While Turkey’s cosmetics market is continuing to expand strongly, growth is slow and the industry is facing a range of significant challenges as the country’s economy enters an uncertain period.
According to data from market research firm Euromonitor International, the value of the beauty and personal care market in Turkey grew 12% to US$3.9bn in 2014. That compares with a compound annual growth rate (CAGR) of 15.5% between 2009 and 2014. Euromonitor has predicted that growth will slow further over the next few years, with sales reaching $5.6bn by 2018, which would represent a CAGR between 2014 and 2018 of 10.6%.
A report published by Euromonitor in 2014, Super premium beauty and personal care market in Turkey, noted that high value and luxury cosmetics have been a key contributor to the growth in the value of the overall beauty and personal care market in Turkey, driven by an increase in the number of new products, more advertising campaigns and greater urbanisation.
This, it said, has “translated into a higher number of people in professional jobs attaching more importance to grooming”. It also noted that Turkish males have begun to invest in their looks and are turning over a greater portion of their budgets to super premium beauty and personal care products.
Vuranel Okay, General Coordinator at Turkey’s Association of Cosmetics and Cleaning Products Industrialists (Kozmetik ve Temizlik ürünleri Sanayicileri Dernegi, KTSD), added that the growth in Turkey’s population, which is currently estimated by the Turkish Statistical Institute (TurkStat) at around 76 million, has also helped drive consumption of cosmetics products in Turkey. It is rising currently at a rate of 1.23% annually.
Exercising caution
However, he observed that while Turkey’s rapid economic growth over recent years has boosted the cosmetics market, the market is now being constrained by slowing economic growth. Turkey’s gross domestic product (GDP) rose by an average of 5.2% per year between 2002 and 2011, before slumping to 2.2% in 2012. GDP rose by 4.2% in 2013, but growth fell again to 2.9% in 2014, and an expansion of 3.5% is forecast for 2015, according to the World Bank. Turkey’s GDP per capita in 2013 was $10,971, reported the bank’s statistics.
“In a slowing economy, people will spend the same amount on essentials like soaps and toothpastes, but will purchase fewer products like perfumes,” says Okay.
He also notes that as the US dollar continues to strengthen against the Turkish lira, the low US dollar borrowing rates that Turkey has benefited from over recent years could start to disappear, which could potentially restrict investment by cosmetics manufacturers.
He added that a parliamentary general election, due to be held on 7 June, is also creating some nervousness within Turkey’s cosmetics industry, particularly as the outcome is not clear cut, raising the prospect of a coalition government, which may be less decisive than the current government by the ruling Justice and Development Party (AKP).
“These issues are… causing companies to put investment plans on hold until after the elections,” Okay says, adding that cosmetics manufacturers are currently spending less on advertising, product development and factory expansions, which could in turn prompt a slowdown in Turkey’s personal care product sales.
SMEs bite back
Euromonitor noted that international brands dominate the beauty and personal care market in Turkey, with around 75% market share. Leading overseas brands include Avon, Nivea, L’Oréal Paris, Gillette, Pantene, Oral-B, Colgate, Sunsilk, Oriflame, Flormar and Sensodyne.
A report published in 2014 by Turkey’s Ministry of Economy stated that most of the major multinational cosmetics and personal care products companies, including Procter & Gamble, Henkel, Colgate-Palmolive and Unilever, have manufacturing and marketing facilities in Turkey, with the manufacturing generally carried out through joint ventures and licensing agreements.
But there is also a strong local sector, based on small and medium-sized enterprises (SMEs). According to the country’s Ministry of Health, there are around 3,250 cosmetics and personal care products manufacturers in Turkey, employing around 14,000 people. The majority of these companies are located in Istanbul.
Nihal Sahin Ipekoglu, a Turkish chemist who has worked with several local cosmetics companies and currently runs her own Istanbul-based company, NSI Cosmetics & Laboratories, notes that around 80% of cosmetics producers in Turkey are SMEs. She says that a growing challenge, along with the slowing economy, for such businesses is securing the latest ingredient formulations. She notes that large raw material suppliers that have opened offices in Turkey (including Croda, Ashland and IMCD) are prioritising selling to the large manufacturers and multinationals in Turkey rather than communicating with the smaller manufacturers about their latest offerings.
“This means that the smaller companies don’t have as much information about the new formulations,” she says. “They need more support and knowledge about the latest innovations.”
Okay adds that sales of counterfeit cosmetics, as well as unregistered grey market trades, also challenge the industry. He estimated such goods make up 10%-30% of the market.
Ipekoglu says that another difficulty for the smaller companies is reaching consumers nationwide: “Turkey is a big country with a big population, but local Turkish manufacturers can’t reach so many of these, because they would need to invest a lot in R&D and marketing, and they don’t have enough money to do that.”
She estimated that a typical small Turkish cosmetics manufacturer can reach just five or six million people.
She added that companies have also struggled to comply with new government-mandated tests designed to ensure producers comply with EU cosmetics regulations. “The government has made companies do lots of tests, such as for safety and dermatology, to ensure they meet the regulations,” she says. “Now, because they have spent so much on testing, this has meant that they weren’t able to spend so much on things like R&D and marketing.”
Ipekoglu said that to tackle these numerous challenges, a growing number of Turkish cosmetics producers are investing less in the development of their own products, and focusing increasingly on manufacturing private label products, mostly for brands based in the Middle East.
Nature first
She added that local manufacturers are also looking to capitalise on the growing demand in Turkey for natural products, which she said are selling well due to growing awareness of health issues in the country. “People are looking for more natural and organic cosmetics products, just as they are for food and cleaning materials,” she says.
Euromonitor noted that leading luxury department stores, such as Harvey Nichols, sell a wide range of organic super premium beauty and personal care brands in Turkey, including June Jacobs Spa Collection, Elemis, Jo Wood Organics, Spiezia Organics, pH Advantage and Holistic Silk. Examples of new natural products launched by Turkish companies include the organic Hunca Care range, which includes shampoos, conditioners and shower gels, launched by Hunca Cosmetics in March 2015. The products are made from ingredients including garlic, argan oil, and olive oil.
Another line is Natura Therapy, launched at the beginning of 2015 by Adnan Akat Kozmetik. It features a variety of natural products, including hair sprays, therapy oils, hair and body lotions and shampoos, produced using a range of natural oils such as argan and marigold.
Ipekoglu noted that Turkish cosmetics producers are benefiting from growing demand from hotels in Turkey for natural cosmetics products. One company supplying such products is Ilayda Kozmetik, which she explains produces a comprehensive range of products including shampoos, hair conditioners and spa products to hotels in Turkey.
Ipekoglu adds that NSI plans to help cosmetics manufacturers in Turkey develop natural mosquito repellents, for which she said there is strong demand due to the large number of tourists who head to the Mediterranean coast of Turkey in the summer.
Export openings
Okay noted that the Turkish cosmetics industry is also focusing increasingly on exports. According to the KTSD, the value of exported Turkish cosmetics products has been around $1bn over the last four years. “The industry is putting more effort into growing current markets and finding new markets,” he says, noting that the leading markets are currently Europe, Russia and Iraq. The industry is targeting new markets, for instance in South America and southeast Asia.
“Several Turkish cosmetics producers have visited countries in South America and southeast Asia over the past year in order to analyse the demand for different products,” he says.
The Ministry of Economy’s report said that bath and shower products, beauty (make-up and skin care) products, hair products and oral and dental hygiene products are the main product categories exported by Turkish producers. It also noted that “the Turkish soap sector is now an export-oriented sector”, adding that “world famous laurel soaps and olive oil soaps are produced in large quantities in Turkey”. It added that Turkish soap producers have created their own brands, such as Duru, produced by Evyap, based in Istanbul; and Olivos, produced by Korkut Soap, based in Edremit, in Balıkesir province, on the west coast of Turkey. These “have led to strong consumer dependence in the domestic market, and they have directed their attention to foreign markets”, said the report.
