Some areas of the Middle East are not enjoying the best of times at the moment, but others are far from experiencing the worst. C&T has developments in the UAE, Bahrain, Lebanon and Saudi Arabia in a report from Beirut
Sales of cosmetics, perfumes and toiletries are surging in the Middle East, with sales reaching US$2.1bn last year, according to official statistics. German cosmetics and toiletries manufacturing giant Beiersdorf estimated regional growth at 10% last year. “All markets are growing very fast for us. The Gulf markets are very important in the region, and the Levant, despite the war last summer, is growing very quickly. Iran is also a fast growing market,” comments Jean-Manuel Canga-Valles, marketing manager for Beiersdorf Middle East.
Despite a lack of country specific data, cosmetics and toiletries companies say that demand is growing for all products, due to aggressive marketing, changing consumer habits, higher disposable incomes and the Middle East’s demographics; some 50% of the region’s population are under the age of 20 according to the UN. “Being in a region where the consumer market requires specific formulations there is a focus on the youth market. You can’t ignore 50% of your consumers,” says Canga-Valles.
The changing retail environment is also spurring growth, with malls, pharmacies and supermarket chains springing up throughout the region, giving companies greater visibility and distribution opportunities. “Modern trade, supermarkets in particular, is a driving force in the region. We can see that this trade started in the United Arab Emirates [UAE] and mushroomed across the Middle East and to Iran,” adds Canga-Valles. He cites the number of Carrefour supermarkets opening throughout the region as a salient example, with the French company establishing a presence in the Gulf, Jordan, Egypt and in the near future, Syria and Iran.
Cosmetic products sold by the multinationals are the same as in other regional markets, although there has been a noticeable drop in the past decade for specific coloured cosmetics. The shower gel category is considered to be growing particularly fast as demand for soap wanes, particularly traditionally manufactured natural soaps. Products for men are also growing in demand, especially grooming products and shampoos.
In the perfume sector, European and American brands still dominate the market, particularly in the Levant. But major oriental perfume manufacturers in the UAE, Bahrain and Saudi Arabia report surging demand, with average growth of over 20% as packaging improves, the number of outlets increases and interest by non-Arab consumers rises.
“At one time oriental perfume was sold only to Arabs, but now 70-75% goes to Arabs and the rest to Pakistanis, then westerners, primarily Germans and the English,” says Abdullah Ajmal, assistant general manager of Ajmal Perfumes in Dubai. Feeding perfume sales is the region’s penchant for cosmetics and perfumes, estimated at US$334 spent annually per person in the Gulf Cooperation Council (GCC) countries of Kuwait, Qatar, Oman, Saudi Arabia, Bahrain and the UAE.
In a survey carried out by Ajmal, the company found that the average male or female customer has between six and eight bottles of perfume at home. “It is a three times a day habit, even carrying perfume in the car. People in the GCC use five times more perfume than their western counterparts,” says Ajmal. But the growth of the cosmetics, toiletries and perfume sectors has also been accompanied by certain downsides, with counterfeit and smuggled products rife throughout the region.
Indeed in Egypt Beiersdorf had to pull its whole line of sun creams last year following email complaints from customers that were badly sunburned after using counterfeit lotions in the tourist destination of Sharm El Sheikh. “We removed all goods from the market and are now hologram-spotting [products] in Egypt to prevent counterfeiting,” says Robert Taylor-Hughes, ceo of Beiersdorf Middle East.
The wealthier and more developed consumer markets of the GCC are also not immune from an illicit trade estimated at US$500bn worldwide. “From the grey market to fakes and the legitimate market, a product is being launched a day in Dubai and Saudi Arabia,” says Ajmal. “I had eight fakes here yesterday, and have a catalogue of the fakes counterfeiters are selling. Products sell for a tenth of the price of what we sell them for. This is one of the largest problems we now face,” he adds.
Counterfeit trade in cosmetics and toiletries was estimated to be as high as US$210m in the GCC last year, which could be as much as 10% of the overall Gulf market for the sector. The issue has been deemed so serious that 19 multinationals, including Beiersdorf and L’Oréal, teamed up last year to create a Brand Owners’ Protection Group in the Middle East to curb counterfeiting in the region.
THE UNITED ARAB EMIRATES
The cosmetics and personal care market in the UAE was worth more than US$414m in retail sales last year, according to market data group Euromonitor. Demand is being driven in the UAE by an estimated 6.2 million tourists a year, a 23.5% rise in GDP in nominal terms in 2006, and by radical changes in the UAE’s population, from 2.4 million in 1995 to 4.3 million this year. The future outlook for the sector is equally bright, with some estimates predicting that the population could reach 10 million by 2010.
With 80% of the UAE’s population expatriate, there is high demand for a wide variety of products, but multinational firms dominate sales of cosmetics and toiletries. Sales are particularly high in Dubai, which has positioned itself as a tourist and shopping destination, as well as a regional media hub, with new products typically launched in Dubai.
Although sales of brand name perfumes are high, available in all malls, airport duty frees and supermarkets, there has been a notable upswing in sales of oriental perfumes in the last couple of years. Whereas growth for perfume across the Gulf and the UAE is estimated at a conservative 6-8%, according to Ajmal Perfumes’ Abdullah Ajmal, oriental perfume sales are surging, with Ajmal estimating his company’s growth at 10-12% a year. “We believe that the growth rates of the industry are going to boom even further, with exponential growth in 2009-2010,” he adds. “We have just opened our hundredth store and intend to open 100 more in the next three to five years.”
Ajmal currently operates in 14 countries and plans to be in 20 by the end of the year. “When Iraq is safe, we will go there. Afghanistan, surprisingly, is a good market and is growing slowly, and Iran is a huge market for us,” he adds. The company grew 26% last year in Qatar, and Kuwait was Ajmal’s third largest market after the UAE and Saudi Arabia. Driving sales of oriental perfumes by leading regional manufacturers Ajmal, Arabian Oud, Rasasi and Swiss Arabian are the perfumeries’ adoption of spray perfumes, lighter perfumes and flashy packaging to target new consumers, the youth segment and tourists.
BAHRAIN
Bahrain has a population of less than 800,000 and is not a major market for international players, but with a growing economy sales are consistent and should increase as the retail environment develops. No soaps or cosmetics are made in Bahrain. They are imported from plants in neighbouring Saudi Arabia and the UAE, as well as from Asia, Europe and North America.
Demand for oriental perfumes is particularly high in Bahrain, says Mohamed Shahnawaz, business development manager for Manama-based Asgharali perfumes, which has a 75% market share and has experienced growth of 25% in the last five years. “People who like Arab perfumes go for them, not French perfumes, and vice versa. We live in a warm, desert area so people perspire and need a strong perfume,” Shahnawaz added.
With Bahrain being a highly competitive market for oriental perfumes, Shahnawaz says up to 80% of the cost of a bottle of Asgharali perfume went on the container, which could be made of metal, shaped like a sword, a wind tower or studded with glass crystals. “Perfume is also decorative, which Arabs like. Tourists also like such designs, thinking it is very exotic,” says Shahnawaz. Ajmal also reports good sales in Bahrain: “Bahrain is a good steady market. The majority of business is weekend traffic from Saudi Arabia, with people coming to party in Bahrain.”
LEBANON
Lebanon’s C&T sector, excluding shaving creams and soaps, is estimated to be worth US$180m a year, according to L’Oréal. The sector was seriously affected by the month-long war between Israel and Hizbullah last year. Sales plummeted during the war, and imports and exports were paralysed by a 56-day sea blockade by Israel. In the months that followed, the economy entered a recession due to political instability and rising unemployment.
Multinationals have fared better than local manufacturers, with L’Oréal, Procter & Gamble and Unilever’s Dove engaged in major marketing drives. “In the fast moving consumer goods category there has been no change in the market, growing maybe because of the introduction of new products,” says Malek Bekdache, general manager of L’Oréal Lebanon.
Cosmetics manufacturer Diana de Beauté (DDB) tells a different story. “Business was down about 20% since the war, and hasn’t picked up,” says Amer Bourghol, president of DDB. “I think the market is doing worse than we are and I don’t know what the long-term implications are, whether we will ever recover.” Cosmaline, which distributes top perfume brands Burberry, DuPont, Christian Lacroix, Shiseido cosmetics, Wella and Sebastian hair products, and manufactures shampoos and conditioners under its own brand name, reports that all segments were hit last year. “But this year is starting pretty well even though there are no tourists yet. We are up 15% compared to the first quarter last year,” says Joanne Chehab, general manager of Cosmaline. However, the professional shampoo segment was the worst hit sector and has still not recovered. “There have been a lot of wedding cancellations and people are going out less so it has hit hairdressers hard,” she says.
According to Chehab, there are some 700 perfumeries in Lebanon with around 400 selling cheap brands from Japan and France but only a few selling oriental perfumes. Majid Itarji, president of Mecca-based Oud and Perfumes World comments: “The Lebanese and the people that go there don’t like our products. They still like French perfumes and brand names.” Like Ajmal, Itarji had planned to open stores in Lebanon but due to the current situation has shied away from investing in the country.
Saudi Arabia’s oriental perfumery Arabian Oud took such a gamble last year however, opening a store just six days before the war started. “When we opened we were very busy, but since then we have had low sales,” comments sales manager Mohamed Khalifa. Lebanon not only differs from the rest of the region in perfumes. Beiersdorf’s Nivea brand is the top selling cream in the region, but in Lebanon Nivea is trumped by L’Oréal’s cosmetics and make-up range. Wella and Procter & Gamble are in second position.
SAUDI ARABIA
Saudi Arabia has the Middle East’s largest economy and, as a result, the biggest market for cosmetics, toiletries and fragrance, estimated at US$1.2bn last year, according to the Saudi-American Business Council. With the birth rate at 3% growth a year, one of the highest in the world, and the population doubling every 25 years, companies expect significant growth in the near future as this young population ages. Changes in the retail environment are also boosting sales, with a move away from local pharmacies to drugstores and chains. “In Saudi the concentration in retail has already taken place. The Al Nakli chain, for instance, has over 400 pharmacies,” points out Beiersdorf’s Canga-Valles.
European perfumes account for a third of the Saudi market, followed by Asian made perfumes, but sales of oriental perfumes, which collar a quarter of the market, are surging, according to Majid Itarji, president of Mecca-based Oud and Perfumes World. According to Itarji: “People are moving away from French perfumes. I own shops that sell French perfume but sales are going down while oriental are up. This means people are changing their attitudes.” Itarji says his company has grown between 15-20% a year for the last three years, projecting 20% growth this year. Saudi is considered the fastest growing market in the GCC for oriental perfume sales.
“We anticipate Saudi will overtake our sales in the UAE,” says Ajmal. “The speed of growth is phenomenal at 20% a year. We have 26 stores there but are planning for 100.” Certain times of year see major spikes in perfume sales in Saudi Arabia. According to Itarji, over US$26.7m was spent on perfume in the Muslim holy month of Ramadan last year. The annual pilgrimage to Mecca - the Hajj - attended by millions of Muslims from around the world, is also a peak sales period. Itarji says his company releases eight to ten new products a year, initially producing 15,000 units for the first quantity and, depending on sales, producing that amount every three months. He adds that the average consumer buys three items per purchase, which agrees with a study published last year by the Saudi-American Business Council which found that Saudis buy two or three perfumes at a time.