European cosmetics makers face supply crisis amid Ukrainian resource scarcity

  • Struggle to find key ingredients, packaging materials
  • Glass and paper makers grapple with soaring gasoline prices
  • Mass producers face challenges as production costs rise
  • Luxury beauty products are getting more and more expensive

PARIS/MILAN, April 12 (Reuters) – European perfume and cosmetics makers face shortages of paper, glass and some key oils and alcohols as Russia’s invasion of Ukraine further disrupts beauty product supply chains, driving up prices amid robust demand.

Like the food industry, the $500 billion global cosmetics industry is grappling with the fallout of war as producers use alcohol derived from grains and beets organic to make perfumes, and sunflower oils to make cosmetics – all key crops in Ukraine.

At the same time, the war-triggered energy crisis has driven up the prices of glass and paper, while COVID-19 lockdowns in China have thwarted companies’ ability to obtain packaging components for perfumes at $100 a bottle and $30 lipsticks.

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“We are in crisis management mode on these supply issues,” Emmanuel Guichard, secretary general of FEBEA, the French cosmetics association, told Reuters.

Consulting firm Bain & Company calculates that higher prices for packaging, energy and raw materials have driven up 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 Head of Luxury Practice in EMEA.

Italian perfume maker ICR expects sales this year to top pre-COVID levels, but family-owned perfume maker Bulgari and Salvatore Ferragamo (SFER.MI) is struggling with a 30% annual rise in the cost of alcohol, in addition to a 10% increase in the cost of glass and paper, said Vice President Ambra Martone.

Global beauty product sales are expected to top the 2019 level by $538 billion this year, up from $518 billion in 2021 and $458 billion in 2020, according to a McKinsey report.

That’s just a fraction of other industries that have been disrupted by the war, including the global packaged food industry, which is expected to be worth more than $2 trillion this year, according to the latest estimates from Euromonitor. Russia’s invasion of Ukraine has caused turmoil in staple grain and edible oil markets, pushing global food prices to new highs.

While larger companies with higher profit margins have more financial firepower and flexibility to cope – L’Oréal’s luxury division (OREP.PA), which sells branded makeup and fragrances, for example Giorgio Armani and Valentino, has an operating margin of 22.8% – the challenge is particularly acute for small and medium enterprises in Europe.

“We face shortages and rising prices at every stage of the process: from essences and alcohol to glass and paper – even for spray pumps and Surlyn plastic used for caps,” said Marco Vidal, managing director of Venetian perfume manufacturer Mavive, owner of the Venice Trademark.

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

Fragrance sales have grown steadily over the past three years and grew 15% in 2021 in the US, with fragrances over $175 a bottle more than doubling in unit sales, according to the latest data from NPD Group. .

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

European cosmetics makers, who exported 22.6 billion euros ($24.6 billion) worth of goods in 2020 according to the industry association Cosmetics Europe, have found competitive demand for packaging materials after the coronavirus pandemic. coronavirus which has boosted e-commerce, driving paper consumption as part of efforts to reduce the use of plastic.

Glassmakers, for their part, have struggled to keep up with demand for vaccine vials after cutting production at the start of the pandemic, turning off kilns in Italy for the first time in decades.

Now, gas prices are exacerbating the problems of both industries, forcing Italian paper mills to temporarily suspend production to renegotiate sales prices.

The doubling of the cost of the paper it uses to make rigid luxury boxes for clients such as Dolce & Gabbana, Ferragamo and Givenchy has led Italian group Isem to raise the price of its products by 10% to 40%, a CEO Francesco Pintucci told Reuters.

Italian glassmaker Bormioli Luigi, which makes bottles for spirits, perfumes and cosmetics with an annual turnover of 480 million euros, expects 80 million euros in additional energy costs this year, half of which will be borne by its beauty division which counts French brands Chanel and Dior among its clients, head of fragrances Simone Baratta told Reuters.

“Before the war, the price of a bottle at distributors was 0.75 to 1.40 euros, now it is 1.00 to 1.50 euros,” De Vitis said.

Glass makers in France, where big cosmetics companies started placing orders months earlier than in the past, found a more reassuring note, said Guichard, who predicts they too will likely soon feel the pinch. of the energy crisis.

“I think we will have a hard time getting gas to make perfume bottles,” he said, noting there wouldn’t be enough time to convert gas ovens to electric systems.

Meanwhile, executives at Intercos (ICOS.MI), an Italian supplier of branded cosmetics, which signed a five-year trade deal with Dolce & Gabbana on Tuesday, said they had raised prices by around 5% end of 2021 and were considering an additional hike in the 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 euros)

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Reporting by Valentina Za and Francesco Zecchini in Milan; Mimosa Spencer in Paris; Additional reporting by Silvia Ognibene in Florence; Editing by Diane Craft and David Goodman

Our standards: The Thomson Reuters Trust Principles.

Donovan B. Sanford