FMCG - Beauty Retailing Insights.march 2011

March 2011

FMCG: Beauty Retailing Insights

Contents

NEWS: P&G replaces Government as UK's biggest advertising spender

*The figures cover the year to 15 December and do not include: internet advertising for the period 1 October to 15 December; outdoor, cinema, direct mail and door drop advertising for the period 1 November to 15 December; regional press and magazine advertising for the period 1 to 15 December; or TV and radio advertising for the period 6 to 15 December.

• Procter & Gamble is now the UK's biggest spender

on advertising, following a 47% fall in COI spend.

• The COI spent £112m on advertising in 2010, down from £221m in 2009, when it was the UK's biggest advertiser. Since coming to power in May, the coalition Government has imposed a spending freeze to ensure that only "essential" advertising is run. As a result, the COI is now the fifth-biggest spender, according to estimates* from Nielsen.

• In comparison, Procter & Gamble increased adspend by 33% from £142m in 2009, to £189m in 2010. BSkyB was the second, spending £161m, up from £134m in 2009. Unilever was third with a spend of £132m, having increased its spend by just 2%, substantially less than its FMCG rival, P&G.

• Tesco, the biggest supermarket in the UK, was fourth, spending £120m, an increase of 19%. BT made the biggest increase to its outlay of any top 10 advertiser, lifting its spend by 44% to £104m. (Source: MediaWeek)

http://www.mediaweek.co.uk/news/1047768/P-G-replaces-Government-UKs-biggest-advertising-spender/

Beauty Retailing Summary

• Online beauty market to represent just 2% of total online retail sales in the UK • It is growing rapidly, rising 20% in 2010 to an estimated value of £420 million (equivalent to 5% of the

total beauty market).

• Mintel forecasts sales of beauty products online to reach £855 million by 2015, doubling sales over the five-year period to account for as much as 9% of all beauty sales.

• Only 44% of internet users have bought a beauty product online in the past year – this is likely to rise however the industry faces some obstacles.

What hurdles does the industry face? • The biggest obstacle for consumers is that they are unable to physically see, smell or

feel – let alone test – the product prior to purchase, and this acts as a deterrent for over six in ten consumers.

• Building trust throughout the online experience is key for retailers, which need to find ways to make beauty products more interactive and less ‘2D’ online.

• Almost six in ten female internet users find it difficult to buy beauty products online because they cannot tell if products will suit their skin tone, hair or skin type.

Source: Mintel, Feb 2011

What does the future hold? • Ensuring that the whole experience of buying online is easy, hassle-free, safe and pleasurable is

essential.

• One of the brightest areas for future development is user-generated content. • Enabling consumers to share everything from reviews about their purchases to expert beauty

advice with other customers, or ideally, their own network of friends, online can become a channel that offers something that the high street cannot: a social shopping experience at the click of a button.

• Beauty brands and department stores have reflected a lack of trust too, being reluctant to implement any serious online strategy, although this is at last starting to change.

• Online video can help retailers present a more rounded view of beauty products. It can also help to market categories that are considered to be more difficult to sell online such as make-up.

• Almost half (46%) of 25-34s would consider buying from a brand’s website in the future, yet relatively few big beauty companies are currently engaging with consumers in this way.


Market Forecast Looking ahead, growth in the market may be more difficult as the number of online shoppers reaches maturity, and economic uncertainty, tax rises and unemployment continue to be an issue. However, online beauty retailing has already proved it can weather a fragile economy better than the high street.

(£m)420

Best case (£m)1,097

Worst case (£m)613

Mintel forecast (£m) 855

0

200

400

600

800

1,000

1,200

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mar

ket

valu

e (£

m)

Best and worst case forecast for online consumer expenditure on cosmetics & toiletries, 2005-15

This year’s forecast


Seasonality Trends

Source: Hitwise, Feb 2011

• In general, FMCG sub-categories seasonal peaks towards the later months in the calendar year – inline with Christmas holiday peaks & early months into the new year.

• Health & Medical site visits are the highest – however Alcohol & Grocery sites are increasing share month on month towards the December peak

Health & Beauty Seasonality Trends

Source: Hitwise, Feb 2011

When looking just at Health & Beauty - the retail market share increased by 0.1% points between October 2010 to December 2010 according to Hitwise.

Peak Xmas period for Health & Beauty ‘shopping’ clients. Ramp in activity begins as early as early September

Search Traffic Traffic • Searches for major FMCG brands continue to

climb on Bing. • December 2010 was the largest month where

consumers continued to search for branded goods - increasing +45% YoY

Big FMCG Players • Taking a look at 3 large FMCG clients brands

you can see that P&G brands received more search traffic compared to GSK and Unilever brands.

• This is not however dependant upon specific categories in which brands sit within.

• Categories covered include Homecare, Beauty, Food & Drink and Health & Well-being.

FMCG Brand Demographics and Daily Trends

• Weekdays are by far the most popular days for searching for FMCG brands online with Bing.

• On average, each weekday accounts for 16% of the total search volume throughout the week, with the lowest day being Saturday’s (10%)

• This could be attributed to researching products online during the week and the potential to purchase products online/offline at a later date – including at the weekend

• The 25-34 year old age brackets are the main age groups for traffic with 32% .

• 18-24 year olds and 35-49 year olds are fairly equal with 25% and 28% respectively

• Gender breakdown favors females with 58%, Males 40% and an unknown gender of the remaining 2%

1.Microsoft Advertising Intelligence Tool – December 2010 to Feb 2011 data

Display Advertisement Publisher Location: Reach and Frequency (FMCG) • Microsoft sites delivered the highest number of unique visitors for Retailers within the

combined Consumer Goods, Fragrances & Cosmetics and Retail Food category.*

Source: ComScore adMetrix : January 2011 *comscore vertical alignment

Display Advertisement Publisher Location: Reach and Frequency (FMCG) • Although Microsoft delivered the most unique users, eBay, Glam Media* and Facebook

had a higher share of Ad Impressions but also have a higher frequency. • Microsoft Advertising is a fantastic opportunity to reach a wide audience and more unique

users than some close competitors

Source: ComScore adMetrix : January 2011 (Glam Media includes Daily Mail due)

Market Insights

Beauty Retail Target Groups

Target groups for online beauty, September 2010

• For Online Enthusiasts, the internet has revolutionised they way they shop. They have moved on from shopping in-store, finding online to be at once more convenient and rich in information and opinion. However they need to be encouraged to buy more beauty products, and are most likely to respond to retailers’ efforts to engage with them, a range of delivery options and targeted sampling. These tend to be young, high-earning Londoners.

• Net Neutrals are the least interested in buying beauty online but do seem to be aware that the internet could help them to find products cheaper. This group, biased towards retired and less affluent men, may respond to free delivery and a discount on their first order.

• To Bargain Hunters the internet is one gigantic sale. This group is clear about which beauty product they want to buy and will search for the best deals. Free delivery will appeal to Bargain Hunters, who are typically female, married and not working. They are the most nervous about buying online, so need reassurance over the returns procedure and website security.

Base: 2,000 internet users aged 16+

Source: Mintel

Net Neutrals

33%

Online

Enthusiasts

33%

Bargain

Hunters

34%

Who Buys Beauty Online?


Source: GMI/Mintel

• Over four in ten (44%) shoppers bought beauty or personal care products online in the 12 months to September 2010. This leaves a significant majority of consumers who are yet to be persuaded to make their first purchase.

• Women, 25-34s, ABs and those with very young children are the most likely to buy online.

• Spending power is a governing factor in online shopping behaviour. High income earners are most likely to buy (51%).

• Fragrances and everyday toiletries are slightly more popular products for shoppers to buy online. Over a fifth (22%) have purchased from these categories over the past year.

Shopping online for beauty and personal care products, by gender, September 2010

7

7

9

11

14

15

18

19

34

15

25

15

19

24

26

26

26

54

0 10 20 30 40 50 60

Added benefit skincare eg anti-cellulite, self-tanning, anti-ageing…

Make-up eg mascara, foundation,lipstick, nail polish

Hair treatments, eg styling products,intensive treatments, colourants,…

Other beauty and personal careproducts

Hair products such as shampoo andconditioner

Everyday skincare eg facewash,moisturiser

Everyday toiletries eg deodorant,soap, bath and shower

Fragrances

Have bought any product online inlast year

Women

Men

Where Consumers Buy Beauty • Online supermarkets dominate as the overall outlet of choice for 46% of online beauty shoppers. • Four in ten online beauty consumers have bought items from pure-play stores. These retailers are most

popular amongst 16-24s, particularly for make-up. • Men and women are equally likely to shop at online chemists (37%), and although chemists tend to

attract purchases across many product areas, they don’t stand-out in any one category. However, chemists are in a good position: over six in ten women and under-35s would consider buying beauty products at an online chemist.

• Specialist retailers such as The Perfume Shop are slightly more popular with men than women (37% vs. 30%).

• 16-24s represent the biggest opportunity for brands selling direct from their website.

“Boots would always be my starting point for online beauty products as they have a very wide range of stuff, don’t go anywhere else so wouldn’t check other choices”

45-54 ABC1 female

“I may buy grooming products such as shaving and skincare online from reputable retailers such as Boots and Superdrug if there was significant savings to be made.”

35-44 ABC1 male

Source: Mintel, Beauty Retailing Report 2011

Market Shares

* Eg Perfume Shop

• Boots is the most popular online retailer for beauty purchases, and is the single largest retailer in terms of online beauty sales in the UK.

• Collectively, supermarkets, led by Tesco, attract the majority of beauty shoppers. This is particularly the case for purchases of everyday toiletries.

• Pureplays currently represent a small percentage of the online beauty market, however many are experiencing rapid growth due to their strong online experience.

• The Perfume Shop is the most successful specialist multichannel retailer online. Online sales grew by a staggering 162% during Christmas 2009.

• Department stores have on the whole been late to market and are disadvantaged on price. As a result, they have been a minor presence in the market.

Market shares in online sales of cosmetics and toiletries, 2010

Source: Mintel, 2011

Chemists/Drug Stores 35%

Supermarkets 30%

Pureplays 15%

Specialists* 10%

Department Stores

5% Other 5%

Beauty Retailing: Strengths and weaknesses

18

Strengths • Popularity of loyalty cards. • Constant flow of product innovation. • Significant development in private

label launches, especially economy lines.

• The increase in fibre optic broadband packages is rapidly growing, enabling consumers to fully utilise site features and interactive tools.

• Beauty products are an affordable treat and necessity purchase for women.

• Fragrance represents one of the best prospects in the online beauty market for future sales.

• More retailers are engaging consumers with tutorial videos, implementing user-generated content, search and selection tools, sampling and expert panels to enrich user experience and bring beauty products to life.

Weaknesses • Nearly half of consumers are indifferent

to beauty and grooming products. • The main obstacle facing the market is

that the majority of consumers (six in ten) would rather feel, touch or smell a beauty product before they buy it.

• Make-up is particularly challenging to sell online.

• Beauty is currently one of the smallest online categories, representing an estimated 2% of total online sales in 2010.

• Consumer mistrust about using the internet to buy beauty is widespread. Almost half (46%) of internet shoppers are nervous about using unfamiliar sites to buy beauty.


Beauty Retailing Market Size

* % point change

• Online is currently a very minor channel of distribution for beauty, taking an estimated 5% share of the total cosmetics and toiletries market in 2010. However this has more than doubled since 2005.

• The reluctance of high street beauty retailers to sell beauty online created an opportunity for the development of a pure-play market that is dynamic and creative.

• Multichannel retailers’ recent, serious drives to increase online business will be a likely boon to the online beauty market in the future.

Online spending as % of total spend on cosmetics & toiletries, 2005-10

2005 2006 2007 2008 2009 2010

(est) %

change £m £m £m £m £m £m 2005 - 10 Retail sales of cosmetics and toiletries 6,876 7,151 7,456 7,739 7,916 8,182 +19.0 % annual change na +4.0 +4.3 +3.8 +2.3 +3.4 Estimated online sales of c osmetics and toiletries

160 190 225 290 350 420 +162.5

% annual change na +18.8 +18.4 +28.9 +20.7 +20.0 Cosmetics and toiletries as % of total beauty sales

2.3 2.7 3.0 3.7 4.4 5.1 +2.8*


FMCG Opportunities Creativity is Key • Creative sites, display ads and search creative can boost

ROI. Consider utilising unique technology i.e. photosynth, deep zoom to interact with consumers.

• Consider how users could potentially ‘try’ before you ‘buy’ could help boost interaction.

• Opportunity to ‘test’ products against skin tones, personal attributes could open further purchase opportunities

Reach of the Internet • Utilise Microsoft Advertising’s large reach of the internet

population – through MSA properties we reach 93% on the UK internet population. (comscore January 2011)

FMCG Unique Users • Using adMetrix data we can see that through Microsoft

Advertising we delivered the most unique users for FMCG brands compared to our closest competitors! (adMetrix, Dec 2011 – slide 11 of this deck)

Search and Display • Use both offerings to help boost your ROI moreover, use

our display offering to help boost your brand campaign to the largest audience.

For further ideas on how Microsoft Advertising can help please reach out to your Microsoft Advertising contact.

Beauty Retail Extra’s APPENDIX

Where consumers shop for beauty products

1 2 2 2

5 5 5 5

6 6 6

7 8

9 9

12 12

13 14

17 21

35 36

58

TV Channel eg. QVC

Other specialist beauty shop eg. The Fragrance Shop,…

Newsagent/corner shop/c-store/forecourt shop

Don't know

Other chemist/drugstore chain

Lush

Other department store

Somewhere else

The Perfume Shop

Other supermarket

Other general variety store eg. Wilkinsons, Bhs

International transport terminal eg. Airport/ferry/channel…

Internet - any website

Debenhams

M&S

Local independent chemist

Avon

The Body Shop

Morrisons

Sainsbury's

Asda

Tesco

Superdrug

Boots

Source: Ipsos-Mori/Mintel Beauty Retailing Report, 2011

The way people shop for beauty products, 2009 vs 2010

Source: Mintel, Beauty Retailing Report 2011 23

3

8

14

26

11

12

32

6

13

16

17

18

22

54

I've bought more products for home use thisyear to save on salon bills

I still treat myself to some premium productsbut more selectively

I've bought a lot more specialoffers/promotions/discounts this year

I've spent less on these products this year

I've bought more own brands

I've stuck to a few retailers that I trust

My shopping habits haven't changed in thelast year

2009 2010

• A third of all adults did not change their shopping habits for beauty products in 2010.

• But a picture emerges of a more cautious and less loyal shopper.

• The family shopper was still constrained but some in the pre-/no family demographic increased their spending.

• More consumers opted for deals and special offers than own brands.

Attitudes towards beauty shopping by gender

24

6

5

7

11

13

17

11

12

12

16

27

28

I'd like retailers to expand theirown brand ranges

I'd like to see more storesoffering self service sampling

stations

I like advice from store staffwhen buying beauty/grooming

products

I often browse just to see what'snew instore or online

I'm prepared to spend more ongood quality cosmetics

I'm prepared to spend more ongood quality skincare

Women Men

Women are much more likely to:

x Spend extra on cosmetics and skincare than men.

x Be interested in self service sampling stations.

x Be keener on getting advice from store staff.

x Be behind the idea of own brand expansion.

x To browse frequently just to see what’s new in-store and online.


2005 – 2010 Competitive Context

* % point change

• Online beauty retailing represents a small portion of the online market. In 2010 beauty accounts for an estimated 2% of total online retail sales.

• Sales growth has slowed since 2008, when the sector increased in value by 29%, due to Boots, Superdrug and Tesco gaining more importance in online beauty retailing. The recession caught up with this market in 2009 when growth was considerably slower.

Estimated online sales of cosmetics & toiletries and total online retail sales, at current prices, (inc. VAT), 2005-10

2005 2006 2007 2008 2009 2010

(est) %

change £m £m £m £m £m £m 2005 - 10 Estimated online retail sales 8,064 10,640 14,448 17,584 19,758 21,728 +169.4 % annual change na +31.9 +35.8 +21.7 +13.4 +10.0 Estimated online sales of cosmetics and toiletries

160 190 225 290 350 420 +162.5

% annual change na +18.8 +18 .4 +28.9 +20.7 +20.0 Cosmetics and toiletries as % of total online sales

2.0 1.8 1.6 1.6 1.8 1.9 - 0.1*


How Engaged are Consumers Online

• Price comparison is the most popular online activity for internet users. Women, and 25-34s, are considerably more likely to research on price before buying.

• Consumers are more likely to go into a store to buy a product after researching online (36%)

• One of the biggest challenges for online retailers is turning browsers into purchasers.

• A quarter of 16-24s are fans of a beauty brand on a social network.

• A fifth of shoppers would consider downloading a beauty app in the future, however 29% of those who have shopped at a department store have already done so. Department store shoppers are also most likely to have read a blog (51%).

Online activities undertaken in last 12 months, by gender, September 2010


Source: GMI/Mintel

0 20 40 60

Downloaded a beauty related app

Posted a review on a beauty product

Commented on a brand/product in a status update on a social networking site

Offered feedback directly to a company

Joined a brand’s fan group on a social networking site

Read a beauty blog

Sold an unwanted product online eg on eBay

Clicked on an online advert for a product

Subscribed to a brand newsletter

Researched a product online before buying online

Read a review on a beauty product

Researched a product online before buying in store

Researched a product to find the best price

Women

Men

Attitudes Towards Buying Online

• Seven in ten internet users shop around online to find the best price on beauty and personal care products. This is common amongst all age groups, and especially those in the highest income-earning households.

• Six in ten know what they want before they set out to buy online.

• The convenience that shopping online gives consumers is most likely to be appreciated by 25-34s.

• Mums are most likely to spend a lot more on beauty online than in a physical store.

Attitudes towards shopping online for beauty and personal care, by gender, September 2010


Source: GMI/Mintel

0 20 40 60 80

I tend to spend a lot more online than I would in an actual shop

I shop online to avoid the crowds in the shops

I shop online to find products or items not available in stores near me

Browsing online has reduced the time I spend in stores

I shop online because it’s quicker than going to the shops

When I set out to shop online I usually have a clear idea of what I want

I shop around online to find the best price

Women

Men

Barriers to Shopping Online

• Over six in ten internet users would rather physically see, smell and feel a beauty product before buying.

• This represents the main barrier to buying beauty online. Six in ten (58%) women also find it difficult to tell if a product will suit their skin tone or hair type etc.

• Men are more likely than women to buy a product online that they have not bought before in-store.

• Almost half (46%) of the youngest consumers are put off buying online due to finding the returns procedure to be a hassle.

• Half of all internet-using women are nervous about buying from unfamiliar sites.

• Shoppers under-35 have a bargain-hunting attitude when it comes to buying beauty and personal care products online.

Attitudes towards shopping online for beauty and personal care, by gender, September 2010


Source: GMI/Mintel

0 20 40 60 80

I am happy to pay (more) for delivery to get my order more quickly

I only buy products online that I have previously bought in-store

I only shop from websites that have no delivery charge

I am happy to shop online, but only for less expensive items

Some items I have bought online have taken longer to arrive than expected

The hassle of returning goods through the post puts me off buying online

I am nervous about buying from websites I am unfamiliar with

I find it difficult to buy beauty products online because it’s hard to see if they will suit my skin …

I would prefer to return/exchange items in-store that I have bought online

I prefer to see, smell and feel an item in person before buying it

Women

Men

What Do People Buy Online?

29

• Consumers from the more affluent and better-educated end of the social spectrum are consistently the most likely to have shopped online in any category.

• Consumers in the family life-stage and those with young children rely on the convenience of online shopping.

• With the exception of home electronics, portable electronics and online gaming, women are more likely than men to have purchased from every listed e-commerce category.

Goods/services bought online, December 2010


“Which of the following, if any, have you bought/spent money on via the internet in the last 12 months?”

0 10 20 30 40 50 60 70 80 90 100

None of these Motor vehicles

Online dating membership Online subscription for music, video or magazine content

Sports equipment Online gambling/casino gaming

Furniture and furnishings Home appliances

DIY or garden products Personal accessories Portable electronics

Other housewares Gift vouchers

Household cleaning products Music, video/film, software downloads,ebooks

Home electronics Toys and games

Entertainment tickets Holidays/leisure travel

Insurance Food and drink

Toiletries/cosmetics Clothing/footwear

Books, CDs, DVDs, video games/software Any

% of respondents

Source: Ipsos MORI/Mintel, Online Spending Habits, Feb 2011

Market positioning of leading retailers/channels

30

Aff

luen

ce

Average Age

M&S

Other variety st

The BodyShop

Avon

The Perfume Shop

Any website

Asda

Other dept store

Local independent chemist

Morrisons

International terminal

Tesco

Superdrug

Boots

DebenhamsSainsbury's

Source: Ipsos-Mori/Mintel, Beauty Retailing Report 2011

Documents

FMCG - Beauty Retailing Insights.march 2011