Cosmetic Distribution in Thailand
Cosmetic Distribution in Thailand is challenging with the traditional strategy. But we have the solution: Direct to Consumer channel is accessible through us!
All you have to do is to appoint us as License Holder and Importer of Records
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:
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?
- Tik tok
- Jd central
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?
- 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.
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.
COSMETIC DISTRIBUTION IN THAILAND: SUMMARY
- Thailand is a big market for cosmetic products, and 35 to 50% of market value is from import
- Cosmetic mrket is recovering from pandemic priod and it should be back to 2019 levels at the end of this year.
- Market changed, following consumer behaviour. E-commerce is booming and will continue to growth
- There are no barriers in imported cosmetics and manufacturers can access the d2c channel, the more profitable.
- Thailand is an advanced country in logistics and e-payments. Solutions are multiple and performance is good
- You can access the consumer market without opening a local unit (thai company), in shot time and with a small investment
- With the right approach and flexibility thai fda is not a barrier.
Contact us to have more information on your Market entry in Thailand!
This article on Cosmetic Distribution in Thailand is available also in video format in our YouTube Channel: https://youtu.be/d8uyPslz80Y