Consumer Goods

Industry Perspective
Reformulating the
home and personal
care supply chain
 Industry Perspective
Consumer Goods 2

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 Industry Perspective
Consumer Goods 3

Executive Summary
Home and personal care (HPC) – the fastest growing segment in fast
moving consumer goods (FMCG)
The rising affluence and growing young consumer population in Mainland
China and ASEAN-41 will continue to propel the rising domestic consumption of
home and personal goods, driving growth for local/regional brand owners2. In
Consumer Goods – addition, regional contract manufacturers also stand to gain from rising global
Home and personal
cosmetic demand due to increased fragmentation and need for speed-to-market,
care
strengthening the relationship between contract manufacturers and brand owners.

Key themes in Asia’s beauty industry

Millennials and Generation Z (Gen Z) currently account for 56% of the region’s key
market. As a sizeable group of them becomes part of the global citizens, they will
be a force in shaping the way HPC segment will evolve through their consumption
behaviour and preferences. They are true digital natives. Their ease with the use of
technology gave rise to the proliferation of e-commerce, using the internet and
user-generated content for market research and product discovery, as well as
personalised products and solutions.

The rise in the middle and affluent class of halal-conscious Muslim

communities has also propelled the growth of the global halal cosmetic
market. In Asia, Indonesia and Malaysia are the second and fifth largest
halal cosmetic markets in the world. Growing awareness about health is
driving young consumers to be more discerning about the products they use
and consume. Sustainability commitments will help differentiate brands
among the increasingly socially conscious young Asian consumers.

The rise of the Asia will remain the hub of HPC manufacturing
Despite rising global trade tensions, Asia continues to provide a strong
millennials and
proposition as a hub for HPC manufacturing – both for integrated manufacturers
Gen Z in the and contract manufacturers. As HPC continues to be a category which requires
key markets nimble supply chains that can adapt to ever-changing consumer preferences,
contract manufacturing will continue to grow.
account for

56%
of the region’s
UOB is a regional bank poised to serve the needs of the industry. Our
deep expertise and experience in serving Asian markets, our regional
footprint as well as our industry knowledge in the HPC manufacturing
space provide a strong platform to serve the needs of contract
manufacturers in this space. For more information on our customised
population. solutions, please contact industry-insights@uobgroup.com.

February 2020
1 ASEAN-4 comprises of Indonesia, Malaysia, Singapore and Thailand
2 The current outlook is predicated on the COVID-19 outbreak being a temporal phenomenon; there
would be downside risk to the assumptions if the outbreak prolongs for an extended period of time
 Industry Perspective
Consumer Goods 4

Content

03 Executive Summary

HPC – the fastest

05 growing segment
in FMCG

Sector:
Consumer
Goods
11 Key themes in
Asia’s beauty industry

Reformulating
the home
and personal
care supply
16 Reformulating the
HPC supply chain

chain
 Industry Perspective
Consumer Goods 5

HPC – the fastest growing segment in FMCG

Home and personal care sees huge growth potential in Mainland China and
ASEAN-4
Based on 2018 retail sales value, the global home and personal care (HPC) is worth an estimated USD
644bn. Asia accounts for over 30% of the world’s sales, with demand fueled by economic growth,
urbanisation, and female labour participation, leading to lifestyle changes and aspirational spending on
HPC. In Mainland China and ASEAN-4, HPC recorded up to US$103bn in sales for 2018. Defined as an
aggregate of both home care and beauty personal care, HPC covers the fastest growing segments within
the Fast Moving Consumer Goods (FMCG) segment. It is estimated that HPC will expand at an estimated
8.3% CAGR between 2018-2023F, driven by beauty personal care (BPC) (CAGR of 9%) and home care
(CAGR of 6%) over the same period.

Figure 1: Home care and beauty personal care are growing at 8% CAGR between 2018-2023F
CAGR
200
+8%
150 +9%
USD bn

100
+6%
50

0
Beauty personal care Home care Home and personal care

2019 2023F

Figure 2: Home care and beauty personal care are the fastest growing segments in Fast Moving Consumer
Goods (FMCG) in Mainland China and ASEAN-4

Soft Drinks 5.3%

Hot Drinks 6.2%

Home Care 6.8%

Packaged Food 7.3%

BPC 8.8%

Source: Euromonitor
 Industry Perspective
Consumer Goods 6

Skin care and colour cosmetics are leading the

growth outlook
Within the beauty personal care segment, skin care and colour cosmetics are In Mainland
sub categories leading the growth. In Mainland China and ASEAN-4, the skin China and
care segment is expected to grow at 9% CAGR for the period 2018-2023F,
while colour cosmetics is expected to grow an even faster 13% CAGR. ASEAN-4,
the skin care
This is driven by deeper penetration as consumers become more aware of the
segment
benefits of using skin care and cosmetics product as well as premiumisation.
Young consumers in major cities such as Jakarta, Bangkok and Kuala Lumpur is expected
trade up on their skin care spending for products that confer anti-ageing and to grow at
whitening benefits as well as ingredients that are natural and organic. E-
commerce has also opened up new channels and easier cross-border access
to more niche and premium brands.

Figure 3: Skin care and colour cosmetics are sub-segments leading the
growth expectations within HPC
2019 2023F
9%
CAGR for the
period 2018-
60 +9%
2023F, while
colour cosmetics
segment is
40
expected to grow
USD bn

even faster at

13%
+13%
20

0 CAGR
Skin Care Colour Cosmetics

Source: Euromonitor
 Industry Perspective
Consumer Goods 7

Figure 4: Singapore and Thailand account for the highest average HPC sales per capita (2019F)

250 232 120

Disposable income per capita

Spending per capita (USD)

100
200

80

(USD '000)
150
104 60
100 76
40
47
50 35 26 20 13 21 20
9
0 0
Singapore Thailand Malaysia Mainland
ChinaChina Indonesia
Beauty and Personal Care Home Care Disposable income (RHS)

Source: Euromonitor

In the diverse ASEAN market, Singapore and Thailand recorded the highest per capita sales in both home care
and beauty personal care (BPC) in 2018, despite Thailand’s lower disposable income per capita. Compared to
Malaysia, Thai consumers spend a relatively larger proportion of their disposable income on HPC while the
Malaysian consumers are relatively underpenetrated. According to Euromonitor, Indonesia, Malaysia and
Thailand are expected to see a relatively higher growth in HPC in the next 5 years, driven by the rise in affluence,
the growth in digital engagement and increased consumer awareness for personal grooming.

Figure 5: Indonesia and Thailand are the fastest growing markets and hotspots for future growth
14%

12%
Forecast growth (CAGR 2019-23)

Indonesia

10%
Malaysia Thailand
8%

Mainland China
6%
Singapore
4%

2%

0%
0% 2% 4% 6% 8% 10% 12%
Historical growth (CAGR 2015-19)
Source: Euromonitor
 Industry Perspective
Consumer Goods 8

Both premium and mass market segments in skin

care and colour cosmetics enjoy buoyant growth
In Indonesia, the rise of the young consumers drives the growth in skin Social
care and colour cosmetics segment, while the rise of social media and
e-commerce led to the rise of local brands. With the rise of microfinancing,
Indonesian consumers are even willing to take a microloan to purchase
premium personal care products.
media
engagement
has also allowed
In Malaysia, young consumers continue to spend on skin care and colour
cosmetics, despite low consumer confidence as they view these products local brands to
as part of necessity. market their
In Thailand, the growth in the urban population, the increase in mass
products
affluence, and the rise in women in the workforce have propelled the at minimal cost,
growth of local brands in the mass market segment. enabling them
Social media engagement has also allowed local brands to market their
to penetrate the
products at minimal cost, enabling them to penetrate the mass market mass market
segments of colour cosmetics and skin care. segments of
Figure 6: Premiumisation is supported by ASEAN-4 consumers in major colour cosmetics
cities, while mass market products enjoy growth from deeper market
penetration of new users
and skin care

Colour cosmetics in ASEAN-4 10.0 Skin care in ASEAN-4

4.0 +8%
1.9
+8%
USD bn
USD bn

5.0 1.5
2.0 0.8
0.6 5.9
1.7 4.3
1.2
0.0 0.0
2019 2023F 2019 2023F
Mass Premium Mass Premium
Source: Euromonitor
 Industry Perspective
Consumer Goods 9

Local/regional brands are growing their market share as premiumisation and

glocalisation gain traction
Historically, HPC has been dominated by multinational companies (MNCs). In the last five years,
regional Asian players have started to grow faster and in some categories have even attained market
leadership in Mainland China and in ASEAN. The reason for this is the change in consumer demand
landscape in these markets:

1 2 3
Millennials have There is a growing Gen Z is starting to
started to become trend of natural, make purchase
the key consumers. organic and halal decisions. They
Millennials, unlike for both home tend to shop based
baby boomers, do care and personal on “Truth” and want
not shop for brands care products. brands that are
but experiences responsible and/
or recommended
by influencers.

In the home care segment, while the space is dominated by MNCs, Asian brands have also started to follow
the green movement. For instance, Lam Soon’s Bio Home and Liby’s Dr Jabez have enjoyed growing
market share despite charging a premium as they have a strong sustainability proposition.

Local/regional BPC brands differentiate from large international brands through the use of:

Local know-hows to target Data and production Technology for

the underserved market innovation to gain distribution
such as the Halal market market share and marketing

The rise in the middle and affluent class of Muslim women who are halal conscious in their purchases has
also led to a rise in demand for halal cosmetics in Indonesia and Malaysia. According to the State of Islamic
Economy Report 2018/19, the demand for Islamic HPC products in the world is expected to grow 6.7%
CAGR in the period 2018-2023.
 Industry Perspective
Consumer Goods 10

Technology has also levelled the playing field for different players. Product
innovation has allowed local and regional brands to compete with the global The rise of
brands by employing cutting edge technology that allows personalisation
and using of innovative ingredients backed by science-based research. For
local/regional
instance, the use of snail slime in skin care product by Do Day Dream PCL, players will mean
Thailand, was a hit and adopted by many consumers beyond the region. more cross-
The proliferation of the internet and rising smart phone penetration in this border sourcing
region have provided local and regional brands an additional channel to of raw material,
distribute their products. Strong online presence through non-traditional
where up to
media such as social media also allows stronger customer engagement.
The use of influencer marketing, in particular, appeals to the millennials and
generation Z consumers, who as digital natives, rely on social media
platforms to discover new brands and products.

Based on the top 30 brands in the key markets, local/regional brands sales
80%
could be imported
have doubled in five years over 2013 to 2018, forming up to 25% of the
total BPC market. The rise of local/regional players will mean more cross-
border sourcing of raw material, where up to 80% could be imported. The
raw material inputs are also significant in value, accounting for 40-50% of
the HPC producers’ cost. Foreign exchange exposure can thus be
significant to these up and coming local/regional producers.

Figure 7: Local/regional brands are growing faster than Multinational brands

+5%

40.0
Local/regional Brands

31.6 +13%
MNC Brands

13.4

7.3

2013 2018 2013 2018

Source: Euromonitor
 Industry Perspective
Consumer Goods 11

Key themes in Asia’s beauty industry

The rise of the Asian consumers
Gen Z is the latest demographic to join the consumer population. The Together, the
members of Gen Z are defined as those born from 1995 – 2010, after the
millennials (those born from 1980–1994).
millennials and
Gen Z in the key
According to the UN, almost two-thirds of the world’s millennials are residing markets make up
in Asia, of which more than one-quarter of them are residing in Mainland
China, Hong Kong and ASEAN-4. 58% of the world’s Gen Z are residing in
Asia, of which 20% of them are from the key regions mentioned above.

Together, the millennials and Gen Z in the key markets make up 56% of
the region’s population (Mainland China: 55%, ASEAN: 62% of total
56%
of the region’s
population). As a sizeable group of them becomes part of the global
population
citizens, they will be a force in shaping the way the HPC segment will (Mainland China:
evolve through their consumption behaviour and preferences. 55%, ASEAN:
62% of total
Figure 8: Almost two-thirds of the world’s millennials and more than population)
half of the world’s Gen Z resides in Asia

Asia Mainland China + ASEAN-4

Source: UN World Population Prospects 2019

 Industry Perspective
Consumer Goods 12

Figure 9: Mainland China’s and ASEAN’s Millennials and Generation Z more than 55% and 59% of total population
respectively
100%

80%

60%

40%

55% 59% 48%

20%

0%
Mainland
ChinaChina ASEAN - 4 Developed Markets

Gen Z Millennials Gen X Baby Boomers Older

Source: UN World Population Prospects 2019

Developed markets comprises Europe, Northern America, Australia/New Zealand and Japan.

Millennials and Gen Z grew up in the age of digitalisation – millennials started using the internet in their
teens while Gen Z started having their own smartphone, and effectively the access to internet at their
fingertips, at the age of ten. They are true digital natives. They use the internet for research, discovery and
transaction of products and services they consume.

The ease of creating user-generated content fuels the need for authenticity and transparency in the entire
supply chain of the products and services they consume. Being armed with knowledge and access with the
help of technology, Gen Z make educated purchasing decisions based on ethical sourcing and practices of
brands and companies.

Figure 10: Key themes in Asia’s beauty industry

Tech-driven Rise in Halal Sustainable

innovation products sourcing

Source: UOB Analysis

 Industry Perspective
Consumer Goods 13

The rise of technology in HPC

In purchasing HPC products, young consumers are using technology for
education, product discovery as well as a channel for purchase. The use of
data and technology with a twist of personalisation has also proven to be a
hit for consumers who want a personal touch without a hefty price tag.

The millennials and Gen Z often seek the “truth” behind products through
self-research. According to Women’s Marketing, more than 60 percent of More than

60%
the Gen Z consumers perform research digitally before making a purchase.
User-generated platforms like forums provide reliable reviews from real and
professional users.

Image and visual sharing social media apps are the most popular channels of Gen Z
for millennials and Gen Z consumers in Southeast Asia to learn about the consumers
latest beauty and skin care trends. Surveys reveal that 40% of Gen Z
consumers would purchase a product shared by a key opinion leader (KOL)
perform research
or “influencer”. digitally before
making a
The rise of the e-commerce ecosystem – from e-commerce and online
marketplace platforms, e-payments to logistic fulfilment – has lowered the purchase
barriers of entry for most local/regional brands to access a wider market
locally and across the region.

The availability of contract manufacturers that specialise in research and

development of formulation of HPC products that are more fast-fashion in
nature, such as colour cosmetics, has also enabled smaller players to enter
the market, increasing the variety of products for beauty consumers.

Finally, the use of technology enables mass customisation, bringing

bespoke service in product offering at a fraction of the previous cost. A
local/regional skin care brand uses information from a survey from existing
and prospective customers on their skin conditions to find the product with
the best formulation to suit their skin needs. Based on data collected from
all customers, they are also able to generate insights for their product
pipelines, targeting the consumers’ skin care needs at its core.
 Industry Perspective
Consumer Goods 14

The rise of local/regional brands in Halal cosmetics

The rise in the middle and affluent class of Muslim women who are halal

>50%
conscious in their purchases has also led to a rise in demand for halal
cosmetics in markets with a Muslim majority, such as Indonesia and Malaysia.
The trend is further reinforced by non-Muslim consumers who are concerned
about the use of animal-sourced ingredients such as gelatin and collagen. of women in
The global halal cosmetic market is expected to grow 6.7% CAGR in the
Indonesia prefer
period 2018-2023 to reach US$90bn by 2023 on the back of halal consumption to use halal
going mainstream. Indonesia and Malaysia are the second and fifth largest cosmetics, a
halal cosmetic markets in the world. These two markets are expected to grow
strongly on the back of a rising affluent middle class. A survey revealed that survey revealed
more than 50% of women in Indonesia prefer to use halal cosmetics2.

In Indonesia, mandatory halal labelling has been approved and has been
implemented since October 2019. The halal certification is compulsory for all
consumer products from packaged food and beverages to personal care and
cosmetics products. Local/regional brands with the certification are set to gain
from the this rising trend. PT Paragon Technology and Innovation, the market
leader in Indonesia, enjoys double digit growth in revenues and controls up to
5% of the domestic market share in skin care. Major international HPC brands
such as Unilever, Beiersdorf and L'Oreal have launched halal-certified
products lines that focus on rule of production and to some extent, formulation
of the products in order to meet the needs of these consumers.

Figure 11: Malaysia, Mainland China, Thailand, and Indonesia are Asian markets with over three million
Muslim consumers

Asian Markets with Over Three Million Muslim Consumers

2018-2023
12 12%
10 10%
USD ‘000

8 8%
6 6%
4 4%
2 2%
0 0%
Malaysia Mainland China Thailand Indonesia Philippines India Pakistan

GDP per capita 2018 Population growth2018 -2023

Source: Fitch Solution, Euromonitor

2 Research and Markets, 2019

 Industry Perspective
Consumer Goods 15

The rise of social responsibility in HPC

Rising social consciousness is driving young consumers to be more discerning
about the products they use and consume. Millennials and Gen Z prefers to
purchase the brands with a clear purpose and seek to consume ethically with
active consideration on the impact on the planet and the environment. The rise
in demand for socially conscious consumers leads to the rise in naturals and
organic HPC products and the demand for sustainable practices in the supply
chain – from sourcing, production to packaging.

Seven
Seven out of ten of Southeast Asian consumers prefer products made with
fresh, natural and/or organic ingredients. Asian’s market for natural and
organic cosmetics is expected to reach US$1bn by 2020, according to
Organic Monitor, supported by strong sales growth in the region.
out of ten
“Organic” products are defined as products that use ingredients derived Southeast Asian
from organic agricultural practices and “Natural” products are made from
natural ingredients derived from plants and animals. The emphasis on consumers prefer
overall wellness as a lifestyle and doing good for the environment drives products made
this trend.
with fresh,
Increasing awareness of the impact of consumption on the environment natural and/or
and climate change has led to an increased willingness by these young organic
consumers to switch brands if the product is produced sustainably, without
compromising on basic quality and performance attributes. Brands that can
ingredients
establish the “trust” factor with the consumers with a clear purpose and
brand story will do well in this backdrop.

Major HPC companies are also committing themselves to sourcing from

sustainable certified suppliers (such as Roundtable of Sustainable Palm Oil
(RSPO) certified suppliers), using natural ingredients from renewable
sources in production, and increasing their efforts in recycling and waste
management.

Industry majors like L’Oréal, Procter & Gamble, and Unilever have pledged
to use 100% recyclable, reusable and compostable plastic by 2025 under
the New Plastics Economy Global Commitment by the Ellen MacArthur
Foundation. Such sustainability commitments will help differentiate their
brands among the increasingly socially conscious young Asian consumers.
 Industry Perspective
Consumer Goods 16

Reformulating the HPC supply chain

Contract manufacturing for a nimble HPC supply chain
HPC companies are increasing their collaboration with contract
By collaborating
manufacturers – original equipment manufacturers (OEMs) and/or original
design manufacturers (ODMs) – who can offer formulation and with ODMs, HPC
manufacturing technology that may not be readily available especially for brand owners are
complex products like skin care and cosmetics.
able to shorten
Contract manufacturers are gaining importance in the HPC value chain as the speed-to-
more personalisation and customisation calls for more flexibility and agility market by up to
in product launches. By collaborating with ODMs, HPC brand owners are
able to shorten the speed-to-market by up to four months.

Outsourcing to overseas contract manufacturers can also confer cost

efficiencies to HPC brand owners, allowing them to enter more emerging
four
and niche market segments such as Halal cosmetics without large capital
outlay required in the case of manufacturing in-house.
months
Figure 12: Comparison of contract manufacturers and their involvement in the HPC value chain

OEM ODM

Intellectual Property/ Owned by FMCG Owned by contract

Formulation buyers manufacturers

Raw material and In-house sourcing

Sourced by
packaging material by contract
FMCG buyers
sourcing manufacturers
By FMCG buyers Monitored by FMCG
Stability tests prior to manufacturing buyers through
contract panel tests

Source: Expert interviews, UOB analysis

 Industry Perspective
Consumer Goods 17

Contract manufacturing in Asia

Since entering the World Trade Organization in 2001, almost one-third
of global cosmetic contract manufacturing has moved into Mainland Up to
China. In 2018, Mainland China’s cosmetic contract manufacturers
accounted for more than 50% of global production in terms of revenue and
it is set to strengthen its position further as the world’s second largest
cosmetics market after the US. Mainland China exported approximately
US$2bn in BPC products in 2017, and 70% of the total exports are
products from contract manufacturers.
80%
of raw materials
are imported.
In Southeast Asia, Thailand is the leading market for contract manufacturers. Sourcing for
The Thai cosmetics OEM and ODM industry is worth USD5.7bn as of 2017
and accounted for 1.3% of the nation’s GDP. Thailand leads in the region with raw material
an ecosystem that grants her access to raw material, as well as her ability to accounts for
produce a wide range of quality products. Thai ODMs may also provide end-
approximately
to-end services that cover research and development, production and design

40%
as well as marketing, which could aid new and smaller companies with their
product launches.

Over 68% of the contract manufacturers are privately owned and usually
small-medium enterprises. Raw materials are often provided by the original of the contract
brand owners or sourced locally. For cosmetics and personal care OEMs manufacturer’s
and ODMs, up to 80% of the raw materials are imported. Local
manufacturers deem ingredients from leading markets such as Germany,
cost of
Italy, Japan, Korea, Switzerland, and the US to be of higher quality. production in
terms of cost
Specific raw materials may also be seasonal and/or come from a specific
region. Sourcing for raw material accounts for approximately 40% of the of goods sold
contract manufacturer’s cost of production in terms of cost of goods sold.
Moreover, the majority of finished goods produced by contract
manufacturers is exported. In this premise, these players are exposed to
significant foreign exchange (FX) fluctuations. Thus, access to banking
facilities in trade finance and FX management can help these companies
manage their cash flow more effectively. Moreover, as demand for HPC
products grows, contract manufacturers have to be nimble in catering to
sudden surges in demand from their buyers.
 Industry Perspective
Consumer Goods 18

Contacts

Consumer Goods Team

Emilyn Domalanta Peh Ying Jie

Centre Of Excellence Business Insights & Analytics
emilyn.domalanta@UOBgroup.com peh.yingjie@UOBgroup.com

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