Russian cosmetics and toiletries market grows as economy improves

Bloomberg recently reported that the Russian government had predicted the economy would grow 6.4 per cent this year, to $542 billion (€452 bn). This represented a sixth year of growth, as oil prices soared and rising wages drove demand for real estate, cosmetics and mobile phones.

Meanwhile, in their recently published report Cosmetics and Toiletries in Russia​, Euromonitor predicted that the competitive environment will become more intense and consolidation of the market will increase as foreign and local manufacturers continue competing, since few local companies already have a strong presence on the market.

Russian cosmetics companies are also benefiting from economic growth. The Moscow Times recently reported that cosmetics company Kalina generated the equivalent of US$25 million (€21 m) at its IPO in April. And dual country registered Franco-Russian brand Green Mama has gone from strength to strength after its establishment by Oleg and Irina Nasobin in 1996 with start up capital of just US$50,000 (€42,000). By 1998, in a period of fewer than 18 months, their turnover had increased more than 60-fold to about US$3 million (€2.5 m).

According to Euromonitor: "The largest local manufacturers strengthened their positions and enjoyed consumer loyalty, but multinationals also launched more aggressive advertising and promotional campaigns."​ Advertising is an area where few local companies can afford to compete on the scale of the international players.

Euromonitor said that consumers are expected to continue the trend for dynamic growth witnessed in 2003 and the switching from economy goods to upper mass and premium goods. Increasing consumer spending power underpinned faster value growth, while cheap and low-quality goods started to disappear from the market.

During 2003, the market saw quite an uneven development in current value terms. Across the market a trend towards more expensive products took place, albeit to varying degrees.

Niche products started to emerge and form visible sales in various parts of the market. Sun care and oral hygiene enjoyed newly formed niche product development, while men's grooming products saw an increasing presence of niche products.

By the end of Euromonitor's review period, direct sales had seized an impressive share of 14.2 per cent of total cosmetics and toiletries sales. The local market proved to be responsive to this type of distribution, as the consumer is very approachable and also easier to influence than in some other countries. The impressive success encouraged major direct sales companies to invest in the local industry and launch local production.

Benefits of local production are no-doubt bureaucratic as well as economic because, according to the US Department of Commerce's Business Information Service for the Newly Independent States​, besides import duties on cosmetics products (20 per cent) and a value-added tax (also 20 per cent), imported cosmetics products must be certified to Russian safety and quality standards, and are subject to specific labelling requirements as well.

The relevant laws require that imported cosmetics must have a special safety certificate issued by the appropriate local certification centre. Since the certification procedures take time, local experts recommend that foreign exporters and/or their Russian partners begin preparations for obtaining the proper documentation before any sales contract is concluded.

If a product has not been certified and safety certification has not been received, Russian customs may suspend shipment at the point of entry. Consequently, pre-contract certification is a safer and a significantly cheaper way to import and distribute products in Russia.