According to an updated report by market analysts IBISWorld, the industry is a dynamic one, characterized by a high degree of innovation and the introduction of new and reformulated products.
Past 5 years
Over the past five years revenue increases average 3 per cent per year, and should reach $243 billion by the end of 2013.
“Industry operators have consistently expanded their portfolios to cater to underserved markets, where average incomes are well below the average product price,” says industry analyst Radia Amari.
Moreover, to capture the growing aspirational shopper market), IBISWorld says that firms have integrated high-end cosmetic brands under their umbrellas, and the analyst expects these efforts, along with improving economic conditions, to drive industry growth during 2013, with revenue increasing 2.4 per cent.
Mergers and acquisitions
Industry concentration has gradually increased over the past five years, in line with acquisitions.
Merger and acquisition (M&A) deals of interest over the past decade that have served to change the face of the industry’s landscape include Procter & Gamble's takeover of Gillette, L'Oreal's acquisition of the Body Shop, the purchases of Kanebo and Molton Brown by Japanese-based Kao, and Coty's acquisition of Unilever's fragrance division.
IBISWorld says that other key drivers underlying the on-going spate of M&A activity include the expansion of geographic footprints, diversification into new product categories or market segments and the exploitation of new technologies, including novel delivery systems and new greener technologies and processes.
Profit in the industry has suffered though, as shoppers opted for lower-priced personal care products. The mounting focus on naturally-derived toiletries has also underpinned industry performance over the past five years.
“Operators have responded to changing consumer preferences for chemical-free cosmetics formulas by introducing and reformulating popular products like shampoos and lotions,” says Amari. “Global cosmetics manufacturers are also focusing on natural makeup options, a growing industry segment.”
As per capita disposable income rebounds more strongly over the five years to 2018, IBISWorld claims that the industry will experience even stronger growth, as consumers will be more willing and able to spend on higher-priced products, leading to higher average profit margins for operators.
Additionally, players' efforts to cater to emerging economies will also continue to pay off, further boosting industry growth.