Russian perfumery & WWW.INTERCHARM.RU/EN 2016 cosme tics industry

RUSSIAN MARKET: MYSTERY OR LAND OF FORTUNE?

2 Market Review: Russian market: mystery or land of fortune? 4 Face Care: Everything to suit your beauty 6 Hair Care: Within a hair of success | 8 Body Care: In a good shape 10 Internet: Captured in the Net | 12 Organic: Green Valley 16 Retail: Sector continued to grow | 19 Make-up: All in colours 22 Male Grooming: Serious Approach | 24 Bath care: On a fresh wave 26 Perfumery: Scent Obsession | 30 Oral Care: Best Performer 34 Sun Care: Moisturizing and Tanning 2 MARKET REVIEW RUSSIAN MARKET: MYSTERY OR LAND OF FORTUNE?

1. Beauty undustry: data, were oral care and deodor- 2014 low-priced segment grew by drivers on the rise ants. The culture of oral hygiene 3.4% and in 2015 in 2.8%. Premium The Russian cosmetic market is dramatically increased in Russia segment of pro fes sio nal cosmet- the second biggest after Asian and and has strong potential for the fu- ics demonstrated stable volume of still growing (in local currency) in- ture as consumers are increasingly sales as well as cosmeceuticals in spite of the slowdown in the econ- concerned about their health, espe- pharmacies – 3%. omy. Being saturated and highly cially their oral health. In addition, Despite of cutting budget ex- competitive it demonstrates for the pro fes sio nal and medicated oral penses for FMSG products by 22%, last two years slight decrease in dy- care products are expected to post Russian consumers of cosmet- namics – by mere 2.3%. In 2014, the most positive performances. ics increased their purchase by the growth rate of the market, ac- Unlike other categories, the perfor- 15-20% in monetary terms, say cording to analysts RBC.research, mance of deodorants was unique analytics from Russian research rose to 13.2%, while market volume due to consumers’ loyalty to formats company Romir. The less affected amounted to 552-555 billion rubles. rather than brands. Due to the grow- were low-priced and premium seg- Market turnover totaled USD 14.6 ing number of promotional activities ments. billion (the rate – 38 rub./Dollar in and price offers, consumers were The segment that demonstrates 2014). According to Amico consult- buying those deodorants that were stable results is colour cosmet- ing company forecast, in 2018 the on special offer at the time of pur- ics. According to Synovate Comcon growth might be 13% compared to chasing. research company, in 2014 Rus- 2014. The main growth came from the sian women spent an average of One of the trends for 2014-2015 key segments of the market – skin RUB1,174 ($16.30) on make-up, is a slight decrease of export and care, hair care, colour cosmet- while at the end of the first quarter considerable rise of contract manu- ics and fragrances. Euromonitor of 2015 this spending amounted facturing in Russia. The main inter- forecast for 2015 is as follow: skin to RUB1,160 ($16.12). This deter- national companies or distributors care – 85.4 bln rubles in current mination to continue buying colour of European cosmetics invest more prices, hair care – 74.3 bln rubles, cosmetics gave companies the con- in outsourcing production of their fragrances 69.3 and colour cosmet- fidence to continue introducing new brands in Russia. ics – 62.4 bln rubles. products to the market in 2015 de- Another trend of the last two years Direct sales companies also re- spite the challenging economic situ- is a sufficient price increase caused ported good results. According to ation. by currency fluctuation. Although statement of Tamara Shokareva, Surprising for many experts pop- many of the international manu- the President The Direct Selling As- ularity of natural cosmetics shows facturers have production facilities sociation (Russia), (DSA), Executive that despite of economy slowdown in Russia the industry depends on Director of Mary Kay (Russia), in the and prices increase organic cos- imported raw materials and pack- first half of 2015 volume of sales metics is one of the categories that aging. Analytics stress that in 2016 grew up by 7.8% thanks to beauty records current growth and will be price increases will not be as dra- care products. the biggest rising in coming years. matic as they were in 2015. More- For the last years the market was over, local production of ingredients 2. Consumers spends more fulfilled with local Russian organic for cosmetics is growing, and Russia on cosmetics certified cosmetics and imported already has its own manufacturers Another trend is a rational con- brands. of extracts and essential oils and sumption. Now Russians are switch- Among the other recent trends on other active and basic ingredients. ing to mass market and to profes sio- the Russian market is the growing The best performing categories nal cosmetics. The study of Magram use of the internet to buy cosmetic in 2014, according to Euromonitor Research company notes that in products.

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3. International brands come to Russia swelled New York-based Avon’s la- est business-to-consumer (B2C) Sanctions did not affect the cos- bor pool in Russia by more than 10 ecommerce markets in the world. metic sector in Russia that is highly percent, Starkova said, declining In 2014, it ranked ninth world- attractive for the cosmetics com- to give the exact number. Smaller wide, fourth in Europe and second panies. Swiss, Scandinavian and competitors Oriflame Cosmetics among the BRIC countries in terms American brands of pro fes sio nal SA and Herbalife Ltd. said they also of online retail sales, according to cosmetics have a particular inter- added representatives in the coun- yStats.com’s findings. Despite the est in Russian market. Among the try in 2014, without being specific. economic crisis, Russia is predict- new comers of the last year are ed to see B2C ecommerce sales Neocutis, Elizabeth Arden PRO and 4. The biggest on-line retail grow at double-digit rates and Ioma. market in the world. maintain its global rankings for the European brands are not pull- On-line retail in Russia contin- foreseeable future. According to ing out of Russian market, instead ues to grow at double-digit rates RBC research, in 2014 online re- many are increasing investments despite the overall economic down- tail of cosmetics amounted app. To and keep the profit at the 2014 lev- turn. Russia is one of the larg- $750 mln. el. So, this year Lush Russia plans to build up facilities production nearby Moscow. Henkel’s sales in the second quarter 2015 in the Eastern Europe Sales Channels region was positive. Despite the challenging market environment, a Specialized retail chains, incl. drogery strong organic sales increase of 5.5 Direct sales percent was achieved. Among the main drivers were the businesses in Russia, with the two-digit sales Drugstores growth. Open markets Beiersdorf increased sales in Russian by 20% for the same peri- Other, incl. supermarkets, internet etc. od. While Eastern Europe delivered sales growth of 6.4%, sales in West- ern Europe were down 1.4% on the previous year. Strong growth rates Average increase in the number of Russian retail chain stores is more than 20% annually were achieved in Russia in particular. “We were expecting troubles in Russia but now we work better Cosmetics Import than ever and we are expecting further accelerating growth in the second half of the year,” said Ste- fan F. Heidenreich, CEO of Beiers- Import value (2011): dorf AG. USD 3370,3 mln Avon Products Inc. boosted sales Main importers are France, in Russia, increasing its ranks by Germany and Poland tens of thousands in the second half Together these countries deliver one-third of the cosmetics of last year as the plunging ruble import to Russia prompted more people to seek additional income selling goods door- to-door. “Our sales have been growing both in volume and value,” Avon country chief Elena Starkova said in an interview in Moscow. “De- cember was magnificent, exceeding our forecasts.” The additions

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1. Market Size dients and quality, in other words, lar brand in the face care segment Russian women have been known they are looking for pro ducts that fit with 24.3%; Nivea – 21.4%, Cherny to spend a considerably higher their age and skin problems. Zhemchug – 18.4%, Avon – 17.2% share of their income on personal The consumers continue to be and 100 Receptov Krasoty – 15.1%. care pro ducts than women in many price-cautious. The consumers’ Day creams are gaining popular- other countries of Europe. Accord- preferences are shifting towards ity in Russia as many of them now ing to surveys in other countries, in domestic pro ducts. However, even combine several different functions. the crisis, the cosmetics expenses in this case the consumers are not It was one of the most dynamic dropped, but only Russian wom- inclined to save on face care. When subcategories within facial care – en continued to spend the same selecting pro ducts, they pay atten- 53.2% used this products in 4H of amount of money to look beautiful. tion not only to the price but also to 2015. The face has always been an object the brand. Customers are increasingly look- of close attention. The consumers’ preferences are ing for value for money products The growing aging population shifting towards domestic products. which are natural and beneficial for of women and the subsequent de- However, even in this case the con- the skin, provide a range of com- mand for appearance-enhancing sumers are not inclined to save on bined benefits of high priced pre- skin cosmetics and anti-aging pro- face care. When selecting pro ducts, mium pro ducts, at a lower than pre- ducts such as creams, moisturizers they pay attention not only to the mium cost. This product class has contribute to significant demand in price but also to the brand. been dubbed “masstige”. the market. The female population According to Synovate Comcon, aged 25 and above also constitutes 85.4% of women and 14.7% men 3. Key Players a major section of the country’s used facial care products in 4H of L’Oréal keeps the key position working population. The market is 2015. The main groups of facial in the segment with 14% of mar- characterized by pockets of regions care consumers are women aged ket share and compete with others which are un-penetrated, more 25-34 and 45-54. Over the last 6 multinational corporations such as scope of introducing new pro ducts years, the share of women aged 55 Unilever, Proc ter&Gam ble, Beiers- in existing large and mid-sized city or older using skin care pro ducts dorf and direct sales. The company markets. tends to climb. Domestic brands are maintained its leading position due Russian skin care market is very on demand in Russia. Chistaya Linia to a wide portfolio of brands, new mature and saturated. According to has proved to be the most popu- pro duct launches and strong pro- Euromonitor, in 2013-2014 it rose by 4.4%, in 2015 г. – 2.8%. The local brands have strong position. In 2014 the volume of production skin care in Russia increased by 585.6 mln SKU (+14.3%) in the first half of 2015 drew up even more – by 346.9 mln SKU.

2. Consumer Habits As for actual market trends, the consumers’ behavior has changed: they became more sensitive when buying skin care products and are reluctant to waste money when they doubt the effect. Today, they pay more attention to formula, ingre-

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Usage of facial care in 4H 2015, % counterparts. In this way, Russian of their pro ducts in user-friendly Consumers Share brands entered into more sophis- and compact packages, which are Totals 53,0 ticated pro ducts categories, which very convenient for traveling. Sprays Men 14,7 was not a core category for national and serums with dosing gadgets Women 85,4 companies. have been on the highest demand recently. тусклость и серость кожи. Source: Synovate Comcon 4. Distribution Channels As far as the distribution chan- 6. Forecast Facial care breakown by age, In 4H nels for face care pro ducts are According to Euromonitor, Rus- 2015, % concerned, the specialized shops sian consumers will continue to Age groups Share remain predominant, however the seek quality at reasonable prices 10–19 years 7,9 best sales dynamics are seen in over the forecast period. Affected by 20–24 years 11,3 pharmacies, despite the fact that the economic recession, as during 25–34 years 19,7 the average rate of surcharge col- the previous crisis in 2009, they are 35–44 years 16,6 lected at pharmacies might be high- not tending to purchase cheap pro- er than in other distribution facili- ducts, but are studying ingredients 45–54 years 18,7 ties. and making rational purchasing 55 and older 25,7 Pharmacies demonstrating a choices on this basis. Over the fore- Source: Synovate Comcon sustainable growth are seen as a cast period, consumers are expect- most promising distribution channel ed to choose pro ducts with natural for cosmetics with a 10% share of ingredients, which are offered by lo- Facial care breakown by categories, In face and hair care products in their cal companies at reasonably attrac- 4H 2015, % portfolio. tive prices. Product categories Share Market players and experts be- Day Cream 53,2 5. Trends lieve that the future of this segment Night cream 37,3 Consumers in Russia increasingly rests on totally innovative pro ducts, Cleansing gel/mousse 28,2 prefer pro ducts that incorporate nat- both in terms of formula and pack- Nourishing cream 28,2 ural ingredients such as minerals, aging and evolution of distribution Source: Synovate Comcon proteins, and herbs from traditional channels (e.g. promising drogerie Russian medicine. The remarkable format), mastering of regional mar- fact is that, during two crisis years, kets, higher level services, compe- TOP-5 brand ,In 4H 2015, % the sales of organic and other bio- tent advice at stores and marketing Brands Share pro ducts have not declined, but efforts of interested companies. Chistaya Linia 24,3 even increased in some cases. The The only possible way to survive Nivea 21,4 market players agree that in con- in this highly competitive segment Cherny Zhemchug 18,4 trast to mass-market cosmetics of face care is to create pro ducts Avon 17,2 consumers, the fans of “organic” that can satisfy the global market 100 Receptov Krasoty 15,1 pro ducts managed to preserve their trends. The drive to natural products buying power and did not search is seen as a major developing trend Source: Synovate Comcon for cheaper stuff. There is growing in several years. demand for specialized shops that The remarkable fact is that, dur- motional activities. In addition, the offer organic pro ducts; however, on- ing two crisis years, the sales of or- majority of the company’s brands line shops have become the primary ganic and other bio-products have have a presence in almost all mod- channel for these pro ducts in Rus- not declined, but even increased ern retailing channels and the rapid sia. This trend is gaining increased in some cases. The market players development of beauty specialist foothold in the market because of agree that in contrast to mass-mar- retailers, hypermarkets and others growing concern among consumers ket cosmetics consumers, the fans directly supported sales of the com- about their health and the environ- of “organic” pro ducts managed to pany. ment, and rise in awareness about preserve their buying power and did Due to strong competition in the the latest developments in the Rus- not search for cheaper stuff. Mos- segment local companies make an sian cosmetics market. cow and Moscow region account for effort to compete with the multina- Another important trend of the the lion share (61%) of the turnover tional giants. The majority of local market progress is the search of structure, whereby the remaining manufacturers are increasing their unconventional solutions for the portion is distributed more or less value sales annually and can eas- package. Many manufacturers of equally among other regions of Rus- ily compete with their multinational cosmetics have launched the lines sia.

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1. Market Size It seems, that hair care segment has suffered less from the slowdown as compared to other cosmetic sectors and not only because the shampoo is one the key categories belonging to the list of daily essen- tials, but also because the manufacturers seek to expand the boundar- ies of this segment by going beyond its limits. Consumers in 2014 purchased more natural hair care pro ducts because they believe that it will affect better. The Russians think of the hair health and realize the need to invest in a complex and effective care. As a result pro duct that designed to improve the health of hair showed strong growth in 2014. According to Euromonitor, sales of 2. Consumer Habits are shampoos – 94% of Russians hair care in terms of value increased The current economic situation use them; balms – 41% and hair by 3% in 2014 year – slightly lower affects the consumer who tends to masks – 21%. than for the previous period (5%). choose a quality pro duct at an at- The most popular brands of This is due to the slowdown of the tractive price. Therefore the product shampoos and conditioners for Russian economy and the ruble de- quality and price are the main crite- hair were Head & Shoulders – 19%, valuation. These factors along with ria of the consumer. Schauma – 16%, “Chistaya Linia” – the development of modern retail The following consumer proper- 14%, Nivea – 13%, and Pantene have led to the expansion of cus- ties contribute to the stable demand Pro-V – 11%. tomer loyalty programs and more for hair care: attractive package The proportion of women using rational behavior consumers while and marking, colour, scent, texture, hair dye in 2014 was reduced by 5%. they were choosing brands. The big- designation, medicinal properties, The majority of them (70%) dye their gest rise in the category of hair care comfort, user friendliness as well hair at home, 29% of Russian wom- pro ducts in Russia have shown hair as optimal value for money of these en visited beauty salons. In 2014 loss treatment – the dynamics was pro ducts. All above said properties the women has continued to use 17% in 2014. create an additional stimulus for resistant hair dyes. But shading and Due to the growing consumer loy- purchase, stabilize the demand, in- highlighting products are used less. alty to natural products and natural crease the number of trial purchas- The most popular brands of hair dye look the sales of hair styling de- es and popularity rating. were Palette – 25%, Garnier – 19%, clined slightly but continued to show According to Synovate Comcon Estel – 17%. dynamics – +4% in 2014. Hair spray data, the proportion of consum- is still the largest group in the cat- ers of shampoos, conditioners and 3. Key Players egory of styling products – 45% in hair masks in 2014 increased. The Russian market of hair care di- 2014. Mousse and gel also demon- most actively growing category was vided by several big companies: strate a significant share of the mar- hair masks: it share increased by Schwarzkopf&Henkel – 25.1%; ket – 37% and 15% respectively. 6%. Top-demand hair care products L’Oréal – 14.3%; Unilever – 12.1%,

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Proc ter&Gam ble – 12.3% and oth- 5. Trends within hair care, and are set to be ers – 29.5%. Schwarzkopf & Hen- In addition to the overall promo- the strongest influences on the per- kel remained the undisputed lead- tion of healthy lifestyles the major formance of the category. Treatment er within hair care in 2014 with a trend in hair care is increasing in- pro ducts will remain the key area value share of 25%. The leading terest in natural pro ducts. The con- of category development during the position of the company was due sumer pays more attention to the forecast period. Consumers will be- to its strongly diverse portfolio, a ingredients and the quality. come even more educated in terms of presence in various categories and The main trend: positioning and ingredients and the influence of these new pro duct launches supported repositioning of brands as pro fes sio- on the health of their hair. In terms of by strong marketing promotions. nal, but affordable in terms of prices this growing interest in pro ducts and The company has a wide portfolio of and salon level for home hair care. their ingredients, reviews of products brands, the most popular of which Consumers are interested in these from all available sources will become are Syoss, Schauma, Schwarzkopf pro ducts and are prepared to pay strong influences on consumers. Gliss Kur and Taft. more so as to get an effective care The growth rate of the segment is The leading local hair care man- without visiting beauty salons. Large expected to decline by an average of ufacturers are “Narodnye Promys- companies that are market leaders 1% in retail prices of 2014. Satura- ly”, “Pervoye Reshenie”, “Yunikos- are aggressively developing portfo- tion of the category as well as the metik” and “Svoboda”. Last year lios of well-known consumer brands impact of the economic slowdown Russia produced 95 million units and invest in new products together will affect the segment. In addition, of hair dyes and most of them were with necessary marketing support. consumers are expected to be look- launched at “Yunikosmetik”. Today ing for the best offer and discounts. it is one of the largest manufac- 6. Forecast Hair loss treatment products will turers of hair coloring agents in According to Euromonitor, natural- show the best results, sales will Russia. The distribution network ness and pro fes sio nal positioning grow by an average of 6% in con- includes more than 150 represen- are expected to be long-term trends stant prices in 2014. tatives in Russia, the Baltic states, Ukraine, Belarus, Kazakhstan, Mol- Hair colorants, % dova, Armenia and other CIS coun- Categories 2013 2014 tries. Permanent colors 76,6 78,7 Currently, the market of hair care Colorants 10,2 8,5 pro ducts is observed rebranding – Highlight preparations 8,4 7,2 producers seek to position their pro- Sun-lighteners 5,2 5,7 ducts as “profes sio nal” or “salon”. Natural hair colors 5,1 5,1 Growing competition, new brands, Source: Synovate Comcon manufacturers from other countries are the segment landscape. Hair Care Consuption, % The market is seen growing catego- 2012 2013 2014 Categories ries such as “medicated shampoo”, Totals Totals Totals “hair styling” and “hair condition- Shampoo 93,4 93,1 93,8 ers.” The main distribution channels Balm 40,0 40,0 41,1 for hair care in Russia are in super Mask 17,8 20,2 21,4 and hypermarkets, and specialized perfumery and cosmetics chains. Source: Synovate Comcon The premium segment share is 5% TOP-brands in 2014, % (according to Discovery Research Brands know use Group). Head & Shoulders 46,3 19,0 4. Distribution Channels Schauma 49,8 16,1 As Discovery Research Group “Chistaya Linia” 37,9 13,9 states, the main retail channels for Nivea 44,0 13,1 hair care in Russia are super and Pantene Pro-V 38,4 10,5 hypermarkets that followed by per- Fructis 39,3 9,8 fumery and cosmetics chains. Spe- Avon 39,5 9,3 cialized stores are likely for premi- Dove 40,8 9,0 um pro ducts with its 5% of market Shamtu 40,7 9,0 share. Source: Synovate Comcon

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1. Market Size they consider unnecessary for ev- ry and the increasing accessibil- Euromonitor claims Russian body eryday and regular use, notably body ity of salon services led to more-re- care is one of the accessible types firming and anti-cellulite pro ducts. strained growth. of indulgence products and there- Another factor affecting consumer Women blades continued to fore Russians continue to increase spending habits was price, which record a positive performance in their purchases of them. Women are especially impact on the anti-ageing 2014, as these are perceived as ready to pay extra for premium facial and skin-protective category. On the timesaving pro ducts. They were skin care pro ducts, while they tend other hand, there is a group of pro- also very important in the case of to look for cost-saving solutions for ducts that consumers do feel are holidays due to their quick and easy hand or body care pro ducts. necessary and are willing to spend use. These were the least painful Looking into fugires from Euro- money on, such as moisturizers. and thus the most common way of monitor. Deodorants recorded 6.9% Consumers considered roll-ons removing hair from intimate areas current value growth in 2014, which as the most effective, while manu- and from sensitive underarm skin. was lower than the current CAGR of facturers concentrated the most on More than 70% of Russian cus- 9% over the review period but higher development within this category. tomers believe natural ingredients then in 2013 (6.2%). This was due Natural deodorants continued to to be safe and suitable for skin. to the gradual saturation of the cat- show growth due to health concerns; That’s why the market for organic egory. There was still a continuous however, the share of such products cosmetics in Russia is on the rise: inflow of new consumers, but this remained very low in 2014, and they in 2014 it grew by 10%. Customers’ slowed down towards the end of the are not expected to develop further loyalty to pharmacy products is also review period. Price increases were due to low awareness of the advan- very high. kept moderate due to the expansion tages of such pro ducts and poor be- Along with increasing concerns of modern retailing and very high lief in their effectiveness. about appearance, more Russian competition within the category. Depilatories recorded a 7% cur- women are looking for pro fes sio- As far as specialized pro ducts rent value increase in 2014, which nal solutions for solving particular are concerned, the products with was 1% more than in 2013. The problems. Consumers are more of- anti-cellulite effect are recognized gradual saturation of the catego- ten choosing special services for as the undisputable leaders in the Russian market of body cosmetics. Unlike 2-in-1 in Russia these products remain on the top list. Today, the anti-cellulite cosmetic pro ducts are included in the range of virtually all domestic and foreign companies offering the body cosmetics to the Russians, whereby women are becoming more aware about cellulite agents. More and more of them understand that the cream as such is not a magic stick: a noticeable effect can be obtained only through combination of diet and sports. In recent years, related topics were often discussed on specialized fo- rums for cosmetics consumers.

2. Consumer Habits It is evident that consumers have reduced spending on products that

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their face and body care. Anti-age- Market Sizes | Retail Value RSP | RUB bn | Current Prices ing procedures remain one of the Categories 2012 2013 2014 most popular within the high range Deodorants 19,00 20,20 21,60 of services that were on offer. Sales Depilatories 4,70 5,00 5,30 of pro fes sio nal cosmetics to beauty Body Care 12,00 12,00 12,00 salons may become an increasingly important niche area. © Euromonitor International

3. Key Players Market Sizes | Retail Value RSP | RUB bn | Current Prices | Year-on-Year Growth (%) L’Oréal Russia led sales of skin Categories 2012-13 2013-14 care in 2014 with a 14% value share. Deodorants 6,20 6,90 The company maintained its leading Depilatories 6,00 7,00 position due to a wide portfolio of Body Care -0,30 0,00 brands, new pro duct launches and strong promotional activities. In ad- © Euromonitor International dition, the majority of the company’s brands have a presence in almost Company Shares (Global – Historical Owner) | Retail Value RSP | % breakdown all modern retailing channels and Categories Companies 2014 the rapid development of beauty Unilever Group 22,90 specialist retailers, hypermarkets Beiersdorf AG 15,50 and others directly supported sales of the company. Deodorants Colgate-Palmolive Co 9,60 In the market of body care are Proc ter & Gam ble Co, The 9,30 actively developing Russian com- L’Oréal Groupe 8,80 panies – “Pervoye Reshenie”, Proc ter & Gam ble Co, The 48,60 “Mag rav”, “Fratti NV”, “Floresan”. Reckitt Benckiser Plc (RB) 15,00 Russian companies are constantly Depilatories Energizer Holdings Inc 5,20 updating their product offerings, Henkel AG & Co KGaA 3,10 introduce new technologies, de- Avon Pro ducts Inc 2,90 velop new categories, in particular, L’Oréal Groupe 20,70 the segment of natural and organic Yves Rocher SA 7,60 cosmetics. Pervoye Reshesnie is Body Care Avon Pro ducts Inc 7,20 one of the most powerful players, Pervoe Reshenie OOO 6,10 and other companies try to mirror Beiersdorf AG 5,90 their experience. The company product range features several lines © Euromonitor International of care positioned as organic, and even certified by relevant stan- became more sensitive to prices, re- in terms of not only their reviews of dards. sulting in more interest in economy pro ducts, but also in terms of mar- pro ducts. keting. 4. Distribution Channels On the other hand, this moved Body care presented in all retail them to more-rational choices, as 6. Forecast formats. For the premium products well as increasing their education Body care segment is one of the specialized stores and pharmacies regarding products. In this way, con- biggest and most saturated. Having are more preferable while for mass sumers started to display more in- overcome the economic recession, market the main channels are su- terest in products and their ingredi- the market is entering a new age ex- permarkets and drogeries. ents, as they wanted to be satisfied pecting a 6-8% rise by 2018 accord- in advance that they were making ing to Russian experts. 5. Trends the right purchase. For the moment Russian custom- The economic situation in the Consumers started to read differ- ers act more rationally choosing the country in 2014 affected consumer ent webpages, social networks such budget product and searching spe- preferences regarding body care as Instagram, Facebook and VKon- cial promo for better price but some pro ducts, as well as their purchas- takte, and watched educational vid- analytics that ing decisions. On the one hand, due eos from popular Russian bloggers, Experts also predict consumers to inflation, consumers’ purchasing who accounted for half a million will return to buying more expensive powers slightly declined and they subscribers and were very powerful premium body care brands.

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Crisis brings good times for In- “Rive Gauche”, “L’Etoile” (etoya.ru, in the Clarins Internet store exceeds ternet stores and network mar- shop.rivegauche.ru, letu.ru). Many 4000 Rubles, you will be entitled to keting. Shopping in virtual space brands have their own online pres- a pleasant surprise, namely, free has an evident advantage: prices ence (clinique.ru, mac-cosmetics. delivery. On top of that, when you are usually lower than in conven- ru, esteelauder.ru); some brands shop via the Internet, you can add tional retail outlets. For some pro- not represented in Russia offer di- 3 free samples in the basket with ducts, savings via the Internet may rect mail delivery (illamasqua.com). any order. Moreover, Clarins Inter- reach 30-40%. However, this is not Estee Lauder was among the net store will grant a 10% discount the only advantage of off-line. In first luxury brands to offer on-line for every registered user. The most beauty shops, sellers promote one services in addition to traditional convenient way is to keep track of brand and are interested in boost- orders of pro ducts in the network new collections or brand hits at the ing sales. Should you ask to choose in late 2012. Website resources website, for example trident eyelin- a moisturizer, they will always offer and state-of-the art online tools are er or cream shadows that run out in a pro duct of the employer brand designed to enable customers to chain stores within few days. because it is profitable; besides, pick up the right thing in the pool of Some time ago the first official they have a poor knowledge of the pro ducts, choose customized skin online store of Kérastase with al- rest portfolio. “Often, when talk- care system and suitable make-up. ready proven marketing tools was ing to a consultant in the corner, This unique service allows to create opened in Russia. There, you can a woman feels compelled to make your own image with makeup by Es- buy this brand pro ducts and get all a purchase, and this causes dis- tée Lauder or, in a single click, rep- necessary information about them, comfort, – explains creative direc- licate make-up campaigns, using get an idea about new pro ducts, tor of Pudra online store Sergey your own photo. The image can be watch video tutorials for creating Ostrikov. – Therefore, we employ saved and published in social net- images of famous hairdressers or independent experts to advise the works. Training videos will help to find the nearest beauty salon. On better sex visiting our shops. Pu- create a diverse make-up for every a monthly basis, customers receive dra has four consultants on duty day step by step. On top of these special offers, unique gift baskets seven days a week; if you need a functions, website visitors have and shopping surprises. Delivery is concealer for example, they will an opportunity to post their com- on next day after ordering. offer pro ducts ranging from Yves ments, make rankings of the most Cosmetics and perfumery belong Saint Laurent to Max Factor, show popular pro ducts and get advice, as to TOP-5 goods purchased in the their properties and prompt, which if they have visited an expert. Internet in Russia; last year such pro duct will fit you best. Pro duct The company offers attractive pro ducts were purchased by 31.4% catalog covers 250 brands, includ- bonuses including free delivery of of consumers aged 18 to 54 years ing world-famous Estee Lauder, orders worth 3,500 rubles and two (5.2 million Russians). Lancôme, La Prairie and niche seg- Estee Lauder miniatures as a gift, According RBC.Research, in ment, eyebrow care products from whereby, a customer can choose 2014, the costs for one-time pur- Anastasia Beverly Hills, adored by the pro duct from the list. chase of cosmetics and perfumery Hollywood stars or producers of Brand Clarins opened its online through online stores amounted Skindinavia spray fixer of makeup. store in Russia in 2014. Its loyalty to 50 Euro; the highest average Today, virtually all cosmetics program worth noting among other cheque was reported in Moscow companies develop Internet sales advantages. Each 10 Rubles of the and Moscow region (57 and 68 schemes, both in the form of in- purchase price are converted into 1 Euro respectively) in St. Peters- house and partner resources. Cos- point. Every 1000 points entitle you burg – 56 Euro, but in megacities, metics and perfumery account for to discounts in the amount of 1,000 the average cheque was signifi- about 10% of Internet market. Abso- Rubles for next purchase exceeding cantly lower – 48 Euro. Frequency lutely all brands officially presented 2,200 Rubles. As regards the deliv- of purchase averaged to 6.6 times in Russia, sell online through web- ery, your favorite beauty pro ducts per year, naturally, with lion share sites of expert perfumery and cos- may be delivered to any corner of of women – 77.3% of the total metics stores such as Ile de Beaute, Russia. If the amount of your order number of buyers.

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Despite certain difficulties, the creased the amount of minimum tity, package, brand awareness and segment of e-commerce of perfum- purchase, for which delivery is free; so on. Incidentally, we are actively ery and cosmetics is evolving very moreover a customer can also get working with beauty bloggers. This rapidly – about 38% in 2014, while free samples. If earlier the ceiling of is an outstanding phenomenon sales approximated to 7.2 bln Euro, luxury cosmetics was about 3,000 now; they have a very large num- or 7.2% of total retail perfumery and Rubles, today it is 3500-4000 Ru- ber of subscribers, especially in cosmetics market. bles depending on the brand. regions where they are treated as Use of social networks is among Besides, brands are trying to beat gurus. Accordingly, if a guru dem- distinctive features. Russian Inter- the price hike by way of higher qual- onstrates something – a brand or net users visit such networks more ity of service. Many players have im- a pro duct – all girls will be happy to often, and this is characteristic not proved their logistics systems, and try it. Beauty bloggers boast realty only for young people (75% of Inter- now pro ducts can be delivered in amazing loyalty”- concludes Elena net users aged 18 to 24 years old one day, and in some cities, you can Drovo vozova. use it every day), but for elder (and get the order on registration day. Comments Oleg Kravchenko, a wealthy) people (43% of Internet In addition, technological pay- partner of non-food group Nielsen users aged 35 to 44 years old use ment options have been stream- Russia: “Averagely 20-25% of Rus- them daily). lined. If previously only cash or sian consumers of cosmetics and Over the past two or three years, bank card were accepted, current- personal care pro ducts shop via the the rules of game in Russian beauty ly, the range of cashless payment Internet. Lotions, creams, sham- market have changed consider- methods has expanded. The num- poos are presented in a huge range ably. Absolutely new forms of brand ber of customers picking their or- in legacy retail stores where you can promotion have emerged. OCC lip ders themselves has increased by buy them quickly and at an attrac- tar, Trish McEvoy, Carmex, Caron, 59% in pick-up stations (vs. 51% in tive price, so, it is not always rea- Hakuhodo, Lucas Papaw, Tangle 2013). sonable to use the Internet. Shops Teezer, Urban Decay, Tarte, Kevyn In response to foreign currency in Russia have an essential frag- Aucoin – these are just a few cos- upturns, the market rolls out new mentation (mass market, luxury, metic brands, which were pushed formats of cosmetics and perfum- single-brand stores), so that every into Russian market by the bloggers. ery sales via the Internet. In late consumer can choose a convenient Of course, higher exchange rates 2014, new project was launched – channel for shopping. Internet is impact sales over the Internet. This beautydiscount.ru in cash & carry used to find information about this fact is confirmed by all interviewed format, which was never employed or that pro duct: averagely, 75% of market players. For example, on- by anyone at perfumery and cos- consumers try to get an idea about line shop of pro fes sio nal cosmetics metics market. Internet stores offer pro ducts online and read reviews ShopHair.ru has lifted prices by 10- three price categories depending on before they actually decide to buy. 15%. According to representatives purchase volume: retail, wholesale Opinions of beauty bloggers and of another online store, “Barber or small wholesale. The latter two users who share their impressions TD”, they adjusted pro duct prices are designed for those who are pre- about pro ducts prove to be serious following Ruble exchange rate; pared to order a lot. Co-founder of arguments in favor or against the thereby, the cost of some cosmetics the project Elena Drovovozova be- pro duct”. soared by 20-30%. lieves that this format has a prom- By 2015, revenue from e-com- “Korean cosmetic products also ising perspective: “Aside from clas- merce channels will double. Pro- depend on exchange rate, i.e. their sic shoppers, we have customers ceeds from mobile sales by 2015 purchase price has climbed, but joined together by virtue of our of- will increase slightly, but active use originally they worth half or two fice – friends or moms walking with of mobile devices by shoppers and times cheaper than comparable their children; they come together trade staff both on trading floors European counterparts” – explains and make a big purchase. Accord- and outside the stores will grow. Dmitry Kim, founder of Internet store ingly, the price for them is lower”. At the same time, all market ex- of Korean cosmetics SashaLab. In Today, the portfolio beautydis- perts are unanimous: sales of per- SashaLab, prices have risen by an count.ru features approx. 20 thou- fumery and cosmetics via the In- average of 15-30%. Kim admits that sand items: perfumery, skin and ternet will be safe from any, even the store had to sacrifice margins to hair care, decorative cosmetics, abrupt exchange rate fluctuations, win customers. He hopes that those male grooming. By the way, 30% of which are unlikely in the future. who cannot afford European mass Internet shoppers are men. Moreover, online shopping will grow market will visit his store. “Our next step is to develop the in a dynamic manner both in Rus- Aside from raising prices for pro- loyalty program to retain custom- sian Internet and English-language ducts, Internet retailers have in- ers, streamline our corporate iden- resource of global brands.

MORE ON WWW.INTERCHARM.RU/EN 12 ORGANIC GREEN VALLEY Organic or “natural” cosmetic growing concerns about their tory ability, especially in the T-zone. pro ducts are contemplated as an health and the environment as well Beautician, hairdresser and mani- independent and very lucrative seg- as the latest developments in the cure expert will be at your service at ment of cosme tics and cosmetology Russian market. Cosmotheca corners, in particular, market. According to Transparency Firstly, given that a few years you can enjoy absolutely safe ZOYA Market Research survey, the global ago the industry was represented nail polish. demand for these pro ducts in 2012- by Internetional brands only, today, Organic Shop is a cosmetic 2013, totaled to USD 7.6 billion, “green” Russian-branded cosme- chain established by a major Rus- while as per 2018 bottom line, sales tics certified by European stan- sian manufacturer of certified natu- may boost to USD 13.2 billion. dards or alleging that their formula ral and organic cosmetics – Pervoye The upsweep behavior is affected has relevant “organic” labeling are Reshesnie. (Natura Siberica). Actu- by such factors as higher purchas- appearing in the market. These are ally, Organic Shop is the only place, ing power of consumers around well-known trademarks such as Na- where are presented all natural the world, expansion of distribu- tura Siberica, Organic Shop, Green brands of this company, including tion channels for such products and Mama and some young brands – eponymous cosme tics. zooming of product lines on the Greencaress, Joli, Orga nic People... The most of Russian-made or- back of new ingredient sources. Eu- Secondly, new retail distribution ganic pro ducts are attested by Ital- rope and Asia are among the largest channels promote the development ian independent certification com- consumers of organic cosme tics. of natural cosme tics segment. As pany ICEA. Pro ducts originating in Consumers appreciate the ben- we know, some time ago, the bulk Switzerland or other countries boast efits of such products (i.e. low aller- of such products was distributed their Ecocert mark (French indepen- genicity, almost complete absence via the Internet, a small number of dent agency). It has become known of potentially harmful elements and pharmacies and the flagship store that in the near future, Organic Shop high promise-result ratio) and im- of Russian organic market – Bio- pro ducts will be awarded with Ger- plant them in their lifestyle along- market. Certainly, such weak re- man certificates for natural cosme- side with fitness and healthy nutri- tail infrastructure was no good for tics – BDIH. Other brands (Eco tion. “green” cosme tics sales. But today Hysteria, Organic Shop, Planeta Or- According to various estimates the situation is changing rapidly. ganica, etc.) are not awarded with in Russia, the share of organic Cosmotheca is one of the most such certificates, but the manufac- cosme tics accounts for about 1%; fashionable and creative chains, turers’ packages always read that however its potential is definitely which actually has become a cult. their pro ducts are free from harm- higher, i.e. 3%, without any doubt Its stores offer the most innovative ful ingredients prohibited by natural that the market will steadily move pro ducts for beauty, skin, face and pro ducts standards. The company towards this indicator. This trend hair care. For example: Japonesque shop offers brand-made soap and is supported both by consu mers’ 150 Degree makeup brushes de- bath salts – you may wash your signed to make hands right there in a sink next the application to which the samples of creams, of light natu- balms, etc. are lined up. Near cash ral cosme tics register you will find Natura Siberica makeup easy makeup stand. If the queue is too and comfor- long you can have an apple or drink table. Tooth- herbal tea – these are complimen- brushes with tary from Organic Shop. natural bristles Apart from in-house products, Acca Kappa, the company sells other organic M a l i n + G o e t z and natural brands including Ava- with SPF pro- lon Organics, Aubrey Organics, Dr. tection, mira- Hauschka, EcoKids Friendly, Lavera, cle soap COR, Sanoflore, Weleda and others. which restores Morisania boutique of natural the skin secre- and bio-goods has been operating in

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16 RETAIL SECTOR CONTINUED TO GROW

Despite challenging economic environment, the retail sector continued to grow throughout 2014. Accor ding RBC.Research, the number of perfumery and cosmetics stores increased by 26.6% (in 2013, the upside was 25.3%). The number of profes sio nal supermarkets has enlarged by 38.3%; concept-stores by 31.8% and multi-brand stores – by 25.3%.

Analysts noted an interesting trend: networks tend to close their outlets in Moscow, St. Petersburg and in a number of megacities to open up new outlets in medium and small cities. For example Ile de Beaute network closed several check. As a result, thanks to the last elapsed time is insufficient to figure shops in Moscow, St. Petersburg quarter indexes, total annual sales out sales analytics”. and Samara but created outlets in figures have topped all optimistic Earlier this year, many analysts Ufa, Tyumen and Yaroslavl. Similar forecasts. asked operators about their plans to situation is seen in “L’Etoile” net- “Unfortunately, we are absolute- attract customers who made large work; in Moscow, St. Petersburg ly dependent on our partners and stocks of pro ducts. In this context, and Kazan it closed over 20 outlets have to adjust prices according to even substantial discounts are un- to open some stores in small and changed purchase price, – says Iri- likely to recover customers in two or medium-size cities across various na Mironova, head of Articoli Sales three months. Russian districts. “Rive Gauche” fol- Department. – We have a large “L’Etoile” was the first company lows similar strategy. Cities located number of suppliers, and prices vary to announce its plans – from April in Volga, Central and Siberian Fed- in different ways. For instance, niche 1, it cut prices 25-60% for consum- eral Districts are the most popular brands whose foothold in the mar- er goods with value below 1,000 expansion route for three major net- ket is limited pushed the prices up Rubles. The reason for this mea- works. in December and January averagely sure was economic crisis and Ruble On the other side, experts re- from 5 to 40%. Thanks to loyalty downfall triggering higher prices ported two trends: price upturn by scheme, we are trying to create a in the shops. According to Tatiana the end of 2014 and simultaneous family atmosphere, whereby the cri- Volodina, Network Director General, surge in demand. Despite prices sis prices are becoming a bit more “we seek to go through this difficult were escalating in November and attractive”. way together with our customers December by 15-30%, there was a We don’t see a slowdown in niche and will meet their concerns”. shopping buzz because people were segment as a whole. However, there 63 cosmetics brands, i.e. some hoarding at “old” prices. In many are some brands in high price cat- 8200 pro ducts or about a third of ways, the heating demand was sup- egory, for which the demand has the entire portfolio were covered ported by promo campaigns. Many decreased. Most likely, we can pre- by this unprecedented continu- companies are extremely negative dict a reorientation of customers ous campaign. Of these, 1200 pro- to such moves of retail, but such from expensive niche perfumery ducts are “L’Etoile Selection” own slogans as “40, 50%, etc. down for fragrances to more affordable price brand. Innovations extend to all 900 everything” contribute to the growth range. But it is too early to drive stores in 200 cities of Russia. From of traffic and the amount of average to any conclusions because the the technical side by virtue of this

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4. Distribution Channels tion in the crises aftermath forces cific pro ducts that available brands Over half of consumers buy cos- some women to buy pro ducts in can offer to them. metics in specialized perfumery more democratic price category and cosmetics chains, 31.3 % – in provided they satisfy their quality 6. Forecast super/hypermarkets, 23.8% pre- needs. Experts expected that mineral fer direct sales and 11.2 % visit Multifunctional pro ducts such and organic colour cosmetics in drogeries. as creams with moisturizing, sun- Russia will become more and more Distribution of color cosmetics is screen and anti-aging effects, dec- popular thanks to the emergence developing on the back of expand- orative face care “3 in 1” (base, of a large group of consumers pre- ing drogerie chains. Retailers seek tinting cream and powder), lipstick ferring natural foods and healthy to reach more customers by virtue or lip gloss to moisturize lips, etc. life style. However, while this cat- of loyalty programs including dis- are winning popularity. egory continues to be a niche. count cards, various promos and Recently, a new tendency was The mass segment will remain expanded online stores so as to revealed in Russia, i.e. make-up popular in the literal sense of the facilitate consumers’ choice and demand is being generated thanks word – experts predict the emer- price comparison as well as to find both to national and global trends. gence of a huge number of new the best deals. Currently, Russian women go shop- launches of the most smart for- ping consciously focusing at spe- mats and colours. 5. Trends Mineral or natural makeup remained a niche area within colour cosmetics in Russia. Despite the fact that consumers are becoming more educated, the majority of them have very limited knowledge concerning such products. In addition, mineral and natural cosmetics are quite expensive and unpopular in Russia. Instead, consumers would rather purchase widely known premium brands, which they rely on. The demand for other makeup products, including BB and CC creams, decreased in 2014. Con- sumers doubted the universality of these pro ducts and were more likely to purchase separate products, such as moisturisers, foundation and others; however, Faberlic in- troduced a novelty DD cream, which was described as a multi- active high-tech corrective beauty balm. Yet, BB, CC and novelty DD creams offered a very limited product range and were mainly only present in large cities. Premiumization trend is seen as the most prominent in the market of color cosmetics. Sometime ago, the “demonstrational consumption” was a kind of premiumization driver, but today people need high and guaranteed quality. Nev- ertheless, the evident “rational consumption” of a part of popula-

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1. Market Size 2. Consumer Habits ing are essential to help young male Russian men have been actively For the male audience effective- shoppers choose between products interested in cosmetics and toilet- ness of the pro duct is still more when they are in a shop, as well as ries, so this segment is growing sig- important than fragrance. Rus- to encourage impulse buys and new nificantly and male grooming is a sian men annually increase spend- pro duct trials. driver of the Russian market. ing on the cosmetics purchase for When we compare what informa- Growing interest in premium more than 40 % – about $115 per tion sources young men and women pro ducts encourages men to buy month – it is twice more than in are persuaded by when considering luxury cosmetics supposed to be the US. a purchase in the personal care cat- more efficient and able to confirm TOP- 5 skincare brands: Nivea egory, there is a strong bias amongst the social status that men value was used by 17.9 % of men, “Chista- men towards traditional media, most. ya Linia” – 11 %, Avon – 8.3%, Ori- most notably advertising. Men’s The experts note the current rise flame – 7.7%, and Clearasil – 6, 2%. opinions are significantly more likely in the cost of men’s deodorant, TOP- 5 perfumery brands: Adi- to be shaped by advertising than which also showed a movement das –14,3%, Avon – 11,9%, Hugo women in all markets as our re- towards premiumization. Premium Boss – 11,3%, Gillette – 10,9% and sults show four in ten (41%) young bath care also show steady growth, Oriflame – 7,3%. men versus 29% of young women in and will increase by an average of 1 TOP-5 aftershave brands: Gil- Russia. Google and other Internet % over the next five years. More and lette – 35,9%, Nivea – 31,5%, Arko search engines play a major part in more Russian men begin to regu- -– 23%, Old Spice – 9,6%, and Arko the research phase for young men. larly use toiletries and cosmetics. Men – 8,5%. In the majority of markets, men At the same time, experts believe The traditional consideration of aged 16-21 are significantly more that the male cosmetics sales may Russian men that they take care of likely than women to use search en- decline in the near future due to the themselves the least amount pos- gines: 41% of young men use search economic situation. sible is being replaced with growing engines compared to 29% of young According to Euromonitor, In health concerns and a culture of hy- women in Russia. 2014, men’s shaving performed giene. As a result, men’s bath and less positively than men’s toilet- shower and men’s hair care record- 3. Key Players ries. This was the result of several ed the highest current value growth The Russian male grooming seg- factors. First of all, men’s grooming within the major categories of 6% ment is dominated by the key inter- was a rather saturated category and and 7% respectively in 2014. national players like P&G, Gillette, there were no significant pro duct According to GfK, with young men Beiersdorf. However, local manufac- launches towards the end of the re- actively researching and choosing turers extend their male collections view period. Moreover, the key lead- between different personal care and launch new pro ducts. er of the category, Gillette Group, pro ducts, it is essential that manu- Gillette Group maintained its accounted for the largest share of facturers understand how to engage leading position with a value share category men’s shaving sales, and with them. Although a large number of 39% in 2014. This was due to put in such a strong performance of young men are visiting stores to the long presence of the company’s that other players could barely com- view pro ducts, in general they are brands in men’s grooming and a pete with it. Finally, there was a less likely to browse in a store than high amount of loyalty to them. In trend towards beards, which came women. The exceptions to this trend addition, the company has well-built from Europe. More men started to are young men in Russia where distribution channels and imple- have beards, which reduced the po- 46% browse in a store, compared to ments strong promotional activity to tential number of consumers; how- 42% of young women, and in Brazil drive sales. ever, this trend influenced launches where browsing is relatively equal of new pro ducts designed especially at 50% for young men and 56% for 4. Distribution Channels for beards, including balm, oil and young women. For manufacturers Men prefer to buy cosmetics and special pro ducts to stimulate growth and retailers targeting those mar- perfumery in specialized stores of beards. kets, promotion and clear packag- (52%), in super- and hypermarkets

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(38%); the share of buyers from in- the current CAGR of 6% registered and more Russian men will buy and dividual distributors is small – just over the last five years. The reduc- regularly use cosmetics and person- 6%. tion in growth was due to category al hygiene pro ducts. saturation, as well as the new trend Experts underline the increase 5. Trends towards beards and a lack of novel- knowledge of consumers, careful Consumers have started to trust ties; however, the culture of hygiene attention to the ingredients, popu- the Russian brands, it is a current and self-image was still important larity of the products positioned like trend. This perception influenced among men, resulting in support for natural. As forecast predicts mass by the Russian designers like Alex- sales in 2014. market and private label, especially ander Terekhov or Uliana Sergienko The target audience for male care shampoos, shower gels and shav- became fashionable in Europe. They is expected to grow because more ings will be on the rise. have begun to change the view of the Russian fashion, beauty and quality. This is happening now in the field of beauty. Men seek to look well-groomed Market Sizes | Historic/Forecast | Retail Value RSP | RUB bn | Constant 2014 Prices so as to achieve their career goals. Categories 2014 2015 2016 (Forecast) Decade by decade, they invest in Men’s Grooming 38,90 37,80 36,90 cosmetics and perfumery to create Men’s Shaving 26,60 25,90 25,30 the image of a successful business Men’s Toiletries 12,20 11,90 11,60 men regardless of country, political © Euromonitor International regime or climate. Russian men pay more attention both to customary and specialized pro ducts for skin and hair care. To date, virtually all cosmetic brands Market Sizes | Historic/Forecast | Retail Value RSP | RUB Per Capita (Male offer lines for men. Moreover, man- Population) | Constant 2014 Prices ufacturers of mass pro ducts pay Categories 2014 2015 2016 (Forecast) particular attention to anti-aging Men’s Grooming 584,70 567,00 552,80 aspects including cosmetics to re- Men’s Shaving 400,70 388,50 378,60 cover freshness in the morning, re- Men’s Toiletries 184,00 178,40 174,10 lieve baggy lower eyelids, anti-age © Euromonitor International creams, etc. Men wishing to say goodbye to gray hair have a range of brands offering both dyers and ton- ers. Experts believe that these product categories are very promising. Market Sizes | Forecast | Retail Value RSP | RUB mn | Constant 2014 Prices | Year- As before, Russian men opt for on-Year Growth (%) simple and universal hair care pro- Categories 2014-15 2015-16 ducts. Shampoos for hair and body Men’s Grooming -2,80 -2,30 “two-in-one” have become wide- Men’s Shaving -2,80 -2,30 spread lately. A man would need Men’s Toiletries -2,80 -2,20 just one bottle to refresh his body © Euromonitor International and hair. As before, the stronger sex is neglecting conditioners or extra care pro ducts – they simply do not see them necessary. Russian men are rational and conservative Men’s Grooming Company Shares (Global - Historical Owner) | Retail Value RSP | % in their choice: having tried a pro- breakdown duct once, they would become an Companies 2014 addict. Procter & Gamble Co, The 40,40 Beiersdorf AG 9,70 6. Forecast Unilever Group 6,70 Men’s grooming recorded a value L’Oral Groupe 5,10 sales increase of 3% in current terms Energizer Holdings Inc 4,10 in 2014. This growth was only half © Euromonitor International

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1. Market Size Analysts say that in the past years consumer’s behavior of bath and shower changed – it has become more rational. Each purchase demonstrates a balanced and sensible solution. Today, they are looking for high quality brands at a reasonable prices. The choice is made in favor of the main pro ducts: shower gels, liquid and bar soaps and intimate washes while others products such thousand tons, which is 12 % more followed by Ukraine (9.5 thousand as salts, foams, fizzers are pur- than in 2013. The volume of imports tons, or 21 %), Germany (8.5 thou- chased less frequently or as a gift. to the Russian market on the basis sand tons, or 19 %), Poland (4.9 As a result, categories such as of the soap in 2014 amounted to thousand tons, or 11 %), USA (0.7 foam, bath salts showed a slight 41.8 thousand tones, which is 9 % thousand tons, or 2 %) and Egypt decrease in sales. But thanks to more than in 2013. In January-May (0.6 thousand tones, or 1 %). a growing culture of personal hy- 2015 the volume of imports of toilet giene and demand basic products soap in Russia amounted to 15.6 2. Consumer Habits the segment as a whole, according thousand tons, which is 4% less According to Synovate Comcon to Euromonitor, in 2014 increased than the same period of 2014. data, the most popular product for by 4 %, which is slightly lower than The main importers of the Rus- bath and shower are gels: in I half of the GAGR. Experts attribute this not sian market of soap Turkey (18.3 2015 they were used more than half only to the economic slowdown and thousand tons, or 40 %). This is of the urban population in Russia – changing consumer behavior, but also to the saturation of bath and shower segment. Usage of bath and shower products, January-May 2015, % Bath and shower premium pro- Total Use gels, salts and foams ducts, as well as premium segment Sex on the whole, are gaining demand Men 45,8 38,1 especially in large cities, where Women 54,2 61,9 premium cosmetics and perfumery chains are relatively well developed Age and residents have enough mon- 10-15 лет 5,8 5,8 ey to spend on premium brands. 16 - 24 16,6 19,2 L’Occitane with a market share of 25 - 34 лет 19,9 22,9 37% is the leader in premium seg- 35 - 44 лет 16,3 17,7 ment of bath and shower pro ducts. 45 - 54 лет 17,5 17,0 One of the major categories 55+ 23,9 17,4 showing the most impressive Source: Synovate Comcon, RTG-I growth is soap. According to Rus- sian Statistics, the Russian market of soap in 2014 increased by 11 ТОP-5 bath care brands, January-May 2015, % % compared with 2013 year. The Brands Know Use increase marked in domestic pro- Nivea 54,9 21,5 duction (12%) and in imports (9%). Avon 47,4 19,4 The share of imported soap was 32 Palmolive 47,3 19,3 % in volume terms. Dove 47,9 16,0 The volume of production of soap Camay 42,8 13,4 in Russia in 2014 reached up to 98.5 Source: Synovate Comcon, RTG-I

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56%. Foams and bath salts used by this segment, e.g. Avon, Oriflame, herent in various ingredients used in about 15 % of the Russians. as well as Russian company Fa- bath or shower pro ducts, and man- In the TOP-5 brands of bath and berlic. Among local manufacturers ufacturers try to respond quickly so shower are Nivea, Avon, Palmolive, are “Pervoye Reshenie”, “Magrav”, as to meet the demand for products Dove and Camay. Market leader “Nevskaya Cosmetics”, “Floresan”, with natural ingredients and organic brand Nivea, 55 % of users are “Mylovarov” and “Lauren Cosmetic”. cosmetics. aware of means for bath and Pro ducts for traditional Russian consumers are not shower; 22 % used it at least Russian banya take a spe- strongly focused on gender division once in 3 months. cial place in the Russian of bath and shower pro ducts. In When making the con- market. Domestic manufac- Russia, the share of specialized cos- sumer profile in terms of turers are producing more metics for men is small, although bath and shower, Synovate and more new pro ducts in this segment is steadily growing. Comcon experts found that this category. Manufacturers amaze customers women using bath or shower Manufacturers in mass with new pro ducts, scents and tex- pro ducts are more sociable. market segment have ad- tures. Shower gel, bath foam, soap, They like social events and opted the popular concepts scrub and even jelly and smoothie strain after organizational of aromatherapy, spa and have found their place on home activities. They tend to be wellness reflected in product bathroom shelves. optimistic, cheerful and names, dressing and adver- An interesting trend in recent welcome changes. Users of tising. Obsession of exclusiv- years is a higher consumption of foams and bath salts are ity, naturalness and unique- bubble bath and salts among Rus- also somehow careless ness of ingredients give a sian men suggesting that today men and addicted to sponta- push to the segments of solid and women tend to transform regu- neous actions. Therefore, soaps, shower gels and bath lar bath or shower procedure into a manufacturers and suppli- pro ducts. ritual seeking to cherish their bodies ers of these pro ducts should with nice texture or flavor. use not only bright and glamorous 4. Distribution Channels package, but also game patterns of As bath care is quite fragmented 6. Forecast marketing communications, blogo- segment it gives the distributors Experts stress that the growing sphere and tailor-made promotions bug fortune to place the brands in demand for basic pro ducts will re- to awake the audience interest. a wide range of retail format – from main a long-term trend. Consum- Following global trend consumers supermarkets and drogeries to spe- ers are becoming more discerning, prefer natural pro ducts that does cialized perfumery and cosmetics sensitivity to price and promotions. not contain artificial additives, dyes chains and organic shops. However, small towns in the regions and perfumes. However, often such will show better results in sales com- pro ducts not presented in the econ- 5. Trends pared as the market there is not sat- omy segment. Year after year, Russians con- urated and interest in the pro ducts centrate on premium and organic of various formats, including non- 3. Key Players pro ducts as well as cosmetics posi- essential is very high. Therefore, Unlike other categories, bath and tioned as natural. Consumers have there is expected to increase sales shower in Russia is quite fragment- become much more aware of the of foam, salt, bombs, oils and other ed due to many international and impact on health and well-being in- unusual tools for bath and shower. domestic companies having a presence; however, Avon Pro ducts led bath and shower in Russia in 2014 with a value share of 8% (Euromoni- tor data). This direct seller maintained its leading position due to affordable prices, attractive discounts and offers, and a wide portfolio of different types of brands. According to Step by Step GC, every sixth customer prefers to purchase pro ducts through individual consultants. Direct sales players have evident strong footholds in

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1. Market Size 2. Consumer Habits Perfumery is one of the biggest According to Synovate Comcon segments of the Russian market. In 2014 survey, 38.3% of Russian girls 2014 it reached 72.2 bln rubles – and women aged over 16 years use 1% more compared to 2013. Rus- perfume (2013 – 37%); their share sian market will always be attractive in Moscow is 45.1%; the figure in to the perfumery brands, because Saint Petersburg increased either – Russia is a country with enormous from 34% in 2013 to 35.6 in 2014. resources, and the priority of most Eau de Toilette is a more affordable perfumers is to conquer the Rus- pro duct and thus has significantly sian market. The crisis has not af- more users – 58.4% (2013 – 57%) fected this phenomenon in any way. in Russia in general. currently, the shoppers are seeking Perfume buy girls 16 – 24 years more exclusive fragrances, as every and mature women aged 45 to 54 consumer is striving for individual- years. Eau de toilette is more popular ity; therefore, the niche perfumery is among women aged 25 – 44 years. progressing most actively. Representatives of these groups are Euromonitor experts reported a qualified pro fes sio nals with higher continuous trend in the fragrance education. Those who prefer eau market, i.e. consumers’ migrating de toilette are married mostly and from mass fragrance trademarks among the users of perfume are sin- to established premium brands. gle. Their income is higher than Eau and career development. For those Regional expansion of specialized de toilette consumers. who prefer perfume, is not peculiar networks is one of the main rea- Users of toilet water more cau- to pay attention to the price and is sons. L’Etoile, Rive Gauche and Ile tious than perfume consumers – characterized by focus on the brand de Beaute, with their presence both they plan their actions, they like to and quality. They are more likely to in big cities and across regions, be- be organized and follow a certain or- buy imported products. They are came accessible to a broader circle der. As lovers of perfume and eau de less likely than toilet water users of consumers. toilette lovers aspire to leadership plan their purchase. These groups are characterized by the following fashion and pay great importance to their appearance, but the toilet water users are focused on fashion less. About five years ago, Russian consumers passionately rushed to niche fragrances. Many Russian fashionistas are crazy about Kilian Hennessy and Geza Schönau, creators of Kilian and Escentric Mol- ecules brands. Some stores don’t even offer testers of these fragrances since they fly away in seconds.

3. Key Players Three overseas players, i.e. L’Oréal, LVMH and Proc ter & Gam-

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ble lead the sales in volume terms; Market Sizes | Historic | Retail Value RSP | RUB bn | Current Prices in value terms, Estée Lauder Com- Categories 2013 2014 panies, Coty, Puig Beauty & Fashion Fragrances 71,60 72,20 Group, Shiseido, Chanel are in the © Euromonitor International vanguard. Leader domestic producers is Novaya Zarya. According to Euromonitor, Seldico Fragrances Company Shares (by Global Brand Owner) | Historic | Retail Value RSP | led fragrances in Russia with a value % breakdown share of 16% in 2014. The company Companies 2014 has a wide portfolio of brands and LVMH Moët Hennessy Louis Vuitton SA 15,90 generally operates within the premium price range. Its most popular Avon Pro ducts Inc 13,20 brands are Bvlgari, Guerlain, Kenzo, Proc ter & Gam ble Co, The 8,20 Christian Dior and Givenchy. The Oriflame Cosmetics SA 7,60 company’s brands are well known Puig SL 6,50 and mostly recognised by Russians. © Euromonitor International In addition, the company invests heavily in promotions and its brands are sold through the most popular narrowing of the gap between mass gressive expansion of metropoli- channel of health and beauty spe- and premium fragrances. As a re- tan networks into regions and the cialist retailers. sult, an increasing number of con- development of local operators. 4. Distribution Channels sumers preferred premium brands In the medium term, the share of The most popular channels of to mass pro ducts (Euromonitor). Moscow and Saint Petersburg will distribution have not changed for go down against the backdrop of the last decade. Consumers buy 5. Trends higher share of big regional cities, perfumery in specialized stores As far as geographic market con- which are actively developing pro- (20.7%), or super/hypermarkets centration is concerned, we see a fes sio nal perfumery and cosmetics (14.6%); this trade channel is be- downward trend in the total share networks. coming increasingly popular, and for of federal cities in perfumery and “Aroma obsession” is an essen- the past ten years, the proportion of cosmetics sales by reason of ag- tial feature of Russian consumers. perfumery buyers has nearly dou- bled. Department stores sell 7.3% of perfumery while individual distributors/consultants slightly lost their share – 6.8% in 2014. Shopping at kiosks or in the market is only 1.1%. The key distribution channel for fragrances in 2014 was health and beauty specialists. The rapid development of modern retailing and promotional activities run by such outlets positively influenced the development of premium fragrances in Russia. Due to frequent offers and products sold with up to a 50% discount, consumers shifted their preferences from mass brands to premium goods. Fragrances were also sold via internet retailing; however, direct sellers faced difficulties towards the end of the review period as they mainly operate within mass fragrances. Due to constant discounting campaigns for premium products, there was a

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resenting a palette of deep Mainstream consumers are get- flavors demonstrates ting closer to more expensive, pre- that Russian women mium brands thanks to numerous thirst for such pro- promo campaigns in pro fes sio nal ducts. They try to be retail chains. successful, at- New segments have emerged in tractive and the market recently, i.e. fragrances preserve for children and teenagers promot- their indi- ed by pop stars, new product forms viduality”. and formats (e.g. hair perfume and Russian perfumed soap). perfumery market is 6. Forecast b o o m i n g Fragrances in Russia is set to in terms record a slow decline at constant of players 2014 prices over the forecast pe- and brands riod; however, premium brands are saturation. predicted to record the healthiest In this re- performance due to strong recog- gard, the below nition and traditions. The develop- According to perfume brands re- trends should be highlighted. ment of modern retailing and active presentatives, tastes in this coun- Consumers are becoming more promotional activities will be key try often conflict with global prefer- scrupulous and particular about factors in the category’s perfor- ences. Russian women have their quality. mance over the forecast period. priorities with regard to Dior. No- Female perfumery remains the where in the world Miss Dior or Dior main segment in the mar- Homme Sport enjoy such furor, how- ket accounting for a ever Hypnotic Poison line adored by larger portion of French and Italian women is ne- sales, while about glected here. one third belongs About five years ago, Russian to male perfumery. consumers passionately rushed to Today consumers niche fragrances, Jo Malone, first seek male premium and foremost, whose sales in 2012 brands; their poten- rocketed by 40% (a cosmetic brand tial is impressive. generating a gain of 5%, is considered victorious). Many Russian fashionistas are crazy about Kilian Hen- nessy and Geza Schönau, creators of Kilian and Escentric Molecules brands. The last ranked seventh in Ile de Beaute network standing in a row with such megastars as Dior, Chanel or Guerlain. Some stores don’t even offer testers of these fragrances since they fly away in seconds. Female tastes are evolving and becoming more subtle; light and fresh flavors are among favorites. Our ladies pay close attention to latest launches in search of trendy flavors for their collections. At the same time, as I have said, authen- tic classics are evaluated high. The everlasting success of Guerlain rep-

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30 ORAL CARE BEST PERFORMER

1. Market Size market promising and attractive for ment; however Russians are focus- Currently, the range oral care is manufacturers. Indeed, it is growing ing more at oral care products. First extremely broad covering tooth- steadily and it did not shrink even in and foremost, the substantial up- pastes, rinses, balms, toothbrushes, crisis, one of the few, by the way. turn of dental floss and mouthwash flosses, fresheners and many other Overall, oral care in Russia was sales is attributed to Russians’ care items, but toothpastes undoubtedly one of the best performing major for health lifestyle and desire to make the bulk of the market. Today, category within beauty and per- have flashing smile as well as ap- consumers seek pro fes sio nal pro- sonal care in Russia in 2014. The proaching to European consump- ducts, and this is the main trend in culture of oral hygiene dramatically tion model, where such pro ducts oral care market. Now people can increased in Russia. Oral care pro- are quite popular. The markets of afford to pay more for high quality ducts became more accessible, dental floss and mouthwash have pro ducts to get excellent results. thus increasing the diversity of ad- advanced by 15% and 13% respec- Moreover, plain toothpaste is not ditional oral care pro ducts, such as tively. enough for consumers, since they mouthwashes and floss. As a re- It should be noted that oral care need high quality and effective pro- sult, consumers, concerned about segment has an enormous poten- duct; so, in recent years, premium their health and oral care hygiene, tial. As we know, this market is one and super premium segments re- showed extremely high interest in of the most competitive since low sponded with strong sales. oral care pro ducts. primary cost of toothpaste allows This factor alongside with a vari- In 2014, the market of oral care manufacturers to gain good profit ety of others (e.g. population size) advanced by 9%. Toothpastes hold from the end-pro duct. makes the Russian toothpaste the lion’s share of oral care seg- 2. Consumer Habits According to Synovate Comcon, in the first half of 2015, 94% of Russian families used toothpaste, with Colgate (47.1%), Blend-a-Med (42.1%) and Aquafresh (14.3%) in the lead. The headliner, in terms of volume of course, is toothpaste (63%), followed by toothbrushes (23%) and mouthwashes (10%) with a large gap. The growth rate of dental floss category slowed slightly but remains at a very high level (+11%). Reduced growth rate is attributed to more sophisticated systems and innovations in toothbrushes as well as increased popularity of mouthwash, which are seen as a certain alterna- tive to dental floss. Toothpaste for comprehensive oral hygiene (40%) enjoys the top demand; the second place holds whitening toothpaste (13%) and the third – paste for base oral care (10%).

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The share of toothpaste users is on dental pro ducts offered in phar- Places of purchase, % gradually zooming. An average fam- macies. On the one hand, when suf- 1 H 2015 Channels ily buys about 3 packs of toothpaste fering a problem people visit phar- Share for 3 months. Over one half (64%) of macy in search for a remedy, and on Supermarket 32,6 people using toothpaste brush their the other, they dream about tooth Hypermarket 18,7 teeth two times a day. The purchase ache prevention given the high cost Specialized store 12,2 share in super- and hypermarkets of medical and dental procedures as well as via the Internet is escalat- and emotional aversion (despite Source: Synovate Comcon ing. On the other side, markets, su- state-of-the-art anesthesiology and permarkets and kiosks are gradually technologies). Manufacturers of Usage of toothpaste, % 1 H 2015 losing their ground. innovative oral care aids take this Brands Despite the broad range of tooth- factor into account and actively pro- Share pastes, most Russians prefer promote them in pharmacies and ad- Colgate 47,1 ducts for comprehensive oral care, vanced clinics. Blend-a-med 42,1 which account for 40% of the total Today, approx. 20-25% of the total Aquafresh 14,3 market; whitening toothpaste en- volume of toothpaste sales account Source: Synovate Comcon joys a high demand as well. for pharmacies. However, there are brands selling via either pharma- 3. Key Players cies or retailers only. Therefore, we Usage of toothbrush, % Colgate-Palmolive (Russia) led cannot pinpoint a universal leader 1 H 2015 Brands oral care in 2014 with a value share for these pro ducts, but the main Share of 28%. The company has a wide players, foreign and Russian inclu- Colgate 35,2 brand portfolio and operates main- sive, are evident. These, of course, Oral-B 19,9 ly in the economy and mid-priced include Colgate, Procter & Gam ble Blend-a-Med 14,3 ranges, but despite this, it is re- (Blend-a-Med, Blendax), GlaxoS- sponsible for innovations. In 2014, mithKline (Sensodyne, Parodontax Source: Synovate Comcon the company launched the innova- and Aquafresh), Dr. Theiss Naturwar- tive toothpaste Colgate Total Pro en GmbH (Lacalut), Betafarma (Pres- 5. Trends Whitening. This mid-priced pro duct ident) and Rembrandt accounting In analyzing fundamental trends, includes the special ingredient silica for about 55% of the total toothpaste we must highlight the increasing pro, which helps to deal with certain market and 95% of the pharmacy fragmentation of this segment. The issues. sector. Among Russian producers, most noticeable positioning is seen experts highlight “Neva Cosmetics”, in the field of gender and age differ- 4. Distribution Channels “Svoboda”, “Splat – Cosmetics”, ences. Steadily growing child popu- So today consumers concentrate “Torn”, “Vesna” and “Avanta”. lation in Russia and substantial interest towards baby products had an inevitable impact on the toothpaste market. Oral care for children of all ages are becoming more and more popular including special pro ducts for infants, schoolchildren and teenagers and dictating a growing demand for smaller packaging format, for example, 50 ml, and Mickey Mouse drawings. The so called “premiumization” is among fundamental trends as well: Russians increasingly opt for pro fes- sio nally positioned products as they are now prepared to pay more for high quality. For example, “Splat – Cosmetics” and “Diarsi” GC are notably increasing their market share producing specialized and relatively expensive pro ducts under Splat and R.O.C.S brands.

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But often, oral care novelties can alongside with so-called oral de- r %FDMJOFE TIBSF PG FMFDUSJD be distinguished just by a new fla- odorants, which are gaining de- toothbrushes – from 2% to 0.99%; vor or position in the market. Any mand. r *OUFOTJGJFE DPNQFUJUJPO JO UIF new pro duct launch always entails Baby hygiene pro ducts gave a segment of conventional tooth- significant development and pro- push for current oral care market. brushes; motion costs. Despite the majority Innovative and absolutely safe pro- r )JHIFSBWFSBHFQSJDFPGFMFDUSJD of new pro ducts are entering the ducts, even if swallowed, can be toothbrushes and market thanks to overseas com- recommended right after an infant r #SPBEFS DPOTVNQUJPO PG FMFD- panies’ efforts, domestic compa- has first teeth. Today, parents nour- tric toothbrushes for children. nies are aggressive on the tooth- ish a habit for their children to brush paste market as well. For example, teeth right from the cradle. 6. Forecast “Splat – Cosmetics” Co. has pre- Homeopathic pro ducts form an- Most experts agree that oral care sented dentifrice foam and devel- other direction of high demand and pro ducts have huge market projec- ops pro duct lines aimed at specific popularity. For example, “Doctor H” tions. Their assessments account problems and offering peculiar fla- for the first time implemented an for changed attitude towards oral vors and formats. original formula of homeopathic hygiene – this is no longer a “hy- This segment is moving towards ingredients of essential oils and giene measure” but rather a stan- pro fes sio nal home dental care herbal extracts (dandelion, comfrey, dard treatment procedure. thanks to a plenty of teeth care arnica, parsley, cilicia, etc.). Euromonitor analytics say, de- equipment designed for ultrasonic And a few words about tooth- spite the economic downturn, oral whitening and polishing. Moreover, brush market. According to Step by care has strong potential for the in recent years, the market wel- Step GC, in 2013, trade volume in future as consumers are increas- comed irrigators, i.e. devices en- Russian wholesale toothbrush mar- ingly concerned about their health, abling teeth cleaning by means of ket soared by over 10 times. Cur- especially their oral health. In ad- water or air jet without toothpaste rently, a lot of companies operate in dition, pro fes sio nal and medicated or brushes, which is ideal for peo- this field, but it is controlled by two oral care pro ducts are expected to ple with sensitive teeth or gums or multinationals, i.e. P&G and Col- post the most positive performanc- suffering from other oral problems. gate-Palmolive. Direct import of ma- es over the forecast period, as con- However, meanwhile this sector is jor retail players in the retail trade sumers are more likely to trust and developing in big cities only and its network is becoming a notable fea- follow the advice of pro fes sio nals share is modest. ture of Russian toothbrush market. and dentists. Mousses and indelible multipur- Step by Step GC experts highlight Step by Step GC experts predict pose balms have joined the range the below trends: that market volume will reach its of customary pro ducts – pastes, r .BSLFUHSPXUI maximum by 2020 provided that rinses and refreshing sprays r )JHIFSNBSLFUTBUVSBUJPO current growth rate persists. The message of today’s manu- facture is not to sell toothpaste but rather help people to be healthy, handsome and successful; concentrate on the most popular toothpastes; never frighten the consumer; seek unsatis- fied needs and respond to customers’ covert desires. Moreover, today, consumer’s satisfaction with toothpaste is not more than illusion, while winning a competi- tor is only possible by producing appealing innovative pro ducts because only such goods can agitate high-fed consumers in this sector.

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34 SUN CARE MOISTURIZING AND TANNING

1. Market Size Consumer behavior is chang- tion pro ducts with high protection Sun care segment has not un- ing. Consumers have become more level prevent tanning. However, dergone any significant changes aware of what kind of sun care is given that consumers are now more or appearance of bright novelties. the most suitable for their tipe of skilled, manufacturers are launch- Since 2012, despite the relatively skin. For example, many already ing pro ducts that cover the entire strong growth (+ 6% in turnover know that not all sun cosmetics is range of SPF, starting from SPF 2 compared to 2011 – according to suitable for children and people for consumers seeking quick tan, Euromonitor), the growth of the cat- with sensitive skin. A healthy trend to SPF 50+ for those with sensi- egory is starting to slow, which is a of recent years – to use sunscreen tive skin and for children. Alongside clear sign of market saturation. The in summer and in the cold season. with pro ducts with various SPF lev- main driver of the segment remain This applies not only to the people els, sunscreen manufacturers offer self-tan due to desire of women to who are leaving for a vacation to a aids with extra features, such as have bronze skin, not only after the warmer climate. Winter sun is dan- BB-cream (e.g., Garnier Ambre So- holidays. Many customers find that gerous as well and people use skin laire BB), or products designed for self-tanns are much more acces- care and makeup with a light SPF. specific body parts such as the legs, sible and safer than solarium. According to Synovate Comcon décolleté, etc. Volume of sun care in 2014, 2014 survey, 12% of Russian popu- according to Euromonitor, was lation use sun care. As to protection 3. Key Players 4576.4 mln rubles – 3.8% more level preference (SPF), 29% buy SPF The leaders of the market are compared to 2013 sales. 30, 24 % – SPF 20, 17 % – SPF 15 international companies: L’Oréal, Mass pro ducts dominate the and 12% – SPF 50. Beiersdorf, Ales Groupe Lierac), market with over 80% of total sales TOP-5 sun care brands: Garnier Sarantis SA Group (Kolastyna) and value in 2014. Premium brands Ambre Solaire prefer 23% of Rus- Avon. Perhaps the most saturat- continue to expand their market sians, Nivea sun – 19%, “Moye ed segment of the market “solar” share. L’Oréal Russia dominates Solnyshko” – 12 %, L’Oréal Sub- cosmetics is a mass segment. It is both in the mass and premium seg- lime Sun – 8% and Johnson’s Sun available for most consumers, sold ments having a portfolio of estab- Care – 8%. in pharmacy chains and other retail lished brands such as Vichy and La In terms of sales channels pref- outlets (supermarkets and hyper- Roche-Posay. erences, the situation is as follows: markets, specialized stores, etc.). In 31% of Russians buy sun-protection this segment, successfully compet- 2. Consumer Habits cosmetics in pro fes sio nal stores, ing with each other brands such as People are becoming more edu- 20% in super/hypermarkets, 14% – Nivea Sun (Beiersdorf), Garnier Am- cated on the issue of protecting the from individual consultants/distrib- bre Solaire (L’Oréal), Yves Rocher, skin from harmful sun rays. Con- utors and 13% in pharmacies. as well as the pro ducts of Russian sumers have realized that tan – The most popular level of SPF in companies – Kora, Floresan, pro- not a harmless phenomenon, and Russia is 15-30, as local residents fes sio nal cosmetics manufacturer the threat to health. They under- still use sun care irregularly. Most Salon Cosmetica, direct sales Mirra stand that a reliable sunscreen – a regions of Russia have a modest and Faberlic and others. necessary attribute and cosmetic number of sunshine days, holidays It seems that only local company companies launch pro ducts with are short and not all consumers can Floresan can offer the widest line of sunscreens designed for everyday afford a travel to southern coun- sun care among national manufac- use. Especially popular are the day tries for rest and revitalizing. As a turers, which comprises more than cream with SPF. Russian consum- result, every sunny day is extremely 20 pro ducts. A series of two- and ers are looking for pro ducts that important for anyone intending to three-phase oil for immediate and contains natural ingredients that sunbathe, swim or tan. Some con- safe tan, solid oil Body Butter line, are beneficial to the skin. sumers believe that sun protec- pro ducts for the body after sun se-

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ries Panthenol and a variety of sun- tional market leaders, i.e. multina- The market has a strong growth screens – this is not a complete list tional companies Beiersdorf and potential. Its development will be of assortment. L’Oréal had a considerable display stimulated by several factors in- According to different surveys, in the stores. cluding promising macroeconomic the level of trust to Floresan pro- There are several reasons for environment with higher consumer ducts is very high. The consumers that. Firstly, the customers remain incomes, deeper penetration of re- evaluate the pro duct range as more very price-sensitive and prefer to tail business in the regions, higher attractive as compared to the offers buy good quality stuff at more af- awareness of local residents of sun of foreign manufacturers empha- fordable price. Secondly, the Rus- harm and accelerated evolution of sizing that the formulae contains sian producers have responded tourism in warm and sunny regions, ingredients for oily problem skin, to the demand and offered some both abroad and in Russia. which are not offered by other pro- pro duct lines to the market whose Experts predict that self-tanners ducers. quality is not inferior as compared will attain the most dynamic growth Company’s experts say, the cat- to well promoted foreign brands. of 4% CAGR in monetary terms for egory of sun protectors enjoys the Thirdly, the development of retail the forecast period and may ac- highest popularity among their pro- formats, in particular the emer- count for 18% of sales of sunscreen ducts; the second place is occupied gence of new drogeries and their cosmetics by the end of 2017. This by tanning activators, after-sun cos- expansion, enabled the domestic category will definitely benefit from metics demonstrate a slightly lower producers of sun-protection cos- the consumers’ desire to have demand and tanning accelerators metics to present a wider range of tanned skin even in cold or cloudy have a noticeable lag. Recently, the their pro ducts to the consumer and weather because self-tanners en- Russians tend to give preference to funnel the raised moneys into the able to tan their skin quickly and to multi-function pro ducts, the so- pro duct range diversification. comfortably without tedious visits called “two in one”. Depending on Sales of sunscreens are grow- to solariums. the region the popularity in this cat- ing quite rapidly. Russian custom- In the future, leading manufac- egory varies. ers have more information about turers of sunscreen cosmetics will when and how to protect the skin. concentrate on innovations and 4. Distribution Channels Together with medical research as a result, will develop a range of One of the key distribution chan- on the subject, confirming the in- new pro ducts with sun protection nel for sun care is pharmacies – creased risk of photoaging and skin as the main function and an extra 55 brands and about 430 SKU are diseases by UV, nude skin becomes feature. The first property would be sold there. Analytical company DSM fashionable. useful for people traveling in sunny Group estimates this segment in Protecting hair from the sun is an- regions and resort areas, while the the last year 9.4 mln euro in value other trend. Manufacturers are de- second will be handy for consumers (+16,9% compare to 2013). The veloping special pro ducts to protect living in the southern regions and leaders are La Roche-Posay with hair during sun bath (sun pro tective using sun protectors daily. Anthelios (24.2%), Vichy with Capi- veil, jelly, sunflower oil with SPF) and Some experts predict that eco- tal Soleil (22.9%) and Garnier Am- after sun exposure (moisturizing nomic slowdown will influence the bre Solaire (10.3%). The TOP-3 sprays, masks, special shampoos sun care segment as many people brands in therms of volume are Flo- “fitoplyazh”). In addition, we note a will stop travelling abroad for sum- resan line (22.5%), Vichy (11%) and growing interest in children’s sun- mer vacation. However, this fac- La Roche-Posay (10.8%). screen cosmetics. Baby products tor will not dramatically decrease are often have colored texture and the volume of the market. Inspite 5. Trends bright packaging to make children of coming to abroad Russians are The retailers, particularly federal happy while using pro ducts. willing to spend thier time at the lo- chains, launched the sales of sun cal resorts in Sochi and Krasnodar care cosmetics as early as at the 6. Forecast kray, Crimea and Southern regions. end of winter. For example, some According to Euromonitor, the sun Another factor that is supposed brands appeared on the shelves care segment is expected to show a to support the sun care is changing not in April or May, as usual, but in 3% CAGR upturn in value terms over climate that becomes warmer and February. Moreover, on top of tradi- the forecast period (2012-2017). the more agressive sun.

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