Market analysis for the perfume market in Romania
4. Market dynamics
According to Euromonitor International, the cosmetics and toiletries industry is expected to continue growing over the forecast period, albeit at a slower rate than was seen over the review period. This slowdown will be the result of the market approaching maturity, as the market has grown substantially over the past several years and it is believed that the industry is approaching its growth ceiling. Over the forecast period it is expected that premium and upper-mass products will become increasingly popular as more people will be willing to pay more for higher quality. Greater interest in appearance and general health among modern consumers will benefit most ranges.
In Romania, the perfume market represents 15% of the cosmetics total, being estimated at an approximate value of 50,000,000 euro.
The average variation rhythm of the sales of the product during 2003 – 2005:
Yn = the sales volume in 2005; Yn = 13,000,000 euro
Y1= the sales volume in 2003; Y1 = 12,000,000 euro
n= the number of years taken into consideration; n=2
R = 8 %
The increase in perfume sales was around 8% on the Romanian market, between 2003 and 2008.
The perfume market dynamics follows the dynamic of the ever-changing tastes of Romanian cosmetics.
According to data provided by market research agencies, women’s perfumes reach the value of over 11 million dollars, representing 33% of the total market, whereas men’s perfume sales reach 5 million dollars, representing 18% of the market. Also, it seems that in the mass-market segment, from 2003 to 2006, perfume sales registered a slight decrease both in volume and in value but in the gift packages segment, the sales have doubled. An important yearly growth is also noticed on the luxury perfume market, which is a general trend of Central and East – European countries. This evolution is shown by the sales figures at retail level - the market growth in 2005 relative to 2004 was of 45% and in 2006 relative to 2005 the figure was 48%.
It is considered that on the long term the overall market for perfumes will continue growing, with 45-48% every year.
5. Market evolution
The evolution of the perfume market in Romania follows the increasing pattern displayed at East and Central European level, both in volume and in value, taking into consideration the evolution of the number of consumers, of the product and the consume intensity of the product.
In 2005 (relative to 2004) the perfume market has experienced a crossed development, both extensively and intensively – the current distributors introduced new perfume brands on the market, as consumer preferences became more and more varied; also, new perfume shops opened stores in Bucharest and other major cities of Romania, in order to exclusively sell high quality merchandise. This evolution is sustained by the increased number of consumers.
6. Market conjecture
In order to determine the market conjecture, the following indicators referring to Romania are taken into consideration (each of the indicators are appreciated with one of the qualifications: very favorable, favorable, so and so, unfavorable, very unfavorable, to which a grade between +2 and -2 is assigned):
GDP dynamics (2005 over 2004): 4.1 %; as an important share for the GDP increase is due to the increase in consumption, we appreciate this indicator to be favorable also for the perfume market. The grade given is 1 (one).
Dynamics of wholesale production (2005 over 2004): 102 % (total industrial production); although the overall production at Romanian level increased, the perfume production in Romania is not very significant, most of the products being imported. Therefore, we appreciate this indicator as being so and so, the grade given is 0 (zero).
Inflation rate in 2005: 8.6 %; this indicator was lower than in 2004 but above the initial predictions for that year, therefore we appreciate it with so and so, as it is directly correlated with the level of prices. The grade given is 0 (zero).
Unemployment rate in 2005: 6.5 %; compared with the previous years, the rate of unemployment in Romania in 2005 decreased, therefore we appreciate the evolution of this indicator as being favorable, with the grade 1 (one).
Exchange rate leu/euro (average rate during 2005): 1 euro was accounted for 3.6234 lei; comparing this average exchange rate with the one in the previous year, we appreciated this indicator to be favorable for the perfume market, as most of these products are imported from European producers. Thus, a lower exchange rate means a decrease in prices that stimulates consumption. The grade given was 1 (one).
Average grade: the average computed using the grades associated to the above mentioned indicators is: (1+0+0+1+1)/5=0.6
7. Demand and offer
According to statistics, in 2005, de demand for perfumes in Romania was around 546 million Euros, out of which the luxury ones were around 20-25%. The stars of the year were the French ones, that as a matter of fact are the best also in the world. The best sold were the Dior ones, with 56% of the Prestige Perfume in 2005, and Guerlain with 16% of the total sales. Prestige Parfum had sales of around 2.36 million euros in 2005.
It is a fact that most of the Romanians prefer to use trendy perfumes that come from multinational companies such as Oriflame or Avon, which use the method of direct marketing. In Romania, there are also big companies such as Coty or Everet that distribute Calvin Klein, Hugo Boss or Cerutti. But, the most popular are perfumes such as Giordani, Little Black Dress, Individual Blue or Rebel, at least in what concerns the demand. This demand derives from the fact that they are of quality and that they target mainly the middle class customers. In Romania, 7 out of 10 women use perfumes daily.
Regarding the luxury perfumes, the demand and in the same time the offer is increasing. In 2005, the Everet Company had an increase of 45% of the market. It is said that the Romanian perfume market is one of the best in South-East Europe. The Everet Company brings to the market perfumes such as Lancome, Giorgio Armani, Hugo Boss, Calvin Klein and more recently Dolce&Gabbana.
Generally customers buy perfumes in order to satisfy their emotional needs and to have the sensation of exclusivity, but because the Romanian customers have a limited income, price are also very important. As compared to the western markets, the Romanian market keeps increasing every year.
Another company that deals with perfumes in Romania is the Privilege International Cosmetic. It brings brands such as Yves Saint Laurent, Gucci, Carolina Herrera, Escada, and Paco Rabanne. It also acts as a retailer having 22 own shops.
Even when talking about perfumes, there are variations in demand. Sales increase especially during holidays, because perfumes are offered as gifts.
Regarding the tastes, the companies have noticed that 60% of the women in Romania prefer floral, fresh perfumes. Mainly the products that are not that well known, but have a good quality price ratio, like for instance they cost around 25-30 RON, have increased on the market with 70% in 2005.
A lot of changes have occurred on the market. Romanians are not that conservative and loyal to a perfume, as they were 15 years ago, when the product was used only on special occasions and the consumption was very slow. Nowadays the consumptions are extremely rapid and the consumers need to change the perfumes according to their mood or to the way they want to express themselves. Choosing perfumes is something mainly subjective and people cannot be influenced in this choice.
Main producers and distributors
In what concerns the market shares of the companies that deal with perfumes in Romania it can me mentioned Coty Romania which in 2005 had sales of 18, 5 million dollars and a profit of around 7-8%. It is said that this company has around 15% of the market, the women perfumes being of 30% and the perfumes for men of 20%.
Coty Romania, one of the main players on the Romanian cosmetics market, posted turnover worth some $4 million (€2.58 mln), over 25 percent higher year-on-year.
The sale of the Adidas brand rose by over 35 percent, while the sales of the Kylie Minogue perfume exceeded $500,000 (€300,000) in Romania, according to Viorel Ognean, General Manager of Coty Cosmetics in Romania.
The company official estimates that turnover in 2008 will be 15-20 percent higher year-on-year, worth some $18 mln (€11.63 mln). The Coty Romania porfolio includes the Adidas, Rimmel, Astor, Celine Dion, Beckham, Esprit, Kylie Minogue, Kate Moss, Pierre Cardin and Pret a Porter brands.
According to Ognean, Coty is Romanian perfume market leader, ranking first for women’s perfumes and second for those for men.
The importer of perfumes Adidas holds in its portofolio 11 branduri of parfumerie,such as Isabella Rosselini, Celine Dion, Kylie Minogue and Pierre Cardin, on the semiselective part, and David Beckham and Esprit, on the entry-selectiv part.
Of the toatal sales,the greatest part had it Adidas, which, according to the companies representative, had an increase of over 70% as compared to last year, to say over 40% for Rimmel. For the entire financila year, the Adidas representative estimates an increaseof the sales with aproximatively 18%,as compared to the last financial year.
The plans of the company include bringing on the local market the Prestige division to Coty, which commercialises premium and superpremium brands, such as Jennifer Lopez or Calvin Klein. They consider that is is too early to speak aboutCoty Prestige, it is not their priority. They have a distribuition in all the selective shops such as Sephora, Ina International, B&B,where people can find brands like Beckham or Esprit. These are the first brands they already have from Prestige.
The local competitors of Coty are Avon, Oriflame Amway, P&G, Sarantis.
The Company Privilege International Cosmetic, which is part of the chain of shops Ina Center Privilege, had in 2005 sales of 5, 1 million euros and a profit of 700.000euros.
The L’Oreal Company of Romania had in 2005 a profit of 6, 9 million lei. According to statistics this company is the third multinational company in Romania after Avon Cosmetics and Procter & Gamble.
The Sephora Company considers that although it should launch old products in Romania by only changing the wrapping and a few things regarding the content, for the new products the wrapping is very important. As simple as possible and unique, creations of famous artists. Although the world is changing, the traditional brands, French perfumes have still the monopoly on the Romanian market.
In Romania the main producers of perfumes are Savants ( Savants +Antonio Pig) and Coty with a market share of 49,5% in 2005 and Farmec, BDF and Gillette with a market share of 62,4% in 2005. ??
Regarding the persons the type of perfumes considering the volume that are bought statistics show the following things: 65% are perfumes for men, 22,3% perfumes for women, 12.5% perfumes for gifts and 0.3% unisex perfumes. But regarding the value of the perfumes there are: 51,2% perfumes for men, 35,1% perfumes for females, 13,2% perfumes as gifts and 0,2% unisex perfumes.
Concerning the prices, it has been noticed that they are closely connected to the value of the perfume. The cheaper, the better. Companies realized that as they have discounts the sales increase even 10 times more. When females from Romania notice that perfumes are not that expensive as they generally used to be, they are tempted to buy as much as they can even though those perfumes do not represent them.
When speaking about middle-class customers, mainly between 18 and 35, prices are generally between 50-90 RON and the products come from companies such as Avon, Coty, Sarantis and Oriflame. Regarding the customers that are impressed by the brands or even by the wrapping and mainly those coming from upper classes, the average prices are a bit higher around 150-350 RON.
8. Prices and tariffs
Prices at en-detail perfumes coming from abroad are linked to the level of price of the foreign market and are between 120 RON and 300 RON depending on the quantity and concentration. The price also includes the excise duties that are between 10% and 30%.
There is a misconception that the prices of the perfumes that come from abroad are more expensive in Romania. Still, the perfumes bought from duty-free shop are cheaper. These prices vary according to the currency exchange rate leu-euro and can be modified even three times a year. Furthermore, producers of the perfumes impose to the companies that sell their products a certain rules to sell.
Being products that are not compulsory in the everyday life, the number of consumers with very high and high income is constant and the one with medium income fluctuates.
In the periods of growth or macroeconomic stability the number of customers also increases. This is the case of the year 2003. Afterwards in 2004 things were not that bright.
According to the data provided by the magazine MEMRB sales in the mass-market have decreased in the period 2003-2006 both in volume and in value. Perfumes are bought in shops that are specialized in such sales, 50% of the sales of perfumes come from shops that are specialized in selling cosmetics. After these come the small shops of maximum 40 square meters. In the same time, Romanians have commenced to prefer buying gift packets; the sales of these kinds of products have doubled between 2003-2006.
9.Imports and exports
Sellers and distributors of perfumes, especially French ones, have increased their sales during the period 2003-2006. The taste of the Romanians turned to expensive brands, highly advertised and oriented themselves towards the local markets. Moreover, the direct distributors that used a web page increased their sales with a minimum of 30%. Most of the clients preferred to order directly. The market is more stable and not only did the number of customers increase but also the number of products that each customer buys.
According to statistics, the French perfumeries had an explosive export in the year 2005 in the Eastern Europe and Romania was the fourth country. In Romania the imports of perfumes increased with 30% in 2005.
In 2004 the company Prestige sold around 150.000 perfumes that are above 40% the sales in 2003 and in values these sales were above 60%. The company has more than half of the retail market and 30% of the distribution market. The profile of the consumer is the one aged between 30 and 35 and income more than above the medium ones. It has been noticed that the best sold are the fresh fragrances of a quantity between 30-50 ml because of the lower price.
Studies say that the Romanian production of perfumes holds only 20% of the total market which is over 220 million euro and is growing every year with 15%. The main problem is that there are no funds for publicity and the televisions have very high taxes, so the local companies cannot compete with the multinationals. The expenses with the publicity of a brand product are more than 30%.
The President of the OPIC (The Patron Organization of the Cosmetic Industry) considers that the Romanian perfumes are of a good quality. Although they are produced using imported goods, they suffer when considering the aspect. The wrapping is more than 60% of the cost. Other factors that negatively influence the image of the products are the fact that they are deposited and sold in inappropriate places, although they need special conditions of temperature and humidity.
Furthermore, Romania is considered as being a hot market for the famous brands from other countries. Whenever they want to develop the orient towards Eastern Europe and Romania is Eastern Europe. The luxury market has developed a lot here and it is much easier to export in such a market than in those that are already stabilized.
On the other hand, there were still some problems regarding the entering of very large companies that produce perfumes on the Romanian market in 2004. For instance, Davide Cerutti, the vice-president of Dolce & Gabbana could not understand how a country that did not go through a war or any other major problem could be so underdeveloped. This is how he saw Romania, after arriving to test the market with a view to setting up shop in the country. However, the conclusion he reached is that it was not a good time to do it.
Several international cosmetics companies have arrived in Romania and the battle is on. Oriflame, the 30-year-old Stockholm-based cosmetics company, began its Romanian operations in December 1995. Since then, national sales have risen from about 15 million USD a year. The company practices 'direct selling, based on distributors coordinated by well-trained managers.'
Avon's clientele is primarily average-income, but they also have a line of more expensive products. The difference between this company and other direct selling companies like Oriflame and Amway is that Avon distributors do not develop as a network, but are carefully selected individually. Every cosmetics company is a competitor for Avon, especially the average-price ones like Coty.
Another company that sells through shops and imports mass products is Rom Star Cosmetics, which imports and sells ranges of products like BU and Clochard in Romania. The company has its own production line in Greece.
Coty, another importing company, is confident about its future in the Romanian cosmetics market. The lines Coty has launched in Romania are the perfumes Adidas, Exclamation, Chanson d'Eau, Vanilla Fields and Masumi. Masumi was the first perfume to be advertised by a perfumed magazine page in Romania. Generally the products imported to Romania are destined to the average-income clients and are produced in Western Europe. It is a colorful battlefield and if one thing is clear, it is that the Romanian consumer can't avoid being the winner with so many new companies courting the favor of the masses with the most tantalizing displays of color they can muster.
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