7 reasons to enter

1. Russian economy performes better than expected

Russia economy is doing better than expected. There was no considerable reduction of industry size or expenditure level. Industrial production performed better than expected.

Russia recently jumped from 55th to 26th place in The World Economic Forum’s “2015 Human Capital Report” an index that ranks nations by their human capital endowment, defined as the skills and capacities that reside in people and that are put to productive use.

That puts Russia ahead of start-up nation Israel, and far ahead of Italy, Greece, Portugal and Spain. Russia also surpasses Brazil in this regard.

Russia last month became #1 retail market in Europe! A 41.5% rise in the Market Vectors Russia (RSX) exchange traded fund, the best emerging market performer this year. And a 17% gain in the ruble year-to-date. It is now trading in the high 40s against the dollar.

According to JPMorgan’s view, the Russian government’s financial situation is “quite healthy” thanks to low government debt.

Russia’s current budget surplus is expected to rise to $70 billion (5.5% of the GDP) by the end of the year, up from $59 billion (3.2% GDP) last year.

The data has prompted policymakers in Russia to turn much more optimistic on growth prospects for 2015, and some revision of forecasts is probably warranted.

Small and medium size investors are becoming very active in Russia.

 

2. Beauty market on the rise

In 2014, the growth rate of the market, according to analysts RBC.research, rose to 13.2%, while market volume amounted to 552-555 billion rubles. Market turnover totaled USD 14.6 billion (the rate – 38 rub./Dollar).

The main growth came from the key segments of the market – skin care, hair care, colour cosmetics and fragrances. The best performing categories in 2014, according to Euromonitor data, were oral care and deodorants. The culture of oral hygiene dramatically increased in Russia and has strong potential for the future as consumers are increasingly concerned about their health, especially their oral health. In addition, professional and medicated oral care products are expected to post the most positive performances. Unlike other categories, the performance of deodorants was unique due to consumers’ loyalty to formats rather than brands. Due to the growing number of promotional activities and price offers, consumers were buying those deodorants that were on special offer at the time of purchasing.

 

 

According to Euromonitor, in 2014, premium products posted the most positive performances. The key reason for this trend was growing consumer interest in premium beauty and personal care products, as well as strong promotions for such brands. Premium products are considered to be of a high standard and consumers were ready to pay extra in order to receive good-quality products. In addition, specialist retailers positively influenced sales of premium brands by offering products with huge discounts. As a result, expensive products became affordable luxuries.

 

3. International companies are successfull in Russia

European brands are not pulling out of Russian market, instead many are increasing investments.

Russia is in top-5 markets for Oriflame and among 3.5 mln consultants 1.6 mln (almost the half) work in Russia. In February 2015 Oriflame Cosmetics inaugurated its new production facility. After an investment of 150 mln euro, Oriflame’s new production site in Noginsk, Russia, was officially declared opened. The site comprises production facilities, warehousing and a distribution center. The plan is to produce shampoos, deodorants, liquid soaps, lipsticks and other cosmetic products to serve the market in a more efficient way.

Avon Products’ Russian sales received a significant boost in the second half of 2014, on the back of the depreciating ruble and the economic weakness in Russia. According to Avon country chief Elena Starkova, the sales grew by both volume and value. Due to the weakening Russian economy, many people are seeking additional jobs by selling door-to-door products, and Avon’s business model of direct selling has helped them and has in turn increased Avon’s labor pool in Russia by over 10% (as per December 2014 data).

During the first 3 months Avon’s revenue in Russia grew by 26%.

Euromonitor claims that L'Oréal Russia continued to lead beauty and personal care in Russia in 2014. The company continued to increase both its value sales and value share, mainly due to world-famous and durable brands in almost all categories of beauty and personal care. In addition, the company was present in different price bands and invested heavily in new product developments and advertising, being a promoter not only of its products but also of the whole category. In colour cosmetics segment it increased its value share by one percentage, from 21% in 2013 to 22% in 2014. The company constantly increases both its value sales and its value share. In skin care L’Oreal still keeps in leading position that led sales increase in 2014 with 14% value share.

Major producer & household detergents have increased their revenue in Russia by 20-26% in the first quarter of 2015. Henkel demonstrated double-digit growth increased their share in Russia, Beiersdorf has grown sales by more than 20%.  According to Beiersdorf management, Russian can postpone buying a car but they will still buy an anti-ageing cream or a deodorant.

 

4. Retail expands

Retail development in 2014 continued and last month Russia became # 1 retail market in Europe. According RBK.Research, the number of perfume and cosmetics stores increased by 26.6 % (in 2013 the increase was 25.3 %). The number of specialized perfumery and cosmetics stores increased by 38,3%, concept-store - by 31.8%, multi-brand stores - by 25.3%.

Actual trend – new wave of the regional expansion of all retailers. The key federal and local chains are willing to open more stores in small Russian cities.

Another trend is a solid growgth of purchase of cosmetics in terms of value and volume. Russian consumers refuse to cut thier their budget on cosmetics nd perfumery. 

Growing demand for cosmetics manufactured from natural ingredients continues to spur the development of health and beauty specialist retailers in Russia as the outlets in the channel are well known for offering exactly these types of products. Due to the very strong growth potential for health and beauty specialist retailers in Russia, the channel increasingly attracts foreign retail companies, some of which have begun producing private label products in Russia in recent years. As a result, a wider range of beauty and personal care products have recently become more widely available in Russia, which has had the effect of leading Russian people to begin monitoring more precisely the quality of their beauty and personal care products rather than simply relying on the popularity of specific brands.

 

5. Russian women spend on cosmetics more and more

Inspite of the modest income for the last year and retail prices increase Russian customer still buy cosmetics and perfumery on a regular basis which is higher then in Europe or USA.

Average spending on purchase of cosmetics and perfumery in 2014 grew 13% as opposed to 2013, every second Russian woman uses masks and washing products (in the early 1990s - one in four), 40% use eye creams, and the number of women willing to buy premium cosmetics increased 5 times. Rapid increase of the number of women attending beauty salons, from 4% in 2000 to 40 % in 2014. All research made on consumer behavior recently shows that Russian women are not ready to save money on beauty.

 

 

And yes! – the Russians are still novelty addicted!

 

6. Import dominates the market

The proportion of imported and domestic products in the Russian market is still in favor of international producers.  Import accounts for more than a half of Russian perfumery and cosmetics and in a number of categories – more than 80 percent and 100% in the luxury segment of cosmetics and perfumery. At present, the Russian perfumery and cosmetics market is incredibly open to imported goods in all segments and all companies – from all over the world. It is safe and highly profitable. And the entrance cost is not high.

Among main importers of perfumery and cosmetics goods in Russia are France (24.5%), Germany (13%), Italy (8.6%), Poland (7.8%) and USA (6.7%).  The Chinese share in the overall import volume reached 3.8% in 2014, basically including bath/oral/skin care.

France remains the leader in the perfumery segment with 58.6% of the products imported in Russia in value terms.

 

7. Regulation is easy and harmonized to EU legislation

Since the July, 2012, companies exporting cosmetic products to the Customs Union comprising Russia, Belarus and Kazakhstan must comply with a new regulation, harmonized the legislation in the European Union, but which still contains some important discrepancies. Premium Beauty News asked CCIS Expertise, a consulting firm specializing in the assistance to manufacturers entering Eastern European markets, to provide us with some clarification.

As far as labelling is concerned, the Technical Regulation requires several additional constraints when compared to the rules of the European Union. These include:

  • The mention of the name and address of the company, registered in the territory of the Customs Union, responsible for the distribution of products,
  • The indication of the shade (or the dye) for makeup and hair dye products,
  • The indication of fluorine contents by weight, for oral hygiene products,
  • The expiry date and the date of manufacture of the product,
  • The Eurasian conformity mark.

For the majority of products a declaration of conformity is enough. Self-tanners, skin bleaching products, tattoo and hygiene products, children cosmetics, hair dyes and professional products for hair perms and hair straightening, hair removal products, peels, oral care and teeth whiteners still are subjects for the registration before placing on the market.

The registration procedure consists of three main steps:

1. Evaluation of the technical and administrative file provided by the manufacturer, which includes a Certificate of Free Sale, a GMP statement or the corresponding ISO certificate, the composition of products, labels or their draft in Russian signed and stamped by the manufacturer or an authorized representative of the manufacturer, samples, etc..

2. Toxicological testing and clinical trials in laboratories accredited according to the regulations of the Customs Union


3. The recording of the product’s and manufacturer’s data as well as test results in the single sanitary database of Customs Union.

The paper issued is valid for entire life of the product on the Russian market.

 

Read more about the Russian market

 

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