Croatia’s EU accession means opportunities for cosmetics manufacturers, says Mark Rowe
Cosmetics companies looking to expand sales and manufacturing in Croatia are looking for new opportunities as the ex-Yugoslav country prepares to join the European Union (EU) next year. With a population of 4.9 million and an expanding educated middle class, Croatia is an increasingly attractive market for cosmetics and personal care products.
The country currently has a strong domestic base of approximately 70 companies registered for the production of cosmetic products, according to the Society of Traders and Producers of Cleaning Products, Washing Products and Cosmetics at the Croatian Chamber of Commerce. Some of the largest companies include Osijek based Saponia, Zagreb based Neva, and Wachem, which operates from Annyer and Trnovec. According to the Croatian Chamber of Economy, the country produced around 10,000 tonnes of cosmetics in 2011. Of this 40% was sold domestically with the remainder being exported, primarily to former Yugoslav states, Albania, Germany, Austria and Italy.
However, Croatia has not been immune from Europe’s continuing economic woes and in 2011 its personal care product market shrunk in real terms by 3%, according to market researcher Euromonitor International. The sole sub-sector to avoid this trend was hair care, which managed to grow by 1%. Several other markets, such as skin care and fragrance, dropped by 5% from 2010 sales.
Tamara Tudek, marketing director for the Zagreb based Atlantic Perfume Company, said for some market segments “there has been a significant fall – up to 30% to 40% – during the last three years”, although in the year to date cosmetics sales have been stable year on year. “You have to remember that since the Croatian market is still developing, the lower sales of existing brands have been compensated by the entry and recognition of new brands,” she said.
In Croatia personal care product manufacturing is dominated by hair care, skin care preparations, toothpastes and soaps. Domestic demand is actually much higher than production however, and in 2011 27,979 tonnes of cosmetics valued at $226.6m were imported. Currently, the most commonly imported products are skin care, make-up, shampoo and hair care products, bath products and fragrances. Overall, almost all raw materials for Croatia made cosmetics are imported from the EU.
Once Croatia’s EU membership comes through (slated for July 2013), observers do not believe however that the cosmetics and soaps sector will change too quickly or dramatically. Almost all the world’s major personal care companies, such as Henkel, Procter & Gamble, Unilever, Beiersdorf, L’Oréal, Beecham, Colgate, Reckitt Benckiser and Revlon, are in fact already represented on the Croatian market. “Domestic producers are already firmly associated with companies from the EU,” said the Croatian trade association’s director Dubravka Marijanovic. “The assumption is that the Croatian producers could more easily reach the EU market when Croatia is a member but the market is already saturated and so divided that it is more likely that they will remain only in a regional framework.”
Milan Cakic, a Croatia based research analyst for Euromonitor International, agreed: “Domestic producers in Croatia produce quality cosmetics but [they are] largely unknown on the European market, except perhaps in Slovenia.” He said that EU membership is unlikely to change the landscape of the cosmetics and soap sectors overall. “The multinationals moved in after the break-up of Yugoslavia and they control 95% of the market, so there will be little new movement.”
However, membership will bring opportunities as well as some significant challenges, according to Tudek, who believes export potential will increase due to the fact that EU products are much more appreciated in non-EU markets. “Our current position in [the] south east [Europe] region is stable yet sees room for improvement but we see even higher growth potential in the Middle East and northern Europe,” she said.
One major concern is that upon joining the EU, Croatia will have to leave the Central European Free Trade Agreement. “This means companies will have to pay taxes and duties on goods to some of the largest export markets – Serbia and Bosnia & Herzegovina – and that is very bad news,” explained Cakic. “The government has said it will provide a mechanism for softening the impact but there have been no details yet.”
Another challenge is that the EU market is already saturated and very competitive. “It will be very hard for small companies to compete,” Cakic said although he believes these companies will benefit from a completely open market. One of Croatia’s strengths, he said, is its natural cosmetics derived from olive oil, essential oils, plant extracts and bee products.
“Organic and natural products are small at the moment but they will definitely grow over the next four or five years,” explained Tudek. “The multinationals are so dominant that small domestic companies do not even try to compete; they go instead for niche sectors.” These also include ‘technological novelties’ such as fillers, botox and other aesthetic techniques and products.
She also believes local brands have established a loyal following that will prove resilient to the new challenges: “Rosal, Melem, Afrodita and Saponia are well appreciated and known for their excellence and quality. They have been present on the market for over 70 years, during which [time] they built up their reputation and consumer loyalty.”
Meanwhile, Croatia has already implemented EU cosmetics legislation and Croatian producers are generally prepared. One of the greatest challenges in complying with EU directives, said Marijanovic, has been in terms of animal testing for small companies: “Some difficulties could occur with new regulations because some small producers might not be able to meet all the requirements for safety assessments.”