Middle East and Africa – Local Beauty Players Set to Claim a Share of the Pie

The fact that its forecast 4% CAGR will make the Middle East and Africa the third fastest-growing region in percentage terms between 2013 and 2018, accounting for nearly 10% of global growth over this period, is good news for beauty manufacturers. However, the question is whether it will be better news for local businesses or multinational players, as we are now seeing a growing tussle between the two camps? Despite the attractiveness of the market, it is not a straightforward situation for Western beauty players as there are a number of inherent challenges that need to be grappled with to make their ventures a success.

Challenges in balancing customisation with commercial viability for multinationals

The first challenge is in customising products to help consumers identify with the brands more closely. The question, however, is what should be the extent of the customisation? Some brand owners have looked to address specific regional consumer needs without investing much in new product developments. Henkel has launched a range under its Gliss shampoo for Middle Eastern women who cover their hair under a veil, making their hair prone to friction, which, in turn, increases the frequency of damage. The shampoo is not markedly different from shampoos designed for damaged hair in other markets, but the marketing claim is more nuanced to suit a particular practice in the Middle East. Similarly, Estée Lauder entered the African colour cosmetics market with Mac, which is known to have deeper penetration among ethnic women due to the brand’s wide range of pigmentation, which blends well with ethnic skin tone.

However, the fact is that consumer needs can be more specific and nuanced, for which Western manufacturers may not have ready-made solutions in their portfolio. Hair pomade is a common hair conditioning format unique to Africa. To penetrate the hair care market, it is necessary for multinational players to develop a presence in hair pomade – but is it commercially feasible to do so as it is mostly present in only one region and volume sales would be lower compared to products with a more widespread global reach? The issue of scale is further impeded by limitations in the distribution infrastructure when looking to penetrate the more remote parts of the market. Moreover, affordability is lower, indicating that margins will also be lower. The combination of low volumes and low margins risks minimising the return on investments for such in-depth customised solutions.

Local players capitalise on the challenges faced by multinational players

Local players are capitalising on the challenges faced by Western players. Given their narrow market focus, they are in a position to offer more customised solutions. Furthermore, they benefit from more relaxed regulations in terms of taxation, which means they are in a position to make their offerings at more accessible price points. Their understanding of the geographic terrain gives them a competitive edge to help penetrate into deeper parts of the market. They are increasingly gaining ground in terms of product sophistication, positioning high-quality products at accessible price points, translating into good value for money for consumers. An interesting example is House of Tara in Nigeria, which grew its market share in colour cosmetics from 6.0% to 6.4% between 2012 and 2013. Brands from House of Tara are positioned as high-quality products specifically tailored for Nigerian consumers at accessible price points. In addition, there is a social aspect in that it upholds Nigerian heritage through its marketing, further enhancing the brand’s appeal to the proud Nigerian consumer. House of Tara’s share gain coincided with a fall in share of 0.1 percentage points for Revlon, the leading player in colour cosmetics in Nigeria. Similarly, Coty, another multinational player, lost 0.2 percentage points. Even more interesting is the fact that Chanel lost 0.2 percentage points during the same period, even though Chanel operates in the premium segment, as opposed to House of Tara, which is in the mass segment.

But local players also face market limitations

While local players can offer inspiring success stories, they are also still faced with challenges. Limited access to resources means that they are unable to broaden their array of offerings as much as multinational players. Success is determined by how closely brands can customise, in which local players have an advantage, but it also entails widening the range of product offerings in terms of solutions and availability across the pricing spectrum. Unilever is a good example in terms of how it has been successful in penetrating deeper into parts of emerging markets through a broad array of product offerings, an intricate network of distribution channels as well as comprehensive coverage across the pricing spectrum. L’Oréal is aiming to do the same, with the company’s intentions made clear through its recent acquisition in Kenya.

At a juncture of market opportunities – which direction to follow?

It is true new multinationals will take time to establish their presence, but access to a large resource base strongly works in their favour. It is doubtful, however, that they would be willing to offer closely customised products given the costs involved. Through its acquisition of ICP in Kenya, L’Oréal is making inroads in developing more in-depth solutions, but, to date, this is the exception rather than the rule and the effectiveness of the move is yet to be tested and proved. For the time being, multinational and local players could be expected to operate in a kind of juxtaposition, albeit an uncomfortable one, with local players offering more customised solutions, and multinationals generally focusing on more standard products. Going forward, however, there is no reason to believe that local players will be unable to match the scale of multinationals through broadening their product offerings and developing a wider presence across the pricing spectrum, while retaining their ability to customise. Multinationals are safe for the time being, but the future will present a steep challenge in terms of how they can balance in-depth customisation with commercial viability. L’Oréal’s success with the acquisition of ICP in Kenya is something to watch out for because this could determine the future course of action for other multinationals in the industry.