Chemical suppliers fight recession pains with cosmetic innovation

Got recession wrinkles?

13 April 2009 21:17  [Source: ICB]

Chemical companies inject innovation into cosmetics and personal care

THE COSMETICS and personal care industry might not be immune to the global recession, but chemical firms are still doing better in this sector compared with their other markets.

The economy has been a challenge for most suppliers into personal care, says Matthew Ottaway, European industry personal care manager for US-based distributor Univar.

"But on the positive side, the demand fall is far less than in many other industries such as coatings and construction," he says. "Univar Personal Care still expects growth from sales of our specialty and commodity products in 2009."

Pennsylvania, US-based specialty silicone and silane-treated pigment producer Gelest says it has even seen steady to slightly increasing demand for its cosmetic ingredients over the past 12 months.

"The general understanding is that cosmetics, being small luxuries that offer instant gratification, tend to continue to sell well during economic downturns when people cannot afford major purchases," says Matt Edison, silicones business manager at Gelest.

He notes the company's continuing development of high-performance niche materials that enable formulators to drive sales with new products incorporating differentiated and improved performance.

"Retail cosmetic customers still demand performance from their products even with a reawakening of economic sensitivity," says Edison.

The personal care market is even less subject to cyclical downturns, according to France-based specialty chemical firm Rhodia. While the market saw a consumer shift in brand allegiance, trading down to lower-cost brands, overall, consumers haven't changed their cleansing habits.

"Fortunately, Rhodia is well insulated against brand shifts due to its broad customer and brand portfolio," says Sebastien Meric, global vice president, home and personal care at Rhodia Novecare. "We are acutely aware that our customers need to develop more cost-efficient products and we have several ongoing programs focused on delivering value solutions to meet our customers' needs."

For US-based specialty chemical company Ashland, innovation remains at the top of the list in combating recession woes.

"Our focus remains unchanged at this time," says John Panichella, president of Ashland Aqualon Functional Ingredients.

The company is optimistic about the cosmetics industry even in the current economic environment.

"While people may cut back on their vacation travel or large purchases during recessionary times, they will continue to purchase products that make them feel better such as cosmetics and personal care items," he says.

INNOVATION IS THE KEY

Germany-based consumer products company Henkel says consumption of cosmetics and personal care products has remained stable and resistant to the overall recession.

"Consumers are indeed looking for the best deal in terms of best quality/price ratio," says Tina Muller, senior vice president for the company's global hair, cosmetics, skin care and oral care businesses. "Trading down from the luxury category as well as the increase of the private label market is visible in some countries and segments."

Henkel continues to innovate at a rapid pace, especially in recessionary times.

"Innovations are very welcomed by consumers these days. We continue to invest in media - not only to strengthen our brand equity but to relay to consumers why our products are the best choice in times of a difficult economy," adds Muller.

According to US market research firm Kline, top personal care marketers last year spent about 53% of sales on marketing, 29% on cost of goods, and 7% on other expenses including research and development (R&D) and administration.

Unless unique products are highlighted, the recession is expected to affect their ability to increase retail prices.

"Companies that continue to employ effective marketing, efficient operations, sustained R&D expenditures and steady innovation are the ones that will remain profitable and hold market leadership positions in uncertain times," says Laura Maheca, industry manager for Kline's market research division.

Historically, Kline says the US industry has fared relatively well during economic recessions with a focus on brand building and high visibility. Products that emphasize value and performance, including multipurpose products, are expected to lift the market in the coming months.

"As we've seen in the past, sales of basic necessities, including soaps, shampoos and oral care products, will remain constant," says Kline industry manager Nancy Mills.

"The market stability in these classes will work to anchor the industry as a whole, warding off any major downturn as consumers scale back expenditures to focus on core needs and necessities," she adds.

Despite a deteriorating economy last year, market research firm Euromonitor International says the global cosmetics and toiletries industry managed to sustain growth levels of 5% - similar to that of 2007.

This is largely due to solid gains by skin care and facial care in particular as well as respectable expansion of relatively smaller sectors including deodorants, sun care and baby care, says Euromonitor research manager Irina Barbalova.

"Whether the industry will prove to be resilient in a tough economic climate over the coming years is yet to be seen. However, reduced spending on certain products such as premium cosmetics and fragrances is already being seen and projections for 2009 are far less optimistic," says Barbalova.

For chemical suppliers, overall US demand in cosmetics and personal care within the past 12 months has been comparatively strong despite a demand crash of about 20-40% in November/December, notes Neil Burns, managing partner of US-based chemical consulting firm Neil A. Burns.

"Clearly in the last quarter of 2008, the cosmetic chemicals market was afflicted with the same destocking and deleveraging as the rest of the chemical industry. However, the effect was temporary and overall volumes have held up fairly well," he says.

US-based specialty chemical firm Dow Corning's global beauty care industry director, Stephen Gosney, says the cosmetic industry is clearly feeling the challenges of the global economic downturn. In the fourth quarter of 2008, the company saw significantly lower demand for silicone products.

"We're focused on working closely with our customers to help them through these challenging times while helping to continue to innovate their products," says Gosney.

WHAT'S HOT IN 2009?

Dow Corning notes the market's increasing interest in antiaging products, greater use of natural ingredients, broader demand for products offering sun protection as well as innovative solutions for hair protection.

US-based Evonik Goldschmidt Corp. has seen demand and consumption trends center on products that promote health, antiaging and convenience in the past 12 months. Key growth markets also include prestige/massage products, color cosmetics, specialized hair products promoting shine/gleam, and natural-based products.

"Personal appearance remains an important part of everyone's daily life. Antiaging products will remain strong as the trend spreads across all age groups," notes Lauren Kjeldsen, business director of Evonik Goldschmidt's North America personal care.

"Prolonged sour economic news is likely to wear on consumer confidence and spending. But the need to keep ourselves put together, youthful and well-groomed will still compel consumers to buy shampoo, conditioners, makeup, lotions and body products," she adds.

Investment and innovation are imperative to staying ahead of the curve.

"The more business-savvy companies are taking advantage of this 'quiet period' to ramp up sales and marketing activities, especially with customers' technical staff," says Burns. "Cosmetic chemicals suppliers are using their time now to go deeper with existing customers in terms of expanding their business with them - getting their chemicals approved in additional formulations."

While innovation is expected to continue, Burns says demand growth this year is expected to be essentially flat in terms of volume because of a slow start to the year.

NATURALS: RECESSION PROOF?

Despite tight consumer spending, the natural personal care sector is expected to remain a bright spot in the cosmetics and toiletries market because of more widespread availability, increasing affordability, and continued desire on the part of the consumer for environmentally friendly products.

US market research firm Kline estimates sales in the US natural personal care market last year at over $2bn (€1.5bn) at the manufacturers' level, up by 19% from 2007. The European market posted a 15% gain last year, to around $3bn.

"Growth for truly natural brands has significantly outpaced increases for natural-inspired brands driven by growing distribution and broadening consumer demand," says Karen Doskow, who is associate project manager at Kline.

Kline's analysis revealed that truly natural products account for over 40% of the US naturals market. "The majority are natural-inspired, with ingredients that range from unnatural to those that are natural wherever chemistry allows but also include silicones, polysorbates, ethoxylates or chemical derivatives," says Doskow.

Given the current economic climate, Kline says many marketers may likely forgo the extra cost for certified organic ingredients in lieu of natural-inspired products. "Manufacturers are weighing the value of investing in certification against the potential return on that investment," Doskow adds.

Read Paul Hodges' Chemicals and the Economy Blog


By: Doris de Guzman
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