Sensing a shift in scents: The fragrance industry's changing landscape - May 14 - 16, 2017

May 14 – 16, 2017
Dubai International Convention
and Exhibition Centre, UAE
www.beautyworldME.com

                     Sensing a shift
                     in scents:
                     The fragrance
                     industry’s
                     changing landscape

Sensing a shift in scents:
The fragrance industry’s changing landscape

      Introduction
      There has been a major shift in the world’s fragrance market in recent years where an overall
      slowdown in growth has seen mass fragrances lose ground while premium is gaining ground,
      driven by increased demand in niche offerings.

      In this report Beautyworld Middle East looks at the growth prospects in the global fragrance
      industry, identifying the key markets and trends that are expected to drive future growth and
      the challenges the industry is facing. The report draws from research and insights provided by
      Euromonitor International for the forecast periods 2009-2014 and 2014-2019.

The global fragrance market

      While the fragrance market experienced growth over 2009-2014, it was somewhat impacted
      by consumers in developed regions reigning in on non-essential spending. Despite this
      perceived slowdown, by 2014, according to Euromonitor estimates, global growth stood at
      six per cent, largely bolstered by the niche category, popular amongst the more affluent,
      recession-proof consumers.

      Euromonitor research estimated the global fragrance market was worth USD 46 billion (bn)
      in 2014, with premium fragrances holding the larger market share at circa 55 per cent or USD
      25.5 bn while the mass fragrances market was valued at USD 20.5 bn. Fragrance sales in
      developing markets exceeded those in developed markets in 2014, with developing markets
      holding a 52 per cent share of the global market. This is expected to rise to 56 per cent in the
      2014-2019 forecast period, driven by a CAGR of four per cent.

      Growth has slowed significantly in the markets of North America and Western Europe,
      with a modest one per cent compound annual growth rate (CAGR) predicted in the 2014-
      2019 period. It is premium fragrances that will drive this modest growth, with the value of
      mass fragrances shrinking. A shift in consumer preferences has lead to a decrease in volume
      consumed, indicating a propensity for “quality driven, high-priced fragrances”. Here the
      fragrance market is particularly competitive, product saturation is a real problem and it is
      difficult to retain brand loyalty. It is a market where, according to Euromonitor, “a fragrance
      struggles to stand out, lasts no longer than a season or two, and relies on retailers’ selection
      process to gain adequate shelf space.”

In Latin America a new consumer market for fragrances is emerging with increased retail
penetration and rising disposable incomes. Euromonitor research points to it as having been the
fastest growing region over the 2009-2014 period and estimated that at the end of the period its
market value was close to that of Western regions.

Interesting fact: Brazil, by far, leads per capita volume consumption globally at 186 ml per head,
equating to ten times the global equivalent!

Euromonitor International estimates that Middle East and Africa (MEA) contributed 31 per cent of
growth in the global fragrance market in the same period, increasing to 40 per cent in the premium
category driven by increased demand in Saudi Arabia and South Africa. It is predicted that Saudi
Arabia will account for 24 per cent of premium fragrances growth in the 2014-2019 period, adding
USD 849 million in value, driven by a favourable macroeconomic climate and the embedded cultural link
to scent use.

SubSaharan Africa also offers great potential for the fragrance industry with South Africa firmly
driving growth. In 2019 Euromonitor expects the global per capita spend on premium fragrances
to be USD 4, but in South Africa this could reach USD 12! A growth in high-end shopping malls, a
proliferation of premium fragrance launches and an increasing appetite towards niche fragrances will
fuel this growth.

Interesting fact: CAGR in men’s premium fragrances in South Africa is expected to be seven per
cent in the 2014 – 2019 period, outpacing that of women’s premium fragrances which is expected to
be five per cent.

U
 nderlying trends in the mainstream
   fragrance market

      a. Global increase in premium, decrease in mass: Globally there is an increase in sales of
          premium fragrances with Latin America registering the biggest growth curve. Euromonitor
          attributes this to young professionals being able to upgrade to low-end and mid-range
          premium brands by opting for smaller packs and taking advantage of online and drugstore
          discounts. Growth in the mass market is hampered by this tendency for consumers to
          upgrade to more premium brands.

      b. Premium volume down, value up: With the availability of smaller packs, premium
          fragrances are perceived as being more affordable. While it means that consumption in
          volume is down, value is up as the cost per millimetre of a smaller bottle is typically higher.

      c. Dampened prospects in mass fragrances: With growth hindered in Western and Latin
          American markets, mass fragrances need to turn to more untapped segments such as Sub
          Saharan Africa and Brazil where per capita fragrance use is high but consumers opt for
          more affordable products.

      d. Exclusivity is key: Most growth in premium fragrances in developed countries has come
         from brands active in exclusive collections such as Chanel, Gucci and Jo Malone. Premium
         fragrances at the lower end of the spectrum such as Clinique, Calvin Klein and Ralph
         Lauren reported flat or falling sales over the 2009-2014 period.

Niche fragrances

     This is by far the fastest growth sector and the one exerting the greatest influence on
     the global fragrance industry. Market growth is largely coming from niche and exclusive
     collections with brands such as Bvlgari and Carolina Herrera doing well in the exclusive
     segment pointing towards high potential growth for the niche category.

     As the fragrance market becomes more saturated, retaining brand and scent loyalty is
     becoming more difficult, and the niche market, with its exclusive offerings and more
     personalised fragrances, is gaining traction. The discerning consumer is more willing to pay
     higher prices for a scent that catches their attention and stands out from the crowd, driving
     demand for fewer, but more impactful scents. Niche perfumers are creating scents with
     alternative and locally-sourced ingredients, creating unique olfactory sensations that are
     catching the consumers’ attention. Euromonitor cites Creed Royal Mayfair as a throwback to
     “historical London with notes of British gin, Jamaican lime and Duke of Windsor roses” while
     Tommy Bahama’s St. Kitt’s “imparts a Caribbean feel with notes of tropical fruits”. These
     concepts that can connect to places or memories are becoming more popular, particularly for
     consumers who are insensitive to higher price points.

     This is reflected in the retail sector where department stores are reinventing how consumers
     shop for fragrances, with dedicated counters for rare or artisanal scents. Niche perfume
     stand-alone stores are also booming and becoming particularly popular in vibrant cities
     around the world.

What the future holds

      Customised offers are growing in popularity as perfumers concentrate on more unique
      propositions such as the ability to layer scents and targeting to consumers’ emotional
      connection. Alternative concepts could also grow in popularity with Euromonitor citing the
      success of niche perfume brand Roads, which also sells classic books and film production,
      but not other beauty products. Such a perfume concept, influenced by literature, art and
      dance has attracted the “artsy consumer who appreciates perfume as art”.

      Recognising the growth in popularity of niche fragrances and a slow-down in growth for
      mass and premium fragrances, global consumer giants are looking to acquire niche brands
      and it is likely that more acquisitions and mergers will take place with the big players
      scrambling to hold onto their market share. In June 2016, L’Oréal announced the signature
      of an agreement to acquire niche perfume house Atelier Cologne, stating, “Alternative
      perfumery is currently a high-growth segment...Thanks to its expertise in niche perfumery this
      brand will perfectly complement the L’Oréal Luxe’s brand portfolio which includes exclusive
      perfume collections.” It remains to be seen if such acquisitions and mergers will dilute the
      focus of niche perfumers from small-scale creativity to profit-driven businesses.

      One thing’s for certain, the global fragrance industry is in a transition period with the niche
      category quietly and confidently building its own market share.