Kline Predicts Increasing Margin Pressures for Personal Care Marketers

Top marketers in the personal care industry spend about 29% of sales on cost of goods, 53% on marketing, and 7% on other expenses including R&D and administration, leaving an operating margin of about 11%, according to new data compiled by worldwide consulting and research firm Kline & Company.

High oil prices during 2007 and much of 2008 drove production and distribution costs for personal care marketers up significantly. Since then, oil prices have decreased, which has helped to expand operating margins somewhat. However, declining consumer demand stemming from the global recession will likely offset any profitability gains from lower oil prices. This, combined with the perpetual need to spend significantly on advertising and promotions in order to drive consumer awareness and demand in highly competitive categories, will continue to lead to margin pressures for personal care marketers.

The recession is also leading to greater levels of discounting and special pricing, which hurts gross margins. Companies whose product lines are heavily focused on luxury products, such as Estée Lauder, will feel the sting of the recession more than those whose products tend to be priced lower, such as Avon, Johnson & Johnson and Procter & Gamble.

Overall, the recession will affect the ability of personal care marketers to increase retail prices, unless unique product benefits are highlighted.

“Companies that continue to employ effective marketing, efficient operations, sustained R&D expenditures, and steady innovation are the ones that will remain profitable and hold market leadership positions in uncertain times,” says Laura Mahecha, industry manager for Kline Market Research division.

Kline’s “Personal Care: U.S. Competitor Cost Structures 2008” study presents information on the financial performance of 10 leading suppliers of cosmetics and toiletries in the United States. For each company, cost breakdowns are provided for its overall personal care business as well as its leading product classes, including fragrances, hair care, makeup, oral care, skin care and other toiletries.

More info: www.KlineGroup.com