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India's Beauty and Personal Care Market

11/19/2017
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The government of India implemented the Goods and Services Tax (GST) on 1 July 2017. This is being hailed as the biggest tax reform to have taken place in India over the past 70 years. Let’s examine the impact on beauty and personal care products following GST implementation.

Bath and shower: Bar soap to register comeback, premium end to be hit

The Indian market is dominated by bar soap, which made up 89% of all bath and shower value in 2016. However, growth rates for bar soap have steadily dropped over the past three years. Alternatives such as body wash/shower gel had started gaining popularity with leading brands Dove, Lifebuoy and Nivea focusing on these products to tap into the premiumisation trend.

The premiumisation trend within bath and shower may be set to change with the implementation of GST. Categorising bar soap as a necessity product, tax for bar soap under GST was brought down to 18% from prevailing rate of 24%. Bar soap has low price elasticity, hence represent one of the least price-sensitive beauty products in India. Bar soap already has a significant price advantage on body wash/shower gel. GST rates are going to further increase this price gap between the two categories and lower-income consumers are expected to switch back to bar soap. This is expected to boost volume consumption of bar soap by an additional 4,000 tonnes in 2018 as average unit prices are expected to be reduced by leading players.

Colour cosmetics: Cheapest brands have the most to lose

The safety and quality of the products are important to Indian colour cosmetics consumers, however more often than not, affordability and access is a barrier to choice. As a result, the market is highly fragmented, with 50% made up of local and sometimes illegal “other” brands, sold largely via grocery stores and local independent retailers.

GST raises the tax on colour cosmetics from 24% to 28%, making even the cheapest of products more unaffordable. Since local players sit at the very bottom of the price spectrum and are not desirable but simply attainable, this could benefit international players in the mass/masstige segments, notably Unilever’s Lakmé brand.

Greater market consolidation could occur as a result and bolster loyalty to those established brands with a notable but not leading market share (eg ranked 6-10), including Colorbar, as consumers appreciate their relative value.

Hair care: Cue for international players to innovate in hair oils

The majority of hair care products in India have been burdened with a higher tax rate, from around 24% to 28%, whereas hair oils (under conditioners), the largest contributor to hair care sales in India, will benefit from a decrease to 18% as it has been classified as a necessity product. Euromonitor’s forecast model predicts that the drop in tax rates on hair oils is expected to drive up consumption to the tune of 2.3 million litres in 2018.

In fact, many international players could suffer on the back of GST because they lack presence in the lucrative and now cheaper, hair oils category, where local companies reign. Unilever, for example, is the market leader of the overall hair care market in India but solely because of its 50% market share in shampoos, whereas it has just 3% of the conditioners (oils) category.

India's Hair Care Competitive Landscape

India Hair Care Competitive Landscape

Source: Euromonitor International

In order to capitalise on the lower tax for hair oils and their increased affordability for the everyday consumer, international players could tap into the premium end of this market by targeting urban consumers with oils formulated with more sophisticated ingredients such as argan, jojoba, camelia and almond among others.

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