How to export cosmetics to Russia?
Being one of the biggest markets in the World for cosmetics consumption per capita, Russia seems to be very attractive for exporters from all over the World. Indeed, Russian women are ready to spend a fortune on perfumes and cosmetics. However, this market is also very challenging for exporters. In other words, they should be ready for its entry. In this article we aim to explain how cosmetics products are distributed in Russia.
Cosmetics market in Russia
According to www.statista.com, the value of Russian market of cosmetics in 2019 reached 807 bln RUB (1 USD ~75 RUB). It’s expected to grow further and exceed 830 bln RUB in 2023. Although some local producers like Pervoye Reshenie (known brands: “Natura Siberica”, “Organic Planet”) become more and more successful, there is also great opportunity for exporters. Russian retailers and wholesalers import a lot. Statistics provided by State Customs Service indicates that cosmetics import for HS Codes (3303, 3304, 3305, 3306, 3307) exceeded $2,8 bln in the same 2019.
“We believe that Russian market has a great potential for us in a long -term perspective because we know that Russian consumers appreciate products Made in Israel”, Alex Meyklyar, Export director “SANO International”
France is an absolute leader in exporting cosmetics volumes (26,2% in 2019), followed by Italy (11,1%) and Germany (8%). However, there are countries — exporters those are coming close to the Top 3. These are South Korea, Poland and China (these countries increase their export to Russia every year).
If we conditionally divide the Russian market into premium and mass markets, we will get 20% and 80%, respectively. Mass market products’ retail sales price in this case will not exceed 1000 RUB (12–13 USD) incl. VAT.
Key trends on the market of beauty
The year of 2020 was very challenging for all industries including cosmetics. All professional exhibitions were cancelled, perfumery stores were closed for few months because of the lockdown. However, this year was also revolutionary one in so many ways!
“The main trend in the Beauty Industry in the current year 2021 remains the naturalness and effectiveness of the product. 2020 has become a revolutionary year in the beauty industry. In the context of a global pandemic and prolonged quarantines, the lifestyle has radically changed and the consumer has changed priorities in skin care and is trying to provide herself/himself with professional care at home. In the age of information technology, the end user is well aware of the benefits of certain ingredients and, when choosing a product, pays special attention to the components of the composition. Even when choosing make-ups, women prefer products that contain care ingredients.
Also consumers clearly try to save money because of the pandemic. Despite the fact that beauty salons and perfumery stores are and meet all safety and hygiene requirements, Russian women don’t rush to return there trying to use online services: shopping in online stores, tele-consultations with cosmetologists, etc.
Based on that, we can say with confidence that online sales is now at the peak of popularity and the consumer has become more selective and purchases a minimum set of only high-quality products. At the same time, the end user prefers the most effective products with natural composition that works at the level of professional care.” Olga Skvortsova, Head of sales Department of LLC «SAFFIONE» (cosmetics distribution in Russia)
From what we see speaking with distributors and retail category managers on everyday basis the following categories are expected to grow in this year and coming years: haircare products, innovative facecare products (for example, cosmetics with probiotics), childcare (especially cosmetics with natural harmless ingredients), natural cosmetics.
Distribution channels for cosmetics in Russia
Just a year ago, we were used to saying that Russian consumers buy cosmetics in perfume chains and supermarkets. Covid-19 pandemic changed it completely. The biggest Russian marketplaces — “Wildberries” and “OZON” reported of 96% and 144% GMV growth respectively. At the same time beauty category turnover grew up even faster. For example, “Wildberries” mentioned in its press release that turnover of this category increased by 156% in 2020 (and reached 37,7 bln. RUB). There is a clear trend mentioned by few distributors on the market: they stop working with retail chains because of the challenges caused by lack of profitability and learn how to work effectively with marketplaces. Some of them are fully satisfied with the turnovers this e-commerce channel supply. Yes, Russians DO buy it online now.
However, it wouldn’t be right to say that this is the only channel for selling your cosmetics in Russia. Russian consumers still buy a lot in perfume chains, drogeries and hypermarkets. The good news for exporters here is that more and more Russian retailers see direct import as a great opportunity and put it as a strategic priority for themselves. For example, the biggest Russian retailer Magnit (more than 20.000 stores) just claimed direct import to be “differentiation tool” in its corporate strategy 2021–2025.
Please remember that Russia is a huge country. There are a lot of opportunities. There are big national retailers those have thousands of stores. It’s hard to get on the shelves there (although not impossible). However, there are also local regional retailers those have hundreds of stores also looking for assortment differentiation and they are much more flexible at the same time. The good examples are Siberian retailers: “Komandor” (300 stores, 3 different formats) and “Perfume — Leader” (more than 150 stores, perfume chain).
Market entry strategy
If you’re reading it and already inspired with the numbers and potential, please wait a bit. The most interesting part is this one. It’s not going to be easy. Why? For certain reasons. As we mentioned above, this is a huge country. Logistics is very expensive there. Retail chain “Komandor” (previously mentioned) has its warehouses 4200 km from Moscow, in Krasnoyarsk. When the product crosses Russian boarder, duty (6,5% in average) and VAT (20%) should be paid. On top of it, EU and FDA certificates are not recognized in Russia. All products should be certified locally. It takes few weeks (in case of creams) and months (in case of perfumes). And it’s not cheap.
Because of the reasons mentioned above, margins of Russian sales channels vary significantly from those in Europe. It’s common in cosmetics market to operate with the term “price coefficient” (= RSP divided by EXW price). If retail chains agree to take care of importation, this coefficient varies from 2,5 (regional retailers) to 4 (national perfume chains). In case, exporter decides to work with a distributor, price coefficient will be 6–7. This is because good distributor is taking care of promotion and advertising too. Listing fees are banned in Russia since 2016 but retailers inquire deep front margin to stay profitable.
On the one hand, it seems like working with retailers directly is easier and more profitable. Not always. The traps and pitfalls here are the following. Russian retailers don’t pay prepayment. If it doesn’t correspond with your commercial policy, it’s not their problem. 45–60 days credit line is obligatory. At the same time, most often a retailer doesn’t care much about brand promotion. If the product is not sold, they simply de-list it and give the space to a different brand.
Distributors do care. On top of it, distributors take payment term risks on themselves. All these issues cause permanent price pressure and that’s why far not all producers can enter this market and become successful. As mentioned in the previous paragraph, some distributors reject collaboration with offline retailers in favor of online sales. This can be a strategy too: to find such distributor and start working in Russia online.
Nadya Mamet is a market entry strategist, managing partner of Alliance experts in Russia: