Chemical suppliers keep pace with global personal care markets

By Alton Adams

Chemical companies are working hard to satisfy the growing demand for ingredients that go into personal care products for the skin, hair, oral care and other applications. As a large, rapidly expanding and increasingly diverse market, product ingredients represent special challenges for chemical companies. Today’s consumers want more, they want quality and they want it now. But opportunities are evident as well, driven by a growing middle class in the East, an ageing population in the West, and new markets such as men’s grooming, halal beauty and bio-based skin care.

Better products for a ‘better’ you

In South Korea, consumers take up to a dozen steps in their daily skincare routine, while Chinese consumers prefer one-step products supplemented by sheet masks, sometimes twice daily. In Indonesia, scalp freshener products are popular with Islamic women wearing the jilbab. In the US, men’s grooming is one of the fastest growing market segments in personal care.

Clearly, personal care is an expanding, highly regionalized and increasingly diverse market. Product categories include toothpaste, fragrances, mouthwashes, hair care and dyeing products, cosmetics and products for nail care, bathing and shaving.

The chemical ingredients for these products include surfactants, emulsifiers, polymers, emollients, cosmetic active ingredients, pigments, UV filters and thickeners, and protein compounds.

The global market for personal care products is expected to increase between 3.5 and 4.5 percent over the next five years, with a total market value of $500 billion by 2020. The market for product ingredients will likely grow even faster over most of the same forecast period. Valued at $7.46 billion in 2014, the ingredients market is expected to reach $11.76 billion by 2023, representing a CAGR of 5.2 percent.

Beauty and personal care is a $465 billion industry globally

Skin care is the major application for personal care products and accounts for a quarter of sales. The largest segment for ingredients is surfactants, agents that increase a liquid’s wetting and spreading properties. On the basis of chemical properties, the active ingredients segment shows the strongest growth. Asia-Pacific represents the largest share (29 percent) of the global personal care products market, with sales fueled mainly by population growth, urbanisation and increased per capita spending power.

Europe occupies second place, followed by North America

In the US, a growing Hispanic population and rising demand for luxury personal care brands will support demand for cosmetic chemicals over the next five years. In Europe, skin care and toiletries remain the most important product categories, followed by hair care and fragrances.

Across all developed economies, including Japan, the growing number of older consumers is driving more sales for antiaging, anti-wrinkle and sun protection products. A sluggish economy in emerging markets, increased regulations in the West, and questions about product effectiveness have impeded sales over recent years. Yet personal care products represent a strong and resilient market.

Industry megatrends

The global personal care industry is rapidly changing based on a number of megatrends, each one of which affects both manufacturers and the chemical companies that supply ingredients.

Better-informed consumers

Gone are the days when consumers purchased products in retail stores, prompted by media channels such as television commercials or print ads. Even a manufacturer’s website must compete for the attention of consumers who compare online and gather information from a multitude of sources. As a result, consumers stay better informed about ingredients that may potentially harm them or the environment. Because they know more, they are often more skeptical. Consumers are also demanding full transparency from manufacturers about their sourcing methods, product, ingredients and sustainability practices.

More products and shorter product lifecycles

In the past, we saw well-funded, heavily marketed products with a life cycle that lasted years, if not decades. Consumers grew up with these ‘familiar faces’ and became loyal customers. Today, products are replaced by new market introductions at a much faster rate. We also see what might be called ‘tangential’ products where, for example, a successful hand lotion is followed by several spin-off products that offer variations in functionality and fragrances.

Deflationary economics

Especially in developed economies, personal care product manufacturers can no longer expect a steady annual price increase of several percentage points to drive growth. Today, a pure volume is a better determinant of growth. This means that manufacturers are more focused on margins that require tighter control over costs for ingredients, which is impacting chemical companies along the supply chain.

Regional demographics

A growing urban population, particularly in developing countries, is helping to fuel the growth in personal care products. As more people work in offices and retail environments, awareness of personal appearance and hygiene is increasing the use of these products. In Brazil, antiaging functionality is less important than products for hair care. Anti-inflammatory products are strong in the US unlike other regions, and skin lightening creams are most popular in Asia.

The ‘Asianification’ of beauty

Growth in Asia-Pacific constitutes a megatrend in itself for the personal care industry. This region dominates global markets, and with a billion new consumers this trend will only continue in the years ahead. Along with the traditional BRIC markets-Brazil, Russia, India and China new markets are emerging in Pakistan, Morocco, Indonesia, Saudi Arabia, Vietnam and the United Arab Emirates.

These countries have a relatively young population, an expanding urban middle class and sophisticated beauty habits, all of which support steady sales. Products in one market can quickly take off in another. Hair oil which is big in Japan, India and Indonesia-is now finding growth in the Middle East.

Even with a cooling economy, China remains the largest Asian market for personal care products. Sales are expected to grow at 8 percent for the next five years, with revenues estimated at $28.2 billion.

The introduction of the two-child policy is expected to provide a major boost to the forecast period performance of baby and child-specific products.

An increasingly important market segment in the Middle East and Asia is halal beauty-cosmetics, skin and hair care products created for Islamic women. Halal certification requires a strict adherence to the purity regulations according to Islam.

These cover every part of the production process, including which raw materials can be used, how they are handled, how the product is manufactured and even how it is packaged. Halal certifiers are not universally recognised, so brands must understand each target market. For example, Germany has five independent certifiers while Indonesia, Turkey and Iran have state-based systems.

What do men want?

With products intended for half the world’s population, men’s grooming is a market segment with huge potential.

According to research, 52 percent of global male consumers consider their looks and appearance to be either important or very important, and 29 percent touch up their looks throughout the day. This percentage rises to 39 percent in teenagers 15 to 17 years old, the future users of grooming products.

Marketers have identified two user groups:  men who use toiletries to help maintain good personal hygiene and a new breed of man who buys products designed specifically to improve their physical appearance. The latter includes blemish concealers, face bronzers, lip balm and even male fingernail polish. Anti-aging products are also becoming more popular with men in their 40s and 50s.

That said, men’s grooming is still a work in progress for personal care marketers. Men in emerging markets are also twice as likely to apply hair oils, use hair fragrances and apply hair-loss treatment products. Africa, in particular, has been identified as a high-growth market, with an exploding population, a fast-growing middle class, increasing urbanisation and improved business regulation. In the US and Europe, beards have become a growth segment in many regions, especially with the advent of the ‘lumberjack look’ that is driving sales for products designed to clean, condition and style men’s beards and moustaches.

Organic and natural ingredients

According to recent reports, the global organic personal care market is growing at an annual rate of almost 10 percent, with expectations of a market valued at $15.98 billion by 2020.

Organic personal care products are made from plant-based ingredients such as almond, palm, jojoba, safflower and coconut oils; soy and oat derivatives; and cocoa and shea butter. In addition, products termed ‘organic’ generally do not contain synthetic chemicals such as phthalates, parabens, aluminium salts, and petrochemicals.

Certification is a complicated issue. In the US, for example, regulations distinguish between 100 Percent Organic, Organic and Made from Organic Materials. In Europe, regulations can be even more detailed. BASF scores all of its products for sustainability and considers the entire product chain, including sourcing, water use, biodegradability and other areas, all of which need to be considered in determining whether a product can be called sustainable.

Nevertheless, certification is helping to drive product sales as consumers become more familiar with certification labels that quickly identify organic products and assure buyers of quality.

What do personal care product manufacturers need from chemical suppliers?

As manufacturers produce more products, introduce new products, and fine-tune existing ones to meet changing customer demands, they need suppliers that can keep pace with these industry developments. Suppliers should be able to provide:

A greater number of ingredients

This includes the ability to provide a larger number of basic ingredients and speciality chemicals as well as the ability to quickly expand and diversify their portfolio with new ingredients.

Compliance and claims substantiation

Chemical suppliers need to provide accurate documentation and supporting evidence about the source of ingredients, their efficacy, and proof that they are not harmful to humans or the environment. First-tier suppliers should apply these same requirements to their own second tier and third-tier suppliers. In addition, global suppliers should be well-versed in how regulations vary across regions and countries.

Faster delivery

Suppliers need to ensure that ingredients are delivered to manufacturers to support accelerated manufacturing times and shorter product lifecycles. In many cases, this involves faster delivery for a greater number of ingredients.

Increased ability to anticipate demand

Suppliers need to work closely with manufacturers to better understand their pipeline of new products, collaborate where possible on research and development and track consumer markets to develop a line of sight on future demand. In addition, suppliers can help support market analysis and other essential services. Working together, chemical suppliers and product manufacturers can take full advantage of this vital and growing market.

Author: Adams is Partner, Advisory Customer Solutions, KPMG in the US.

Source: The Future of Beauty and Personal Care in the Globe and Asia Pacific, Euromonitor, 2015

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