Australasia - A meeting of minds

Separated by a short flight across the Tasman Sea, Australia and New Zealand are, in the physical sense, clearly two distinct countries. But when it comes to the cosmetics industry in these neighbouring lands it is clear that things are merging into one.

Garth Wyllie, executive director of the Cosmetic Toiletry and Fragrance Association of New Zealand has noticed that market players are asking the question: “Is New Zealand really that different (from Australia)?”

He says: “A lot of the management structure of cosmetics companies is now based in Australia or shared with Australia. You may find companies have a sales manager based in New Zealand but not a general manager. Avon is now shipped entirely from Australia to New Zealand and they have an Australasian manager.” Wyllie stresses that with a population of 4.1m New Zealand is not a big market, especially when compared to Australia with its 20.4m population. He also points out that a free trade agreement between the two nations helps ease the movement of goods.

Australia is known for its heat and New Zealand for its higher humidity, but these climatic variations do little to vary sales trends between the two. Both countries have been undergoing similar social trends that have impacted on their cosmetics markets. An ageing population profile is apparent in both countries and this baby boomer crowd is eager to retain a youthful radiance, and is willing to spend money to get it. In both countries new immigrants have also kept demand growing.

Hui Hui Lim, senior FMCG analyst at Euromonitor, says that in recent years Australia and New Zealand have followed similar trends in their cosmetics sectors. And she predicts they “are likely to blend into one market for C&T companies”.

In 2007, Procter & Gamble, L’Oréal and Unilever respectively held the largest market shares in both Australia and New Zealand. Procter & Gamble sells such brands as Clairol, Cover Girl, Gillette, Lacoste, Max Factor, Pantene, and a range of other well known labels. L’Oréal has a large brand portfolio in both countries, which extends to cosmetics names such as Ralph Lauren, Redken, Maybelline, Lancôme, Biotherm and more. Unilever covers Dove, Lux, Rexona and Vaseline among others.

The male model

A key shared growth area in both countries is men’s grooming products. Belying Australasia’s macho image, according to Euromonitor’s latest research, men’s skin care posted high value growth in Australasia in 2007, with retail value sales in Australia achieving 23% growth in 2007. “Both premium and mass brands’ manufacturers have extended their men’s skin care ranges beyond the basic in both Australia and New Zealand. One example is Nivea for Men expanding its collection to include Revitalizing Eye Relief in Australasia,” comments Lim. In 2007 retail sales for men’s grooming products came in at US$307.2m. Euromonitor predicts that between 2007-12 this figure will grow by 19.2%.

In New Zealand, men’s grooming products had a retail value of US$57.9m last year and the sector is set to expand. Some subcategories of the market saw nearly 200% growth, such as men’s cosmetics/colour cosmetics from a small base. “Over the last four to five years this category has been increasing and last year the industry saw dramatic growth,” says Wyllie. “Part of this trend could be due to the All Blacks [international rugby team] wearing colour make-up and the tough ‘real man’ attitude is wavering here.”

Lim adds: “Men’s grooming products are expected to post constant value compounded growth of 4% in New Zealand in 2007-2012.”

But that’s not to say there aren’t special characteristics that marketing managers need to take note of when dealing with both Australia and New Zealand, even if they are sometimes variations on a theme.

New Zealand focus

A report by Euromonitor released in April 2008 focused heavily on the New Zealand market, noting that for 2007 New Zealand’s retail cosmetics sales were at US$591.7m for the year, with a 5% retail value sales growth from the previous year. The report says that in New Zealand, teenagers and even younger consumers are now the target of marketing campaigns as they are viewed as “market savvy” and with greater awareness than previous generations. Also during 2007 a large number of foreign and local brands entered the New Zealand market, many of which were niche players. This was most evident in skin care with a number of natural brands hitting store shelves.

“The health and wellness trend has extended from food to cosmetics and toiletries,” says Lim. “New Zealanders are getting more concerned about the ingredients used in cosmetics and toiletries and the effects these have on their skin.”

Wyllie adds: “A lot of the organic brands here are domestic-based companies. It’s early days, with a lack of rules surrounding green claims. But the larger companies have picked up on it and are setting a benchmark.”

Some of the country’s leading natural brands include Trilogy, Skinfood, Art a Face, Living Nature and Antipodes. The New Zealand Trade and Enterprise (NZTE) government economic development agency reported in 2007 that the New Zealand natural products industry is comprised of around 250 companies generating export revenues of NZ$300m (US$224m) per annum. Wyllie points out that brands such as Living Nature are growing their market outside of the country rather than domestically. According to the Cosmetic Toiletry and Fragrance Association of New Zealand’s figures, roughly 10% of domestic cosmetic goods are exported and about 90% of what is sold in New Zealand is imported.

The growth of the women’s cosmetic sector in New Zealand is less impressive than men’s, but it is coming from a larger base. Colour cosmetics and hand and body products saw positive growth in 2007 and Wyllie attributes some of the market expansion (of the latter) to the popularity of gift sets.

Looking ahead, Euromonitor expects New Zealand’s cosmetics industry to continue to grow, but at a slower rate. Experts also predict New Zealand consumers will seek out more premium goods in colour cosmetics, skin care, sun care and hair care, increasing value growth of the market.

Eyes on Australia

This is good news, but with neighbouring Australia being easily the larger of the two Australasian markets, it is naturally Australia that is the key antipodean focus of international cosmetics manufacturers.

In recent years Australia has seen an upturn in the cosmetics industry both domestically and in overseas markets. With domestic sales ringing in at AU$5bn (US$4.8bn) Austrade (the government run Australian Trade Commission) predicts growth will continue as demand increases among specific market segments. At present sales are fuelled by an increasingly affluent population, a high birth rate and the migration of skilled workers with higher disposable incomes along with an ageing population (IBIS World Industry Report, March 2008). Like other countries that experienced a post war baby boom, Australia is seeing an increased demand for youthful skin from a bottle.

According to Euromonitor’s latest research domestic retail value sales grew by 4% in Australia in 2007. As with New Zealand, Australia has experienced growth within the natural/organic sector, men’s grooming and anti-ageing products.

But for Australia there are other concerns. The days of sun worshipping have been reduced in many Australian diaries as the dangers of UV, skin cancer and the sun’s ageing effect on the skin have become more apparent. With external factors and chronological ageing causing skin to tire, anti-ageing products are reaching out to more than just Australia’s baby boomers. They are expanding their pitch to reach a youthful crowd, getting them to start young and preparing for the future.

Manufacturers, however, need to be wary when they start promoting the youthful benefits of their brands. Lim warns: “The Australian Therapeutic Goods Administration (Australia’s regulatory agency for medical drugs and devices) realises there are more false claims made by manufacturers and therefore are looking to put in place stricter regulations to protect consumers’ interests in Australia.”

Australian manufacturers are also keen to use their country’s high profile worldwide to promote their cosmetics for export. Fortunately much of the profile is positive, and although Australia may not be viewed abroad in quite the same Garden of Eden mentality as New Zealand, it is undoubtedly considered clean and green. Australian cosmetics manufacturers touting botanicals, naturals and/or organic ingredients are gaining popularity, reports Austrade. Organic Monitor agrees: “Cosmetic manufacturers in Australia are using more natural/organic ingredients. Australia has a clean, green image and natural/organic cosmetics from these countries are perceived as chemically-clean,” says Organic Monitor’s Tina Gill. “This makes it easier for them to market these kinds of products in export markets. Biodynamic brands like Jurlique are popular in Europe and North America.”

It is not only overseas demand driving the natural trend forward. “More Australian consumers buy organic products. Organic foods are showing a rise in popularity as well as organic cosmetics,” says Gill.

Marketing such products can of course have its risks. Lim warns that an increased number of ambiguous claims have been made by manufacturers about product purity. “Some players use natural claims but just have one or two ingredients added to their normal list, which may contain parabens, synthetics, surfactants etc. These claims have resulted in consumers facing tough decisions when choosing cosmetics and toiletries.” Lim goes on to explain that in 2007 Australia’s Jurlique and New Zealand brand Living Nature gained Australian market share due to their strong emphasis on a pure image. In line with this trend, mineral colour cosmetics have also been launched by Australian brands Mineralogie and Inika in the last few years. Meanwhile mainstream brands such as Revlon launched their own mineral cosmetics lines for Australian consumers in 2008, with ColorStay Mineral Foundation hitting store shelves.

Such innovation is important for the Australian cosmetics industry, where exports make up 35% of the industry’s total revenue, a significant figure in an import dominated market. The 2007 figures from the Australian Bureau of Statistics show exports reached AU$339m (US$325m), 5% growth on the previous year. The country’s wide range of raw materials teamed with its healthy image in the global market is making it a popular choice abroad. Essential oils and bush essences are attractive ingredients within beauty products, while lanolin is in demand within Asia.

Essential oils hold a 9.6% share of cosmetic exports, according to the Australian Bureau of Statistics. Distinct aboriginal ingredients along with emu oil are also on the list of trendy export commodities. “Australia is at the forefront of zinc nanotechnology and this is an important ingredient for sunscreens,” says Tim Harcourt, Austrade’s chief economist. “Marine collagen, which has been developed as a substitute for bovine collagen, has also been produced here as the fear of mad cow disease is still an issue overseas.”

Over 200 Australian companies currently export cosmetics. “And I expect the number of Australian exporters to increase given the greater opportunities for growth overseas,” says Harcourt.

Australia’s key markets include, in value order: New Zealand, US, UK and the Asian nations of Hong Kong, Japan, Singapore, Taiwan, South Korea, India and Malaysia. New Zealand holds a 37.9% share of Australia’s export market at AUS$129m (US$124m). Next is the US at AUS$32m (US$31m) holding a 9.6% share. Between 2006 and 2007 sales to the US increased by 11.7%. India’s imports skyrocketed by 579% in the same period, increasing from AUS$1.1m (US$1.05m) to AUS$7.7m (US$7.4m). “One possible driver of demand has been India’s strong economic growth, proving that the relationship between India and Australia is more than cricket, curry and commonwealth,” explains Harcourt.

As Australia and New Zealand continue to blend as a market, and with both countries having a strong natural appeal, the market merge eases the effort required by suppliers and allows them to leverage opportunities domestically and when shipping abroad.

This trend is predicted to continue, along with the key market segments mentioned, holding an increasingly large slice of the budding cosmetics market.