The booth of Qingdao Baheal Medical Inc is seen during a cosmetics expo in Shanghai in May. [Photo provided to China Daily]

Consumption upgrades supported by rising incomes a main growth driver

Spurred by the rising disposable income of the people and an increase in beauty consciousness, China's domestic functional skincare market is burgeoning, providing promising business opportunities for enterprises making a foray into the sector, said industry experts and business leaders.

Despite lacking a unified global definition, experts said functional skincare products refer to goods with special claims on function, usually for sensitive and problematic skin, and mainly include functional derma skincare products and medical skincare products that are registered for medical treatment.

A report by Soochow Securities said China's functional derma skincare market is expected to be worth about 130 billion yuan ($20.2 billion) by 2030.

Li Zhenyu, general manager of the cosmeceutical division of Qingdao Baheal Medical Inc, said 2021 will be the first year marking the quick and healthy development of functional skincare products in China.

The company is a major domestic player engaged in the marketing, wholesale distribution and retail of pharmaceutical and health products. It launched a commercialization platform earlier this year specifically for functional skincare products, seeing its huge market potential.

"The consumption upgrades supported by Chinese people's increasing incomes and growing beauty consciousness are a main factor driving up the growth of the industry," Li said.

"Besides, enhanced government regulations on publicity regarding the effects of cosmetics, for instance, the provisions requiring brands to provide trial data to support their claims, will give more impetus to the growth of the brands with truly effective products," he added.

He said young consumers, especially those belonging to Generation Z or those born in the mid-to-late 1990s to the early 2000s, will be the core consumers propelling the development of the sector because they care more about the function, ingredients, technology and safety of the products they consume, rather than brand reputation.

Citing data from Euromonitor International, a global market research company, Soochow Securities said the functional derma skincare market reached 13.7 billion yuan in 2019 in China, but accounted for only 5.5 percent of the overall market for skincare products that year.

That indicated great growth potential if compared with other major economies, where functional derma skincare products usually contribute to 15 to 40 percent of the overall skincare market.

Qingdao Baheal Medical said it will select a number of partners from the more than 360,000 pharmacies it has partnerships with to engage them in the new business model.

A pharmacy will designate an area of 10 to 30 square meters to Baheal for the latter to take care of the interior design and decor to sell functional skincare products, as well as the supply chain management and product promotions.

Experts said Chinese functional skincare brands have shown stronger momentum in terms of sales performance and popularity in China compared with their foreign counterparts.

Soochow Securities said in its report that Chinese consumers have different skin issues and skincare demands compared with foreign markets, and local brands that pay close attention to distinctive local demands have a relatively solid foundation for growth.

For instance, about 36 percent of Chinese women suffer from sensitive skin, while skin problems that are common in the United States, such as sunburn and acne, are relatively rare among Chinese consumers.

With China's rich plant resources, mature plant extraction technologies, and the help from leading original cosmetic equipment manufacturers and raw material producers, startups positioning to provide products with safe ingredients or based on botanical formulas may find it easier to gain ground in the sector, the report said.

Founded in 2008, Winona, a Chinese functional skincare brand focused on solving sensitive skin problems, already accounted for about 20.5 percent of sales of derma skincare products in China in 2019, outperforming other domestic and foreign brands.

Bloomage Biotech, a leading producer and supplier of hyaluronic acid, said in its semiannual report it has launched several functional skincare brands that target consumer groups of different ages or genders.

During the first half of the year, company revenues from functional skincare products reached 1.2 billion yuan, soaring almost 200 percent from the year ago level. Revenues of functional skincare products contributed to about 62 percent of the company's revenues generated from major businesses. The gross profit margin was about 79 percent.