A tale of two regions: the Middle East's divided cosmetics market

Soap, Perfumery and Cosmetics magazine
www.cosmeticsbusiness.com
 
The Middle East cosmetics market is one that is divided. The Gulf region is booming, while the Levant continues to struggle, as Paul Cochrane reports



The personal care product market in the Middle East can be divided into two current trends: sales in the affluent Gulf Cooperation Council (GCC) countries, comprising Saudi Arabia, the UAE (United Arab Emirates), Oman, Bahrain, Qatar and Kuwait, are booming, while on the other side of the region, in the Levant, markets are feeling the effects of the Syrian conflict, with the loss of tourists and low consumer confidence impacting bottom lines.

“When I go to regional distributor meetings, those from Saudi Arabia, the UAE and Kuwait are not complaining, but people from Syria, Lebanon and even Jordan are,” says Joanne Chehab, General Manager of Lebanese cosmetics firm Ch. Sarraf & Co. The company is part of the Lebanon based Malia Group, which has its own line of cosmetics, Cosmaline, and distributes for Japanese beauty giant Shiseido and German hair care brand Wella.

INSTABILITY WOES

Demand for personal care products has dried up in Syria as the conflict has dragged on since it erupted in March 2011, with only essentials such as shampoo still selling. Manufacturers and distributors are trying to operate in the country but distribution is complicated by logistical issues and payment collection by the depreciation of the Syrian Pound. The conflict has also caused instability in neighbouring Lebanon, driving away tourism and affecting consumer sentiment, while there are an estimated one million Syrian refugees in the country, adding to domestic woes.

While not a big market, with just under five million consumers, Lebanon is an important regional market, both as a trendsetter because of Lebanese women’s penchant for beauty, and as a launch pad for brands and products. Before the Syrian conflict, affluent Gulf tourists were a key part of the sales mix, picking up on trends and bringing them back to their home markets. Furthermore, the loss of Gulf tourists – GCC countries banned nationals from travelling to Lebanon last year – has hit the market harder than just the loss of sales.

“Lebanon is the shopping window for the region. Arab women look at Lebanese women as someone that knows style and the market is considered professional. A Lebanese hairdresser is rated higher than a hairdresser from elsewhere. And in [beauty] consultancy [too]. It doesn’t mean they are better but there’s that perception,” says Fadi Sawaya, CEO of Beirut based Sawaya Group, which distributes for brands including Orly, US based Gelish, UK based Provoke Cosmetics and others throughout the Middle East. “Lebanese women are not the best clients, but the best consumers. The best client is the Gulf Arab woman, as in general, they have high purchasing power.”

Lebanese celebrities are also involved on a regional level as the faces and names behind brands. Pop singer Myriam Fares, for instance, is the face of Saudi Arabia based cosmetics and fragrance manufacturer Mikyajy, which has 234 stores in the GCC, two in Libya and one in Yemen. Mikyajy is part of the Kamal Osman Jamjoom Group, which manufactures western style fragrances and make-up products.

C&F Cosmetics and Fragrances, part of Fawaz Holding, has six retail stores in Lebanon and is the distributor for male Lebanese pop star Ragheb Alama’s perfume Notes D’amour. The fragrance was launched last year in the Middle East, as well as in France, Australia and the US. “Alama has a big fan base in Lebanon and the Middle East, and that’s where the idea came from,” says Ola Zaatari, C&F’s Operations Manager. “He created the perfume; it is manufactured in Paris, and has oud, jasmine and cedar notes, which relates to Lebanon. There is a new trend towards designers and celebrities having perfumes, like Elie Saab and Reem Acra.” 

 
Celebrity scents such as Mikyajy’s Censored (left) and the Asian influence in Syed Junaid Alam’s Hanako (right) are popular trends

THE FAME GAME

While the Middle East has followed western companies’ examples of using celebrities to market products, western perfumeries have picked up on the popularity of oud in oriental perfumes. “Over the last two years, international fragrance makers such as Tom Ford and Chopard have been launching new fragrances that have oriental branding and that mention the oud name, which is different from the standard French categories of perfume,” says Hamad Akhtar, Director of Sales and Marketing at Bahrain based perfumery Syed Junaid Alam. “It is interesting to see how these big players see our tastes in perfume as a market to enter. That shows two important factors: firstly, the GCC consumer is a heavy spender on perfume, with per capita spending the highest in the world, and secondly, no matter what the economic situation is in the Middle East, you have the whole spectrum of customers wearing perfumes, from a baggage handler at the airport to the CEO of a bank; it is entrenched in their culture and putting on perfume is a daily routine.”

Indeed, despite the economic downturn in Lebanon, perfume sales are still robust. “No woman or man has only one perfume on their dressing table; there are definitely two to three. On average, women and men buy six perfumes a year,” explains Zaatari.

In the Gulf, sales are even higher, with the premium fragrance market in the UAE alone estimated to be worth around US$174m in 2012, and expected to increase 21% to $211.1m by 2016, according to market research firm Euromonitor International. Akhtar says high end and premium fragrances account for around 15%-20% of GCC sales.

Meanwhile, middle range products account for around 60% of sales and the rest is made up of mass market sales. But while oriental perfumes have retained their popularity in the region, there has been growing demand for international perfumes, which has caused regional producers to adapt to market demand.

“Over the last eight years GCC consumers have shifted towards international brands, so we have to keep up with these changes,” says Akhtar, with Junaid adding 30 new products a year to its portfolio of 250 products. “Earlier in the year, we launched an international perfume, Hanako, with the branding in Japanese and English, and no Arabic at all. Nobody would expect that from an Arab manufacturer but consumers find it attractive as it looks different.

The trend is slowly moving towards a fusion of international and oud fragrances, from the east and west, and this will happen in packaging as well. It will definitely not stay the same,” he explains.

Dubai based Epoc Messe Frankfurt, organiser of the annual Beautyworld Middle East exhibition, has also noticed an uptick in interest in Middle Eastern fragrance and beauty products from outside the region. “We wouldn’t have dreamed of buyers coming from Europe, as it is understood to be a regional show, but that is changing,” explains Michael Dehn, the company’s Group Exhibitions Director. “I think it is changing as, in the fragrance industry, there is a lot of Arabic influence, oud and so on, which is a trend from here that has gone international. Buyers from Europe and the US also want to see what they can get from here as there are different offerings.”

A noticeable difference is in the products themselves. “One difference in development is that customers here are very demanding when it comes to the long lasting aspect of a fragrance and in terms of intensity from the trail,” says Jim Ragsdale, Brand Director for Saudi Arabia’s Mikyajy.

Different requirements also extend to Mikyajy’s make-up line, which accounts for two thirds of the company’s overall sales.

“Products are developed with European suppliers but with the Middle Eastern customer in mind, particularly with regard to very harsh weather conditions, as a foundation product needs to withstand temperatures of up to 50°C, which is not what a French woman needs.” 

Western brands such as Tom Ford and Chopard have been inspired by the Middle Eastern market

 

MARKET DYNAMICS

When personal care product companies look for robust sales in the Middle East, they are certainly looking to the GCC countries, which have largely been immune to the ‘Arab Spring’ that has caused major instability in much of the region. Combined with high purchasing power, personal care sales remain strong in the Gulf.

The UAE’s beauty and personal care market is valued at $1.1bn this year, says Epoc Messe Frankfurt, while the premium cosmetics market was valued at $570.8m in 2012, and predicted to rise to $684m by 2016, according to Euromonitor figures.

The region’s biggest market, Saudi Arabia, has witnessed growth in mass cosmetics of some 5% between 2011 and 2012, while the premium cosmetics sector grew 8.5% during the same period. Overall sales of beauty and personal care are forecast to rise by 6% per year from 2012 to 2017. Indicative of the growth in the sector, the number of exhibitors attending Beautyworld Middle East grew 23% year on year in 2012, and this year’s event had a 32% increase in exhibitor numbers.

On the retail side, Mikyajy has had double digit growth for the past three years, and is forecasting strong growth ahead. “The Middle East is a very dynamic market and the outlook is very positive,” says Ragsdale.

In fact, sales are strong across the board. “One of the trends happening in the Middle East is there is this assumption that there is a luxury customer, the medium customer and the mass market buyer, but in reality customers are buying all of those products, so all products are potentially competitors,” explains Ragsdale. “A sharp shopper today is occasionally making a dream buy, but also daily purchases of a near equivalent quality. When we speak with customers about purchases, you get the large luxury brand names verbatim, but they also have mass market products and everything in- between.”

Further driving sales is the region’s young demographic, with the UN reporting that an estimated 50% of the population in the Middle East and North Africa (MENA) region is under 30 years old. Markets are also increasingly mature, with new malls and retail spaces springing up. “Retail space has been growing to quite staggering heights over the last few years, and still growing. The Dubai Mall announced they had 65 million visitors last year, so the business climate is pretty good for the retail sector,” says Dehn.

Increasing consumer awareness has enabled newcomers to enter the market, such as American brand MICA Beauty Cosmetics, which is distributed by Middle East Natural Cosmetics (MENC) in Dubai.

“We wanted to bring to the region natural cosmetics. And clients are looking for this. A few years ago, people didn’t know about nutrition, organic foods, or read the labelling. But there is more awareness now,” says Dr Maha Alnakkash, a health and beauty consultant for MICA Beauty and MENC. “There’s lots of potential in the region, with TV shows and magazines talking about how to take care of skin.”

Indeed, the UAE’s skin care market has grown by 5% over the past three years, and is forecast to reach US$141m by 2015, according to Euromonitor.

While there are clear similarities in GCC market trends, sales do differ from one country to the next. In Kuwait, for instance, Ragsdale says women use heavier make-up than elsewhere. “They like bright colours, bordering upon artistry, and they are not scared to make a colour statement. But in the UAE, with such a large expatriate population, that conditions the way you market, such as for skin tones. And in the UAE Arabic is not necessary, but in other countries you would miss out on sales if no-one [in the store] spoke Arabic.”

Retailers have to consider such issues, particularly in cosmopolitan Dubai. “I have Russian, Filipino and Arab employees, and everyone takes care of the nationality they are closest to,” says Sawaya.

In Saudi Arabia, however, the government caused management problems in cosmetics retail last year when it required lingerie and cosmetics stores to be staffed by women. “The law caused us a lot of change, as Mikyajy went from 400 male employees to 400 female employees, so it was a real human resources revolution. It is an ongoing process,” says Ragsdale.

GROWTH POTENTIAL

Elsewhere in the Middle East, personal care sales are mixed. Iraq, for example, is Cosmaline’s largest market, seeing sales double that of Lebanon. “The Iraqi market is doing extremely well, and [experiencing] double digit growth. We are working to double our turnover in Iraq next year,” explains Chehab. “North Africa also has huge potential, but the situation is very shaky in Tunisia and Egypt.”

Mikyajy has two stores in Libya that were closed during the civil war in that country, but have since re opened. “Sales are surprisingly good and business is buoyant, better than expected,” says Ragsdale.

As for the Levant market, tough times may be ahead, certainly in Syria, but Lebanese retailers are optimistic that demand will remain strong, buoyed by the craze for beauty. “In the Middle East, crises are becoming seasonable, it comes and goes. The market will rebound,” Sawaya concludes.