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World Wide Watch: Thailand

Political unrest coupled with the global economic crisis have resulted in stagnant growth for Thailand's beauty business.

The political uncertainty plaguing Thailand for more than two years has contributed to an economic slowdown, which has only been aggravated by the global recession. Signs of a downturn are everywhere, as plentiful as the antigovernment demonstrations that shut Bangkok’s airports in December and brought tourism to a screeching halt, striking an almost fatal blow to a pillar of the Thai economy.

Inflation, which reached a 10-year high in July 2008 and averaged 5.5 percent last year, is easing, but still projected to be 3 to 4 percent in 2009.  Thailand’s economic growth is projected to be 4 to 5 percent this year, down from a 5.1 percent projection in 2008.

Thai retailers, once bullish on expansion plans, are curbing their ambitions and focusing instead on the basics of direct marketing and in-store promotions. The beauty industry is feeling the pinch, as consumers see their purchasing power diminish and prices of food and fuel rise.

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To increase their growth potential, cosmetics manufacturers are increasingly competing for middle-income consumers in urban centers and are offering products in smaller sizes for poorer consumers in rural areas.

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About twice the size of Wyoming, most of Thailand’s 65 million population lives in rural areas. Bangkok, with a population about 10 million, is the cultural, educational, political and economic center of the country. Per capita income in Thailand is $8,700; half the population works in agriculture.

When it comes to beauty, manufacturers are seeking out niche markets as they compete for the urban middle-class consumer. Prime areas of growth include men’s grooming products, teen fragrances, deodorants and color cosmetics, and skin care for young women and older women above 40.

Thailand’s cosmetics market is expected to reach sales of around $2.2 billion in 2009, an increase of almost 10 percent over 2008, according to Warinthorn Limletcharoenvanit, a researcher at Kasikorn Research Center. Skin care is the most popular category, as Thai women value their complexions and shade their faces from the sun with their purses or anything handy, whether walking down Bangkok’s steamy streets or dusty village lanes. Skin care is first in terms of sales, ringing up $1.1 billion in 2008, hair care is second at $529 million and color cosmetics third at $313 million, according to Euromonitor International. Skin care is projected to have the largest growth for 2009, due primarily to antiaging and whitening products.

The poor economic climate in 2008 forced a clear shift toward “masstige” brands, states Yvonne Kok, a Euromonitor research analyst. By offering products positioned at the upper end of the mass segment, manufacturers are encouraging trial purchases and trading up and stimulating consumer loyalty in preparation for the economy improving in coming years, Euromonitor reports.

“Mass brands upgraded their packaging to offer more value whereas premium labels have had to reduce prices in order to stimulate sales,” Kok states. “For 2009 and onwards, in response to the poor economic outlook, promotions and price discounting will continue to drive sales peaks.”

Kok also predicts more price-conscious consumers will drift away from brand loyalty. For those shopping the medium- to low-end markets, price is the primary factor, Limletcharoenvanit says, while in high-end markets, the emphasis is on product quality and its purpose.

“A consumer with a larger budget is very interested in the quality of the product and its freshness, i.e. how recently it was made,” says Zoe Farthing, communications manager for Alliance Boots, which has 3 percent of the Thai cosmetics market.

Successful launches in 2008 included Nivea’s introduction of a whitening range and Eucerin’s dermocosmetic skin care line, says Kok. “The Eucerin line appealed to women above 40 who are willing to pay for quality products that offer multiple benefits and are perceived to provide greater value for money,” Kok wrote. “The dermocosmetic market in Thailand comprises 10 percent of the total beauty market and in 2008, it grew 14 percent because of heightened awareness of health and beauty.”

Euromonitor also expects to see greater demand for Korean and Japanese brands, such as Kose, Shiseido, The Face Shop and Missha. Korean and Japanese trends infl uence Thai teens and young adults because of popular soap operas, pop music and coverage of fashion in both countries. Makeup trends in Korea and Japan emphasize eye products, translucent skin and minimal lip color. Makeup sales are expected to grow 43 percent because of these influences, says Euromonitor, with sales of eye products alone expected to surge 60 percent.

Unilever is the largest beauty company in Thailand, with 13.9 percent share, Procter & Gamble is number two with 8.7 percent, L’Oréal is third with 7.6 percent and Colgate-Palmolive is fourth with 6.4 percent.

While sales of mass brands are somewhat robust—L’Oréal is expecting double-digit gains in skin care for 2009 market share, according to managing director Claude Rumpler—the prestige market has been harder hit. In 2007, following the September 2006 military-led coup, L’Oréal withdrew Helena Rubinstein from the Thai market, and saw sales drop for its prestige brands such as Lancôme, Biotherm and Shu Uemura, Euromonitor reports. The Estée Lauder Cos. Inc. and Shiseido also saw declines in 2007.

In the year ahead, Unilever and L’Oréal will focus on middle-class consumers in urban markets, with masstige products that appeal to consumers who previously bought prestige brands. Unilever expects to launch new items in its Ponds skin care and Dove hair care ranges, while L’Oréal may be amping up its hair care portfolio with launches for its Elséve brand.

For those on limited budgets, smaller-sized products are gaining in popularity, says Farthing at Boots. L’Oréal’s Rumpler agrees. The company recently launched a 10-gram sachet of Garnier Whitening Cream in Thailand’s upcountry and doubled its market share.

Urban shoppers prefer one-stop shopping and generally buy most of their cosmetics at supermarkets and hypermarkets, according to Euromonitor. In 2007, the channel comprised 32 percent of overall sales. Major retailers include Central, Boots, Big C Supercenter and Tesco Lotus.

Department stores also are growing in share and at least one major retailer, The Mall Group, is looking to revive its stagnant sales. Owner of the upscale Siam Paragon and Emporium shopping centers, The Mall Group plans to increase the sales space of its Beauty Hall from 18,044 square feet to 18,700 square feet by adding fragrances and makeup brands for teenagers.

The goal is to achieve overall sales of about $105 million this year, an increase of 6 percent over last year. In 2007, the company reported sales of cosmetics and beauty products experienced 7 percent growth, the lowest in five years. Previously, the average growth was about 12 percent, rising to 18 percent in peak periods.

To promote its Beauty Hall expansion, The Mall Group plans in-store promotions, which include 15 percent price discounts.

Overall, Thai retailers are cutting their promotion budgets, especially for television and magazines. Central Retail Corp., Thailand’s largest retail conglomerate, has put 20 percent of its budget toward direct marketing such as mailings or instant messages on cell phones. The Mall Group and Gaysorn, a high-end retail complex, are also targeting individual consumers in marketing efforts by staging events, giveaways and contests.

Nationwide, beauty advertising is expected to drop 4 percent in 2009. Top spenders last year included Unilever at about $121 million, which was down 16.2 percent from 2007; P&G, which spent about $48 million, up 1 percent from 2007, and L’Oréal, which spent about $40 million, up 21.1 percent from 2007, according to the Siam City Research Centre.

The industry is also looking towards domestic brands for growth, by targeting export markets in Japan, the Philippines, Malaysia, Indonesia and Australia. Sales of Thai cosmetics in the Philippines grew 45 percent in 2008; Japanese sales grew by 22.6 percent; Hong Kong sales grew 21 percent, and Middle East sales grew 33.9 percent, the Department of Export reports. The largest Thai cosmetics brands are Osotspa, which produces energy drinks, fragrances and cosmetics; ICC International, maker of BSC Cosmetics, and Smooth-Eco Ltd., which manufactures cosmeceutical skin care products under the brand Smooth E.