European cosmetics manufacturers face a supply crisis due to the scarcity of Ukrainian resources

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PARIS / MILAN – European manufacturers of perfumes and cosmetics face shortages of paper, glass and some key oils and alcohols, as the Russian invasion of Ukraine adds further disruption to beauty supply chains, driving up prices in a context of strong demand.

Like the food industry, the $ 500 billion global cosmetics industry grapples with the fallout from war as manufacturers use grain-derived alcohol and organic beets to make perfumes and sunflower seed oils to make cosmetics, all of which are key crops. from Ukraine.

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At the same time, the war-triggered energy crisis has pushed glass and paper prices skyrocketing, as China’s COVID-19 blockade hindered companies’ ability to obtain $ 100 per bottle perfume packaging components and lipsticks. from $ 30.

“We are in crisis management mode when it comes to these procurement issues,” Emmanuel Guichard, secretary general of the French cosmetics association FEBEA, told Reuters in an interview.

Consulting firm Bain & Company calculates that higher prices for packaging, energy and raw materials have increased production costs in the cosmetics industry by an average of 25-30%, posing a challenge to mass cosmetics manufacturers, although demand for personal care products remains strong, according to Federica Levato, partner and leader of the EMEA luxury practice.

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Italian fragrance maker ICR predicts sales this year will exceed pre-COVID levels, but family-owned perfume maker Bulgari and Salvatore Ferragamo is struggling with a 30% annual increase in the cost of alcohol, as well as a 10% increase in the cost of glass and paper, said vice president Ambra Martone.

According to a McKinsey report, sales of beauty products globally surpassed the 2019 level of $ 538 billion this year, compared to $ 518 billion in 2021 and $ 458 billion in 2020.

This is still a fraction of other industries that have been rocked by the war, including the global packaged food industry, which Euromonitor’s latest estimates are expected to be worth over $ 2 trillion this year. The Russian invasion of Ukraine caused turmoil in the markets for staple grains and edible oils, pushing world food prices to new highs.

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While larger companies with higher profit margins have more financial power and flexibility to cope – L’Oreal’s luxury division, which sells cosmetics and perfumes under the Giorgio Armani and Valentino brands, for example, has an operating margin of 22 , 8% – the challenge is particularly acute for small and medium-sized enterprises in Europe.

“We face scarcity and price increases every step of the way: from essences and alcohol to glass and paper, even for spray pumps and the Surlyn plastic used for caps,” said Marco Vidal, CEO of the Venetian fragrance producer Mavive, owner of the Trader of the Venezia brand.

The challenges are mounting as consumers continue to purchase more expensive beauty products, including perfumes made with a higher concentration of oils and more unusual raw materials.

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Sales of fragrances have steadily increased over the past three years and increased by 15% in 2021 in the United States, with perfumes priced at over $ 175 per bottle more than doubling in unit sales, according to the latest figures from the NPD group.

“It’s a disaster, and you just can’t find glass,” said Alba Chiara De Vitis, founder of the Florence-based Alchemia Essenze, whose fragrances sell for up to 180 euros ($ 196) a bottle.

European cosmetics manufacturers, which exported € 22.6 billion ($ 24.6 billion) of goods in 2020 according to the Cosmetics Europe industry association, encountered competing demand for packaging materials after the coronavirus pandemic which boosted e-commerce, driving paper consumption amid efforts to reduce the use of plastic.

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Glassmakers, for their part, have struggled to cope with demand for vaccine vials after reducing production in the early stages of the pandemic, shutting down furnaces in Italy for the first time in decades.

Now gas prices are exacerbating problems for both sectors, forcing paper mills in Italy to temporarily suspend production to renegotiate sales prices.

Doubling the cost of the paper used to make luxury rigid boxes for customers including Dolce & Gabbana, Ferragamo and Givenchy has led the Italian group Isem to increase the price of its products between 10% and 40%, he told Reuters. the CEO Francesco Pintucci.

The Italian glassmaker Bormioli Luigi, which produces bottles for spirits, perfumes and cosmetics with an annual turnover of 480 million euros, expects this year 80 million euros in additional energy costs, half of which incurred by its beauty division whose customers include French brands Chanel and Dior, fragrance manager Simone Baratta told Reuters.

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“Before the war the cost of a bottle from distributors was € 0.75-1.40, now it is € 1.00-1.50,” said De Vitis.

Glassmakers in France, where the largest cosmetics companies began placing orders months earlier than in the past, have struck a more reassuring note, said Guichard, who predicts they too will likely feel the pinch of the energy crisis soon.

“I think we will have a hard time getting the gas to make perfume bottles,” he said, noting that there would not be enough time to convert gas ovens to electrical systems.

Meanwhile, executives from Intercos, an Italian cosmetics supplier to brands, which is currently negotiating a licensing deal with Dolce & Gabbana, said they raised prices by around 5% at the end of 2021 and would consider further rise in summer.

“In the luxury beauty industry, we expect consumers to bear the brunt of these higher costs after a transition period that could last a few months,” Levato said. ($ 1 = 0.9189 euro) (Reporting by Valentina Za and Francesco Zecchini in Milan; Mimosa Spencer in Paris; Additional reporting by Silvia Ognibene in Florence; Editing by Diane Craft)

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