Development of the perfumery and cosmetics industry of the Russian Federation

The research conducted by SBS Consulting focuses on analysing and developing strategies for leading Russian companies in the perfume and cosmetics industry. The report examines global and social trends in consumer behaviour, strategic positioning, growth prospects in the domestic market, as well as opportunities and risks when entering export markets..

Global and social trends in consumer behaviour

Global trends:

• Increased consumer education and pickiness: Consumers are becoming more knowledgeable and quality-conscious.
• Focus on health and naturalness: Increasing demand for products with minimal environmental impact, with no harmful substances and animal testing.
• Demand for personalisation: Increasing demand for personalised and niche products.
• Market fragmentation: Deepening market segmentation and development of national products targeted at specific cultures.

Social trends:

• Changing information channels: The role of traditional media is declining and the influence of the Internet, social networks, blogs and Telegram channels is growing.
• Shrinking households: Increasing levels of loneliness, especially among the elderly.
• Blurring of age boundaries: Increasing trend towards universal products for all age groups.

Strategic positioning

Key factors for successful positioning:

1. Product differentiation: Highlighting products through unique features and functions.
2. Product monopoly: Becoming unique in the market.
3. Price leadership: Competitive prices combined with high quality.

Growth of Russian producers

Current market trends:

• Long-term market growth: Steady growth in monetary terms (~5%) and in physical terms (~1%).
• Trend towards consumption of local brands: Global trend that favours the growth of local producers.
• Cautiousness of global brands: The need for significant investments to enter the Russian market.
• Awareness of market needs: Local companies have a better understanding of traditions and national peculiarities.
• Brand awareness: Brand awareness base among 35-65 year old consumers, including those in CIS export markets.

Import substitution potential:

• Product segments: Perfumes, hair care, make-up products, bath and shower products, skin care, deodorants and antiperspirants, oral hygiene.
• Share of Russian brands: In some segments the import substitution potential is up to 90%.

Entering export markets

Necessary conditions for success:

• Developed ‘’home front‘’: Stable and developing domestic market.
• Unique product: A unique product in the portfolio.
• Stable financing: Ability to cover the costs of development mistakes.
• Consumer base: Sales channels and consumer base.

Risks when entering export markets:

• Fierce competition: No guarantee of success.
• Market factors: Differences in promotion and branding strategies.
• Team: Need to retain key employees and competences in domestic markets.
• Development mistakes: High costs of correcting mistakes.

Recommendations for companies

Choice of development focus:

• Focus on domestic market: Increasing market share and expanding portfolio.
• Active export: Only for some companies with current portfolio.

Competence development and asset optimisation:

• Skill growth: Constraining the growth of payroll, making vacancies more attractive.
• Data-driven decision making: Implementing big data and regular market research.
• Commercial function development: Promotional strategies and negotiations with federal retail chains.
• Ingredient and packaging availability: Evaluating the establishment of overseas design and R&D units.
• Technological innovation: Developing R&D and introducing new technologies.
• Production strategy: Balance between in-house production and outsourcing.

Strategies to improve profit margins:

• Segment selection and focus on it: Fast-growing segments with high potential.
• Differentiation: Sustainable competitive advantages.
• Communication and distribution: Targeted advertising campaigns and route to market strategies.

Sources of financing:

• National development finance institutions and private investment funds: Attracting financing for business development.
• Owned asset optimisation: Focus on priority products, relaunching unprofitable products and contracts, outsourcing production of non-core products.

Conclusion

The study emphasises the importance of a strategic approach to the development of Russian companies in the perfume and cosmetics industry. The main directions include focus on the domestic market, active development of competences, technological innovation and effective strategies for entering export markets. Companies should utilise the advantages of local production, market knowledge and government support to achieve sustainable growth and increase competitiveness.