US firms tackle China's cosmetics market

HONG KONG (Nov. 18, 3:20 p.m. ET) -- Inoac Packaging Group Inc. believes its Shanghai molding plant is at the front of a trend in China’s cosmetics industry -- as local consumers spend more, domestic Chinese cosmetics manufacturers are forking out more for better packaging to appeal to them.

The local market, rather than the more traditional market of foreign brands selling in China, is attracting more attention from other prominent cosmetics packaging firms, and causing them to look at China for more sales as other markets slump.

Inoac, based in Bardstown, Ky., and a unit of Japanese conglomerate Inoac Corp., may be among the early adapters.

Two years ago, virtually none of its sales from its Shanghai blow and injection molding packaging plant were to Chinese firms. Instead, business was devoted to Western and Japanese firms that either exported their cosmetics or sold their brands directly in mainland China.

A significant shift is underway, as one-third of its business in Shanghai now comes from domestic Chinese cosmetics manufacturers looking to upgrade, said Yutaka Matsui, executive vice president of the Inoac Packaging, in an interview at the CosmoProf Asia 2009 show, held Nov. 11-13 in Hong Kong.

“One year ago a lot of Chinese companies came to my booth and said ‘We like the packaging but it is too expensive,’” said Matsui, who claimed Inoac’s packaging could cost double or triple that of his domestic Chinese competitors at the trade fair.

But those prices are no longer deterring Chinese cosmetics brands, he said: “They see the foreign brands selling for a lot more in China… they want to sell for higher prices. One easy thing is more gorgeous packaging.”

He claimed Inoac has not altered its pricing to enter the domestic Chinese market.

The change, while nascent, has attracted the attention of other global cosmetic packaging firms.

Taiwanese-owned HCP Packaging — which employs 3,000 at injection and blow molding factories in China, the United States and next year Mexico — is putting the Chinese market more firmly in its sights.

“We’ve had a strategy this year to increase our presence with the local brands, and we’re doing that via our mascara product line [where] we have a strong core competency,” said Steven Levine, president of the company’s American unit, HCP Packaging USA Inc. in Shelton, Conn.

The firm has grown an average of 20 percent a year for the past decade, but this year will slip to single-digit growth as even the normally recession-resistant cosmetics industry takes a hit, Levine said.

“We’ve realized if we’re going to continue to grow at double-digit rates, more of that growth is going to have to come from Greater China, because obviously the Greater China economy is growing at much higher rates than the United States or Europe,” he said.

“We’ve seeing some local brands, they are very definitely looking to upgrade packaging,” Levine said. “Technology and things like decoration complexities are quickly becoming equal to global brands.”

China’s domestic market for cosmetic and personal care products is growing 15 percent this year, said Haitao Chen, the China cosmetics sales manager in DuPont Co.’s packaging and industrial polymers business in Shanghai.

About 20 percent of DuPont’s cosmetics industry sales in China go to local brands, Chen said, echoing comments from others that local brands are looking for better packaging.

“We are seeing local brands want to upgrade their brands to prestige brands,” Chen said.

It’s a change some local Chinese packagers say they are seeing as well.

Guangzhou Qiaoxin Plastics Co., which does more than half its business in exports of tubes and other packaging to American brands like Avon and the CVS drug store chain, said China’s domestic market is becoming more important.

It now accounts for about 25 percent of its business, compared with 15 percent two years ago, said JoJo Fang, saleswoman. Chinese customers usually want simpler technology, like monolayer tubes instead of the five-layer tubes overseas firms want, but that’s changing as well, she said.

Inoac’s Matsui said his company’s change in thinking about China also reflects the reality of rising costs there, which he said make it a less attractive export platform.

When the company first opened in Shanghai in 1995, it focused entirely on exporting to Japan and America. Today, those exports are only about one-third of its sales, with two-thirds of business coming from within China, either from direct sales to Chinese firms or from Japanese brands selling into China.

“We feel the business model is in the local market,” he said.

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