Cosmetics Market Grows In East Africa
L’Oréal was quick to recognise the need for Afrocentric hair care and body care products specifically dedicated to meet the specific needs of the African consumers. After a detailed study and in-depth market research L’Oréal launched the famous SoftSheen-Carson brand, the first worldwide brand targeted towards African consumers
Africa’s wealthy class is growing. In 2012 the region’s segment of high-net-worth individuals (HNWI) grew by 9.9%, the second-highest growth rate in the world after North America. The number of dollar millionaires in the Kenyan capital, Nairobi, is expected to spike 62% to over 8,000 dollar millionaires. Kenya’s Social Class A is projected to grow 28% till 2020, one of the highest forecasts in the world; in China, for example, the Social Class A is only set to grow 4% to 2020.
The population size of Africa is estimated by the United Nations (UN) Population Division at 1.15 billion in 2014, where Sub Saharan Africa (SSA) accounts for 81% of Africa’s total population – notable population sizes include Ethiopia, Egypt, Nigeria and the Democratic Republic of the Congo (DRC).
Populations are set to increase by as much as 70% in Uganda and 65% in Tanzania – thereby making these countries a target for major international cosmetics companies and other FMCG multinationals.
However, it is important to consider that population size alone and growth do not have an unambiguous effect on market attractiveness. While on the one hand, a higher population size boosts the number of consumers that a retailer has access to in a country, a lower population implies greater wealth per capita; a crucial factor for luxury good consumption.
Yes, Africa’s middle-class has tripled in size in the last 30 years and is driving the continent’s demand for cosmetics. As a result, cosmetics companies are racing for market share. While multinational brands dominate the market in Kenya and Uganda and lack of capacity for local manufacturing remains an issue, local entrepreneurs are outsourcing manufacturing and are using unique sales strategies. The push towards East African markets is also an indirect consequence of South Africa, the continent’s most mature market, seeing local economic difficulties dampen demand for premium products.
The expected boom in the East African markets is drawing in the big boys of the industry like Unilever, Procter & Gamble, Colgate, Palmolive and L’Oreal. Some of these companies have been in East Africa market for a long time, but not at the scale they now want to be.
Major Indian Groups like Marico and Godrej, are also coming into the picture. Banking heavily on buyouts, Godrej Consumer Products (GCP) has made key acquisitions in Africa. Recently, they acquired a 51% take in Darling Group operations in Kenya, a market leader in Africa in the hair extension products. The $450 million Emami Group of Companies is looking to acquire a skin care business in sub-Saharan Africa and is planning to expand aggressively into sub-Saharan Africa. Emami’s Navratna Herbal brand is already popular in the East African markets as is Dabur Amla Hair Oil manufactured by Indian firm Dabur Indian Ltd.
The launch of Revlon products in Kenya through a recent franchise deal with Nakumatt Supermarket chain is just another example of multinational companies rushing in to meet local demands of the East African consumers for quality cosmetics.
Manufacturers have rapidly understood the need for product tailoring in order to best answer consumers’ expectations. As a pre-requisite to effectively deliver the right products to African consumers, manufacturers needed to better understand African skin and hair specificities. To gather more insight on these specificities, L’Oréal initiated the “L’Oréal Institute for Ethnic Hair and Skin Research” in Chicago and also established an evaluation center in South Africa dedicated to consumer insight and development studies.
In November 2012, L’Oréal also organized the 4th edition of the “African Hair and Skin” workshop in Kenya in association with the Kenya Association of Dermatologists in order to boost understanding on ideal care for African hair and skin.
This demonstrates strong commitment to develop knowledge on hair and skin of African consumers. Same trend at Unilever where investments are made to learn more about black skin pigmentation and hair biology to complement their research.
Unilever and L’Oréal are also investing in building close ties with local dermatologists and hairdressers who play a critical role in East African consumers’ day-to-day life and counseling and are seen as “trusted advisors”.
Another strategy employed by cosmetics companies operating in East Africa is to design smaller packaging sizes to address price sensitivity in the local markets. “By launching scaled-down versions and reduction of pack sizes, manufacturers are able reach more consumers, given the level of income in Africa,” says Chudi O. Uwandu, Director of Planning, Research and Documentation, Federal Ministry, Government of Kenya.
Unwittingly, many East African consumers have for many years used products that were merely a copy and not the original ones. East African consumers have been through this cycle of fake products and are now more aware of the perils of using counterfeit cosmetic brands.
It is estimated that almost 30% of cosmoceuticals in East Africa is counterfeit or has substandard active ingredients. Consumers, therefore, have no choice but to buy expensive products so as to get a higher quality product. However, this is the result of a few inefficient free-standing stores dominate the market. It is also known that in Kenya, only 2,800 pharmacists are working in the cosmetic industry which a number a far below of that which is required for the efficient production of quality products and that number happens to be around 8,000. On top of this, these 2,800 workers have little or no on-the-job training that is demanded for a smooth production process.
This has led to a new trend of sourcing in the East African markets. In recent years, many East African consumers travel abroad just to procure genuine beauty products and cosmetics. Dubai has emerged as a popular sourcing point for many consumers in East Africa because of its geographical proximity to the region and the excellent air connectivity offered by many airlines. Trade fairs like Beautyworld Middle East has been attracting a growing number of East African buyers and visitors. There was an increase of 12% in the number of African visitors to Beautyworld Middle East exhibition in Dubai in 2015.
Dubai offers the East African consumers and importers an ideal market place. The availability of vast range of products at competitive prices attracts East African buyers to Dubai’s booming cosmetics market. Buyers from East Africa can select from a vast range of merchandise and buy just the quantities they require and then transport the goods back to their home countries at very competitive freight costs.
Secondly, there is also the question of sourcing products from different countries and even continents. For instance, an East African importer may be interested in facial products from Europe, toiletries from the Far East and herbal cosmetics from the USA. But this would place immense logistics constraints and would involve travelling around the world and opening of Letters of Credit (LCs) with a host of banks. Often, all these obstacles would prove insurmountable and many exporters would be put off by the sheer magnitude and complications of the whole exercise.