A growing affluent class and aspirational youth market are shaping a future cosmetics demand in North Africa, but the markets are still very much two-tier. Paul Cochrane reports
The market for cosmetics and toiletries in North Africa has been growing annually by a steady 5-6% over the last five years, according to industry sources and official data. Overall market value for the five countries – Egypt, Libya, Tunisia, Algeria and Morocco – combined is more difficult to come by due to a dearth of data, but reasonable estimates put it slightly above US$1bn, less than half the value of the Middle East and Gulf markets.
The North African market is characterised by a two-tier division along socio-economic lines with the larger market, of between 85-95% of total retail value, being cheaper products targeted at the predominantly poor majority of the region. The remainder of the market is premium brands directed at more affluent consumers, which make up a small percentage of the region's populace but have increasingly large disposable incomes that international brands are hoping to tap.
Across the region global brands dominate the market, with multinationals Unilever, Procter & Gamble, Beiersdorf, L'Oréal and Henkel taking the lion's share while regional or local producers vie for market share in the mass market.
A senior marketing manager for MISR Cosmetics, a market leader in the colour cosmetics sector in Egypt, said his company is targeting "the B+ market, consumers with incomes of up to 2,000 Egyptian Pounds" (US$350) a month.
According to Chris Key, ceo of Unilever Mashreq: "In these types of markets we will see very strong growth in deodorants and personal care liquids but also in shampoo and toothpaste, but often on a very small base. The detergents business is large compared to the personal care market so it is absolute growth that is important."
According to Euromonitor International, the total Algerian market based on numbers from 2006 is worth an estimated US$272m and the Tunisian market an estimated US$140m. The hair care sector is the most substantial throughout the region followed by soaps and shower products, colour cosmetics and fragrance. Hair care products sold in Egypt generate some US$120m annually and the bath and shower products market is worth US$80m. In Morocco the same markets are worth an estimated US$63m and US$41m respectively. In the bath and shower product category bar soap makes up about 90% of market value in Egypt and only slightly less in Morocco and Tunisia.
COLOUR & CULTURE
The value of the colour cosmetics market appears to be substantially larger in Morocco than in the other North African countries. Khalid Azbane, marketing director of Azbane Laboratories, a local producer of beauty products with annual revenues of US$20m, attributes this to overseas remittances.
"Moroccan consumers are very demanding. They might earn US$350 [a month] but with the help of family remittances from abroad they might have some US$600 disposable income, and when they want a product, they buy it," says Azbane. In order of importance, Azbane counts lipsticks and lip products, facial make-up and, with lesser importance, nail products and eye make-up. Euromonitor suggests that the increasing participation of women in the labour market has also contributed substantially to these dynamics.
In Egypt, eye make-up dominates the colour cosmetics market and will continue to do so as it is traditionally considered more appropriate (particularly the soot admixture kohl) for veiled women than other forms of make-up. Throughout the region depilatories are not in demand as halawa, a mix of sugar and lemon, is used for hair removal. So culturally rooted is this traditional hair removal mixture that a popular Lebanese movie that came out last year, Caramel, championed the technique. But despite the continued strength of these traditional products, better distribution networks have brought new cosmetic products to nearly all parts of the North African markets, while the roll-out of malls and supermarket chains has provided outlets for more premium products.
LOCAL PRODUCTION
Egypt is the region's manufacturing hub, producing toothpastes, shampoos and soaps for multinationals to distribute throughout the Arab world. In other North African countries manufacturing is minimal, with Tunisia producing shampoos and detergents while Algeria, Libya and Morocco only produce for local demand.
Multinational Procter & Gamble recently inaugurated a US$50m extension to its manufacturing facilities in Egypt, and newspaper reports in the country have suggested it will invest a further US$80-100m to expand its operations. At the root of this optimism are growth expectations spurred on by an area-wide trend for trade and economic liberalisation, reduced tariffs and trade agreements. Greater cooperation among North African countries following Libya's rapprochement with the west in 2004 is also likely to be a boon for manufacturers to better distribute products as well as market regionally as countries like Libya open up further.
These same trends, however, are less advantageous for the local producers who do not profit from the same economies of scale and face more price competition. Asian imports at dumping prices have led to what MISR's marketing executive, Dr Jamal called "a very tough and very aggressive price war".
Lacking the advertising budgets and brand recognition of the international players, Jamal said the dumping was: "Trying to kill our industry. And we've found that our consumers showed no brand loyalty."
COUNTERFEIT CONTROL
The problem is compounded by a considerable influx of low price fakes and counterfeits. According to Richard Heath, Unilever's global anti-counterfeiting counsel, fakes enter the markets from China via Dubai where counterfeits are then exported throughout the Middle East and North Africa (MENA) region, or from sub-Saharan Africa. Only a minority of fakes are manufactured locally. Heath says: "There will be copies where there are large margins. All industries are concerned but in the cosmetics sector perfumes are of particular concern, followed by hair care, skin care and oral care."
In 2006 in Egypt, German cosmetics giant Beiersdorf had to pull its whole line of sun creams following e-mail complaints from customers that got badly sunburned in the tourist destination of Sharm El Sheikh after using counterfeit lotions. The company is now using holo-spots, where holograms are stuck on products, to inform customers of product origin, at the cost of half a Euro each. Nonetheless, problems remain.
"Digital copying processes make it impossible to distinguish real from fake," says Heath. "If it looks too good to be true [price wise], it probably is."
Unlike in the Gulf where a Brand Owners Protection Group has been established in Dubai by multinationals to tackle the Middle East's growing part of the US$500bn global counterfeit trade, Heath says: "Efforts have not taken on the momentum. But I am pleased to say that the countries have been cooperative and we are moving in the right direction."
DEMOGRAPHICS DRIVE GROWTH
Looking ahead, the prospects of the economies of North Africa vary greatly, along with population, with Egypt's 70 million the size of the other four countries combined. According to Unilever's Chris Key: "Algeria and Libya have oil and gas wealth so one would expect them to grow faster, but in general the atmosphere for business is very healthy in Morocco and Tunisia, so in actuality we are seeing good growth in all countries. Markets are growing at different rates depending on the amount of usage. As GDP increases and generally with health being higher on the agenda for families, we will see more growth."
Growth is driven by the demographics of the region, with close to half of the population below 30 years old, and the changing habits of this younger generation moving towards more western consumer lifestyles in which advertising plays a large role likely to be a key future driver of demand.
"TV advertising still dominates but the industry also does a lot of work on promotion and visibility in store or market," says Key. Catering to local particularities, P&G advertises Covered Hair Care Solutions through the "renowned singer Yara, the new Head & Shoulders ambassador in the Middle East" and the "Pantene Miss Egypt" event. In Tunisia Unilever sponsors beauty and fashion events while Henkel gains visibility through sporting events.
Problems remain however as growing GDP is not accompanied by an equal increase in purchasing power or disposable income across the population. In Egypt, for example, it is hardly surprising that price consideration rather than brand loyalty governs consumer behaviour, with the price of a bottle of premium perfume equivalent to the monthly salary of an Egyptian government employee at around US$56. As a result fake fragrances that cost as little as US$2-3 a bottle have more market viability.
Apart from the basic bar soap, large percentages of the population tend to save on consumer items for more important investments, such as food and schooling. This has been reflected in the recent spate of strikes at factories and industries across Egypt by disgruntled workers whose salaries often don't last them through the month. Rising food prices along with unfavourable exchange rates and political instability will put additional pressure on markets and profit rates across the region.
For the foreseeable future the market is likely to remain divided between the bulk market for low income earners and a premium market for the more affluent. Changes in the retail environment however will mean that demand for premium C&T products is likely to rise. Equally, sales of cosmetics for men are forecast to increase as companies target young men through marketing campaigns, in line with global trends.