Rising costs of raw materials puts pressure on personal care margins

By Simon Pitman

- Last updated on GMT

Related tags Personal care Personal care companies Cost

Rising costs of ingredients, packaging materials and processing have been hitting the margins of many of the leading personal care players in the US.

This is leading to changes in business strategy that are being highlighted by reduced marketing expenditure, supply chain integration and consolidation of distribution in an effort to improve efficiencies, according to a new study from market researcher Kline.

The findings are based on the company’s report Personal Care: U.S. Competitor Cost Structures 2011, which profiled marketers working in personal care companies registering double-digit operating margins from 2009 to June 2011.

Trend of rising costs

Underlining the upward trend for costs, Kline’s research reveals that the cost of goods sold, which includes raw materials, packaging, processing and overheads have increased to 11.1 percent of the net sales total in 2011, compared with a figure of 10.6 percent in 2009.

According to Kline industry manager Laura Mahecha, some of the most volatile costs have included oil and oil-based products, plastics and natural raw materials – all of which have had a considerable influence on overall costs.

In particular it is plastics, the primary ingredient used for packaging, which have been making one of the biggest impact on costs, with average increases ranging from 6 – 8 percent, a figure that Mahechea says is tied to rising oil prices.

Technologically advanced and natural ingredients

On the ingredients front, technologically and scientifically advanced solutions, as well as materials that are difficult to process have all seen higher price hikes than other more standard ingredients.

This means that ingredients such UV agents, SPF ingredient, synthetics, fatty acids and essentially oils have all been amongst the hardest hit, with price increases of as much as 8 – 9 percent from 2009 – 2011.

Natural ingredients have also been rising in costs, due in part to higher processing and transportation costs, but also to the fact that higher demand and shortages of certain types of naturals have been pushing up prices.

In part two of this article we will be taking a look at how sustainable practices are impacting costs for personal care companies, as well as assessing how budgets are being adjusted in attempt to shave the margins.

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