From evolving consumer desires to dueling distributors, a wave of change is rocking India’s fragrance industry and the results could have long-term implications.
This story first appeared in the June 17, 2011 issue of WWD. Subscribe Today.
Though still small—Euromonitor International estimates the country’s fragrance sales to be about Rs 5.4 billion, or $112 million at current exchange—the category’s potential is anything but. Sales grew 17 percent in 2010, and more and more, international brands are entering the market to take advantage of India’s intrinsic affinity for the category. In the past two years alone, Prada, Guerlain, Giorigo Armani, Diesel and Hermès have entered the premium segment and Playboy has entered at mass.
“Overall, fragrance usage has gone up in India and is amongst the top growing categories in the beauty market in India,” says Vivek Bali, business head & assistant vice president of cosmetics and fragrances of Reliance Retail Ltd., which has a strong beauty footprint across many of its retail formats. “All three segments—premium, mass and value—are growing at a good pace, with customers transitioning from value to mass to premium in both the men’s and women’s segments.”
It’s not just women who are fueling the growth. The men’s category accounts for more than 60 percent of sales. Not only are men in India very aware of their own grooming needs, they are also part of the large gifting market which drives sales. “Men tend to buy more for gifting and are more concerned with their own grooming as well,” says Rakhi Gupta, category head for beauty at Future Group. The top-10 sellers in India, across categories and genders and by market share, are Old Spice, Revlon, Bulgari, Nina Ricci, Hugo Boss, Oriflame, Axe, Azzaro, Davidoff and Christian Dior, according to Euromonitor. P&G’s Old Spice has been the market leader for the last five years, although its share has fallen from 6.1 percent in 2005 to 5 percent in 2010, according to Euromonitor. Revlon was number two in 2010 with 4.7 percent market share. Charlie and Fire & Ice are its best sellers.
“Like the Middle East, India has a deep history in fragrances. It is ingrained in the culture,” says Hemansu Kotecha, managing director of Baccarose. He should know. Baccarose is a leading beauty distributor representing over 60 brands including Prada, Guerlain, Burberry, YSL, Clarins and Nina Ricci. Kotecha adds that global fragrance brands are “looking at India more seriously than before. Many brands are considering how to realize the potential in India and how to invest to get a bigger market share. The question is still about the right timing and strategy.”
Those two elements have been a key concern for many global marketers. While India holds the promise of a middle class some 400 million people strong and a history of using fragrance, sales figures have not always been enough to counter the high import duties, unrealistic real estate rental costs in malls and the challenge of distribution across a country that is geographically as diverse as many parts of Europe.
“That is one of the biggest challenges,” says Gabriel de Gea Díaz, sales manager at Takasago, “along with the fact that the concept of fragrances in India is unique. Agarbathis (incense sticks) form a very large part of the fragrance market, and are much stronger in Southern India. Chewing tobacco is a very important segment and is spread all over India. Personal care and fragrances are more concentrated in the North.”
The initial sense of fragrance in India still comes largely from fresh flowers, particularly in the South, where they are extensively used in the hair. Attars and essential oils are also extremely popular. But with increasing modernization and growing retail outlets, Western fragrances have become more popular, particularly in larger cities like New Delhi, Mumbai, Bangalore and Chennai, and increasingly in smaller towns such as Chandigarh, Hyderabad and Lucknow.
There is also an appreciation for wide olfactive styles, says Venkat Iyer, vice president of scent & care for Symrise, which opened a perfumery school in India in 2010. “Indian consumers prefer an impactful fragrance with a good bloom,” he says. “The country’s dietary and religious traditions have clearly influenced consumers, who have the ability to appreciate more complex combinations compared to other Asian markets due to their exposure to a mixture of spices in their diets from across different regions.”
Overall, the market for “lifestyle” products is on the rise. “Consumers from lower population strata, such as rural and semiurban areas, are trading up from unbranded to branded products,” says Roosevelt D’Souza, executive director of The Nielsen Company. “As the lower end of the market becomes more broad-based, the middle and upper end of the market is growing to include specialized products to encourage consumers to migrate further up the value chain. More importantly, the pace of these changes and their geographical reach signal a genuine shift in purchasing habits and lifestyles.”
“The customers understand a lot more about beauty and know what they want,” agrees E.P. Suresh, general manager of Tarz Lifestyle India Pvt Ltd, the influential distributor which is a part of the Dubai-based Chalhoub group and handles Dior, Givenchy, Davidoff and Calvin Klein. “There is a lot of potential for growth—the market is evolving fast.”
Tarz started doing business in India in 2007, when Chalhoub acquired the rights for those brands in India. The move effectively put several other distributors out of business, namely Harmony, which had launched Calvin Klein in India, and Eurotraditions, which distributed Dior and Givenchy. Baccarose emerged as a stronger player than ever before and Tarz quickly established its distribution networks.
Other major players include Beauty Concepts Pvt Ltd, a Kolkata-based distributor which launched Davidoff (now with Tarz) and Bulgari, and also has brands such as Salvatore Ferragamo, Reebok and Deborah. On the mass side, there’s GR Fragrances, which is strongest in the South and has brands such as Alta Moda, Royal Mirage and Shirley May, and Vanesa, based more in the North, with brands such as Envy, Flame and Illusion.
Change is common, particularly in the mass sector. Adidas, for example, which was distributed by Beauty Concepts, moved to the Channai-based CavinKare for distribution, while the Mumbai-based JL Morison, which earlier manufactured and distributed Nivea, launched Playboy fragrances in 2010.
Though mass brands performed strongly during the financial crisis, the prestige market is starting to make a comeback. “During the last financial crisis in 2008-2009, the trend has been towards cheaper alternatives in terms of price points,” says Tony Chin, chief executive officer of Beauty Concepts. “However, as the economy improves, there is a shift back to premium brands for middle-class consumers.” He notes that new counters are being opened for Bulgari and Hermès. Beauty Concepts also signed a joint venture with L’Occitane two years ago, and has been opening stand-alone stores with the brand, which is popular with Indian customers because of its fragrance variety.
Sales of prestige brands grew 181 percent from 2004 to 2009, according to Euromonitor, due in large part to the growth of organized retail and a more consolidated approach by brands towards education and marketing support for the distributors. Going forward, Euromonitor forecasts prestige fragrances will grow 109 percent by 2014 to sales of approximately $160 million, while mass fragrances will grow only 45 percent to $64 million.
“The premium fragrance market is growing fast,” says Bali. “Increasingly, shelf space is growing as the category delivers better sales per square foot.”
Bali says the urban market delivers 70 percent of sales. Mumbai and New Delhi are the top two cities in terms of sales, followed closely by Bangalore and the fast-growing Hyderabad, Chennai and Kolkata markets. Smaller cities such as Jalandhar, Chandigarh, Lucknow, Amritsar and Pune are quickly catching up.
Although the prestige segment is growing faster, the mass brands still have a strong base from which to grow, and are posting significant increases. Men’s mass fragrances grew by 100.9 percent from 2004-2009, while the women’s sector grew by 59.4 percent.
While Bali says that the prestige, mass and masstige segments all have great potential for growth, the real competition for the mass segment is in the deodorant and body spray market, worth $139 million at current exchange in 2010, which has been growing at more than 41 percent per year, according to AC Nielsen. Unilever’s Axe dominates the market, with a market share of over 25 percent, despite the fact that more than 20 new brands launched last year, including Hindustan Unilever’s Sure (joining its offerings of Axe and Rexona), new variants in the JK Helene Curtis range (owned by Raymond), Playboy fragrances and deodorants and local variants such as Fuel, KamaSutra and other ranges from Spinz.
Men’s deodorants and fragrances typically cost less than women’s, and sales are being driven by a lower age group, often starting at age 12. More and more teenage middle class boys are adopting deodorants as part of their daily hygiene regimens. Hypermarkets and food stores that stock deodorants is a fast-growing value retail segment driving the growth further.
Middle class women, too, are fueling consumption. “More women have joined the work force and are earning well,” says Díaz, who notes that whereas previously a woman might have bought only single beauty items, many are now more concerned with a complete look. “Their exposure to the media has increased tremendously.” Ditto young people: “More than 60 percent of sales come from shoppers who are below the age of 30,” says Kotecha. “Not only are they looking for great-smelling fragrances, but they’re also keen to ‘buy into’ these international brands that give them more self-confidence and, importantly, self-gratification. Fragrances are the entry point into luxury and the Indian market is responding.”
Key to the changing consumer profile is the sense of self-indulgence that has come in with the new generation. The earlier concept of families that saved stringently for the future has given way to a greater pursuit of luxury and pleasure, not only at the level of working people but also for the 12-to-18 generation, upon whom parents are willing to spend more lavishly.
A more noticeable advertising presence by beauty companies has made customers believe that what were once regarded as luxuries are now necessities. L’Oréal is one of the biggest advertisers on television, as is the Kolkata-based ITC Group, which has a range of shampoos and soaps and a premium-segment range of deodorants and fragrances. More exposure to television and programs from around the world has also resulted in higher awareness of personal grooming.
Retailers have also been providing more incentives to customers. “What was once unusual, the gift packs and special offers, have now begun to be more inspiring for customers,” says Gopal Asthana, business head of Shoppers Stop. “India has at least one festival every day of the year—each day is an occasion for a gift. The wedding market is a huge draw for beauty sales, as are birthdays and anniversaries.”
Largely undeveloped, organized retail is trying to catch up to the market’s demands. Currently, India’s retail market is valued at approximately $300 billion, of which organized retail is less than 6 percent. But the scenario is quickly changing. Among the top players are the K. Raheja group, which owns 45 Shoppers Stop department stores and a hypermarket chain called Hypercity.
The Future Group operates 18 department stores called Central, a hypermarket called Pantaloons with 53 stores and a value chain called Big Bazaar, which numbers over 200 doors.
The Dubai-based group Landmark has more than 45 stores in its Lifestyle department store chain, while the Reliance retail group has several different formats including Reliance Timeout in the premium segment and Reliance Fresh in the value segment, along with several other nameplates that combine beauty and fashion. Another conglomerate, Aditya Birla, operates several different retail stores. All of these chains have had an initial growth in the metro cities of New Delhi, Mumbai, Chennai, Bangalore and Kolkata and now are growing fast in the Tier II towns.
India does not allow foreign direct investment in retail in the multibrand segment, making global retailers’ entry into India subject to joint ventures and franchises. However, global competition is slowly heating up. Wal-Mart, for example, has six stores here, with 12 expected by March 2012.
Debenhams opened its first store in India in 2007, and many global brands have been looking at it as a premium location for their products. “Fragrance is an important way to emotionally draw the consumer into our beauty areas,” says Aditya Nadkarni, business head of Debenhams India, who notes that the category comprises 30 percent of overall beauty sales. Planet Retail, which holds the master franchise for Debenhams, plans to open 30 stores in the next four years, with an investment of $65 million.
The subject of foreign investment in retail has been the matter of intense debate over the last two years as more global retailers look at setting up. The anticipation is that the government would allow this to change sometime in the next 12 months, leading to a revolution in retail.
The swift pace of retail expansion is already starting to pay dividends. Bali says that at Reliance Fresh and Reliance Marts, fragrances grew by 40 percent, while at Reliance Timeout that figure was 73 percent.
As the retail network grows, so too do store sizes, particularly the beauty and fragrance areas. “We now have larger spaces for beauty, up to 10 to 15 percent of the stores, which are 40,000 square feet on average,” says Asthana of Shoppers’ Stop.
Retailers have also been experimenting with the most effective merchandising techniques for the market. “Earlier, we used to use gondolas,” says Asthana. “Now we’re using more wall space, which has changed the look, feel and premiumness of the category.” Future Group’s Gupta says that while fragrance has continued to grow at each of its formats, particularly mass deodorants, the prestige sector is undergoing a different dynamic. “We’ve seen a lot of brand rationalization to restrict the number of brands to between 50 and 60, based on the top sellers,” she says. “For customers, we have realized that they are either very price sensitive or they are brand sensitive. We try to cater to both, which helps the aspirational growth of the customers.”
India’s aspirational consumer class is only expected to grow. McKinsey Global Institute suggests that if India continues its recent growth, average household incomes will triple over the next two decades and it will become the world’s fifth-largest consumer economy by 2025, up from 12th now. The report cites that “spending patterns will shift significantly as discretionary purchases capture a majority of consumer spending,” continuing, “India’s potential should make it a high priority for most consumer goods businesses
India’s Fragrance Development: 5 Key Points
The Retail Revolution: India doesn’t currently allow foreign direct investment in retail in the multibrand segment, however, analysts expect significant evolution on the issue in the next 12 months.
Small But Strong: Although sales are still small, prestige fragrances are expected to grow in the triple digits, with sales reaching $160 million by 2014.
Men Matter: Men are as avid purchasers of scent as women, both for personal use and as gifts for women.
It’s Not Just About the Juice: Deodorant is a huge—huge—market here.
The Young and the Beautiful: Eager to buy into the luxury market, the burgeoning youth population is driving sales of international brands, with fragrance a key entry point into the luxe life.
Although the cult of Bollywood reigns supreme in India, fragrances created and marketed with the names of superstars Amitabh Bachhan and Shah Rukh Khan haven’t captured consumer interest. Actress Shilpa Shetty launched her scent last year to great media fanfare, but the fragrance fizzled out soon after.
Fashion designers, too, are cautious. The Mumbai-based designer Rocky S got a lot of attention for his fragrance launch, as did designer Ritu Kumar, but as she says, “Fragrance is not going to be one of our major sellers in the near future although it does sell to complete the look when a customer is shopping.” Bottled perfume is still very much a Western concept, says the designer, who has more than 22 stores across the country, noting that people still use fresh flowers and incense sticks more frequently.