Russian perfumery and cosmetics market 2015

Overview Russian consumer Sales channels Market players Natural cosmetics Cosmetics import

Overview

Russia remains to be: • 4th largest beauty market in Europe • 6th most attractive region for

investments • 70% of investors consider Russia

domestic market as the most attractive with its 143,5 mln active consumers

Russian perfumery & cosmetics market estimated at USD 14,6 bln* (RUB 555,1 bln) Market grows by 6-12% annually: • twice as dynamic than global market • has grown by 73,6% over the past 5

years

Source: RBC.Research * Based on the average exchange rate 1 USD = 38 RUR as on Jan-Apr 2015, Central Bank of Russia

338,9

397,1

435,9

490,6

555,1 588,4

623,8

2010 2011 2012 2013 2014 2015F 2016F

RUSSIAN MARKET VALUE (BLN. RUR)

2

Russian Consumer

• 65% of Russians live in 20% of the territory

URBAN POPULATION

• 15 cities are populated by more than 1 mln

Russians each • Total population of these cities: 32 mln • Population of Moscow is 8% of Russia population • 45,6 mln of Russians are women aged 20-60 years

This is one-third of the total population

Source: Federal State Statistics Service of Russia

Urban population

74%

3

Russian Consumer

• Every second Russian woman uses masks and facial washes, special creams for eye area (in 1990s – one out of four)

• 40% uses special creams for eye area (in 1990s – 10%)

• 40% uses beauty salons services (in 2000s – 4%)

Sources: RBC.Research, Reports and Reports

1616,9

2153,2 2373,5

2777,1

3043,9

3418,7

3857,8

2008 2009 2010 2011 2012 2013 2014

AVERAGE PER CAPITA EXPENSES ON PERFUMERY AND COSMETICS PRODUCTS, RUR

4

• In 2014, perfumery and cosmetic products’ pace of sales in the context of specialized chains (supermarkets and drogeries) and online shopping has increased

• Equity structure of the channel continued to shift towards specialized retailers

Sales Channels

Specialized retail chains, drogeries;

49,9%

Direct sales; 21,5%

Drugstores; 6,4%

Open markets; 5,2%

Other, incl. supermarkets, internet etc.;

17,0%

* Sources: RBC.Research, Euromonitor, Association of direct sales 5

Sales Channels

Specialized retail chains, incl. drogery

Direct sales

Open markets

Drugstores

Other, incl. supermarkets, internet etc.

6

Market Players: Manufacturers

By now, most international leaders have manufacturing sites in Russia TOP 10 manufacturers:

1. L’Oreal 2. Avon 3. Kalina 4. Nevskaya Kosmetika 5. Arnest 6. Faberlic 7. Mezoplast 8. Svoboda 9. Unikosmetik 10. Vesna

Local 75%

Imported 25%

* Source: RBC.Research 7

Market Players: Chains

L'Etoile; 9,5%

Rive Gauche; 6,0%

Ile De Beaute; 3,6%

Other; 80,9%

* Source: RBC.Research

• There are about 200 chains in Russia, 3 of which are leaders sharing together about 20% of the market • Most of chains are regional and often not represented outside their region • Number of natural and organic cosmetics chain stores increased by 7,5% • 56,3% of cosmetic chains stores are drogeries

2110

3100

3800

4869

6050

7390

9350

2008 2009 2010 2011 2012 2013 2014

NUMBER OF PERFUMERY AND COSMETICS CHAIN STORES

8

Natural cosmetics

* Source: RBC.Research

• Eco-trend is very popular in Russia spreading to various segments of retail • During 2013-2014, organic cosmetics market got new players, mainly in online shopping segment:

Greenmade, Fresh Cosmetics, Organity.ru etc. • Significant number of individual entrepreneurs who either buy a franchise or open outlets operates in this

market segment • The main competitors for chains selling natural and organic cosmetics are pharmacies and specialized online

stores that present wider range of products significantly wider range than offline stores

12310,1

19324,4

27774,6

33227,6

40537,7

50266,8

2009 2010 2011 2012 2013 2014E

SALES REVENUE OF CHAINS SELLING NATURAL AND ORGANIC COSMETICS, MLN RUR

Natural and organic cosmetics;

9,0%

Other profiles; 91,0%

+24%

9

Cosmetics Import

• Import value (Jan-Sep 2014): USD 2 559,6 mln

• This is approx. the same value as 2013

• No any sanctions and restrictions in this business segment for importers

Source: RBC.Research

France; 27,5%

Germany; 12,2%

Italy; 8,4%

Poland; 7,4%

USA; 7,2%

UK; 4,9%

China; 3,3%

Belarus; 3,3%

Spain; 3,0%

Romania; 2,8%

Other; 20,1%

10

Tendencies. Forecast

• Stable or slightly decreased pace of retailers’ sales revenue growth

• Decreased demand for premium products, with increased demand for middle-market and mass-market products. Nevertheless, lipstick effect is still possible

• Increased retail prices of perfumery and cosmetics due to increased prices of imported products and raw

materials and exchange rates

• Acceleration of market development in Russian regions

• Further strengthen the influence of specialized and single-brand boutiques on selling natural cosmetics and increased sales of cosmetics in drugstores

* Source: RBC.Research

338,9

397,1

435,9

490,6

555,1 588,4

623,8

2010 2011 2012 2013 2014 2015F 2016F

RUSSIAN MARKET VALUE (BLN. RUR)

11

Russian perfumery and cosmetics market 2015

Overview Russian consumer Sales channels Market players Natural cosmetics Cosmetics import