ANYONE WHO HAS a close female friend or relation in the PRC knows of the phenomenal popularity of cosmetic facial masks.
Therefore, the fact that Magic Holdings International Ltd (HK: 1633) controls a leading 18.5% market share in this key sector in Mainland China is no small accomplishment.
As part of the Company of the Month series by Aries Consulting, executives from Magic Holdings met with investors in Hong Kong to tell them how the mask maker pulled it off.
“We are the top seller of beauty masks in the world’s most populous country. And what’s even more exciting is that the average annual per capital expenditure on such products is a mere 100 yuan, which is way, way below that of Japan, South Korea and Taiwan. So we see huge upside potential to this business,” said Magic Holdings Chairman and Executive Director Stephen Tang.
Guangzhou-based Magic, founded in 2005, went public in Hong Kong in 2010 – raising 660 mln hkd at the time.
At the time of the IPO, Magic said around a third of the proceeds would be dedicated to marketing, another quarter of the funds would go to expanding facilities with the remainder to be spent of developing new products.
It is a strategy that has allowed a market-leading, revenue-driving product to now serve as the flagship offering for the Hong Kong-listed firm.
Magic’s principal products include both peel-off and wash-off cosmetic facial mask products, but it also serves up a variety of health and beauty products.
The company markets 11 series and 141 types of facial mask products under the “MG brand,” short for the Chinese name of the firm: “Mei Ji” (美即) which conveniently gave rise to its English name: “Magic.”
It also markets products under the “It’s Skin” and “ICS” brands in Greater China, as well as the “Keep UP” brand in Korea.
As of mid-year last year, it served customers through a network of 174 distributors and 6,264 terminal stores.
But the company said that in addition to the rewards of bringing new products to a fast-growing market, as well as enjoying the leading market share in the region, Magic was also very bullish on its marketing channel “revolution,” as Mr. Tang called it.
“Over the past 6-7 years, we’ve enjoyed a 30% annual sales growth rate for our products. And up until last year we have utilized three major marketing channels: hypermarkets/ supermarkets, licensed beauty product retailers, and small-scale beauty chain stores.
“However, in the second half of last year we launched sales via convenience stores, with the initial response being very encouraging,” he said.
Magic believed this was an ingenious way to help promote the concept of cosmetic masks a being “daily necessities” for beauty and health conscious consumers rather than a luxury to be used and purchased only occasionally from a dedicated retailer.
“For our cosmetic masks, making them widely available in convenience stores will certainly boost our sales volume and transform these products into the ‘necessity’ category from the ‘luxury’.”
He said the company’s bread and butter was the cosmetic masks, most of which retail for around 10 yuan apiece, but can range up to over 20 yuan for the more upscale, medicated varieties.
“Masks and facial creams – often called ‘wash-off masks’ – constitute our main product category contributing two-thirds to our total revenue, and we have seen strong sales for both.”
And to get the message out, Magic put a great deal of stock in advertising and promotions (A&P) via an aggressive marketing campaign.
“We use television, social media, billboards, print media... all the formats. We don’t like to leave any stone unturned,” Mr. Tang added.
“While launching the advertisements through platforms like Hunan Satellite Television, Jiangsu Satellite Television and Qinghai Satellite Television, we also increased the advertisement launching efforts in FocusMedia Terminal Hypermarkets, displays in office buildings and VisionChina’s bus videos in major cities throughout China.”
Indeed brand building and a strong brand recognition was critical in the cosmetics and health&beauty sector where sky-high margins (76.6% gross margins last half) could only be enjoyed by participants whose name was a well-known commodity within a crowded marketplace.
“Our ad campaigns typically emphasize ‘brand’, and then ‘product’ so as to boost name recognition above all else. And we also emphasize the lifestyle aspect to our products, promoting the idea that the 15-20 minutes per day that our customers don our masks could very well be the most relaxing time of the day for them,” he said.
“After all, our target demographic is the hard-working woman in her twenties or thirties. We found this age group is most likely to both understand and appreciate our products. She wants to look her best with a minimum of fuss, and we hope to help make that happen.”
Behind the Mask
But China’s leading cosmetic facial mask designer, manufacturer and retailer was not putting all of its eggs in this one basket.
“Leveraging on our leading position in the PRC cosmetic facial mask market and our established distribution and retail network, we are pursuing a multi-brand strategy and also diversifying into other skincare products,” Mr. Tang added.
They must be doing something right because its recent results have been a thing of beauty.
In the second half of 2011, sales revenue rose 63.1% year-on-year to nearly 628 mln hkd.
Meanwhile, net profit jumped 35.7% in the July-December 2011 period to 82.6 mln hkd.
Magic Holdings said that while both sales revenue and profit continued to achieve rapid growth, the positioning and brand awareness of the “MG Brand” further improved in the cosmetic facial masks market in the PRC.
“Our ‘MG Brand’ maintained its top position in the PRC facial masks industry for three consecutive years with the largest market share of 18.5% in 2011, 16.8% in 2010 and 15.1% in 2009. The brand awareness and brand loyalty of the ‘MG Brand’ are also in the leading positions among other facial mask brands in the PRC.”
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