Vol 1 Indonesian Market Focus 15 May 2013 Skin Care & Cosmetics Prepared for Specially by
Table of Contents Table of Contents... 2 List of Figures... 3 1. Executive Summary... 4 2. Overall Market Environment and Trend... 5 3. Competitive Landscape... 7 3.1 PT. Unilever Indonesia... 9 3.2 PT. Wings Corp... 10 3.3 PT. L oreal Indonesia... 10 3.4 PT. Martha Tilaar... 10 3.5 PT. Mandom Indonesia Tbk... 11 4. Future Development... 11 5. Key Success Factor, Drivers and Inhibitor of the Industry... 12 5.1 Key Success Factors... 12 5.2 Drivers... 13 5.3 Inhibitors... 14 6. Regulation and Government Concern... 14 6.1 Import Regulation in Indonesia... 14 6.2 Definition of terms in above regulations... 15 7. Industry and Players Related News... 15 7.1 Industry News... 15 7.1.1 Ministry of Trade Encouraging Indonesian Businessmen to Start Cosmetic Raw Materials Production... 15 7.1.2 Mandom Indonesia Plans to Relocate Factory to Increase Production Efficiency... 16 7.2 Presence of Korean Players in Industry... 17 7.2.1 The Face Shop... 17 7.2.2 Skin Food... 17 7.2.3 Etude House... 18 Korea International Trade Association (KITA) 2
List of Figures Skin Care & Cosmetics Figure 1 Cosmetic Product Group Category Breakdown... 5 Figure 2 Leading Players in the Body Care Category... 7 Figure 3 Leading Players in the Hair Care Category... 8 Figure 4 Leading Players in the Face Care Category... 8 Figure 5 Leading Players in the Fragrance Category... 8 Figure 6 Leading Players in the Make Up Category... 9 Korea International Trade Association (KITA) 3
1. Executive Summary The Skin Care & Cosmetics industry (hereafter referred to as cosmetics) is one of the more promising industries in Indonesia, with an estimated market value of US$ 1.42 Billion in 2012. It currently has a strong growth of around 15% in the last 3 years and is expected to continue to have strong growth of 10-15% in the future. The growth is supported by increasing middle class segment and purchasing power of the population. Meanwhile, the cosmetic market is not dominated by female customers only, but there are also an increasing number of male customers purchasing cosmetic and skin care products. Halal cosmetics are also another growing trend in the industry. In Indonesia, there are currently over 700 cosmetics company in Indonesia, and about 180 of them are SMEs. Local production dominates with 87% share of the market. Despite this, international brand has a strong hold of the market, with about 70% share. Local brands make up about 20% of the market while the rest belongs to illegal imports, which are mostly from China. The international brand market is mostly dominated by American and European companies such as Unilever and L oreal. There are also presence of Japanese competitors such as Mandom and Kao. International brands and imported products will continue to pose a major challenge in the cosmetic industry. Decreased import tarriff from free trade agreement among ASEAN countries will make imported products even more competitive compared to local brands. At the same time, this provides a huge export opportunity for local cosmetic players. The government is also helping local players to develop their competitiveness in the industry by giving incentives such as tax allowance and free import duty on macinery. Regulations on cosmetic industry is still fairly low, with no limitation on foreign invesment. Production and circulation of cosmetic product is monitored by National Agency of Drugs and Food Control (BPOM). A cosmetic player s failure in meeting BPOM standards will result in their product being banned for sales. A few Korean players have established their presence in the Indonesian cosmetics market. They are The Face Shop, Skin Food and Etude House. Each player already has several outlets located in the nation. Korea International Trade Association (KITA) 4
2. Overall Market Environment and Trend Indonesia has a population of over 240 million people with a GDP of more than US$ 800 Billion. Indonesia s economy made a quick recovery from the 2008 global economic crisis, with a consistent 6% economic growth since 2009. Cosmetic market in Indonesia is estimated to reach US$ 1.42 Billion in 2012, with an average growth of 15% in the last 3 years. The growth is supported by increasing middle class segment and purchasing power of the population. The large population size of women aged 15-64 in Indonesia also drives the cosmetic market. Population of women aged 15-64 in Indonesia grows 1.3%- 1.4% per year, which will reach 86 million by 2015. There is a noticeable increasing trend of men using cosmetic products in the recent years, which help to drive the strong growth of the market. Population of men aged 15-64 is relatively balanced compared to the women, which makes up a huge market potential for cosmestic industry. Demand for halal cosmestic products is also a growing trend in Indonesia. Over 80% of the population in Indonesia is Muslim, but Halal cosmestic products currently only make up about 10% of the market. The Halal cosmestic segment thus makes a very promising prospect to be developed. The market is very fragmented, with over 110,000 product items. Body and personal care (body care) makes up the majority of the market, with 43% share, followed by hair care at 23% and face care at 19%. Figure 1 Cosmetic Product Group Category Breakdown 2012 Estimated Total Market Value: US$ 1.42 Billion Make Up, 7% Fragrance, 8% Face Care, 19% Body Care, 43% Hair Care, 23% Korea International Trade Association (KITA) 5
Classification of Cosmetic Product Category based on PERKOSMI Group Category (Association of Indonesian Cosmestics Company) Product Category Cream, emulsions, lotions, gels and oils for the skin (hands, feet & body) Sunbathing products (for body) Skin-whitening products (for body) Products for external intimate hygiene Toilet soaps and deodorant soaps Body and Personal Care (Body Care) Bath and shower preparations (salts, foams, oils, gels, etc) Depilatories Products for care of the teeth and mouth After-bath powders, hygienic powders Shaving products Products for tanning without sun (for body) Cream, emulsions, lotions, gels and oils for the skin for face Sunbathing products (for face) Skin-whitening products (for face) Face Care Face masks (with the exception of peeling products) Anti-wrinkle products Face wash (gel, foam) Products for tanning without sun (for face) Fragrance Hair Care Perfumes, toilet waters and eau de cologne Deodorants and anti-perspirants Shampoo and other hair care products Tinted bases (liquids, pastes, powders) Make Up Make up powders Products for making up and removing make up from face and eyes Products intended for application to the lips Korea International Trade Association (KITA) 6
For facial care, products with whitening effect remains the most popular product category in Indonesia. This product category shows a strong 33% growth from 2008-2011. Anti aging is another leading product category in Indonesian cosmestic market. Out of 10,823 products launched during September 2009 September 2010 period, almost 30% of them are anti aging products. 3. Competitive Landscape There are currently over 700 cosmetics company in Indonesia, and about 180 of them are SMEs. Local production dominates with 87% share of the market. Despite this, international brand has a strong hold of the market, with about 70% share. Local brands make up about 20% of the market while the rest belongs to illegal imports, which is mostly from China. American and European companies such as Unilever, Proctor & Gamble (P&G), Johnson & Johnson and L oreal dominate the international cosmestics brand in Indonesian market. Local cosmetics brands are mostly represented by three companies, Martha Tillar, Wings and Mustika Ratu. Japanese companies also managed to stay competitive in the Indonesian cosmestic market, with Kao being one of the top players in the face care and Mandom in the make up and fragrance. Unilever dominates in all cosmestic group category except make up. Make up category remains the most competitive segment in the market with 5 players holding a relatively balanced share while other segments are dominated by the top 3 players in the market with a combined share of over 50% in each. Figure 2 Leading Players in the Body Care Category 2012 Estimated Total Market Value: US$ 611 Million Company Name Known Brands Est Market Share PT. Unilever Indonesia Citra, Lifebuoy, Lux, Pepsodent, Close Up, Vaseline 23% PT. P&G Indonesia Olay 19% PT. Wings Corp PT. Johnson & Johnson Indonesia Emeron, Kodomo, Ciptadent, Fluordent, Smile Up, Giv, Priti, Nuvo, Sanex 17% Listerine, Johnson s 9% PT. Sara Lee Indonesia Purol 6% Korea International Trade Association (KITA) 7
Figure 3 Leading Players in the Hair Care Category 2012 Estimated Total Market Value: US$ 327 Million Company Name Known Brands Est Market Share PT. Unilever Indonesia Clear, Sunsilk, Dove 34% PT. P&G Indonesia Gillette, Wella, Clariol, Rejoice, Pantene, Herbal Essences, Head & Shoulders 31% PT. Wings Corp Emeron, Botanical, Zinc 14% PT. Sara Lee Indonesia Brylcreem 5% PT. L Oreal Indonesia L oreal, Garnier, Neril, Elseve, Studio Line, Professionel, Kerastase, Matrix 5% Figure 4 Leading Players in the Face Care Category 2012 Estimated Total Market Value: US$ 270 Million Company Name Known Brands Est Market Share PT. Unilever Indonesia Citra, Pond s 28% PT. P&G Indonesia Olay, SK-II 18% PT. KAO Indonesia Biore 13% PT. Johnson & Johnson Indonesia PT. L Oreal Indonesia PT. Martha Tilaar Clean & Clear 10% L Oreal, Garnier, Biotherm, Lancome, Shu Uemura, Kiehls Biokos, Cempaka, The Jamu Garden, Sari Ayu 10% 9% Figure 5 Leading Players in the Fragrance Category 2012 Estimated Total Market Value: US$ 114 Million Company Name Known Brands Est Market Share PT. Unilever Indonesia Axe, Rexona 34% PT. Mandom Indonesia Tbk Gatsby, Mandom, Pucelle, Pixy 18% Korea International Trade Association (KITA) 8
PT. P&G Indonesia Anna Sui, Naomi Campbell, Christina Aguilera perfume, Gucci Fragrances, Hugo Boss, D&G, Dunhill Fragrances, Lacoste Fragrances, Puma, Escada Fragrances 14% PT. Sara Lee Indonesia She 12% PT. L Oreal Indonesia L Oreal, Biotherm, Diesel, Giorgio Armani, Guy Laroche 7% Figure 6 Leading Players in the Make Up Category 2012 Estimated Total Market Value: US$ 99 Million Company Name Known Brands Est Market Share PT. Martha Tilaar Caring Colours, Cempaka, Mirabella, PAC, Sari Ayu 18% PT. Mandom Indonesia Tbk Pixy 16% PT. Unilever Indonesia Citra, Pond s, Vaseline 13% PT. L Oreal Indonesia Maybelline, Biotherm, Lancome, Shu Uemura 11% PT. P&G Indonesia Olay, SK-II 8% 3.1 PT. Unilever Indonesia Unilever is an Anglo-Dutch multinational company with a global revenue of 51 Billion Euro. PT Unilever Indonesia was established on 5th December 1933 and has grown to be one of the leading players in cosmestic industry, especially home and personal care products. The company currently has more than 6,000 employees. It has six factories located in Bekasi and two factories in Surabaya, East Java. Its portfolio of products consists of 43 brands, 1,000 SKUs which are sold through a network of 500 distributors nationwide. Unilever Indonesia s cosmetic portfolio includes many of the world s best known and well loved brands, such as Pepsodent, Pond s, Lux, Lifebuoy, Dove, Sunsilk, Clear, Rexona and Vaseline. Unilever Indonesia recently acquired PT. Sara Lee Indonesia in end of 2010. Sara Lee Indonesia continues to operate as independent company with its Korea International Trade Association (KITA) 9
existing brands, although profits will be consolidated with Unilever Indonesia. Unilever Indonesia currently holds 89.35% share in Sara Lee Indonesia and estimates that Sara Lee s business can contribute up to 15% of their whole revenue. Not long after the acquisition, one of Sara Lee s line of products, Sanex, was pulled out of the market and no longer in production. 3.2 PT. Wings Corp Wings Corp started its business over 60 years ago in East Java, where its first products were soap and detergent. Wings continued to expand its product line in the next few decades, which now cover hundreds of SKUs of household, personal care and food products. Wings Corp / Wings Group is currently one of the top 20 conglomerate groups in Indonesia. Its revenue in 2011 is estimated to be US$ 2.1 Billion. In the personal care category of the cosmetic industry, Wings is most known for the soap brands Nuvo, Giv and fragrance brand Fres & Natural. 3.3 PT. L oreal Indonesia L oreal is the world s largest cosmestics and beauty company, with global revenue of 20.3 Billion Euro in 2011. Many of its brands are well known internationally, such as L oreal, Garnier, Kerastase, Biotherm, Lancome and many others. Indonesia has become an integral part to L oreal s development since the company first made its presence in the country in 1979. In 2010, unit sales in the country increased significantly by 61%, resulting in 28% increase of net sales. L oreal has also invested US$ 50 Million in Indonesia to build its largest factory in Jababeka Industrial Park in Cikarang. The factory is recently completed in mid 2012. Production is expected to reach 200 million units per year, with a potential production capacity of 500 million units per year. 25-30% of the production will be sold in the domestic market, while the rest will be exported to Southeast Asian countries. 3.4 PT. Martha Tilaar Martha Tilaar group started as a home industry with its product brand Sariayu under the company name PT. Martina Berto. The company experienced rapid development in the next decade with two factories built in Pulogadung Industrial Estate by 1986. In 1996, PT. Martina Berto became the first cosmetic factory in Indonesia to obtain the 9001 certification. The group continues to grow and expand into an integrated world class company, with annual earning estimated at US$ 75 Million. Sari Ayu remains Korea International Trade Association (KITA) 10
as the main product pillar of Martha Tilaar, covering wide range of products from body care, face care, hair care to make up. Other known brands of Martha Tilaar include Bioskos, Caring Colours, Cempaka, PAC, Mirabella and many others. Besides producing cosmetics, Martha Tilaar owns multiple chains of spa and beauty treatment service center, which are Eastern Garden Spa, Martha Tilaar Salon and Day Spa and Dewi Sri Spa. Martha Tilaar also runs professional beauty training centers: Puspita Martha Beauty Schools and Bali Sari Spa Training Center. 3.5 PT. Mandom Indonesia Tbk PT. Mandom Indonesia Tbk was first established as PT. Tancho Indonesia, a joint venture between Mandom Corporation and NV The City Factory. It started its cosmestic business line by launching Mandom men personal care products in 1975. By 1980, Mandom has built a second factory and launched Gatsby & Spalding, another series of men cosmetic products. PT. Mandom Indonesia entered the women cosmetics market in 1987. It is best known for its Pixy brand for women cosmestics. Currently, the company has two factory locations: one in Sunter which produces all its cosmetic products and another in Cibitung which produces plastic packaging and functions as logistic center. The parent group, Mandom Corporation, originates from Japan and now has 15 subsidiary companies, of which 5 is located in Japan while the rest are spread throughout Asia. Its main business strategy involves using three manufacturing bases which are Japan, Indonesia and China. Japan supplies premium products while Indonesia manufactures products with competitive pricing to be supplied to ASEAN countries. Mandom China focuses on the domestic market, which consists of a population of over 1 billion. 4. Future Development Indonesian cosmetic industry is predicted to continue to have strong growth of 10-15% in the future. This is due to rising middle class, which leads to stronger buying power among the population. Meanwhile, cosmetic market is not dominated by female customers only, but there is also an increasing number of male purchasing cosmetic and skin care product. Population of men aged 15-64 in Indonesia totals to about 80 million, about the same Korea International Trade Association (KITA) 11
number as the women, which makes up a huge potential market that can be developed. Growth of cosmetic product is pretty good. Before, male was not interest to purchase skin care product, but now they have high level of interested Chairman of Association of Indonesian Cosmetics Company (PERKOSMI), Nuning S Barwa Opportunities in cosmetic industry in Indonesia are still large, especially for local production. Moreover, Ministry of Industry is also giving incentive to encourage the development of domestic cosmetic industry. MS Hidayat, Minister of Industry, said that the incentive was given to increase competitiveness of local players, especially in facing imported product. The Incentive given will be in the form of tax allowance and free import duty on machinery. With it, Indonesian Government hopes that domestic cosmetic industry will be able to expand and increase their production capacity routinely. On the other hand, domestic cosmetic industry will continue to be challenged by imported products. This is caused by high demand of premium products from the middle-high segment in the country and majority of local players have yet to be able to meet this demand. PERKOSMI estimates that import growth of cosmetic products would pass the total local products sold in the near future. This is due to the decrease of import tariff following free trade agreement, which makes imported product even more competitive compared to the local brands. The free trade agreement between ASEAN and China (AC-FTA) which would be implemented in 2015 could become a huge export opportunity for Indonesian cosmetic industry. At the same time, it could also become a major challenge because from the agreement, China products can enter ASEAN market more easily, which increases competition with local players. 5. Key Success Factor, Drivers and Inhibitor of the Industry 5.1 Key Success Factors Aggressive marketing: High brand visibility is important in increasing sales of mass-market cosmetics. Korea International Trade Association (KITA) 12
Good distribution system: Players need to have marketing expertise and access to appropriate retails outlets. Quick adaptability and high innovation: Manufacturers must be aware and be able to adapt to current fashion trends in order to remain competitive. However, some of the larger manufacturers may set trends rather than follow them. Strong supply ability: Being able to consistently meet the demand of the customers is important to retain their loyalty. Access to niche market: If not a major player, niche/ultra niche positioning is important for success in this industry. 5.2 Drivers Capital and Labor Intensity: Capital and labor cost in Indonesia is still fairly low compared to most Asian countries, and there are few regulations restricting capital investment in cosmestic industry in the country, making it a very lucrative prospect for both new and existing players. Technology: In general, production in this industry involves the blending of readily available ingredients in batch operations. Technological advances in the production machinery will boost production capacity and efficiency, which helps to support sales growth. Globalization: Average imports as a share of domestic demand in this industry accounted for approximately 23% over the past 5 years. Import trend is projected to be increasing. In recent years, the level of globalization within the overall cosmetics and personal care industries has tended to increase. Key Attitudinal changes: Health Consciousness. Changing attitudes in skin care by both males and females is vital to increase demand for related products such as moisturizers and sunscreens. Real Household Disposable Income: In general, the higher level of disposable income leads to larger amount spent on cosmetics. In addition, as income rises, sales of higher price, higher value added cosmetics also tend to increase. Korea International Trade Association (KITA) 13
5.3 Inhibitors Raw material import: Indonesian cosmetic manufacturers depend on raw material import heavily, which makes up more than 50% of the market. Sensitivity of raw material import price due to currency exchange rate and government regulations can cause significant impact on local production s competitiveness with imported products. Halal certification: 86% of the Indonesian population is Muslim while currently only about 10% of the cosmestic product is certified Halal. The emphasis for Halal cosmetic in the country is still low, but there is a growing trend for such products. The growth of this segment can pose a major threat to the major players, especially the international brands, where most of them have yet to meet the Halal standard of cosmetic production. 6. Regulation and Government Concern The level of regulations for cosmetic industry in Indonesia is low and the trend is steady. There is currently no regulations limiting foreign investment for this industry. In term of production and circulation of products, the Ministry of Health regulations 220/Menkes/IX/76 and 376/Menkes/PER/VIII/1990 apply to this industry. The first provides guidelines for the production and circulation of cosmetics and goods hygiene. The second provides guidelines regarding the control of ingredients for cosmetics such as preservatives, colors and the level of sunscreen. Cosmetic products health and safety standard in Indonesia is monitored by National Agency of Drugs and Food Control (BPOM). Products that fail to meet the standards will be banned for sale by BPOM. These products will also be included in a published list by BPOM to warn the population to avoid buying them. The list is regularly updated by BPOM. 6.1 Import Regulation in Indonesia The regulation of National Agency of Drugs and Food Control (BPOM) No. HK.00.05.42.2995 about control of import cosmetic products mentioned that: Korea International Trade Association (KITA) 14
That cosmetic products imported in Indonesia s region for distribution must have distribution license. That to prevent distribution of import product that do not have distribution license must be supervised since imported into Indonesia s region. Based on the considerations referred to in letters a and b, its necessary to stipulate Regulation of National Agency of Drugs and Food Control of importation cosmetic. 6.2 Definition of terms in above regulations Distribution license is form of registration of cosmetic agreement which given by National Agency of Drugs and Food Control to allow the distribution in Indonesia s region. Import cosmetic is cosmetic which is produced by abroad industry and imported and distributed in Indonesia s region. Import cosmetic is defined as cosmetic imported through land transportation, sea and air to Indonesia s region. 7. Industry and Players Related News 7.1 Industry News 7.1.1 Ministry of Trade Encouraging Indonesian Businessmen to Start Cosmetic Raw Materials Production http://antarabogor.com/index.php/detail/3325/wamendag-ajak-pebisnis-garap-bahan-bakukosmetik#.uxdf2kr7dn0 Vice Minister of Trade and Commerce is pushing Indonesian industry players to develop business of raw materials for cosmetics production. He stated that one of the major challenges in Indonesian cosmestic industry is the local supply of raw materials for production. One of the industry s prominent players, PT L oreal Indonesia, currently imported about 50% of its raw materials for its production. Until September 2012, import of consumption goods only grows at 0.6%, significantly lower compared to 2011 where growth was at 20%. This gives indication that there is increasing trend of subtituting imported consumption goods with local Korea International Trade Association (KITA) 15
production. Hence, there needs to be a future business strategy for the country to fulfill raw material demand. 7.1.2 Mandom Indonesia Plans to Relocate Factory to Increase Production Efficiency Mandom Indonesia is planning to relocate its main office and cosmetic factory which is currently located in Sunter, North Jakarta to MM2100 Industrial Estate in Cibitung. The relocation plan is to support its sales growth and increase production efficiency. Mandom Indonesia also has entered into joint venture agreement with PT Kajima Indonesia to build a factory in Cibitung. The agreement contract is worth IDR 390 Billion (US$ 43 Million). With this agreement, all Mandom Indonesia s manufacturing facility will be located in Cibitung. The new manufacturing facility is expected to increase its production capacity from 970 million pieces to 1.55 billion pieces of cosmetic products per year. This relocation plan is part of Mandom s goal of achieving IDR 3 Trillion (US$ 330 Million) by 2016. Mandom is targeting sales revenue of IDR 2 Trillion (US$ 220 Million) by end of this year. 7.1.3 Business Competition Supervisory Commission (KPPU) Officially Agrees on Unilever s Acquisition of Sara Lee http://analisatoday.com/berita/saham/tingkatkan-efisiensi-produksi-mandom-indonesia-rencanakanrelokasi-pabrik http://webcache.googleusercontent.com/search?q=cache:ivj- SPdOmbEJ:www.indonesiafinancetoday.com/read/2109/KPPU-Setuju-Unilever-Akuisisi-Sara- Lee&client=firefox-a&hl=en&strip=1 Business Competition Supervisory Commission (KPPU) gives an official pass to Unilever Indonesia s acquisition of Sara Lee Indonesia. KPPU declared that this acqusition act does not violate the rule of monopoly in the country. Unilever acquired Sara Lee on 10 December 2010. The whole acquisition was worth US$ 1.87 Billion and involves multiple countries representative of Sara Lee, which includes Indonesia. Through the acquisition, Unilever now holds 89.34% share of Sara Lee and their whole combined asset value reached US$ 856 Million. Unilever also holds the rights to Sara Lee s line of products, including Sanex and Radox. Korea International Trade Association (KITA) 16
7.2 Presence of Korean Players in Industry 7.2.1 The Face Shop Skin Care & Cosmetics The Face Shop was established in 2003. Its brand essence high quality cosmestics made with ingredients from nature. It is the first Korea s cosmestics company that is committed to nature. The Face Shop shows rapid growth in a few years and in 2005, it opened its first store in Indonesia, under the management of PT Perdana Duta Persada. Products offered by The Face Shop ranges from skin care, body care, face care, fragrance, make up and even men s line of cosmetic products. The Face Shop now has 43 store outlets located in Indonesia. 7.2.2 Skin Food Skin Food concept is analyzing benefits of food ingredients and using them to develop into cosmetic products to nurture healthy skin. The company was established in 1957 and is currently the fastest growing business in skin care in Korea. Skin Food now has a total of over 900 store outlets in Asia and United Arab Emirates, of which 12 of them are located in Indonesia. Its products include body care, hair care, face care, make up and men s series of cosmetics products. Korea International Trade Association (KITA) 17
7.2.3 Etude House Etude House was founded by Amorepacific Corporation in 1995 and opened its first store a decade later. Unlike Face Shop and Skin Food that emphasizes on healthy ingredients and simple designs, Etude House s style is cute and feminine. Its store designs has the distinctive faux pink roof and its products are more lavishly packaged. Etude House currently has 8 store outlets in Indonesia. Amorepacific Corporation is a chemical and cosmestics company based in Seoul, South Korea. The company is the largest cosmetics company in Korea and is among the top 20 global beauty companies. Its revenue reaches US$ 3.02 Billion in 2012. Besides Etude House, the company is known for many other cosmetic brands, most notably Amorepacific and Laneige. Korea International Trade Association (KITA) 18