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What competition do you face on the European natural ingredients for cosmetics market?

Takes about 22 minutes to read

On this competitive market, you need to meet the minimum market requirements as well as stand out from other products and suppliers. Opportunities are strong for speciality ingredients: essential oils, botanicals and vegetable oils. Buyers operate on the principle that “if it is not broken, do not fix it”. Only with diligent, continual marketing efforts and by offering the right quality at better prices can you grow your business. Be ready to grab opportunities when they arise.


1 . What are the opportunities and barriers when trying to enter the market?

European legal requirements are a growing barrier to enter the market. You need to prove and document the safety and efficacy of your product. You also need to show good practices in terms of the supply chain, processing, use, availability, Corporate Social Responsibility and traceability.

Buyers have increasing demands, especially in terms of traceability and sustainability. You need to be transparent on what you do in these aspects and support this transparency with data. To anticipate these needs, you will need to have all required documentation in place.

If you can already meet European buyer requirements, you have a competitive advantage over new entrants. It will be hard for them to keep up. This is especially the case if you can go beyond European buyer requirements.

Innovation is crucial for cosmetics manufacturers. Buyers are always looking for new ingredients (new species, ingredients with new research showing new properties, or products with a new marketing story). In particular, niche brands are of importance in the cosmetic sector for the development of new value propositions which are picked up by larger brands.

It is easier to enter the European market with speciality ingredients for cosmetics than with commodity ingredients. Suppliers of commodity ingredients face additional market entry barriers:

  • large volumes, as well as constant quantities delivered on time;
  • relatively low margins;
  • reluctance to change suppliers unless there are major issues;
  • potentially high investments (depending on technological capacities and facilities, you will need to standardise your product or reach a certain scale).

However, buyers might be interested in new suppliers of ingredients that they use already with a better value in terms of price, service or quality. This makes Europe a very interesting market for new entrants.       

Many suppliers of speciality ingredients try to enter the European market. If you want to succeed, you will need to stand out in terms of:

  • price, which is the bottom line for all buyers. Every company in the supply chain is facing more competition, higher costs and concerns over flatline growth. Companies are looking to reduce costs wherever possible to maintain profit margins;
  • quality and stability in quality (supported by technical documentation, robust supply chain and traceability);
  • highly demanded and wellsupported active or functional properties;
  • certified sustainability practices or practices supported by data on local impact and developments;
  • origin;
  • marketing stories.

For a definition of natural ingredients used in this study, see our study of Buyer requirements for natural ingredients for cosmetics.

Tips:

  • Have a great website in English. A website is the first point of contact for most buyers, manufacturers and brands looking for new suppliers. We are operating in an increasingly open and communicative world. Without a good website, you are missing out on opportunities.
  • Use social media and be communicative, which increases access to your website.
  • Comply with market access requirements in terms of price, quality control, traceability and sustainability. Full compliance gives you a clear USP on the market.
  • Prepare detailed product documentation on product, technical, safety and efficacy data, as well as professional samples. Increase your capacity for safety testing and monitoring to do so. For more information, see our guide for preparing such documentation.
  • Stand out from other new entrants by going beyond typical production information. Especially if you produce an active extract, you can increase your chances to enter the market. Document historical use and provide information on the use of the ingredient. Include graphs and tables that highlight your ingredient’s technical characteristics, safety and efficacy. Show that you can help your buyer where needed.
  • Provide potential buyers with information on your product’s traceability and sustainability. Support this information with data on what is happening on the ground to add value and to set yourself apart from competitors.
  • Show your buyers that you are aware of all developments for your ingredient/plant species.
  • See our study of Buyer requirements for natural ingredients for cosmetics for more information.
  • For information on requirements for specific products, have a look at our fact sheets. See, for example, the fact sheets about liquorice, sacha inchi or rose geranium oil.
  • Read more about customs tariffs, tariff-rate quotas, trade remedies, rules and certificates of origin as explained by ITC’s Market Access Map.

2 . What are substitute products?

Substitute products for natural ingredients for cosmetics include synthetic ingredients and other natural ingredients.

Synthetic ingredients have various advantages compared to natural ingredients, especially in terms of supply chain control, efficacy, safety, stable prices and standardisation. As the consumer demand for efficacy is growing, the use of synthetic ingredients could increase as well, so long as cosmetic producers can market them in a way that resonates with consumers.

Not all cosmetic ingredients face the same threat to be substituted. Companies that are currently using essential oils will rarely substitute their ingredients for synthetic ingredients.

Moreover, buyers are likely to switch between suppliers of commodity ingredients more frequently than between suppliers of speciality ingredients. Commodity ingredients are usually standardised, are well understood by buyers and suppliers, and are more widely available. Switching suppliers for such ingredients is not as complicated as for speciality ingredients. Importers often ensure that they have an additional supplier for their products to mitigate risks in supply from their preferred supplier. If you can give an assured supply as well as a constant quality, buyers might be willing to pay a higher price. Buyers only take the decision to switch after weighing up all the pros and cons.

If a cosmetic manufacturer has built a product’s marketing around a speciality ingredient, it will be costlier for them to switch suppliers.

Industry sources expect growing product competition from natural, identical ingredients derived from biotechnology. In future, ingredients made with biotechnology could replace natural ingredients.

The more unique your ingredient and its story, the less you need to be worried about substitute products. How unique your ingredient is depends on:

  • its properties or functionality (ingredients that are used for a clear performance are more difficult to substitute than those that are solely used for their natural origin);
  • origin (from the wild or produced in a specific region);
  • certification;
  • its suitability to marketing trends.

The threat of substitution is smaller if you can build a marketing story around the product; for example, based on a specific origin, or composition of a vegetable oil.

Price and availability are also important reasons for manufacturers to stick with an ingredient; for example, when there are few ingredients with the same low price.

Substitution with new ingredients becomes more difficult once a cosmetic manufacturer has included it in a cosmetic product, especially if the manufacturer has spent time and effort on a marketing campaign for that ingredient. It would be too expensive for them to reformulate and retest the final product, and prepare the necessary documentation. Buyers will only do this if a new ingredient is substantially better than what they currently use. This improvement can be in terms of:

  • price;
  • availability;
  • supply security;
  • sustainability.

Tips:

  • Determine the threat of substitution for your ingredient. Which other ingredient could be used in a similar way as your product? How does your ingredient compare to the substitute product? Does your ingredient have an advantage in price, properties or marketing story? Promote interesting properties of your ingredient that can give you an advantage over your competitors; for example, information on applications or proof of efficacy, or attractive details on the ingredient’s origin
  • Target innovative importers or niche brand manufacturers that are developing a new cosmetic product. They will definitely look for the next market trend and new ingredients. Innovation is key in the cosmetics industry. If you are targeting these brands through distributors, make sure that your distributor is catering to these kind of players.
  • Promote your ethical and sustainability standards, and support this fact with data on the impact of your standards on local communities or households. Use your website to show what standards you use.
  • Subscribe to ethical platforms such as the Supplier Ethical Data EXchange (SEDEX) as a first step to Corporate Social Responsibility.
  • Consider gaining membership to the UN Global Compact. This initiative asks companies to support and enact ten core values in human rights, labour standards, the environment and anticorruption efforts. Also consider developing a Code of Conduct and a CSR policy. Communicate these actively to your buyer in order to differentiate yourself from other suppliers.
  • Set your ingredient apart from potential substitute products: focus on what makes it unique. Can you exceed buyer requirements, offer sustainable production, certify your ingredient and ensure traceability? Can you use data to substantiate the local impact that your ingredient has?
  • Build and communicate a strong and attractive marketing story around your ingredient. What is the unique selling point of your ingredient? Focus on a traditional use or production method, your product’s origin or its benefits to local communities.
  • If you make a claim for your ingredient, support this with scientific evidence, not just traditional use. Identify what knowledge is available for new ingredients. Can you access results of clinical studies or cosmetic trials? Can you do these tests yourself? Never make a medical claim, because these are not allowed for cosmetics.

3 . How much power do I have as a supplier when negotiating with buyers?

When it comes to cosmetic ingredients, European buyers generally have a lot of negotiating power. Cosmetic manufacturers and ingredient processors are consolidating with distributors, which further increases their negotiating power.

However, there are ways to improve your own position in negotiations. Your negotiating power is higher if you can offer:

  • unique or speciality ingredients;
  • ingredients with limited availability;
  • ingredients with superior innovation (fewer substitutes; most likely for botanical actives).

You need to be very clear on what solution you offer and can provide to your customers.

If you export commodity ingredients, buyers have more negotiation power. This situation means that they can require you to comply with strict demands of stable:

  • quality;
  • quantity;
  • documentation;
  • delivery time;
  • price.

Buyers of commodity ingredients can more easily switch to other suppliers of the same ingredient without excessive costs. Conventional ingredients include commodity oils or well-established botanicals.

European buyers are facing supply shortages for some products. These shortages may lower the power of buyers in future. However, they could also result in more producers entering the market if shortages can be resolved on short notice. If supply security becomes a major issue and price pressure continues, buyers might also start looking for alternative ingredients. They do not want such uncertainty for ingredients that are of strategic importance to their products.

The main reasons for supply shortages include:

  • growing demand for cosmetic ingredients from specific regions;
  • production constraints (such as rosehip oil, jatamansi or gum arabic);
  • increasing use in other sectors (for example, it is difficult to source avocado oil because of the growing demand for fresh avocados on the food market);
  • negative effects of climate change on available supply (such as with vanilla and neroli).

How much negotiating power you have over your own suppliers depends on how much you depend on them. Do you rely on a wide range of suppliers for your raw materials? Do you produce them yourself? How strict are the quality requirements with which you and your suppliers need to comply?

Tips:

4 . Who are my rivals?

Competition between you and other suppliers of your type of ingredient can be strong. This competition depends on:

  • which ingredient you produce;
  • where and how you market your product;
  • what relationship you have with your buyer(s);
  • what place you occupy in the supply chain.

In most cases, other suppliers can supply the same products as you, so it is very important to look for ways to increase the switching costs of your buyers.

One way is through value-added processing. The more you process your ingredient, and the more you can back it up with research on efficacy and safety, the less competition you will face from your existing rivals. However, competition from larger, more international players may increase.

Intellectual property of your ingredients differentiates you from your competitors. Specifically, you stand out if you can move from producing a simple plant extract or vegetable oil to isolating key components, or even to developing unique cosmetic ingredients. However, if you isolate components, you will also face direct competition from suppliers of a similar component from a different source.

You should also build your company reputation to stand out from your rivals. Buyers are less likely to switch to another supplier if they trust your company. This trust can be gained through your quality assurance systems, and by ensuring the traceability and sustainability of your products. Consistently being prompt and honest in your communication, keeping promises and being transparent about non-compliance are vital as well. If you damage the relationship which you have with your buyers, they will be more likely to switch to new suppliers.

You may find it difficult to compete with suppliers of the same ingredient who are much closer to the manufacturers of cosmetic products. There are exceptions, but most manufacturers prefer to buy from suppliers that are located within Europe. As a result, you need to identify precisely who your competition is. Are you competing with a supplier to a European cosmetic manufacturer or are you competing with companies who sell to those suppliers?

Other ways to make switching less attractive to your buyers include:

  • building a strong and unique marketing story;
  • offering a unique supply of ingredients;
  • providing additional services to your buyers.

Tips:

  • Compare your strengths and weaknesses with other suppliers or the industry in general. Think about what makes you different and promote this.
  • See our study of Buyer requirements for natural ingredients for cosmetics for more information on quality management systems, standards and REACH.
  • Ensure that you can compete with other suppliers in terms of raw materials sources as well as processing yields and costs if you isolate components.
  • Invest in your processing ability to increase yields or reduce energy inputs that will improve your margins.
  • If you can reduce your environmental footprint, you can use this in your marketing. Stay up to date with what producers in other regions do in this respect so you do not lose your competitive edge.
  • Demonstrate that you are sufficiently reliable to compete with rivals, especially from Europe. Show your reliability in quality consistency, documentation, communication, delivery, packaging, service delivery and supply security.
  • Target niche markets such as organic or natural cosmetics. Although these markets are smaller, buyers want you to tell your story here, which may give you a competitive advantage over rivals. They want to establish longerterm relationships, because such cosmetic brands often use the ingredients that they work with and the people who make them in their marketing campaigns and product identity. See our study of Market channels and segments for natural ingredients for cosmetics for additional information and tips.
  • If you produce conventional ingredients, target unsaturated markets with fewer rivals than the main markets. Examples include eastern European countries.

5 . Who are my rivals for specific product groups?

Botanicals

The level of rivalry that you will encounter on the European market for botanicals depends on:

  • what type of species you produce (temperate or exotic species, wild or cultivated);
  • how far you process these (raw plant material or extracts);
  • whether you add intellectual property (for example, efficacy and safety data);
  • what the similarity is between prices of and active properties available in rival products.

European production is limited to temperate species. Eastern European countries are strong competitors for temperate species, particularly those that are wild-collected (such as nettle and elderberry). Many of these might not be available in your country.

Countries such as China and India can also be strong competitors for some temperate species. If you produce Mediterranean plant species (such as rosemary and thyme), expect strong competition from southern Europe and northern Africa, as well as from countries with similar growing conditions in other parts of the world (such as Kenya). A wide range of developing countries produce tropical or subtropical species.

Botanicals can be traded in three forms:

  • as raw plant material (medicinal and aromatic plants);
  • as extracts;
  • as products of other simple processing (such as milling of seeds or shells).

The most appropriate form for you to offer your botanical to the market depends on:

  • your technical capacities (to comply with legal and buyer requirements);
  • the business case for processing in the country of origin;
  • buyer specifications;
  • buyer perceptions of capacities (in your country).

In general, buyers import more and more extracts from developing countries as buyer trust in sourcing, quality, technical and managerial capacities of suppliers in developing countries is increasing. Suppliers from developing countries represent better value for European companies.

Europe is increasingly importing both raw plant materials and botanical extracts from European sources. However, they are not only used in the cosmetics industry. In the last five years, supplies of raw plant materials from developing countries increased by 4% annually (volume), while imports from European suppliers increased by 28%. In 2017, the total European imports of raw plant materials amounted to 337,000 tonnes, at € 863 million.

From 2013 to 2017, European imports of extracts from developing countries (for all sectors, not only cosmetics) grew by 7% annually (volume). By contrast, imports from European sources grew more rapidly by 13% annually. In 2017, the total European imports of extracts amounted to 58,000 tonnes, at € 804 million.

If you move to extraction, and in particular to further processing and intellectual property, the competition that you face changes. If you export well-documented botanical active extracts to Europe, you can expect strong competition from European rivals. You will also face strong competition from some developing countries with a strong domestic industry, such as India, China and Brazil.

Germany is the largest importer of raw plant materials and extracts from developing countries. Other main importers of both raw plant materials and extracts are Italy, Spain and France.

Tips:

Essential oils

Europe imports essential oils from a wide range of countries. Overall, 45% of the imports in 2017 originated from developing countries.

In the past five years, import volumes were stable. At the same time, the value of essential oil imports grew by 12% annually. In 2017, the total European imports of essential oils (for all sectors, not only cosmetics) reached 90,000 tonnes, at € 1.92 billion.

As many supplying countries specialise in a product group, the level of competition depends on your product. For example, if you produce orange oils, you can expect strong competition from Brazil; 82% of orange oil imports from developing countries in 2017 originated from Brazil. Please note that although there is currently a shortage of orange oil, this market is difficult to enter without close connection to the juice industry in your country. Mexico is an important producer of various citrus oils, whereas Argentina will be a strong competitor for lemon oil.

Citrus oil producers are closely linked to the fruit juice and concentrates industry in these countries. Without such a link offering you direct access to raw materials (such as their waste materials), it will be impossible to compete.

China, Indonesia, Madagascar and India are large producers of essential oils which are not further specified (recorded under Harmonised System code 3301.29). Smaller suppliers of high-value essential oils in 2017 include Egypt, Morocco, Tunisia, Bulgaria, Haiti and Turkey. All countries offer a specific set of essential oils; for example, vetiver in Haiti, rosemary in Morocco and patchouli in Indonesia. In particular China and India offer a large range, either produced in their own country or sourced from other countries.

Indonesia and India are important producers of a broad range of spice-based essential oils. In particular China, but also India, produces a wide range of essential oils based on domestic raw materials as well as imported raw materials. Since 2013, Indonesian supplies of essential oils which are not further specified increased by 9% annually, while supplies from India and China decreased slightly in the same time frame.

Although several countries in Europe have a strong history of producing essential oils, European production amounts to less than 20% of the global production, making Europe dependent on imports for many oils. However, Europe is a powerful competitor for processed oils and those produced with mechanised harvesting and processing.

The main European producers of essential oils are Hungary, Bulgaria and the Mediterranean countries (such as France, Italy and Spain). Eastern Europe produces several essential oils (such as juniper) from domestic wild collection, which you might not be able to offer.

If you produce essential oils with a tropical origin, your competition is limited to suppliers outside of Europe. Such essential oils are crucial for European cosmetic companies but cannot be produced in Europe.

In general, the production of well-known temperate essential oils is moving eastwards, where production costs are lower.

Europe is a significant producer of the following products:

  • citrus oils (orange, lemon, bergamot, mandarin and tangerine);
  • lavender;
  • lavendin;
  • peppermint;
  • eucalyptus;
  • coriander;
  • rosemary;
  • rose;
  • anise seed oil;
  • marjoram oil.

With its varied climate and good infrastructure, South Africa is becoming a better-recognised supplier of some of these essential oils.

The leading European importers of essential oils in 2017 were Germany, the Netherlands, the United Kingdom, France and Spain. Of these countries, France is the largest importer of high-value oils both from developing countries and from other suppliers, while the Netherlands is the largest importer in terms of volume from developing countries.

Tips:

  • To reduce competition from European rivals, focus on ingredients that cannot grow in Europe or that you can produce more profitably in developing countries.
  • Be aware of international market prices for your products and know your own cost structure.
  • See our fact sheets for more information about competition on the European market for essential oils used in fragrances and rose geranium.

Vegetable oils

The European market for commodity vegetable oils is dominated by large multinationals. Commodity vegetable oils are traded in large volumes, and market entry barriers are beyond the capacities of small and medium-sized producers. However, the European demand for new and speciality oils and fats has led to the development of exotic vegetable oils such as sacha inchi (mostly from Peru) and moringa oil (from India and South Africa), among many others.

In 2017, European imports of speciality vegetable oils as recorded under Harmonised System code 1515.90 reached 342,000 tonnes, at € 783 million. In the past five years, European imports of such oils grew by 7% annually on average.

In the same year, 17% of the supply (in volume) originated from developing countries, with Ghana as the largest supplier. A wide range of other developing countries supply vegetable oils, such as Togo, India, Burkina Faso and Thailand.

Rivalry for your speciality oil can change over time. Take the case of sacha inchi oil. This oil was first only available through wild collection from the Amazon region in Peru. When producers started to cultivate sacha inchi plants, rivalry grew but was still limited to suppliers in Peru. However, if the plant can be cultivated, producers in other countries can also start cultivation projects and become future rivals.

There are several interesting markets for your vegetable oils in Europe. The Netherlands, France and Denmark are the largest importers of vegetable oils from developing countries. Together, they imported 70% of vegetable oil supplies (in volume) from developing countries in 2017. Other large importers of higher-value vegetable oils from developing countries include Belgium, Italy and Germany.

Oils that are used for cosmetics are imported in smaller volumes. European importers are the main entry point to the market. Cosmetic manufacturers generally prefer to buy oils from suppliers in Europe. See our study of Market channels and segments for more information.

Tips:

  • Differentiate yourself in terms of new features and benefits to stand out from suppliers of existing vegetable oils if you want to bring new exotic vegetable oils to Europe. Focus on their marketing story and be clear on the fatty acid composition.
  • Be aware of international market prices for your products and know your own cost structure.
  • See our fact sheets for more information about competition on the European market for vegetable oils for conditioning, fruit seed oils and palm oil alternatives.

Please review our market information disclaimer.

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