Avon Calling -- On Russia

Huge market potential brings manufacturing plant to Moscow region.

Beauty may be only skin deep, but its breadth is global. That's a lesson Avon Products Inc. has learned well. The New York-based direct marketer's beauty products are sold in more than 100 countries by 3.9 million independent sales representatives. Among its most promising markets is Russia, which Avon entered in 1995, initially in the Moscow region. These days Russia, officially the Russian Federation, remains a country with huge growth potential for Avon -- so much so that the company has begun construction of a $40 million manufacturing facility near Naro-Fominsk, about 45 miles southwest of Moscow, Russia's capital city. The 250,000-square-foot plant, which is expected to begin operations in mid-2004, will eventually employ 800 workers and annually produce 185 million units of cosmetics, including creams, lotions, mascara, roll-on deodorants and fragrances. "Russia is one of Avon's fastest-growing markets, and the new manufacturing facility will enable us to meet the rapidly escalating demand from the nation's vast population of sophisticated beauty consumers," says Avon President and COO Susan J. Kropf. "The facility also will leverage the cost and efficiency benefits of a more localized supply chain, and help strengthen our competitive advantage in this high-potential market." How promising is Russia as a market? Consistent statistics are tough to come by, partly because statistical organizations differ on what to include. That said, Russian perfumery and cosmetics market volume reached US$3.5 billion in 2000, according to the Perfumery and Cosmetics Association of Russia. Overall market potential for cosmetics and toiletries in Russia is $15 billion to $18 bil-lion annually, which will be achieved in the next 15 to 20 years, says Euromonitor International, a global market intelligence firm. Where does Avon fit in? The company's sales in Russia reached $142 million in 2002, up from $22 million in 1999, and Avon says it expects sales of $500 million in 2007. Avon's share of the Russian beauty market is 7%, making it the third-ranked company, according to data provided by Robert Toth, Avon executive vice president for Asia Pacific, Europe, Middle East and Africa, during a presentation in October at a Merrill Lynch consumer products conference. And he said Avon expects to "achieve beauty leadership" in Russia by 2005. Currently Avon imports much of its product for sale in Russia from a plant in Poland, says Avon spokesman Victor Beaudet. Because of Russia's large size and relatively poor infrastructure, the company has established seven regional "pick and pack" centers where it fulfills orders, according to Toth. Also, 4,000 additional pick-up points allow Avon to achieve penetration in towns as small as 5,000, he said. As for calling on customers, Avon has some 194,000 independent sales representatives in Russia.

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