Thursday, September 08, 2011

Consumer confidence rebounds in the Gulf

The Gulf market’s appetite for personal care products, both traditional and niche, continues to grow. Paul Cochrane reports from Beirut for Soap Perfumery and Cosmetics magazine

The multi-billion dollar beauty market in the Middle East’s Gulf countries is back on an upward trend, thanks to renewed economic growth as this rich region with avid consumers start spending again. Demand for cosmetics and personal care products is being driven by high disposable incomes, new sales channels and a growing lifestyle trend among both men and women in terms of plastic surgery, personal fitness and body care.

Despite the uprisings and political unrest in much of the Middle East and North Africa region (MENA) this year, cosmetics sales have remained remarkably robust, particularly in the oil-rich nations of the six member Gulf Cooperation Council (GCC): Kuwait, Bahrain, Oman, Saudi Arabia, Qatar and the United Arab Emirates (UAE).

“Looking at AC Nielsen’s latest consumer confidence report [from May], regional consumer confidence has rebounded, with the MENA region reporting the highest gain in consumer confidence levels. In the top 10 most optimistic countries, Saudi Arabia ranked number two and the UAE was at number eight,” says Salah al-Sagha, general manager of beauty retail at the UAE-based Chalhoub Group, which sells commercial, luxury and Arab-oriented brands at 91 beauty stores throughout the MENA countries.

All Sagha estimates the region’s beauty sector to be currently worth between US$1.5bn and $2bn a year - equivalent to 6% of the €179bn ($255bn) worldwide market.

Also, market research firm Euromonitor International forecasts that sales in the GCC states in terms of colour cosmetics and fragrance will exceed $1.6bn by the end of 2011, with $500m in cosmetics and USD1.3bn in fragrance sales. By 2014, the region’s personal care product sales sector could increase by 15.1% to reach annual sales of $1.88bn, with sales of $578.5m in cosmetics and $1.3bn in fragrance respectively.

Especially driving growth for retailers and brands are the buoyant economies of Kuwait and Saudi Arabia, which are forecast to have GDP growth in 2011 of 4.7% and 6.1% respectively, according to the National Bank of Kuwait and the Samba Financial Group (formerly the Saudi American Bank Group).

With Saudi Arabia boasting the GCC’s largest economy, with a population of 26 million – 50% of whom are under 25 years old, according to statistics by the Saudi government – the kingdom unsurprisingly accounts for the lion’s share of the regional market, with total sales in 2011 forecast at $1.1bn ($292.3m in cosmetics and $821m in fragrance), according to Euromonitor. Fragrance sales are also expected to rise to $939.2m by the end of 2014.

The upward trend follows a pattern set over the past decade, as GCC economies have experienced year-on-year double-digit growth as mass retailers, international brands and new regional players have begun to infiltrate these markets. There was a small blip in growth in 2010 in the wake of global financial crisis, but the region’s penchant for cosmetics, toiletries and, in particular, fragrance has not been diminished. Indeed in a 2009 study by Euromonitor on the UAE, expenditure on cosmetics and toiletries in the region actually exceeded that of France by 38% and the US by 6%.

“We are seeing a recovery, which should be even more significant towards the end of the year. Although segments are growing at a different pace, sales shares by segment have remained almost similar to 2009,” says al Sagha.

“Our fragrance and cosmetic market - including make-up, skin care and body care - for the total network has grown by 22% between May 2010 and May 2011. The growth was pulled up by fragrances, increasing 26%, which is our largest segment at 60% to 65% of all sales,” he adds. The Chalhoub Group’s make-up sales have increased 19% and skin care by 8%, with the group forecasting total sales growth of 17% this year, compared to 2010.

With the GCC having some of the highest GDP per capita incomes in the world, there is inevitably sustained demand for luxury beauty products and fragrances along with the more everyday toiletries. US-based personal care giant Estée Lauder, for example, forecasts that sales of its premium cosmetics in the GCC will rise 5% by the end of 2011.

The Chalhoub Group noted earlier this year that average sales price point stood at $30 for one purchase of personal care items (possibly a group of items). However, when consumer trends are focused solely on Gulf citizens rather than expatriates and tourists, sales were often much higher, particularly in the youth segment.

In 2010, the Chalhoub Group undertook a regional consumer survey, in conjunction with UK-based market research agency Datamonitor, to study how Arab youth approached the idea of ‘luxury’. Consisting of 1,260 face-to-face interviews of both males and females aged 15 to 29 years old in Saudi Arabia, the UAE, Kuwait and Qatar, the survey concluded that that Gulf youth are “undisputed shopping addicts”.

“The GCC young consumers admit to big purchases in the perfume and cosmetics category every quarter at an average spend of nearly $400,” says al Sagha. Gulf consumers buy, on average, one to two perfumes a month, from both international and Arabian brands, he says.

“We also discovered that young customers are very receptive to one-on-one types of communication - preferably in Arabic - and that they spend two to three hours daily on the internet; one to two hours on social networks; and one to two hours on blogs. Therefore, we built a whole social media marketing plan to meet these requirements,” says al Sagha.

Sales strategies of retailers have also been changing as a result of changing consumer behaviour, with more sales space in shops now being dedicated to beauty products, along with a higher numbers of sales assistants and advisors. Distribution has also diversified, expanding from dedicated beauty stores to cosmetics products being sold everywhere from nail bars to hair salons to plastic surgeons’ offices.

“Gulf women are still very much into perfumes and make-up, but because of plastic surgery, this has created other trends,” says Dikran Ghazal, general manager of Cosmaline, the cosmetics arm of Lebanon’s Malia Group, which manufactures and distributes its own line of products and international brands throughout the Middle East.

“If you visit a plastic surgeon’s clinic, there isn’t just a table and equipment, but also a line of beauty products. This has become a complementary side to the business. For when you have surgery on the lips, the patient has to use special lipsticks or creams so the lips don't deteriorate. This is something that is changing in the MENA. It is no longer taboo – in fact it has become a necessity to have plastic surgery. And it’s not just a fashion statement. There is a lot of peer pressure that if a woman is not following that trend they do not fit into a group,” says Ghazal.

Beauty trends also extend to men, he adds, with cosmetics manufacturers increasingly focusing on an emerging segment that had been traditionally confined to deodorants, shaving creams and hair gels.

“Hair styling for men and health spas are emerging very fast and in a very luxurious way,” says Ghazal. “It is becoming a common lifestyle [for Gulf men] to have massages, eyebrows done, chest hair lasered or waxed, along with plastic surgery. Like for women, what all this results in is more of a need for ongoing body maintenance. It is no longer just the face but the whole body and this is why we are seeing the emergence of lots of fitness clubs which has brought with it healthy eating, diet watch centres, dieticians and nutritionists. This has put pressure on us in the sector to be more advanced than the trends and build on them.” Shelf space dedicated to products for men has also expanded across the board in recent years as a result, he stresses.

A recent worldwide trend has been for multinationals to market their brand image rather than just advertise a specific product. This is being mirrored in the Gulf with a major focus on brand management and advertising. With this has come a focus on packaging, quality ingredients and emphasising dermatological testing.

“Consumers are a lot more quality and health conscious than before, when they just went for the price. In-store distribution and visibility are now as important as going on TV,” says Ghazal. “Packaging is the main purchase driver, fragrance is number two and the product itself third. Packaging is very important in order to target young adults in areas such as shampoo, for instance, where loyalty levels are very low.”

Counteracting this argument however is the emerging segment of ‘naked products’ in the Gulf – ie products without packaging or preservatives – as ecological and health awareness grows. The UK’s Body Shop, for instance, entered the Gulf market a few years ago, as did handmade, organic cosmetics company Lush, which now has three stores in the UAE, three in Kuwait, two in Saudi Arabia and one in Qatar.

While the youth market is a major segment - and part of long-term brand development - there is, however, differentiation in packaging appeal between different age groups.

“We find that all the colourful products, plentiful bubbles and an abundance of glitter appeals to our younger customers, while the natural ingredients, organic skin care and environmental messages appeal to our older customers,” says a Lush spokesperson in the UAE. Naked products account for 70% of Lush’s product range. Increased health awareness has also led to a growing trend in deodorants, for example, where roll-ons are gaining popularity over sprays, as well as a trend in customers looking for products that are alcohol and aluminium-free.

Based on growing demand for cosmetics in the region, Lush told SPC it plans to open four more stores by 2012, with the aim of having 21 stores in the MENA region by June 2012. “We expect to see strong growth for the next three years in the GCC,” adds a Lush spokesperson.

While sales of anti-ageing, cellulite and spa products are still relatively niche, a growing category is reflected in the hair care segment, which is continually expanding in terms of product offerings.

“The hair care segment is very competitive,” says Ghazal. “If you go into an average bathroom, you will see three to five shampoos, especially for women.” With so many products and brands available, manufacturers are now focusing on hair salons as an outlet for targeting consumers, offering special deals to hairdressers to stock their products.

“There are lots of hair treatments now available, and hair salons do influence consumers. We focus on salons to build brands, and that’s why we have a professional range – masks, gels and shampoos that are not for the retail market. Some regional companies’ marketing strategy is to launch professional hair care products first, and then go for the mass market,” adds Ghazal.

Away from luxury and more towards the niche segments, sales of mass market cosmetics, shampoos and soaps have also expanded beyond the traditional supermarket outlets.

“Supermarkets are key sales points followed by convenience stores but a growing channel is pharmacies, which are moving away from just selling medicines,” says Ghazal. “When you enter pharmacies, they now seem far more like beauty shops than pharmacies, as cosmetics account for maybe 25% of the counter space. The strategy now for manufacturers and distributers is to focus on pharmacies as a sales channel. I think soon we will have pharmacists and doctors prescribing, say, certain shampoos, instead of [them being sold by] just the hairdresser.”

While multinational leader Procter & Gamble and Beiersdorf’s skin care product giant Nivea have an estimated 70% market share of the MENA region’s cosmetics market, according to Ghazal, regional manufacturers have also grown exponentially over the past few years, and are starting to chip away at the multinationals’ market dominance in cosmetics and fragrance.

In Arabian-style perfumes, for example, Gulf brands such as Ajmal and Arabian Oud currently have the edge over international brands as few global brands cater to this fragrance segment, using strong fragrances, often of oud or musk, and containing no alcohol. This Arabian advantage extends to shampoos and other cosmetics as well, with manufacturers currently developing products with a strong fragrance suited to Arab tastes, according to Ghazal.

But despite this the expansion of regional brands is generally being hindered at major retail outlets due to excessive listing fees. “This keeps small players out, but for regional brands, it eats up their margins to be on a smaller shelf when the multinational brands have more space,” says Ghazal. “It is a major hurdle for regional brands to grow.”

No comments: