Subscriber Subject

Distribution Structure

1. Distribution channels

Source: Direct INFO

Figure 3.4.20 Distribution structure

Level 1 of distribution

At the first level imported or domestically produced cosmetics is distributed among Major Distributors, Wholesale-retail companies, duty-free shops, company outlets. At present direct sellings from producer to final customer is becoming very popular. Producer / importer can also directly supply on-trade and off-trade business with its production.

In the Russian cosmetics market there are three access channels to final customer:

1. 
   Direct access without an agent. This channel considers trade through Duty-free shops, Company outlets and Direct sales. Direct sales provide the third part of the total sales volumes (the best-selling brands – Avon and Oriflame). This type of sales supposes the distribution of cosmetics through catalogues and usually by way of two main delivery variants either by post or through a consultant.
   
2. 
   Through operators of the second distribution level (major wholesale and wholesale retail companies). Almost all large producers (except those who use direct sales only) sell their production through dealers and distributors. This is connected with the large territory of the Russian Federation and consequently with high expenses for product delivery into regions of the country.
   
3. 
   Passing wholesales companies through the third distribution level. Such a way can be chosen either because of the specific character of a product or because of a producer’s strategy. The example of the former is a company that manufactures the product by order for hotels or salons; the example of the latter is Concern “Kalina” that work both with wholesalers and retailer.
   

At present more than 1300 companies (including individual entrepreneurs) import perfumery and cosmetics into Russia. Majority has the headquarters in Moscow or St. Petersburg. Most importers have established trading houses that serve as wholesalers and distributors.

At the second level Wholesale-Retail Companies operate. They purchase from Major Wholesale Companies and Producers (importers) to resell wholesale and retail. These large group of companies unites different types of sellers, which can operate either through their network in a few regions or in one particular region. They usually don’t operate in big cities because retailers always have opportunity to work directly with producer / importer and thus purchase cosmetics products without extra charge These firms can supply with perfumery and cosmetics on-trade/off-trade companies as well as sell the product directly to final consumer.

Finally, on the third level of distribution system there operate several types of companies that sell cosmetics directly to consumer. They may purchase goods from producer (importer), wholesale and wholesale-retail companies.

It should be mentioned that at present relations between suppliers, distributors and retailers in the Russian cosmetics market are becoming tougher. Not least of all this is because the Russian perfumery and cosmetics market has already reached some degree of development. Retailers become more significant market players, they start dictating their terms to producers and distributors. Now it is much more convenient for retailer to work with producers directly, especially as many foreign producers have opened their representative offices in Russia.

2. Recommended channels for distribution of Brazilian products

The main factor that influenced the formation of the distribution scheme in Russia is its large territory. International companies try to be presented not only on the markets of Moscow and St.Petersburg but in regions. For this purpose all international and Russian large producers (except for those who work as direct sellers) have to cooperate with dealers and distributors in regions. Considering the facts that Russian market is saturated with import production and Brazilian cosmetics awareness is not very high, entering the market, brand positioning and building of distribution scheme without support from such companies will involve heavy capital outlays. Therefore for increasing sales volumes and expansion into Russian regions we recommend Brazilian companies to contact with dealers and distributors .

If a company works as direct seller in mass-market segment the best way for operating in the Russian market is establishing of own representative office or a subsidiary in Moscow and/or in St.Petersburg and thus work through the distribution channel “Importer/Producer ‑ Final customer”. For further expansion the additional offices in Russian regions should be open. The organization of such a business is of high-cost, requires considerable human resources and a rather serious budget for advertising. The popularity of direct sales in Russia is growing, but the saturation of this segment in Russia is rather high.

Entering the mass-market segment in the area of indirect sales is more realizable. The optimum way to enter the market is cooperation with large specialized retail chains, where the presence of a brand is some kind of advertising itself and quality assurance (distribution channel “Importer/Producer – Specialized retailer ‑ Customer”). The negative side of this channel is high concentration of such chains in Moscow and St.Petersburg and a very slow expansion into regions ‑ all this can narrow trading area. Another way is a work through a large distributor, which can distribute production both in big cities and in regions and in addition promote the product (channel “Importer/Producer – Wholesale company ‑ on-trade / off-trade ‑ Customer”).

For operating in the segment of luxury cosmetics we recommend to work with specialized large retailer chains and/or to open own shops, because for consumer of such cosmetics it is very important a trendy constituent and an exclusive service (distribution channels “Importer/Producer – Specialized retailer ‑ Customer” and “Importer/Producer – Company outlet ‑ Customer”).

For distributing of cosmeceuticals it is advisable to work through drugstores especially large well-known chains (distribution channel “Importer/Producer – Drugstores ‑ Customer”).

For the professional production it is important to use the intermediate consumers, i.e. beauty salons, fitness-centers etc.

We advise not to sale cosmetics and perfumery through open markets and shady Internet-shops that are likely to form some negative impression about brand and company.

3. Sales promotion and advertising editions

4. Exhibitions and fairs

Women World 2010

Period: 02.03.2010 - 05.03.2010

Periodicity: Annually

Exhibition contractor: LLC “Pomorskaya Yarmarka”

Web: www.pomfair.ru

E-mail: info@pomfair.ru