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By John Helmer, Moscow

The war plan of the US and the European allies is destroying the Russian market for traditional French perfumes, the profits of the French and American conglomerates which own the best-known brands, the bonuses of their managers, and the dividends of their shareholders. The odour  of these losses is too strong for artificial fresheners.

Givaudan, the Swiss-based world leader in production and supply of fragrances, oils and other beauty product ingredients, has long regarded the Russian market as potentially its largest in Europe; it is one of the fastest growing contributors to Givaudan’s profit worldwide. In the recovery from the pandemic of Givaudan’s Fragrance and Beauty division – it accounts for almost half the company’s total sales — the group reported “excellent double-digit growth in 2021, demonstrating strong consumer demand for these product categories.”    Until this year, Givaudan reveals in its latest financial report, the growth rate for Russian demand was double-digit – much faster than the  6.3% sales growth in Europe overall; faster growth than in Germany, Belgium and Spain.    

Between February 2014, when the coup in Kiev started the US war against Russia, and last December, when the Russian non-aggression treaties with the US and NATO were rejected,   Givaudan’s share price jumped three and a half times – from 1,380 Swiss francs to 4,792 francs; from a company with a market capitalisation of 12.7 billion francs ($12.7 billion) to a value of 44.2 billion francs ($44.2 billion). Since the fighting began in eastern Ukraine this year until now, Givaudan has lost 24% of that value – that’s $10 billion.  

The largest of Givaudan’s shareholders is Bill Gates. With his 14%, plus the 10% controlled by Black Rock of New York and MFS of Boston, the US has effective control over the company.

Now, according to the US war sanctions, trade with Russia and the required payment systems have been closed down, alongside the bans on the importation of the leading European perfumes. So in place of the French perfumers, instead of Givaudan, the Russian industry is reorganizing for its future growth with its own perfume brands manufactured from raw materials produced in Crimea and other regions, or supplied by India and China. Givaudan, L’Oréal (Lancome, Yves Saint Laurent), Kering (Balenciaga, Gucci), LVMH (Dior, Guerlain, Givenchy), Chanel, Estée Lauder, Clarins – they have all cut off their noses to spite the Russian face.

Ahead of Vladimir Zelensky’s regime in Kiev, the largest losses of the war so far have been the French and American perfumers and Givaudan – more than one hundred and fifty billion dollars of market value destroyed.


KEY (reading down the chart): black=LVMH (current market cap €290.2 billion); grey=Estée Lauder ($84.1 billion); yellow=Givaudan (CHF44.2 billion); orange=L’Oreal ( 175.8 billion). Source: https://markets.ft.com

There are more than two dozen foreign brands on the list of French and American companies which have announced they are closing down their Russian perfume and cosmetics business. Read the full list as of mid-March 11.  

The company announcements and publicity triggered immediate hoarding on the part of the Russian distributors and retailers, and in parallel, Russian consumers. In the first two weeks of March, Russian consumers bought personal beauty products for more than Rb10 billion; that was one and a half times more than a year earlier, 172% more than the previous month.  In that short time, the industry records show Russians bought 4.6 million units of perfumes; this was  48% higher than the volume for the same period in 2021, and 55% more than the volume in the pre-war month of February.  Perfumes also jumped 43% in their average unit rouble price in the month after the military operation commenced.

Industry sources say this buying surge has now replenished the warehouses. They estimate that the stocks will last until May, perhaps longer if Russians don’t begin conserving their consumption budgets.  For that reason it was already clear before the war, and before the pandemic, that Russian demand has been falling. So consumer spending on cosmetics and perfumes started to contract in 2019. That year, imports of cosmetics and perfumes came to 257,200 tonnes, down 1.3% from 2018. Because of the rising price and exchange rate effect, the value of the imports rose 4.2% to $2.5 billion. The volume of perfume imports in 2019 was up 5.4% on 2018; value was up 6.5% to $564 million.

The main country sources for cosmetics were France, South Korea, Poland and Italy. The main country sources for perfumes were France, Italy and Poland.  In perfumery, imports account for about 70% of the Russian market, and in the cosmetics market foreign suppliers accounted for 50%. In the middle to high- price markets of big cities like Moscow and St Petersburg, the imports account for almost all of the demand.

Domestic Russian-made perfumes and cosmetics are thus more common in the lower-price segment of the market. As consumer income began to flag, before the onset of the pandemic, the Russian products suffered first and foremost. The pandemic conditions of 2020 made everything worse – for the consumers, for importers, and for domestic manufacturers. In 2020, 2,968,000 units of perfumes were produced by Russian enterprises; that was 35.7% less compared to the output of 2019. The compound decline in perfume production for the period 2017-2020 was just under 20%; the rate of decline has been accelerating. At least this was the trend until the Biden administration ordered the foreign imports out of the Russian market. This year in February, domestic production of perfumes dropped by 9% compared to February 2021; that amounted to 149,100 units.  

In the perfume market, importers, distributors,   and retailers suspect that what the big French perfumers say they intend to do, and what they will do are likely to be quite different. At a domestic industry conference recently, an executive at L’Etoile, a leading Russian perfume retailer, said he expects that ten foreign brands will eventually leave the market after the stocks run out in May; he refused to identify them.  In the meantime Russians are quietly trying to negotiate with the big-brand producers for import delivery schemes through China and other countries on Russia’s “friendly” list.  

Alexei Vanchugov, a Moscow market analyst and independent consultant, says that perfume and cosmetics retail is so profitable, it is also highly competitive. When foreign brands disappear from the official trade, he believes they will be quickly replaced either by other brands, or by a gray-market trade operated through the United Arab Emirates, China, and other friendly country ports with tacit permission of the French producers. Unit prices are bound to jump, however.

The leading Russian retailers in the perfume and cosmetics market are Magnit Cosmetics, whose last reported sales revenue for 2021 was Rb134.3 billion; this is a beauty product market share of 48%. Next comes L’Etoile with turnover of Rb74.4 billion, 8% market share. Third is Smile of the Rainbow (Улыбка радуги) with Rb35.2 billion, 6%; fourth, Wildberries with Rb31.4 billion, 5%; and fourth, Rive Gauche, Rb30 billion, 4.8%.  

Rive Gauche store front  in the up-market Afimall on Presnenskaya Naberezhnaya,in Moscow.

In parallel with the traditional retail trade and there is the more rapidly growing direct and online sales chains — Faberlic, Avon, Oriflame. By the end of 2020, the share of these companies accounted for about 17% of the beauty product market.  

Ignore the foreign names, these are the leading Russian perfume brands. Left to right:  Krasnaya Moskva, Niagara, Franca Feretti Siesta, Cosmogony. For the current list of the Russian perfume manufacturers who are members of the Russian Perfumery and Cosmetics Association (RPKA), click to open.  The state market regulator, Rospotrebnadzor, targets counterfeit brand products,  which are estimated to generate roughly one rouble in ten of retail sales.

“New Dawn” (Novaya Zarya) is Russia’s oldest established perfume house.  

According to Alexandra Bogdanova, head of the retail store chain Cosmetics-PRO in the Urals region, warns consumers to stock up. “If you have your favorite imported products and they are still available, it’s  better to buy for the future. No one knows exactly what will happen next, and supply problems have already begun. Suppliers, if they continue to ship, then they will do so at new prices.  Suppliers’ warehouses are rapidly being emptied, now; products have risen in price by 30% to 60%.”

Bogdanova heads Cosmetics-Pro, a network of shops in the Urals region; it buys goods from  supplier partners in Moscow and St. Petersburg who in turn import from foreign manufacturers. The wholesale calculation is in dollars, hence the price increase.  

“There are not only logistical problems, but also problems with transport companies. Due to sanctions, the companies refuse to insure cargo. For example, the goods can even stand at the border in China: the products themselves are Chinese, but insurance, for example, European. The prices were also revised by domestic brands because the chemical production in our country is not very developed, so many ingredients are purchased abroad, in Europe, in America, so the Russian companies are forced to raise their price.”

The largest manufacturers in Russia are Estel, New line, Aravia, Mixit, and Kora. In order for them, as well as the importing suppliers, to survive, they must inflate the price, even if the goods or some components were bought at the old dollar exchange rate and were in stock before the war. “After all, then they will need to buy new batches of products at significantly higher prices, pay salaries to their employees,” Bogdanova says. “If they sell at the old price, then they will not have the money to buy at the new prices. Then the risk of being forced out of the market and  to close becomes much higher. Neither the supplier nor we are to blame for this,  we are trying to tell the end-customer. The next round of purchasing for suppliers will be many times more expensive. Perhaps, they will be raising their prices to retail as prices will rise for them.”

“In the near future, we will all have to reorient ourselves to domestic brands, but whether Russian production will stop without the western ingredients is a big question. Quite a large number of the active ingredients, including the oils, esters and extracts, have recently been produced in Russia. We have a high-tech production of plant extracts in Chelyabinsk. China is not lagging behind —  many components of good quality can be obtained from there,” Bogdanova (right) said.

 On the posh shopping strips of Moscow, Maria Molchanova has opened her Mayme chain for perfumes and cosmetics. She says that until now the perfumery products of Russian manufacturers consist of 90% European components: first of all, the raw materials themselves for the fragrance, which are not produced in Russia, as well as bottles, sprays, lids.

“In Russia there is only the alcohol, on the basis of which the scents, flavours and packaging are mixed. Logistics for the small Russian perfume companies was difficult before, and not all the foreign manufacturers made their deliveries to Russia directly. So far, ground transportation has been maintained, and we continue to receive raw materials and components. But their cost has increased 1.5-2 times, which will affect the cost of products,” Molchanova said.

She noted that for the time being she has not received notices from her European partners about the suspension of work. “But in parallel, we have started working with China, switching to Chinese glass and components. And if before [the war] the Russian retail networks were not very willing to pay attention to Russian brands, now they themselves are beginning to come to us so that they can have something to put on their shelves,” Molchanova said.

Left, Mayme brand, Russian-made perfumes. Right, Maria Molchanova, founder of  Mayme.

Georgy Teplov, a market analyst of the National Technology Initiative (NTI) HealthNet,  emphasizes that the current situation which the war has created opens up new opportunities for Russian manufacturers and companies from the bordering CIS states. “But for successful operation and replacement of imported products, it is necessary to establish the supply chains,” Teplov said. “Problems with Chinese raw materials began last year, both due to the covid restrictions and the country’s ecological preparation for the Olympics. To improve the environment, entire provinces were closed or factories switched to a three—day working week,” Teplov explained.

In addition, Teplov noted there will be changes in the appearance of cosmetics packaging. “One of the main suppliers of tubes is the plant in Kharkov. There are only a few such plants in Russia, and they may not be able to satisfy all requests in the near future.”  He added: “The quality of many Russian products is absolutely not inferior to imported ones. Indeed, in recent years, there has been an enormous interest in our products abroad, Russian manufacturers are actively increasing their exports.”

In 2020, Russia exported $216 million worth of beauty products, placing the country 29th in the table of world suppliers. The principal country destinations for these goods were Belarus, Kazakhstan, the Ukraine, China and Poland, in order of magnitude. The fastest growing demand for Russian products was in Hong Kong, China, and Denmark. The Ukrainian and Polish markets accounted that year for 13% of the export value. Between January 2021 and January 2022 the export value of Russian beauty products jumped by 30.4%.

Russian industry sources are also expecting the war to generate increased domestic demand, and substantial new investment, in Crimea for the farming and distillation of the main floral fragrances.  This year, for example, brand name Crimean Herbalist is one of the leading producers in the new Russian state for hair (shampoos, balms, masks) and skin care (creams,  serums, gels). Crimean beauty products are also marketed for their therapeutic value.

Top, Crimean Herbalist; bottom, Fragrance World -- source: https://krymania.ru/

Under the trade name Fragrant World, the Alushta State Farm in Crimea has been producing essences, oils and other ingredients for a wide range of beauty products, as well as perfumes for homes, such as candles, room fresheners, and herbal infusions. Established in 1931 Alushta grows lavender which will now compete with Provence; it is one of the oldest enterprises in Crimea.

The choice of products with the Fragrant World brand is quite large — these are shampoos and hair care products, skin products (including lip and eyelid balms), firming nail oils, massage oil, bath kits and baths, scrubs, perfumed powders;  lavender preparations predominate.

Crimean beauty products are also developed and marketed for their therapeutic value. They will soon move into the international perfumed body powder market. That has been dominated worldwide until now by Johnson & Johnson, whose talc has been found in the US to be carcinogenic.

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