Conflict Versus Consumerism: Middle East Cosmetics Market

Soap Perfumery and Cosmetics magazine

The conflict in Syria has impacted on sales in the Middle East cosmetics market, but in the Gulf sales are buoyant, as Paul Cochrane reports from Beirut

It has been a been a turbulent time in the Middle East since the Arab uprisings swept much of the region over the past year and a half, not only with sales of cosmetics, toiletries and perfumes being depressed by losses in consumer confidence but also with distribution being harmed, especially by the protracted conflict in Syria. But while some markets have been particularly affected by regional instability, notably the Levant, the more stable Gulf market is coming out of recession and experiencing a return to growth.

The conflict in Syria is having a wider impact on the cosmetics and toiletries trade than just sales lost in a country which had been a burgeoning market for multinationals and regional players since its economy opened up less than a decade ago. The sanctions imposed on Syria by the US and the European Union in 2011 resulted in multinational corporations (MNCs) such as Procter & Gamble having to exit the market last November, leaving local distributors with no MNC products for retailers.

While the sanctions have directly affected MNCs, which account for an estimated 70%-80% of the Middle East and North Africa (MENA) cosmetics and toiletries market, what has hit all players is the way the conflict is impeding distribution as Syria was a major transit route for goods moving between Turkey, Lebanon, Iraq, Jordan, Saudi Arabia and the Gulf.

“We’ve made contingency plans for transportation by sea as there is the possibility of Syria blocking the route to Jordan and into the Gulf,” says Nizar Raad, managing director of Universal Metal Products, a Lebanese company that makes aluminium tubes for the cosmetics industry. “We are facing a lot of obstacles: risk, the shortage of drivers, visa delays and visa costs, all this is adding up. There are also more checks at Masnaa [the Lebanon–Syria crossing] and at Dera’a [Syria to Jordan], which holds up convoys for three to five days.”

Within Syria, demand for cosmetics and toiletries has plunged. “Demand is half of what it used to be as purchasing power is down and it is only products of first necessity which are selling, although shampoo still is,” comments Joanne Chehab, general manager of Lebanese cosmetics firm Ch. Sarraf & Co, part of the Malia Group. Malia has its own line of cosmetics, Cosmaline, and distributes for Shiseido and Wella. “We are also facing export and distribution difficulties and there is a lot of money in the market we are unable to collect. Very few companies are active today compared to before.”

IMPACT ON LEBANON

The conflict has also hit the economy in neighbouring Lebanon as well contributing to a drop in tourists, which has hit sales at Lebanese cosmetics outlets. Some have even closed down. In marketing terms Lebanon is considered the ‘window dressing’ of the Middle East due to its cosmopolitanism. New products are launched in the Lebanese market during the summer season and up until this year tourists from the region, particularly affluent Gulf citizens, visited the country. “Lebanon is a test market for elsewhere in the region,” says Chehab.

However while sales of more luxurious items have been affected by the economic downturn, the Lebanon mass market remains buoyant and the relationship between MNCs and local producers is highly competitive. Retail outlets are diverse: around 60% of cosmetics and toiletries are sold at supermarkets with mini-markets following close behind. And while “pharmacies do not account for much volume [they] are important for a brand’s image, so we do special sales and promotions,” Chehab says.

In Lebanon, the personal care market is increasingly sophisticated and mirrors trends in Europe. Chehab says that for hair care products, brands have recently started to heavily market hair serums in addition to shampoos and conditioners. “Hair serums have been in the market for decades but only as of last year have all brands been simultaneously marketing them,” she explains. Cosmaline has its own line of shampoos and conditioners: Softwave is exported to Europe, the Gulf and North Africa. It changes its packaging every three years to stand out in an increasingly saturated but fast growing segment. “In shampoo there is no loyalty at all. When people see adverts or because of the smell, packaging or the perfume, they switch,” Chehab says. “Before people had just one conditioner. Now they have seven. But because of the lack of loyalty we can compete with the multinationals which is why they are still spending on marketing.”

Region wide, shampoos are primarily marketed towards women, with men typically only selecting shower gels and body washes. Hair care lines for men are still small by volume in the region although that is changing, as is demand for shampoos for children. “Ten years ago we started Softwave for men but it didn’t do very well. Every two or three years we re- study the market and now there is a market for men but volumes are not very big, although the Shiseido range for men is growing year on year,” Chehab notes.

In terms of packaging, designs are the same for the whole region but languages differ. In the Levant product descriptions are in French, English and Arabic while in Algeria it is mandatory to have descriptions in French. Elsewhere in the region descriptions are in Arabic and English, with the main product language and the brand name in English. Shampoo product sizes also differ with the 400ml bottle more popular in Lebanon, Syria and the Gulf than the typical European size of 250ml, while Egyptians are big consumers of shampoo sachets at 5ml and 12ml. Larger sizes are also popular for family use at 700ml and 4kg.

DEODORANTS WIDESPREAD

In other segments, deodorant sales are growing with sprays particularly popular in the region, especially in emerging markets Iraq, Syria and Libya. They are used not just to combat body odour but also for spraying on the body. In Lebanon however mass sales are mainly of roll-ons, a segment dominated by the MNCs.

Meanwhile “skin care is a growing segment [in Lebanon] and we saw the possibility of competing with Nivea as it is not a very crowded market,” says Chehab. The company has used its distribution agreement with a mineral water producer to market skin creams by giving away a free 500ml bottle of water and tap into growing health consciousness in Lebanon as well as much of the rest of the region.

There has also been a notable trend across the region in brands releasing rival products swiftly once a company launches a new line, whereas previously there was a gap of two to three years. “If say Lancôme launches a new face cream product, another brand responds almost immediately,” Chehab comments.

While Sarraf ’s revenues have been affected by the drop in sales in the Syrian market and the downturn in Lebanon, with 70% of its products exported the company will ride out the current storm. This year it expects to grow by 10% compared to 2011. Chehab predicts that sales volumes will continue to grow in coming years and that Lebanon will ultimately only account for 5% of overall business.

In recent years sales have been bolstered by rising demand in Iraq, North Africa, Oman and Saudi Arabia whose relatively wealthy 28 million people are currently the largest Middle East market in terms of cosmetics and toiletries consumption, followed by the United Arab Emirates (UAE) and Iran, according to market research company Euromonitor International. “A very important market for us is Saudi Arabia as there is the scale there that smaller countries like Lebanon don’t have,” says Chehab.

The oil rich Gulf countries, with the exception of Saudi Arabia, have a smaller population than the rest of the MENA region, but their significantly higher income levels make the Gulf a core market for cosmetics, toiletries and fragrance companies. According to Euromonitor statistics, the average annual spend on cosmetics and fragrance in the Gulf is $334 per person. Its hair care market was estimated to be worth $584.3m in 2010 and projected to grow 16% to $679.4m by 2014. Such growth is reflected in a rebound in sales over the past two years following a dip in the wake of the financial crisis that hit the Gulf countries in 2008.

“There was a slowdown in terms of year on year growth during 2010; the average ticket size had decreased as customers were weighing each purchase decision with added scrutiny. Currently I would say we are on the road to recovery, where we find that footfall is down but average ticket size has increased,” says Abdulla Ajmal, general manager of Ajmal Perfumes, a leading oriental perfume brand based in Dubai, UAE. Ajmal expects its growth to be 10% this year, building on last year’s turnover of $220m.

UAE based Chalhoub Group Retail which sells commercial, luxury and Arab- oriented brands throughout the MENA, has also had an uptick in business. “We experienced a rapid growth in 2011, up 25% versus 2010 brought about by the huge government social handouts in our major markets. As of August 2012, sales have not slowed down and we expect to end the year up 20 per cent,” says Salah Al Sagha, general manager, Beauty.

FRAGRANCE CONSUMPTION HIGH

In the fragrance sector demand is high in the region due to the social emphasis put on smelling good, with men and women alike reapplying a fragrance or applying another fragrance throughout the day. “Perfumes are bought largely for regular use in the Gulf unlike our western counterparts who link perfumes to occasions,” says Ajmal. “For us every day is an occasion to wear your favourite perfume.” Indeed the Gulf perfume market is estimated to be worth $3bn, according to Euromonitor, while the market size for premium women’s fragrance in Saudi Arabia is estimated at $121m and for men at $101m.

“The sector has performed fairly reasonably for us, the prime reason being that fragrances are largely classified under the need rather than want set within the region,” Ajmal remarks. He says fragrance consumption is five times higher in the Gulf than anywhere else in the world.

To keep up with such demand and what Ajmal calls a “thirst for new products that never diminishes”, the company launches ten new fragrances a year. So popular is oriental perfume within the region – and it is growing globally – that major brands have introduced oriental type fragrances and are regionalising fragrances by putting an emphasis on darker colours and Arabic motifs. “We see a lot of international brands experimenting with what they classify as oriental fragrances,” he says. “It’s a phenomenon that I like to call ‘oud mania’ where every fragrance brand of repute is launching fragrances under the oud banner. Since the market potential exists, the Gulf is the right area to target where oriental perfumery is strong and growing year on year.”

In terms of retail, beauty and perfume space has grown by 30% over the past three years in the UAE, according to Euromonitor and point of sale is increasingly important for consumers as well as brands. “We are seeing a greater emphasis on customer engagement on a one-to-one basis encouraging product trail and equipping the customer with the right knowledge so that they can make an informed decision,” Ajmal comments.

Another regional trend is the growing demand for halal personal care products which are free of gelatine and animal products, particularly pork derivatives. Estimated to be worth $560m in the Gulf by Euromonitor, sales grew by 20% in 2011 and the UAE is estimated to account for half of the segment’s sales. “What’s really driving demand is the fact that the Muslim population is now dominated by a demographic of young, educated professionals and they know how to balance their Muslim and cultural identity,” says Shamalia Mohamed, founder of Amara Halal Cosmetics, a recently established company in the US that is aiming to enter the Gulf market (especially the UAE). “For young Muslims, halal has to be healthy, socially responsible and appealing. They have no problem with paying a little more for premium organic and natural cosmetics to suite their modern lifestyle.”

Mohamed forecasts further growth in the sector as awareness increases about halal m certified products. “I can see big brands jumping into this multi-million dollar market. Initially anything that is new to the market has an advantage and after a while it becomes a norm or just a regular mainstream item,” she adds.

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