Cosmetic Distribution in Thailand

Cosmetic Distribution in Thailand: Opportunities and Challenges for B2C and B2B Channels, Supported by Siam Trade Development

In the vibrant landscape of the Thai beauty industry, the cosmetic distribution sector is experiencing unprecedented growth, presenting both opportunities and challenges for businesses operating in both B2C and B2B channels. This article explores the dynamic market, delving into the potential advantages and obstacles faced by distributors while highlighting how Siam Trade Development can provide comprehensive support.

Opportunities in the Thai Cosmetic Market

Booming Consumer Demand

Thailand’s cosmetic market is witnessing a surge in consumer demand, driven by a growing middle class, increasing disposable income, and a heightened awareness of beauty products. This presents a lucrative opportunity for distributors to tap into a thriving B2C market.

E-Commerce Explosion

With the rise of digitalization, e-commerce platforms have become a major player in the cosmetic distribution landscape. B2C channels can leverage online platforms to reach a broader audience and streamline the purchasing process, capitalizing on the convenience factor for consumers.

Growing Wellness Trend

The wellness and beauty trend is on the rise in Thailand, leading to increased demand for high-quality and natural cosmetic products. Distributors can benefit from aligning with this trend by offering a diverse range of products that cater to the evolving preferences of consumers.

Challenges in Cosmetic Distribution

Regulatory Compliance

Navigating the complex regulatory landscape in Thailand can pose a challenge for both B2C and B2B distributors. Compliance with local regulations and product registration processes is crucial to ensure a seamless distribution process.

Intense Competition

The beauty industry in Thailand is highly competitive, with both local and international brands vying for market share. Distributors must differentiate themselves by offering unique products, strategic partnerships, or exceptional customer service.

Supply Chain Management

Efficient supply chain management is critical in cosmetic distribution. B2B distributors, in particular, face the challenge of maintaining a reliable and timely supply of products to meet the demands of retailers and businesses.

Siam Trade Development: Your Partner in Success

Regulatory Expertise

Siam Trade Development boasts in-depth knowledge of the regulatory landscape in Thailand. By partnering with us, distributors can navigate regulatory hurdles seamlessly, ensuring compliance and swift market entry.

Market Research and Trends Analysis

Our team conducts extensive market research to identify emerging trends and consumer preferences. This enables distributors to make informed decisions, align their product offerings with market demands, and stay ahead of the competition.

Supply Chain Optimization

Siam Trade Development offers supply chain solutions that enhance efficiency and reliability. B2B distributors can benefit from our streamlined processes, ensuring a consistent and timely flow of products from manufacturers to retailers.

Customized Distribution Strategies

Recognizing the diverse nature of the cosmetic market, we work closely with distributors to develop personalized strategies tailored to their specific goals and target audience, whether in the B2C or B2B segment.

In conclusion, the cosmetic distribution landscape in Thailand is ripe with opportunities, accompanied by challenges that require strategic navigation. Siam Trade Development stands as a reliable partner, equipped to support distributors in conquering regulatory complexities, staying abreast of market trends, and optimizing supply chain operations. Embrace the potential of the Thai cosmetic market with confidence, backed by the expertise of Siam Trade Development.

THAILAND COSMETIC MARKET: VALUE AND ENTRY STRATEGY

Cosmetic Distribution in Thailand, the more advanced country in asean related to cosmetics, is challenging but profitable if faced with the right approach.

Thailand’s market dominance is due to three main factors:

Increasing disposable income of middle and high class
Strong demand for consumer good
Growth of e-commerce channels and ease of e-payments

So, we can be sure that today we won’t waste time, the market is valuable even if not exactly easy to penetrate.

VALUE OF COSMETIC MARKET IN THAILAND

We will start our journey from the academic data, usually showed by institutions and past/copied by all the websites. You can find such data everywhere, with some discrepancy, but basically credible. The matter is: those data are not telling the story we want to know.

Let’s make an example:

This is the value of cosmetic market, in million dollars, by revenue.

Until 2021 it’s based on real data, for 2022-2024 it’s just a projection. The source is statista, a well known research platform selling data about everything.

So, cosmetic market is said to be worth in 2021 4.24 billion dollars.

At the exchange rate of 2021, the gross value of cosmetic market was 140 billion thb, and it seems to be constantly growing.

Just as note: exchange rate dollar/thai baht changed quite drastically in las year.

2021: 1 usd = 33 thb

2022: 1 usd = 36 thb

We want to try something more detailed and more focused on ourselves. Let me explain. In these figures are included all sectors: manufacturing, retail, import.

Since we are importers, we need to know the real numbers related to our sector.

How can we get them?

From the source, Thai Customs.

In our case we use the chapter 33, that is used for most of cosmetic products.

Then, we used heading 01 to 07, (read).

01 is mainly about essential oils and extracts

02 is about aromas and raw materials for cosmetic industry

03 is related with perfumes and toilet waters

04 is about finished skincare, beauty and make-up products

05 is about haircare

06 is about dental care and mouth hygiene

07 includes different products like shaving products, deodorants, toilet preparations

This is of course not including some specific product, like tools for cosmetics (nearly half billion thb market), soaps (included as hs code in chapter 34, related to detergents, whose total import is around 2 billion thb) and borderline products like hygienic tampons, that are considered cosmetics but re under an hs code related with medical devices (this product alone, in import, worth 2 billion thb per year).

Now that we know the method, let’s take a look at the results.

This is our first elaboration. The source is thai custom, but data have been processed by our staff.

The table reports the data of cosmetic import in last 4 years. 2022 is related to end of may, since the ministry of commerce takes more than one month to validate the data before publishing. But, comparing this year’s partial data with the last “normal’ year, 2019, we can see that after two years of market contraction, import are returning to normal level of pre-pandemic years.

What we can see at first, in the last line in dark blue, is the total import by year.

Total import for our hs codes were around 63/65 billion thb in pre-pandemic, dropped to 48 billion during pandemic. The post-pandemic (just started) is giving signs of normalization with an estimate of 60/66 billion thb for current year.

According to what we said before, we should consider the 48 billion bath value in 2021 as roughly 1,5 billion USD

Cosmetic import reduced from 65 billion thb in 2019 to 47 billion in 2021. This year i would bet on a final target of 66 billion, bot a 60 billion figure should be already satisfactory.

If we look at the details per product, we can have some surprise.

Where the market totally collapsed is in the make-up sector (more than 50% reduction) and in perfumes (70% reduction). It sounds obvious that this is direct consequence of lock-down, smart working, mask-wearing policy. Other products, as deodorants and raw materials are keeping pre-pandemic numbers, this means the market is alive and kicking.

Summarizing the results: if we consider only the import sector, skin care has a total share of 42% (make-up + creams), hair care has a 4%; soaps are as mentioned not included in this statistics and have a value of 4,3% (2 billion thb).

Another surprise comes from the data by country.

Here, we consolidated the import in last 4 years by country, then created a ranking of first 20 importers in thailand. Here we can see their history from 2018 to 2022.

Surprisingly, singapore that has a 25% market share, did not lose any revenue during pandemic. Indonesia, korea, india, taiwan, vietnam as well seems to have been slightly affected by the geopolitical situation. On the opposite, european countries lost huge market shares. Probably some quota moved to singapore as transit-trading, but the conclusion i would get from this table is that market is moving and restructuring itself. In such periods there are some spaces for new products.

Last first-hand data, before going back to traditional sources. Export versus import.

As we have seen, thailand is importing raw materials, and as we know is a manufacturing country of cosmetic products.

In this table we can see the comparison between import (with cif values) and export (fob values).

It sounds evident that in case of haircare products thailand is a strong exporter, as well as products for oral hygiene. Make-up is substantially balanced, while there’s a strong unbalance towards import of essential oils and raw materials.

In any case, this is not a data but a daily observation, thailand market is looking at the strong appeal of imported products, perceived by consumer as higher quality and more effective than locally made.

Thailand is effectively exporting its cosmetic products only in countries with a free trade agreement. First destinations are japan, philippines, hong kong, australia, vietnam.

IMPORT COSMETICS IN THAILAND: THE CHANNELS

Now that we know the size of our market, we need to find the right entry strategy.

First question. How we choose our entry strategy?

It mainly depends on these factors:

Product
Target
Budget
Time

Basically, it depends on you.

Our scope here is to give you information and tools to help you to understand your opportinities in thailand. You may contact us anytime to gete more information, and i remind you this webinar shall be published and available for download soon.

We have several channels for Cosmetic Distribution in Thailand:

The macrocategories are: offline and online

In offline we have:

Wholesale (b2b)
Retail (b2c)
Direct sale (multilevel – c2c)

In online we have:

Retail (d2c – your website)
E-marketplace (social and platforms – b2c)
Direct marketing (multilevel – c2c)

WHO ARE THE MAJOR PLAYERS ONLINE AND OFFLINE IN THAILAND?

Social online:

Facebook
Line
Instagram
Tik tok

Platforms online:

Shopee
Lazada
Jd central

Networks online:

Boots watson, eve and boy these sell both in their shops and online via their official websites.

Please don’t forget that thai consumer has a prudent purchasing behaviour, so he will mainly sell from official e-brand shops.

Offline players are several:

We can see in this picture the main cosmetics shop and networks, divided by sector:

Department stores, specialty stores, supermarkets, convenience stores, e-commerce

And,last, all the pharmacy networks. Practicall all of them operates in Cosmetic Distribution in Thailand, both online and offline (like Boots and Watson)

DO I NEED A LICENSE TO SELL COSMETICS IN THAILAND?

Who sells online via his own website (d2c) is subject to the e-commerce license

Who sells under multilevel scheme is subject to direct sales or direct marketing license

Who sells in an offline shop is subject to retail license

Import is regulated directly by fda (import license is required)

Selling through social and platforms is not regulated by license, but the platforms are obliged to ask fda license to the importer in case of cosmetic products.

We will see later the details on cosmetic license in the section dedicated to regulatory.

Summarizing, and according to our direct experience, the smartest strategy for a start-up is to sell online through third party marketplace with or without local units (both cases are possible), creating brand awareness for a couple of years and then considering to switch to offline through a distributor (that will be more engaged since your products are already popular and sold in thailand) or through your own shops.

That’s all about market, let’s focus now on operations for Cosmetic Distribution in Thailand.

HOW CAN WE IMPORT, STORE, AND DELIVER COSMETIC PRODUCTS IN THAILAND?

How to deliver the product in Thailand – Cross-border

If you are planning the cross-border for your Cosmetic Distribution in Thailand you will need to register your product in thai fda in any case. Why?

Consumer safety. Product must be notified (so that quality standards are verified) and traceable.
Platforms are obliged to ask the seller to provide fda license for every product
Cross-border without fda license is, according to someone, allowed since it’s declared as product not for sale and for personal use. Let’s say unlicensed cross-border was tolerated and hard to stop, but new technologies now give a good help to regulatory authorities and customs.

Shopee and lazada offer the solution for foreign companies willing to ship out from their country.

Shopee has the so-called shopee international platform (sip). This is a program on invitation only (supposedly for sellers with good records), and there is not warehouse in thailand: shopee deliver the products from abroad. In any case product must be licensed.

Lazada has the lazada global seller program, limited to singaporean companies. Their shipment is as well cross-border.

In summary, such programs are not so beneficial, since product needs to be registered in fda (so you need a local license holder) and storage is out of the kingdom, so the shipment is more expensive and takes 7-14 days.

How to deliver the product in Thailand – Physical stock

In order to have a physical stock in Thailand, you have of course to clear the custom. Actually, there are no services for retail in free zone or custom bonded areas.

First requirement for custom clearance is FDA license.

The consignee must be a thai company with a proper import license for cosmetics and every product must have been previously notified to thai fda. Product can be imported with or without a label in thai language, but the labes must be applied before putting the product for sale. It’s normally advisable to import the product with the final thai label.

The consignee can be your traditional distributor, or your local company or a third-party license holder.

If you want to open a company remember that this company must have 51% shares under thai nationals and that you must rent a suitable warehouse to get the import license.

LICENSE HOLDING: SELL IN THAILAND WITHOUT LOCAL FOOTPRINTS

Now we know our basic requirements: a thai company (or a distributor) and a warehouse where to locate our import license.

But as mentioned before, we can avoid such commitment and, in phase of start-up, we can use third party services:

A license holder for product notification and import
A fulfillment service for storage, pick and pack, and last mile delivery.

In Thailand you can find a license holder providing service of fulfillment (Siam Trade Development has been the first company providing the full range of services), but you will not find a fulfillment service providing license holding.

Fulfillment companies normally avoid any involvement in regulatory, since for them slow and complicated. Their structure must be simple, fast and efficient.

Let’s consider the case of separate license holder and fulfillment.

License holder is your market authorized holder, the only entity authorized to import your product. License holder is your trustee in thailand, and represents you in front of fda, custom, and local authorities.

License holder import the product for you under his own name, and then pass the ownership of product to other entities: distributor/shop in case of b2b; consumer in case of e-commerce (d2c). If you use a fulfillment center, the ownership of product remains in the hands of license holder, so it’s still your and only left in consignment to the fulfillment center.

What do you have to pay to use this strategy?

Transport
Custom clearance
Import tax (duty, if any. Refer to the first section of this webinar about hs codes)
Vat 7%
Importer of records service

In Siam Trade Development, storage is included in license holding fee. Some fulfillment service provide a flat fee for storage and in some case, storage is free (for big volumes).

WHAT IS IMPORTER OF RECORDS FEE?

First of all is a fee for License holder service

Second, it’s the mark-up that your importer has to show to revenue department in order to be compliant. It’s easy to imagine that an importer buying a product at 100 and selling it at 100 must be investigated for possible tax evasion… in any case, importer of records fee is ranging between 2 and 4% of product value.

Summarizing, you can sell directly to consumer, getting the full profit just shortening the supply chain according to this scheme:

Instead of leaving the 35-45% of profit to your distributor you get the full profit by paying a 4% iporter of record + license holding, for a maximum cost of 6%. Vat shall be recovered after product has been sold.

Last benefit of license holding: licenses are not transferable. This means that if you want to change or simply add a local distributor in the traditional scheme you have to notifiy the product again.

selling cosmetics online

This a graphic representation on how the system works. After fda licensing, product is imported and stored. Then sold by e-commerce, packed and delivereed to end user. Marketing and post-sales are totally controlled by manufacturer, and payments can be menaged by e-wallet or received and trasnferred by the license holder.

Quite easy and inexpensive. Just need a bit of organization and a starting investment for the licenses.