Francesco Zecchini, Valentina Za, and Mimosa Spencer

PARIS/MILAN (Reuters) -European perfume- and cosmetics-makers face shortages of paper, glass, and some key oils and alcohols, as Russia’s invasion of Ukraine adds further disruptions to the supply chains for beauty products, driving prices higher amid robust demand.

Global cosmetics are in the same boat as the food industry. They use alcohol made from grain and organic beets for perfumes and oils from sunflowerseeds to make cosmetics.

At the same time, the energy crisis sparked by the war has pushed glass and paper prices through the roof, while China’s COVID-19 lockdowns have thwarted companies’ ability to obtain packaging components for $100-a-bottle scents and $30 lipsticks. 

“We are in crisis management mode regarding these topics of sourcing,” Emmanuel Guichard (secretary general, French cosmetics organization FEBEA), told Reuters in an exclusive interview. 

Consultancy firm Bain & Company calculates higher prices for packaging, energy and raw materials have driven up production costs in the cosmetics industry on average by 25%-30%, posing a challenge to mass cosmetics producers, though demand for personal care products remains strong, according to partner and EMEA luxury practice leader Federica Levato.  

ICR is expecting to sell more Italian fragrances this year than pre-COVID, though the family-owned manufacturer of Bulgari and Salvatore Ferragamo perfumes has been dealing with an annual 30% rise in the price of alcohol and a 10% increase in paper costs, Ambra Martone Vice President. 

According to McKinsey, global sales of beauty products have surpassed $538 billion by 2019, up from $458 billion in 2020 and $518 billion 2021, according to a McKinsey study.

However, this is just a portion of industries which have been affected by the conflict, such as the global packaged food sector, estimated to be worth $2 trillion according to Euromonitor’s latest estimates. Russia’s invasion and occupation of Ukraine have caused disruption in the world markets for staple grains, edible oils, and pushed up food prices.

Larger companies have higher profits margins and are more financially able to handle it. L’Oreal’s luxury segment, which sells Valentino and Giorgio Armani branded perfume and makeup, has an operating margin 22.8%. This is a problem that’s particularly difficult for smaller and mid-sized European companies. 

Marco Vidal (Managing Director of Venetian perfume manufacturer Mavive and owner of Merchant of Venice) stated that “we face scarcity as well as price increases all along the way: essences, alcohol, glass, and paper, even spray dispenser pumps, Surlyn plastic used to cap them,” 

Consumers continue to buy higher-priced products for their beauty needs, such as perfumes with higher oil concentrations and unusual ingredients.

According to NPD Group, sales of perfumes are on the rise and will increase by 15% in 2020 in the United States. Perfumes selling at $175 per bottle have more than doubled their unit sales. 

“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 bottle.

Cosmetics Europe reports that European cosmetic producers exported 22.6 million euros (or $24.6 billion) worth of products in 2020. There was also a strong demand from European consumers for packaging materials following the coronavirus epidemic.

The glass industry has struggled to meet the demands for vaccine vials since they had to scale down their production at the beginning of the pandemic. They also shut off all furnaces in Italy and turned them off for the first time for decades.

Gas prices have exacerbated problems in both the paper and printing industries. Paper mills in Italy were forced to temporarily stop production while they negotiate selling prices.

A doubling in the cost of paper it uses to make rigid luxury boxes for clients including Dolce & Gabbana, Ferragamo and Givenchy has led Italy’s Isem Group to hike the price of its products of between 10% and 40%, CEO Francesco Pintucci told Reuters.

Bormioli Luigi is an Italian glass manufacturer that makes bottles for perfumes, spirits and cosmetics. It has a yearly turnover of 480m euros and expects to incur 80m euros more energy costs in 2018. Half of this will be borne by the beauty division, whose clients include Chanel and Dior. Simone Baratta, head fragrances, told Reuters. 

De Vitis stated that before the war, a flacon cost 0.75-1.40 Euros from distributors. Now it costs 1.00-1.50 euro.

Guichard stated that French glassmakers, where large cosmetics firms began to place orders several months ahead of their predecessors, are finding a more encouraging note. He predicts that they too will soon be feeling the effects of the energy crisis.

He said that he believed it would be difficult to obtain gas for perfume bottles. Noting that there wouldn’t have been enough time to transform gas-powered ovens into electric ones, he added.  

Meanwhile, executives at Intercos, an Italian cosmetics supplier for brand names, which on Tuesday signed a five-year commercial deal with Dolce & Gabbana, said it had raised prices by around 5% in late 2021 and was considering a further hike in the summer.

Levato explained that in the luxury beauty market, “we expect that the consumer will have to bear the higher cost after a transition period that could take a few months.”

($1 = 0.9189 euros)