Guangzhou’s cosmetics industry is being driven hard and fast by a generation of consumers unimpressed by big names and high prices.
Photo from CFP
By WU Rong
If asked to imagine China’s “Beauty City,” Guangzhou is probably not the first place that would spring to mind. But as business-like and busy as a city can be, the capital of South China’s Guangdong Province is also home to about three-quarters of China’s cosmetics brands, earning the metropolis the somewhat cumbersome moniker of "New Domestic Brands’ Beauty City". From 2018 to 2020, sales of beauty and make-up brands out of Guangzhou have increased by around two-fold at Tmall.
At the end of last year, Yatsen, the parent company of Perfect Diary, had its IPO at the New York Stock Exchange. Simpcare, a skincare brand featuring industrial hemp, has completed six rounds of financing since its founding in 2019. Meishang, the parent company of Colorkey has sold lip gloss worth more than 100 million yuan (US$15 million). These new brands are somewhat different from older start-ups. New brands are focused on niche markets, affordable prices, and fancy packaging. Products are released at a quicker pace.
HUANG Yigeng, vice president of Perfect Diary's parent company Yatsen, cited a 16-color eyeshadow compact as an example. According to company data, consumers were especially attracted to sequins in the product. With this information, the company put a separate sequin eyeshadow compact on the market in a few months. In the past, the development cycle of most cosmetics could be up to 18 months. Yatsen puts at least some of this speedy release down to Guangzhou’s mature supply chain.
LI Wei provides services to Guangzhou cosmetics manufacturers for cosmetics. In 2019, she helped a new brand to sell tens of millions of powder compacts just three months after the product launch. Li puts success down to an efficient supply chain for small-batch customization.
In the manufacturing industry, large-scale assembly line production has always been the mainstream, a mainstream that demands a huge volume of production to function. In order to meet the production rhythm of new beauty brands, flexible production is the order of the day. It is possible now to make batches as small as 500 efficiently.
Make-up and eye makeup kits require more than 8,000 kinds of raw material, though only about 400 are commonly used. At least 300 of them can be easily found in Guangzhou.
WANG Jun is the owner of a cosmetics OEM based in Guangzhou. When talking with an engineer from an international brand, he learned that the engineer had spent 4 million yuan and a full year to develop a facial mask for Chinese people. Wang decided to give it a shot himself and spent just 1,200 yuan to come up with a mask in only a month. But it’s more than just a supply chain.
The cost and threshold of making a mask are relatively low, mainly from raw materials, processing and packaging. All things considered, Wang’s new mask costs less than 3.5 yuan to produce yet sells for around 20 yuan on Taobao: a very pretty profit.
There are more than 5,000 cosmetics manufacturers in China, more than 3,000 of them are in Guangdong, with over 1,000 in the Baiyun District of Guangzhou.
Adjacent to Hong Kong and Macao, Guangzhou is well placed to meet demand from international beauty brands. A wide assortment of raw material suppliers and packaging plants have gathered there. Development of local beauty brands was nothing special: benchmarking against a foreign brand but at a cheaper price; selling to small cities through thousands of outlets; spending heavily on Hong Kong and Taiwan stars in advertising.
Since 2010, the internet has changed everything. The role of brick-and-mortar stores has given way to e-commerce, while television advertisements have been replaced by social media. The older generation of local makeup brands was slow to adapt, giving rise to new, more agile brands.
Li Qinya founded Colorkey in 2018, aimed at the 18 to 25 age group. Signature products were aimed directly at online channels with advertising heavily social-media oriented. After only two years, the brand notched 160 million yuan in sales on Tmall during last year’s Singles' Day.
"I worked with Avon for years in marketing, sales and supply chain. I had mastered modern corporate management techniques before I started Colorkey,” she said. Spotting new market trends and moving quickly, while using production technology already established in Guangzhou is behind the company’s success.
P&G established a joint venture in Guangzhou as early as 1988. The company’s "talent localization strategy” has trained a large number of today’s product managers, Perfect Diary founder Huang Jinfeng among them. The training P&G offered plus contact with the local chemicals sector gives them a deep understanding of branding and supply chains along with sharp market insights.
Industrial hemp-derived skincare products are the norm today, but before 2019, they were almost unknown in China. Consumers had almost no idea about these products. Cannabidiol (CBD), an active ingredient found in industrial hemp, has gradually moved into the mass market and brands such as Estee Lauder and Kiehl's have skincare products containing CBD.
But the properties of Western skincare products are not a good fit for Chinese people. To solve the problem, Simpcare developed a water-soluble CBD suitable for Chinese consumers and in 2020, Simpcare sales exceeded 100 million yuan. Around 400 CBD-related products were registered that year. Simpcare’s early entry into the market gave the company a huge market share.
"The consumer is the boss," said Lan Fei, a partner at Simpcare. “Customers born in the 1990s readily identify premium products. This is of great value to the current wave of new brands," she said.
With the presence of more rational consumers, more sales channels and falling costs, brands are able to invest more in research and development, requiring upstream industries to upgrade. "This is a responsibility that must be taken up, not only in Guangzhou but by all domestic brands," Lan said.
A new generation of consumers is not so susceptible to the charms of traditional big-name brands, especially makeup, opening the door for young brands and entrepreneurs to occupy a landscape long occupied by overseas interests.