A Passage to Chindia

About five years ago, the high-end French skincare brand L'Occitane entered China's booming cosmetics market. A relatively late entrant into a market swarming with local players, L'Occitane, which specialises in natural products and essential oils, made up for lost time with some smart thinking. The cosmopolitan cities were saturated, so it zeroed in on the country's underpenetrated towns. The company started operations in Shanghai and Beijing, the nerve centres of China's economic might, but swiftly swept into smaller cities Qingdao and Wuhan.

Raising brand awareness was imperative for making inroads, so the company tied up with airlines and hotel chains like Shangri-La to give its products visibility. Then, to grow sales rapidly, L'Occitane rolled out products in new niche segments. Its Immortelle facecare and Cherry Blossom body range and the Shea Butter hand cream have become its big-selling products in China. L'Occitane won't disclose its revenue figures there, but it has today a firm foothold in China. It boasts of 50 stores across 20 cities.

It opened eight stores between March 2009 and February 2010 and has 15 stores in Hong Kong. And, here's a sure sign that its China strategy is working: It raised HK$5.5 billion (US$687 million) through a Hong Kong initial public offer in April — the first French company to do so. L'Occitane's next stop is India. In many ways, it finds the market here as promising as China's and is hoping for an encore on Indian shores. It entered Indian distribution channels five years ago, but stepped up its operations only recently.

In the last eight months, it has set up a 51:49 joint venture with Kolkata-based Beauty Concepts. The French company has three stores in Delhi and plans to open five more in Mumbai and Bangalore by March 2011 — and, yes, even beyond. "We're also looking at Tier-II cities like Ludhiana and Chandigarh," says L'Occitane's India General Manager Guillaume Geslin, who was closely involved with the brand's venture in China.

L'Occitane has plenty of company. Some of the world's biggest names in skincare are descending on India after hitting pay dirt in China. Take the example of Germany's Beiersdorf, owner of the iconic Nivea brand. Nivea estimates its annual China sales would touch 2.1 billion yuan (US$307 million) by the end of 2010, almost doubling in the last two years.

Beiersdorf intends to make China and India the prime focus for its sales growth. Ditto for L'Oreal, the world's largest cosmetics company. Its iconic British skincare brand, The Body Shop, which it acquired in 2006, is already busy expanding its Indian footprint. So, what explains this "Chindia" approach by the skincare giants? In large measure, it's the belief that the China story can be repeated in India.

The surge in disposable incomes there with a teeming middle class has ensured a booming market for personal care products and services over the last decade. China's skincare market is now estimated to be about $6 billion (Rs 27,600 crore), making it the third-largest after the United States and Japan. In contrast, the Indian skincare market is at Rs 3,000 crore or a little over a tenth of China's.

But India's economic resurgence of the last few years and favourable demographics could ensure an exponential growth in the market. Already, the Indian skincare market is growing at 20-25 per cent every year and has trebled in the last five years. "The emerging middle classes in China and India are more aware of international brands and as such are strong catalysts for international brands," says Geslin.

India Make-up
Most brands want to establish their presence in India while it's still a fledgling market. L'Occitane is a new entrant. And L'Oréal and Nivea, which have had an Indian presence for a while, have much smaller operations here than in China. Nivea has just two per cent share in India compared to six per cent in China, while L'Oreal has about seven and 12 per cent, respectively. The domestic skincare market is dominated by big daddy Hindustan Unilever Ltd (HUL). Says Gaurang Kakkar, an FMCG analyst with Religare Capital Markets: "The growth rate is strong due to low penetration at all levels — premium, middle and lower."

This has meant that most brands plough their own furrow. Nivea India, for instance, focused on men's fairness creams market and today has about 15 per cent of the emerging segment with its Nivea for Men range. The brand positioning is consistent. Says Soma Ghosh, Marketing Director, Nivea India: "We are a mass premium brand in India. This means that our price points are higher than those of our direct competitors."

L'Oréal is following a more diversified game plan and wants a dominant presence across segments. Garnier competes in the mass market category, while L'Oréal Paris and Vichy fall in the mass premium segment. Lancome, with its three boutiques and eight counters, occupies the super premium segment. Lancôme's Secret De Vie, its most expensive skincare product, a serum priced at Rs 12,500 for a 50 ml pack, enjoys a fiercely loyal customer base, insists Dinesh Dayal, COO, L'Oréal India and Director of its luxury products division.

It helps that the Indian skincare market is witnessing a slow and steady change. "Like China, high disposable incomes and the emergence of the mall culture have raised awareness and made the market very dynamic," says Dayal. Products making inroads into the market range from anti-wrinkle creams to spot reduction serums, addressing very specific needs. Facial cleansers and face wash are other emerging segments. And, brands have also realised that the Indian market, like China, has its unique requirements.

A study by Nivea showed that oil and hyper pigmentation remain the two main skin needs for men in India. Its product Nivea for Men Whitening Oil Control intends to serve this market. L'Oreal, too, has set up a local research and development cell in India, and its Garnier men's range was created specifically for India.

Fair and Local
And, yes, L'Occitane is not the only global player to look beyond the metros. Wiser from their China outing, both Nivea and L'Oréal have similar plans. Nivea is gunning for the top 35 cities in India to grow and consolidate its business. To demonstrate its commitment to the Indian market, Beiersdorf set up its whollyowned subsidiary, Nivea India, in 2006. The unit began with marketing and other support functions and took over India distribution by 2008, ending an alliance with Mumbaiheadquatered JL Morison (India).

According to Ghosh, Beiersdorf rated India as one of its top priorities along with Brazil, Russia and China, other members of the so-called BRIC group and "it was logical to take over the complete reins of the business". L'Oreal's The Body Shop is also fanning out into the interiors. "We have 35 stores across 16 cities in the country. Over the next three years, we plan to expand to more than 150 stores," says Jonathan Price, Managing Director, Asia Pacific, The Body Shop. The brand is already present in Indore, Ludhiana and Jaipur, and will be entering Jalandhar, Kanpur and Mangalore.

L'Oréal, Nivea and L'Occitane are backing their initiatives with clearly laid out marketing and sales initiatives. "We plan to expand our presence through high street malls, counters in departmental stores and duty-free shops at airports, and airlines and hotel chains like Shangri-La and Four Seasons — pretty much like in China," says Geslin. Nivea and L'Oreal are turning to the two enduring religions in India — cricket and Bollywood — to whip up sales: Nivea is banking on its association with the Indian Premier League team Chennai Super Kings, while L'Oreal has Bollywood stars John Abraham and Aishwarya Rai hard-selling their products.

Crowd Ahead
HUL is gearing up to take on the fresh competition with a focus on market development and expansion into new segments. It has entered the male grooming segment with Vaseline Menz and has expanded its face cleansing portfolio with variants of Dove, Ponds, Pears and Lakme. Indian players, too, are sitting up and taking note. Dabur, for instance, is expanding its skincare portfolio with its premium Ayurvedic Uveda range.

Piramal Healthcare recently launched a medicinal skincare range, Avene, in association with French pharmaceutical company Pierre Fabre. "We're targeting high-end customers with more disposable incomes," says Pierre Benham, Head of India Operations at Pierre Fabre. Upmarket Indian consumers are not complaining.

Consider Amritsar-based Manita Bajaj, CEO, I'm Happy, an organisation conducting meditation-based workshops and retreats. A Body Shop body butter fan, she is happy that the brand has finally hit her city. "Now, I don't need to approach my cousins and relatives for their products," she says. Just what the skincare companies want to hear.