As Russia’s invasion of Ukraine causes significant disruptions in the supply chains for beauty products, European perfume and cosmetics companies are facing shortages of paper, glass, and some critical oils and alcohols, forcing prices upwards amid strong demand.
The $500 billion global cosmetics business, like the food industry, is dealing with the aftermath of the war because fragrances are made with alcohol obtained from grains and organic beets, and cosmetics are made with sunflower-seed oils, all of which are significant crops in Ukraine.
At the same time, the war’s generated energy crisis has driven up glass and paper prices, while China’s Covid-19 lockdowns have made it difficult for corporations to obtain packaging components for $100-a-bottle perfumes and $30 lipsticks.
“We’re in crisis management mode when it comes to these subjects of sourcing,” Emmanuel Guichard, secretary general of French cosmetics association FEBEA, told Reuters in an interview.
According to partner and EMEA luxury practise leader Federica Levato of consulting company Bain & Company, increasing prices for packaging, energy, and raw materials have driven up manufacturing costs in the cosmetics business on average by 25 per cent -30 per cent, creating a challenge to mass cosmetics companies.
ICR, the family-owned maker of Bulgari and Salvatore Ferragamo perfumes, expects sales to exceed pre-Covid levels this year, but the company is grappling with a yearly 30 per cent increase in the cost of alcohol, on top of a 10 per cent increase in the cost of glass and paper, according to Vice President Ambra Martone.
According to a McKinsey analysis, worldwide beauty product sales are expected to surpass $538 billion this year, up from $518 billion in 2021 and $458 billion in 2020.
That is only a small proportion of the other industries affected by the war, including as the global packaged food industry, which is expected to be valued more than $2 trillion this year, according to Euromonitor’s latest projections. The Russian invasion of Ukraine has wreaked havoc on world grain and edible oil markets, pushing global food prices to new highs.
While larger companies with higher profit margins have more financial firepower and flexibility to deal with the challenge – L’Oreal’s luxury division, which sells Giorgio Armani and Valentino branded makeup and perfume, for example, has an operating margin of 22.8 per cent – the challenge is especially acute for small and medium-sized businesses in Europe.
“We face scarcity and price increases every step of the way: from essences and alcohol to glass and paper – even for spray dispenser pumps and Surlyn plastic used for caps,” said Marco Vidal, managing director of Venetian fragrance manufacturer Mavive, owner of the Merchant of Venice brand.
As consumers continue to buy more-priced beauty goods, such as perfumes manufactured with a higher concentration of oils and more exotic raw components, the obstacles are intensifying.
According to the latest data from NPD Group, fragrance sales have been steadily increasing over the last three years, and were up 15 per cent in 2021 in the United States, with perfumes priced at more more than $175 a bottle more than doubling in unit sales.
“It’s a disaster, and you just can’t find glass,” said Alba Chiara De Vitis, founder of Florence-based Alchemia Essenze whose fragrances sell for up to 180 euros ($196) a bottle.
Following the coronavirus pandemic, which has boosted e-commerce and driven paper consumption amid efforts to reduce plastic use, European cosmetic manufacturers, which exported 22.6 billion euros ($24.6 billion) of goods in 2020, found competing demand for packaging materials, according to industry association Cosmetics Europe.
Glassmakers, for their part, have failed to meet demand for vaccine vials after pulling back output in the early stages of the epidemic, with furnaces in Italy being turned off for the first time in decades.
Gas prices are currently compounding problems in both industries, prompting Italian paper mills to temporarily cease output in order to renegotiate selling prices.
Due to a doubling in the cost of the paper it uses to produce solid luxury boxes for customers such as Dolce & Gabbana, Ferragamo, and Givenchy, Italy’s Isem Group has raised the prices of its products by 10 per cent to 40 per cent, according to CEO Francesco Pintucci.
Bormioli Luigi, an Italian glassmaker with a yearly revenue of 480 million euros that makes bottles for spirits, perfumes, and cosmetics, expects an extra 80 million euros in energy costs this year, half of which will be borne by its beauty division, whose clients include Chanel and Dior, according to head of fragrances Simone Baratta.
“Before the war the cost of a flacon from distributors was 0.75-1.40 euros, now it’s 1.00-1.50 euros,” De Vitis said.
Glass manufacturers in France, where major cosmetics companies have begun placing orders months ahead of schedule, have struck a more comforting tone, according to Guichard, who anticipates that they, too, would soon feel the sting of the energy crisis.
“I think we’ll have a hard time obtaining gas to make perfume bottles,” he said, noting there wouldn’t be enough time to convert gas-powered ovens to electric systems.
Intercos, an Italian cosmetics supplier for brand names that struck a five-year commercial arrangement with Dolce & Gabbana on Tuesday, said it raised prices by roughly 5 per cent in late 2021 and was mulling a further hike in the summer.
“In the luxury beauty sector, we expect that the consumers will carry the burden of these higher costs after a transition period that could last a few months,” Levato said.
(Adapted from Reuters.com)
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