The Middle East comprises several different regions including Saudi Arabia, Qatar, Oman, Bahrain and the United Arab Emirates. Covering such a huge geographical area the success the market has seen in the past few years has much room for manoeuvre.
Sales of C&T products in the Middle East have reached an estimated US$2.1bn in the past year and, according to insiders, this growth is set to continue. According to Eckhard Pruty, ceo of Epoc Messe, organiser of Beautyworld, Wellness and Spa, one of the largest trade shows in the Middle East: “The Middle East cosmetics and personal care sector has grown 12% annually over the past three years which is very promising indeed. The figures show consumers in the Middle East place great emphasis on appearance, skin care, beauty and grooming regimes and this applies for both for men and women.”
Pruty adds: “According to a recent survey we undertook, consumption of cosmetics and fragrances in the Gulf States is among one of the highest per capita in the world, with the average purchase estimated in the region of 1,229 Arab Emirate Dirhams (US$ 334) per head.”
And other factions are also sitting up and taking notice. In 1981 the Gulf Co-operation Council (GCC) was set up to function as a trade bloc aimed at encouraging co-operation amongst the participating countries. The council comprises Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE). These states now have a combined gross domestic product (GDP) so high that together they make one of the world’s most fruitful economies. Many of these GCC countries have already doubled their sales figures in the past six years making the Middle East a market that many business people have their eye on.
Creating space
Several different reasons contribute to this sudden prosperity in the C&T market in the Middle East. One includes the falling demand for cosmetics in the US, which pushed many cosmetic companies towards this dynamic and growing part of the world. Indeed, many large multinational brands have set up shop in the Middle East over the past five years, including L’Oréal, Dior and Chanel. Sales of beauty products in the Middle East are also boosted by the 50% annual increase in the number of shopping malls. Much of the retail space is dedicated to cosmetics and beauty products in a bid to satisfy the desire for the items by a consumer who, in general, has the affluence to buy what they wish. It is estimated that there are 50,000 beauty salons throughout the GCC remit, of which 5,000 are in the UAE.
Another plus point for the cosmetics market is the young demographic. According to UN reports, 50% of the population is under the age of 20 and 60% is younger than 25 and it is well known that this younger group are more prolific consumers of C&T products than older generations. Lastly, the hot and dry climate of the Middle East itself places higher demands on the skin, thus contributing to the increased usage of skin care and beauty products.
In terms of popularity, shower gels, natural soaps and male grooming products are said be the most consumed C&T products in the Middle East and ethical hair care ranges have gone through an upturn in the past year. Meanwhile, the colour cosmetics sector has shown a slight downturn.
Counterfeit concerns
Despite these promising signs, a worry affecting the Middle Eastern C&T market is the high demand for counterfeit products that is sweeping the region. With a large part of the population seeking out fake products in a bid to maintain the air of luxury at a lower price, black market sales of counterfeit goods have flourished.
Attempting to combat the problem, Sharjah Customs, a freight company who regularly imports and exports to the Emirates, joined forces with the Brand Owners Protection Group to sign a memorandum of understanding in a joint effort against counterfeit goods and illegal trade. Which means there are steps in place to try and stem the flow of counterfeit goods before they infiltrate the market further.
Despite this concern, predictions are more than encouraging for the future. “The Middle East, and the UAE in particular, will become a focus for the entire global cosmetics industry,” forecasts Zia Salik, director of the Halal Food & Cosmetics Consultancy. He continues: “I feel that the C&T market in the UAE will surpass that of Saudi Arabia as the focus of the industries in the two countries differs. Whereas the UAE trade is very customer satisfaction focused, Saudi Arabia is much less so, due to the beauty industry here being more subtle, often due to it being a far stricter country in religious terms which dictate how much make-up women are allowed to wear.”
United we stand
The UAE’s annual GDP per capita is one of the highest worldwide at US$49,700 in 2006. The capital of the Emirates, Abu Dhabi, has a GDP that alone touched nearly $100bn in 2006, rising by 21.7% at current prices over the previous year and the cosmetics and personal care industry has seen phenomenal development in the last five years. Euromonitor International estimated that the retail value for the cosmetics market in the UAE was worth $379.8m in 2002 and grew to $733.6m in 2007 with a staggering increase of 93.1% over the five years.
Andrew Werner, senior show manager for Beautyworld Middle East says: “Customers in the UAE have developed a keen interest in luxury products and the wellness area and this has been reflected in the money they have spent. The market will increase across all sectors, especially in Dubai which has embraced the trend with enthusiasm. Dubai is now a firm tourist favourite and already 80% of its population is made up by expatriates with a tax free high income.”
The rapid development of UAE can be fully epitomised by the expansion of The Dubai Airport Free Zone (DAFZA) which has become a talking point in its own right. Earlier this year, ten global cosmetic players decided to set up Middle East regional offices in Dubai airport since it attracts millions of visitors in transit every year and the resulting interest has been explosive.
Says Dr Mohammed Al Zarouni, director of DAFZA: “Cosmetics and fragrance companies are being lured by the tax free and 100% ownership incentives being offered by the Dubai Airport Free Zone and that is largely the reason for its success. The first quarter of this year has been a fruitful period with many European, American and Asian companies seeking to set up business operations to be closer to the huge and populated Asian, African and Gulf markets.”
But they are not stopping there. His colleague, Mohammed Ali Suwailem, sales director for DAFZA, said: “We are currently developing the new three-phase expansion plan to accommodate literally hundreds of new companies towards the end of this year. One of the main challenges we face is to acquire and then keep our staff but we follow the system of engaging our employees with our beauty clients, educating them and aligning them with the company’s strategic vision and direction.”
One of the companies that joined DAFZA earlier this year is Estée Lauder. The multinational opened a regional office in February and hasn’t looked back since.
Didier Picard, vice president and general manager of Estée Lauder FZE, says this was a well executed idea: “Besides offering an infrastructure which is simply second to none in Dubai, DAFZA was the ideal place to grow a team of professionals from all over the world. We have done this in order to promote our selective cosmetic brands across the Middle East and further afield.”
Picard adds: “In the last few years Dubai and the GCC in general has become visible at headquarter level. This is due to the impressive growth experienced in the region but also more importantly due to top world class standards achieved in terms of logistic infrastructure and, of course, in our industry retailing environment.”
Bruno Tissot, general manager of Elizabeth Arden Middle East views the DAFZA as a new opportunity that allows “thinking and moving out of the box and the identification of opportunities with no existing ties or constraints”. Tissot emphasises that DAFZA represents what the Middle East market is currently offering to international companies: “The GCC is not only a booming market but also a profitable region. Dubai definitely acts as a trendsetter and influences its neighbouring countries in consumption and distribution network infrastructure.”
The not forgotten kingdom
While recently surpassed by the UAE as the largest export market for US goods, Saudi Arabia remains the largest Middle Eastern economy and the biggest market for cosmetics. The C&T market experienced an increase of 46.2% growing from a value of $1338m in 2002 to an estimated $1956.8m in 2007, which is a far greater leap than the UAE, Bahrain, Oman and Qatar, according to Euromonitor’s estimates. With the birth rate growth in Saudi Arabia standing at 3% per year and the population doubling, these figures show no sign of abating. Famous for its high purchase power and spending habit, Saudi Arabia is highly brand oriented although consumers are certainly open to innovative new product launches.
Mahmoud Kharma, marketing manager for Natural Ltd, a Lebanese company that claims to be the leader of the organic cosmetic industry in the Middle East, says: “Right now customers are being more careful about the items they buy. When Saudi Arabian clients try a new product they are extremely loyal to it if they like it. Our company focuses a lot on the Saudi Arabian market. We have had a growth of around 42% in sales last year here thanks to the many new products we have launched. In the UAE we have had a growth of just 14% because of the high number of expatriates demanding international brands or brands which are seen as more international than Lebanese ones.”
The halal hierarchy
The Halal cosmetics market has grown in the Middle East by 12% annually over the last three years and is expected to rise by the same amount if not more in the coming years, according to industry experts.
A recent survey, conducted by Dubai’s Beautyworld Middle East event, predicts that approximately $150m worth of Halal merchandise is distributed through the UAE every year. C&T items account for a noticeable amount of this and the market size of Halal C&T products is currently estimated to be worth approximately $560m in the Middle East.
To be classified as Halal, cosmetics need to meet requirements such as being “free from alcohol and free from flesh”, as set out by the laws of Islam, the main religion of the Middle East. Salik adds: “Traditionally it wasn’t an issue but since Halal alternatives have become available, Muslim customers have started looking for Halal logos of approval which has kick-started companies into action by encouraging them to get Halal accreditation. It is certainly a burgeoning section of the market.
“The success of the Halal cosmetics industry is further highlighted with the multinational events usually taking place in the UAE such as The World Halal Expo which has proved extremely popular. Companies make every effort to ensure they do not overlook any potential customers in the UAE and possibly more so in Saudi Arabia because they haven’t properly taken into account their religious beliefs and the limitations this imposes. They must try and accommodate this or they will lose out.”
Organic offering
The UAE and Saudi Arabia in particular have many similarities but in Dubai, due to the high presence of expatriates, there is a much higher demand for organic products. Also people appear to be more environmentally aware in Dubai but they are catching up in Saudi Arabia. I think the boom in natural and organic products is due to a rise in sensitivities and allergies in some Middle Eastern women to western cosmetic products and they need to use products created specifically for their skin types:
" Increasingly in the Middle East I have been approached by women telling me about their skin reactions to some very well known western products. Often women mix and match a variety of products that may not be appropriate for their skin types or for the particularly hot Middle Eastern climate. The cocktail effect of using different synthetic products on the skin as well as the intensity of indigenous heat may well cause ingredients to behave differently than they would in the colder climates of the west. Organic products really came to people s attention here about three years ago and we have attempted to capitalise on that trend with our range of facial products, with the Pure Face Cleanser being a real hero product for us. We also have lots in the pipeline for the coming year. "