Buoyed by rising disposable incomes and discretionary spending approaching the levels similar to those enjoyed by their Western counterparts, Eastern European consumers have driven steady growth in the beauty and personal care industry over the last few years. The pandemic, geopolitical shocks such as the war in Ukraine, and the consequent inflation surge – none of them has managed to derail continuous expansion of sales. Even the exorbitant price increases did not stop consumers moving towards more sophisticated products rather than trading down or reducing usage occasions.
Sophisticated, pricier products outperform basic alternatives
Be it high-tech formulations, premium ingredients, or sustainability claims on packaging, increasingly well-educated Eastern European shoppers continue spending lavishly on pricier items. Interestingly, this has not pushed local interest inexorably towards foreign multinationals despite their seemingly limitless R&D and marketing budgets. Being close to the client and localising their brands as much as possible, local manufacturers have maintained and even increased their market positions. Driving the market, skin care in particular has performed exceptionally well, registering an annual average growth rate of 7% (measured in current euro terms) over the period from 2018 to 2023. At the same time, basic categories remain stagnant, facing not just market maturation issues but also competition from ever-expanding private label offerings. 
For example, moisturisers and treatments – the holy grail of the industry because of the thick profit margins – has seen 148 new brands and sub-brands launched online since March 2021 in the Czech Republic alone, according to Euromonitor International’s Passport Innovation system. This makes it by far the most innovative category, followed by body care with 95 launches. The deluge of new launches will put what seems thus far unsatiable appetite for novelties by Eastern European beauty shoppers to the test with some products inevitably set to fail as the demand reaches its natural limits. The recent surge of moisturisers and treatments is driven by the long-term shift in spending away from general body care towards face care. The so-called “Zoom effect” only accelerated the trend.
The rise of e-commerce gives more bargaining power to brand owners
Another important shift has happened in the distribution of beauty and personal care goods. Having already grown dynamically, e-commerce was turbocharged by pandemic-induced lockdowns. For a channel that is supposed to lead to a borderless world, e-commerce in Eastern Europe displays strong national and regional characteristics, defying the looming threat of platforms like Amazon or emerging Chinese sellers. The Czech Republic’s Notino is the biggest success story with the Polish Allegro marketplace also appreciated by consumers for its ease of use, speedy deliveries and product mix tailored to local preferences.
The emergence of e-commerce as a viable sales channel could not come at a better time for local producers. Privately, brand owners confide that dominant positions by market leaders within specific offline channels leave them at the mercy of retailers during negotiations, especially in Poland and Slovakia. This affects everything from profit margins to new product launches, with retailers effectively acting as gatekeepers deciding if a certain new launch is given a chance or not. Going forward, more viable distribution options online are likely to reduce brand owners’ dependence on the good graces of self-owners, benefiting consumers.
By the end of the forecast period in 2028, the market will look quite dissimilar to that observed today. Despite facing economic headwinds and continuation of inflationary pressures, the industry is expected to continue on the path of sophistication and, by extension, growth. Geographically, the biggest growth markets will be Poland and Romania, adding EUR885 million and EUR492 million in absolute sales growth, respectively, which all but guarantees them attracting companies’ regional expansion plans. Other markets of the region will also inch up, with average annual constant growth rates between 1% and 6%, driven by insatiable consumer appetite for novelties and experimentation.
Povilas spoke at in-cosmetics Global on 16 April 2024, where he shared insight on the rise of the beauty industry in Eastern Europe. You can download his presentation here.