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CHEMICL INDUSTRY SPECIAL Ingredients for personal care: global
trends and opportunities in India
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The
personal care (PC) market – comprising hair care, skin care, sun care, oral
care and colour cosmetics, amongst other smaller categories – is a dynamic
and innovative one, growing in nearly all parts of the world, although at
varying pace. The industry is a significant consumer of synthetic chemicals,
and is likely to stay that way, despite a move towards natural ingredients,
for several reasons – performance being an important one. While the volumes
of ingredients used in the PC industry are nowhere close to that used in home
care, the variety of PC ingredients is much broader.
PC
ingredients span the full spectrum of chemicals – from undifferentiated
commodities & fine chemicals to speciality performance products, and
several that fall somewhere in between. Growth prospects are determined by
several factors including changing demographics & customer preferences;
safety & sustainability concerns; performance requirements; and, last but
not the least, economics.
Growing PC industry
The
PC industry is a substantial one at a global level. Measured in terms of
price at retail stores it could be as large as $450-bn or thereabouts, and
growing globally at about 4.0% on an average annually. The industry is said
to be recession-proof – lipstick sales, it is famously observed, rise in an
economic downturn as consumers look for a quick fix for a feel good!
The
industry is highly focussed on branding and marketing and the emphasis on
manufacturing is not all that high, though ingredient suppliers still bear
pressure when pricing their products. Much of the industry operates on an
‘asset-light’ model – outsourcing manufacturing to smaller, dedicated outfits
– and typically enjoys a high return on capital deployed. Advertising and
marketing costs account for a significant proportion of total costs in the
industry and that has not changed despite greater use of newer marketing
channels such as social media.
$20-bn ingredients industry
The
PC ingredients business is a B2B (business-to-business) play, in contrast to
the B2C (business-to-consumer) PC business. It is also much smaller –
estimated at about $20-bn, by Kline and Company, a consultancy.
PC
ingredients can be broadly categorised into undifferentiated and
differentiated ones. The former includes both high volume commodity chemicals
and smaller volume fine chemicals – all of which are typically sold on the basis
of their chemical identity and are more or less identical from one supplier
to another. This segment accounts for about 55% of the overall ingredients
portfolio and is characterised by a low-to-moderate level of fragmentation.
Price is often the sole differentiator here and consumers do go shopping for
the best deal they can get. Like in most commodity and fine chemicals,
margins are low, except for brief periods wherein a combination of factors
(plant closures, raw material price surges etc.) lead to a flare-up in prices
and higher returns.
About
45% of the total market for PC ingredients are differentiated products –
specialities sold on the basis of performance, i.e. for what they do, rather
than for what they chemically are. With few exceptions, this is a business
wherein fragmentation is moderate-to-high. In recent years competition has
further intensified due the emergence of several producers in China, to a
large extent, and India, to some.
Mature markets dominate, but growth is elsewhere
The
markets for PC ingredients can also be split into three categories on the
basis of geography. The largest chunk – about two-third of the total – is
still accounted for by the developed triad of North America, Western Europe
and Japan. Growth rates here lag global averages, but that is only to be
expected due the maturity of the markets. In the second category – and in a
class of its own is China. The market here is about twice as large as in
Japan and is growing at about twice the global average. There is also a
qualitative shift happening in the PC industry in China with consumers
shifting to premium products, that typically use more sophisticated
chemicals, including performance ingredients. Brazil comes close to China in
terms of size and growth numbers and is widely recognised as amongst the most
exciting markets – especially for hair care products. In the last category
are the markets that show promise of high growth rates, but are still small
in absolute terms. India falls in this list, as do some countries in South
East Asia.
Dominance of hair & skin care
The
PC ingredients market can also be categorised as leave-on and rinse-off – and
the value share of the two is almost equal. Most applications in hair care
and oral care come in the latter, while the former dominates skin care and
sun care.
Hair
and skin care account for nearly two-thirds of PC ingredients uses, and a
common trend in both sectors is the desire to have multi-functionality.
Ingredients that offer multiple benefits are clearly benefitting from quicker
and greater market acceptance, both for reasons of economy and for
convenience in formulation. In skin care, for example, it is not uncommon for
products to offer sun protection as well as anti-ageing functionality. The
increasing adoption of multi-functional ingredients will also edge out some
other ingredients, and reshape options available to formulators.
In
almost every region in the world, hair and skin care together account for
about three-quarters of the market, with almost similar shares. The notable
exception is Brazil, where hair care alone has a whopping 60% of the market,
with skin care contributing to a smaller extent. The Brazilian obsession with
hair care offers companies serving this space a unique opportunity – one that
has attracted almost every major ingredients player active in the area.
Since
hair care and skin care are the two most important categories, it should come
as no surprise that products serving these uses are most important. By
function, PC ingredients can be classified as emollients, surfactants,
conditioning polymers, rheology control polymers, UV absorbers,
anti-microbials, emulsifiers, hair fixative polymers, and opacifiers &
pearlizers – to name the major classes. Each have several chemicals – from
commodities and fine chemicals to performance ingredients.
Emollients,
surfactants and conditioning polymers together account for about 60% of the
market (in value terms) with more or less contributions from each. Emollients
are almost exclusively used in skin care, while conditioning polymers find
use only in hair care. Surfactants, UV control agents and anti-microbials
have broader use.
Synthetics dominate, but naturals are growing faster
As
pointed out earlier, synthetic ingredients dominate the PC ingredients market
– accounting for about 60% of the market. This is for good reasons. Top of
the list is performance. Several ingredients have been in use for long and
formulators are familiar with them. A vast body of knowledge now exists for
most synthetic chemicals that permit their use in a wide range of
formulations, often with few compatibility issues. When issues do arise more
often than not options are available to circumvent the problems.
Naturals,
despite having a smaller share, are however growing faster. There is a
perception that naturals are safer and synthetics harmful, despite the
science vouching for the safety of the latter. Customers in the PC industry
prefer to bend to public opinion rather than attempt to change perceptions
through rationale arguments. There are several instances wherein companies
have reformulated PC products to avoid synthetics on the mere suspicion of
safety.
Supply side fragmentation
From
the supply side the PC ingredients industry has three broad category of
players: large MNCs that operate globally or at least in most regions with a
broad portfolio; large MNCS that operate globally, but with a narrow
portfolio; and smaller local players that play in their home-turfs or at best
in a few others.
The
supply side has for long been fragmented, despite some industry consolidation
(e.g. BASF’s acquisition of Cognis a few years ago), and is likely to stay
that way. The top-10 industry players have less than half of the total market
and in almost all regions of the world the top-three have between 20-30% of
the market (with Japan being the exemption with the share about 16%).
Safety concerns
One
of the major factors reshaping the PC ingredients business is product safety
and regulation. Europe’s chemical regulation REACH and its Biocidal Products
Directive are reshaping the palette available to formulators. Some long-used
products are not expected to pass the stringent evaluations of safety to
human/animal health or to the environment, and are likely to come under
restrictions on use or outright bans. There is a hope that this will trigger
innovation by the PC ingredients companies of newer, safer ingredients, but
that has not happened, at least so far, to any considerable extent, and the
jury is still out on whether it ever will.
Bad
press and regulations will continue to force some PC ingredients out of the
market. The trend may originate in the developed economies, where customers
are more discerning, but will eventually spread to less developed ones as
well. PC companies – especially the globalised ones – will find it
increasingly difficult to justify use of one ingredient in one market while
keeping it out of their formulations in others.
Strong growth in India
The
Indian market for PC ingredients is still largely served by imports, though a
small number of companies have identified niches in which they have gained
global competitiveness. MNCs dominate the space though there is a fragmented
presence of local manufacturers in select categories. The markets have grown
historically at a pace of about 8% on average, but going forward a faster
growth of 10-12% is likely.
PC
ingredients will thus represent one of the fastest growing sectors of the
Indian chemical industry.
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- Ravi
Raghavan Chwkly
23may17
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