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An Analysis of China’s Perfume Market

  •   3 Dec 2019
  •    Ye Chen
  •  216
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    Takehome:
    Perfumes, as entry-level luxury products, are becoming more popular in China. The rise of the middle class in China and the young generation’s demand for salon perfumes are the main reasons for its popularity. Special Chinese scents, natural ingredients, salon perfumes, and household fragrances are all opportunities for players in this industry.

    Overall data about the perfume and fragrance market

    According to a report on Wise Guy Reports (WGR), Global Perfume & Fragrances Market Research Report- Forecast to 2023, the global perfume and fragrances market is launching ahead at an accelerated pace, with analysts expecting it to reach a valuation of USD 64.6 billion by 2023. The report also adds that the market is expected to grow at a significant rate of 6% during the forecast period (2017-2023). The Europe region controlled the biggest market share of the global perfume and fragrances market in 2017. It is also predicted that the area will retain its leading position. However, the report identifies the Asia Pacific as the fastest growing regional market in the perfume and fragrance market, all set to register a robust CAGR of 6.20% in the next few years.[1]

    China has almost 20% of the overall population in the world, yet it only accounts for 1% of the global perfume and fragrance market. Qianzhan research group in China has conducted a survey about the perfume and fragrance market in China. Here is a graph to show their results.

    After going through low growth rates in 2015 and 2016, the perfume and fragrance market in China started to develop at a rapid rate, reaching 8 billion RMB (about $1.14 billion) in 2018. [2]

    An active market

    The global perfume and fragrance market is a dynamic market though the level of concentration is high in the perfume and fragrance industry. At present, the companies leading the global perfume and fragrance market include Coty (France), Shiseido (Japan), Chanel (France), Estee Lauder (U.S.), and others. As for ingredient manufacturing companies, the level of concentration is much higher. Among these companies, four major fragrance companies, Givaudan (Switzerland), Firmenich (Switzerland), International Flavors & Fragrances Company (IFF, U.S.) and Symrise (Germany) account for more than half of the global perfume and fragrance manufacturing industry market share, respectively 25%, 13%, 12.5% and 12% (Data also from Qianzhan research group). [2]In spite of the high-level concentration, players, including big companies and new entrants, are still actively laying out in the industry. There is a total of 16 significant investments in 2018 and 2019 (see in the below graph).

    The high frequency of investment made by the large industry players is testament to the great potential of the market. After 90 years, LVMH restarted its perfume business in 2016. MCN also recently signed a contract with Inter Parfums to rebuild its perfume business.

    As for China’s market, domestic brands and new entrants started to launch personal care products focusing on the concept fragrances. In the past, when Chinese consumers buy their personal care products such as shampoos and shower gels, they would consider their cleaning function first, but now they will also take the scent into consideration. Lovefun, a traditional brand in China, launched a perfumed shampoo last year and has sold more than 200 thousand units to date.[3] There are also some promising domestic entrants in the market, like Scent Library and Minolife. They are attracting Chinese consumers by making products with traditional Chinese scents, like the scent of boiling water and wintersweet flowers.

    PF3
    L.B.K Water: Perfume with the scent of boiling water from Scent Library

    Why perfumes become popular?

    First, the rise of the middle class has played an increasingly important role in promoting the consumption of luxury goods, including lines such as beauty, perfumes, and accessories. Today, luxury brands are lowering prices to encourage sales, and to tap into the psychological desire of the middle class to touch the high-class life by buying goods perceived as a luxury.

    Second, perfume is an entry-level luxury product. Compared to other luxury products, such as handbags and designer clothes, the prices of perfumes are much lower, which means perfume has a much more extensive range of consumers. In the meantime, as a member of cosmetics, perfumes are also consumed rapidly, resulting in repeat purchases.

    Third, the salon perfumes can satisfy the needs of the young generation to be personalized. Perfume brands are mainly divided into two types. One type is produced by a large luxury company that also manufactures makeup, clothing, etc. This type of fragrance is often referred to as commercial perfume and includes brands, such as Chanel, Dior, etc. The other is salon perfume produced by a perfume house that exclusively provides fragrance products, such as Diptyque, Annick Goutal, Creed. The latter generally uses natural ingredients.

    11
    Creed: A salon perfume brand

    Noteworthy trends in China’s market

    • Special Chinese scents are attractive to Chinese consumers.

    The success story of the domestic perfume brand, Scent Library, provides important lessons on the importance of localizing your product offering. Developing products based on local culture often yields excellent results, particularly when the cultural concept is reimagined and delivered in an innovative way. Chinese consumers are generally unfamiliar with traditional perfume scents, such as sage, rosemary, and cinnamon, which are typical for western consumers. Thus, Chinese consumers can’t get an emotional bond with products with those scents. The primary factor driving the purchasing of perfumes is that the product smells good, but this alone is not enough. Scent Library developed a product that feels like the scent of boiling water in an aluminum pot, which was a common thing in Chinese families in the past. For many young people in China, it is the scent of childhood. This series of products sold out about 1 million bottles in 2018. The creator of another domestic brand, Minolife, also said that their most popular products are traditional Chinese scents such as Jasmine, magnolia, wintersweet flowers, and bamboo, which are common plants in China.

    • Salon perfumes are becoming more popular.

    Because of e-commerce platforms and the young generation’s demand for individualism, niche salon perfume brands are becoming more popular. Jo Malone is a successful case. In 2014, Jo Malone from Estee Lauder group officially entered the Chinese market by opening stores in popular shopping malls and then opening its Tmall store in 2018. In FY 2018, the fragrance division of Estee Lauder Group achieved net sales of $403 million, up 11.3% year-on-year. Among them, Jo Malone had a double-digit growth rate. It now has 1.83 million fans on Tmall. This fragrance brand, once regarded as the leading brand in the niche fragrance field, has grown to a scale that no longer belongs to niche brands.

    Other companies also have felt the trend and are taking actions:

    • L’oreal Acquired

      • Atelier Cologne
      • Mugler
      • Azzaro
    • Estee Lauder Acquired
      • Editions de Parfums Frédéric Malle
      • Le Labo
      • By Lilian
    • Shiseido Acquired
      • Serge Lutens
    • Puig Acquired
      • Penhaligon’s
      • L’ Artisan Parfumeur

    The competition in this niche salon perfume market is getting more intense.

    PF5
    Atelier Cologne: a salon perfume brand acquired by L’oreal in 2017
    • Demand for Natural Ingredients Surpasses that of Synthetic Ingredients

    Trends towards clean label products mean that natural ingredients will experience more demand than synthetic. Naturalness is one of the hottest concepts in the cosmetic sector. This requires perfume brands to develop new products using natural ingredients. Also, with the popularity of salon perfumes, which generally use natural ingredients, the demand for natural ingredients will keep increasing. This trend can be seen from Givaudan's (Flavors & Fragrances ingredient giant) acquisition of three natural ingredient companies in 2018 and 2019.

    • Fragrance products can find widespread applications in household products.

    Fragrance products find widespread applications in candles, sprays, gels, and incense sticks in the household, which will most likely open new avenues for the perfume and fragrances market overall. The market for associated products such as aromatherapy essential oils, aromatherapy machines, and diffusers also have optimistic outlooks. At present, there are very few domestic brands that have launched fragranced household products which leaves much room for creativity in product development and market positioning for new entrants looking to carve out a niche in China.
     

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    ABOUT THE AUTHOR

    ChemLinked Editor

    Ye Chen is a cosmetic editor in the ChemLinked team, whose major job is to interpret, track and analyze the latest cosmetic regulatory and marketing changes in China and the rest of the Asia Pacific area. Her main focus is in mainland China, Taiwan (district) and Australia.

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