Middle East - The middle ground

Middle Eastern consumers are increasingly interested in multinational C&T products, provided they can afford them. Paul Cochrane reports on recent developments.

The C&T market in the Middle East is booming, with 12% growth expected this year in a $2.1bn sector, according to official statistics. Market trends differ from country to country, but the general trend is rising demand for European cosmetics in the wealthier Arab countries, largely due to aggressive marketing campaigns by major brands, and high demand for unregistered, fake brand name perfumes in countries with sizeable low income groups, such as Egypt, Lebanon and Syria.

Indeed, the fake fragrance market in the Middle East could mirror that of the number of fake fragrances seized at EU borders last year, with an 800% annual increase, according to the European Commission. And with low income levels and the difference in price between originals and fakes, the black market in knock-off fragrances seems likely to continue to grow. The region's grey market is another unregulated area, showing no signs of slowing. Genuine products are sold outside normal distribution channels at reduced rates, which has a negative effect on C&T manufacturers. Meanwhile, natural oil soaps, once a household staple, are slowly being replaced with foreign brand liquid soaps and shower gels.

Driving growth in cosmetics and fragrances in the region is oil-rich Saudi Arabia and the Gulf countries of the United Arab Emirates (UAE), Kuwait, Bahrain and Qatar, their economies all booming on the back of high oil revenues and increased investment. New shopping malls are springing up, providing more outlets for cosmetics and fragrances, and beauty and health centres are also flourishing. This growth is reflected in consumption of cosmetics and fragrances in the Gulf, among the highest in the world, with average purchases estimated at $334 per head.

Sales of cosmetics and perfumes at airport duty free outlets are also high, accounting for 22.2%, some $200m of total duty free spending at Middle Eastern airports, according to a survey by Generation Databank. Regional giant Dubai Duty Free accounts for an estimated $75m of that total figure.

Along with higher disposable incomes and increases in tourism in the Gulf and Saudi Arabia, growth is also being driven by the region's demographics. Around 60% of the Gulf is under 25 years old and an estimated 50% of the Middle East and North Africa is under 20, with high demand in this age group for cosmetics and perfumes, particularly among young women, noted by UNDP Statistics.

United Arab Emirates

In the UAE, sales of cosmetics, perfumes and soaps are surging. Euromonitor says its C&T market was worth $414.2m in in 2004, up from $404m in 2003 and $229m in 1997. Spurring on sales is shopping mall space, growing at 50% a year. Retail accomodation for beauty product retailers has grown 30% in the last three years to account for 25-30% of all retail space in the UAE, according to Retail International.

Paris Gallery, which has 26 outlets and controls around 60% of high-end cosmetics and fragrance sales in the UAE, is expected to see growth of more than 20% this year, says brand manager Liliane Mokamer. What sells in cosmetics, she says, is highly marketed brand names such as Chanel, Lancôme and Helena Rubinstein. “What sells is what is new. People are very demanding and fashionable, especially the local people, and they know what they want,” she says. In make-up and fragrance, Chanel, Christian Dior and YSL are the top three brands, with Guerlain recently entering the market via a major ad campaign.

European and American cosmetics sell well in the UAE, largely due to lack of local cosmetics manufacturers, but locally made Oriental oils and fragrances are outselling European perfumes. The preference for oil over spray-on European perfumes is due to oil lasting longer in the humidity and the heat of the the Gulf state. “If perfume is sprayed on it will disappear after a while due to perspiration,” says Mokamer. Oriental oils by Hindi Al Oud and Saudi firm Hamil Al Musk dominate the market. Aziz Abdullah from Hamil Al Musk says the company has ten UAE branches and is experiencing 20-25% growth a year. “Although we sell European perfumes, Oriental fragrances, particularly wood and rose, are the best sellers along with African and Asian oils,” he says.

Societal customs are also causing the spike in European fragrances and Oriental oil sales, with fragrances regarded as a popular gift. A selection of perfumes is expected to be offered to house guests to freshen up and guests are expected to leave smelling of the host's own particular fragrance, according to an academic study by Kanafani-Zahar.

Sales of cosmetics and fragrances for men are rising. In the UAE, 80% of men currently use aftershave and the average male reportedly has a minimum of seven perfumes. “The male market is virgin territory and growing slowly, but will become a major market as men are very concerned about their appearance here,” says Mokamer.

Sales of naturally produced soap from Iran, Lebanon and Egypt are down, according to Mokamer. “Old people are still buying natural soaps but young people (under 50) are buying liquid soaps like Johnson & Johnson, Lux and Dove,” she says. Sales of deluxe hand soaps, body lotions and shower gels are up. With more than 2000 companies involved in trading cosmetics and perfumes, the Emirates wants to attract manufacturers and multinational firms to the newly established Jebal Ali Free Zone Authority's Fragrance Beauty and Fashion Park to give the UAE a greater regional role in the growing market. The park will span 2m sqm with a full range of facilities, from state of the art test laboratories to wholesale outlets.

Saudi Arabia

Sales of perfumes and cosmetics in Saudi Arabia are expected to grow 7% this year to more than $1.4bn, according to a recent study by the Saudi-American Business Council. The study attributed the increase to rising GDP and purchasing power and lack of entertainment activities on offer. Saudis buy two or three perfumes at a time, with European products, particularly French perfumes and cosmetics, accounting for 34% of sales. Asian perfumes, especially Chinese, followed, driven by sales to young Saudis. American perfumes came in third with a 16% market share, but demand has grown considerably in recent years due to the likes of Calvin Klein and Ralph Lauren setting up shop. Sales of fragrance totalled $194m in 2005, accounting for 14% of the total C&T market.

The perfume market in Saudi Arabia is dominated by the $400m a year Oriental oils market, accounting for 25% of overall sales. Hamil Al Musk has 100 shops here, says Aziz Abdullah, and expansion is expected, but the sector is dominated by the Mahmood Saeed Collective Company, one of the largest production facilities in the Middle East. Last year, the company's share increased by 1.6%, knocking LVMH off the top. Male spending is on the rise. Saudi men spent $30m on cosmetics last year, according to the Saudi-American Business Council.

Lebanon*

In the Lebanon, local manufacturers are either being forced out of business or into distribution partnerships with multinationals like L'Oréal and P&G. The Société de Parfumerie Libanaise (SDPL), for instance, went out of business two years ago after more than 30 years in the market, while distributor Fragrance and Beauty International is looking to establish itself in Bahrain. “The market is bad as Lebanese want European and American products. Before, we used to have a market in Syria but the Saudis and the Gulf countries are selling their products cheaper,” says an SDPL spokesman.

The demise of such companies is also due to multinational firms establishing factories in the Lebanon and surrounding countries. Three companies now dominate manufacturing in the country: Class Collection, Sadapac and Cosmaline. The latter recently merged with P&G to manufacture Pantene shampoo.

Jad Dakaruni, sales and marketing manager for C&T manufacturer Joseph B Amatoury, says the market is divided along economic lines. “One is a rich market with very powerful purchasing power going for European products, and the other is more mediocre, interested in Chinese, Brazilian, Turkish and local products. Both of them have clients.”

Despite the plethora of fake perfumes and cheap Asian imports, Lebanon's cosmetics and fragrance sector grew 26.7% in 2005 and is expected to grow by 15% this year. The main trend is for unisex shower gel and body splash, and for men's deodorants and edt, says Dakaruni. There is also a move from natural soap to liquid soap. “You can find natural olive oil soaps in 50% of households,” says Dakaruni, citing the popular natural soaps from Tripoli where small family businesses still make soap by hand.

Egypt

In Egypt, high-end products are only affordable for less than 10% of the population, resulting in a large market for cheap cosmetics, perfumes and soaps. As a result, says Mohamed Saber of Luma, one of Egypt's largest cosmetics manufacturers, the market is driven by price, not quality. “There is no advertising so the trend is to look for the price,” he says. The devaluation of the Egyptian pound in 2004 further compounded demand for Egyptian products and locally produced multinational brands from P&G, Johnson & Johnson, Colgate-Palmolive and Unilever as the cost of imports soared. With a bottle of Dior retailing at EP250 ($43), more than the average monthly Egyptian salary, Saber says demand for fake fragrances that cost $2-3 a bottle is high, even among middle-income earners.

The cosmetics market is expected to grow an estimated 15% this year however, fuelled by skin care creams and shampoos. Mass unisex fragrances lead sales in the fragrance market, accounting for 35% of overall fragrance sales in 2004, according to Euromonitor.

Iran

C&Ts are all nationally produced and regulated by Iran's health ministry. Some 250 cosmetics manufacturing firms currently operate in Iran but in reality the market is dominated by only a dozen major players. Tolidaru Pharma, one of the largest cosmetics and pharmaceutical manufacturers in Iran, is set to grow 50% this year, says the company's president Khambiz Amjady, due to exports to Afghanistan and Iraq and the company's captive market. “Sales nationally are growing more than 20% because we have regulatory limitations, and only domestic manufacturers can provide the Iranian market needs. For this reason the market has grown a lot to meet local demand.” Products experiencing the biggest growth are shampoos followed by facial creams and toothpaste, says Amjady. Sales of locally produced soap are also growing.

Despite Iran being off limits to European and American cosmetic brands, fragrances can be legally imported, albeit at a high price. European perfume dominates 60-70% of the fledgling market, but is facing stiff competition from cheap, often fake, perfumes from China and Asia. “We don't have the technical know-how to manufacture fragrance and perfume,” admits Amjady.