African Buyers Need Customised Cosmetics, Beauty Products

By on October 23, 2015
Smartown

R&D TO ADDRESS AFRICAN’ NEEDS OF QUALITY 2

Manufacturers have rapidly understood the need for product tailoring in order to best answer east African 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. African buyers, specially in the market for cosmetics in East Africa, need customised cosmetics and beauty products. African buyers of cosmetics needs specific solutions for specific needs.

To gather more insight on these specificities, L’Oréal inaugurated in 2003 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 African consumers’ day-to-day life and counselling and are seen as “trusted advisors”.

Different product strategies have been set up to address consumers’ needs: The simplest one is to adapt existing products. Certain traditional brands have decided to break into the African market with limited product modifications as Craig Luck, R&D director for skin products at Unilever explains: “We are developing libraries of options within our brands on a global scale and then selecting those options and tailoring them to [African] countries”.

Another option is to develop exclusive brands or products for African consumers. For instance, L’Oreal and Unilever have established product ranges suitable for African consumers, like ‘Dark and Lovely’ by L’Oreal subsidiary SoftSheen-Carson, and Unilever’s Motions range. This is particularly suited for hair care products where the African consumers specificities are well-distinct. Another strategy is to design specific formats and/or packaging to address price sensitivity.

By launching scaled-down versions and reduction of pack sizes, manufacturers expect to reach more consumers, given the level of income in Africa. As research from Diagonal Reports shows, the annual spending per capita on hair care in Nigeria could be less than €1, compared to an estimated €12 spent by ethnic consumers in the UK.

The East African Market for Cosmetics & Beauty Products

A series of examples by product category best illustrate the need to develop (or acquire) dedicated African ranges. In the hair care category, African consumers have long been asking for products adapted to their hair specificities, without paying a premium for expensive imports.

For instance, Avroy Shlain Cosmetics – launched in Johannesburg in 1973 and now owned by US-based Tupperware Brands – offers specific products appealing to different ethnicities.

To complete its Sunsilk Ethnique brand, Unilever developed the Motions range of shampoos and conditioners, dedicated to African hair, now a leader on the market. Motions was part of Alberto Culver strong hair care brand portfolio, acquired by Unilever in 2011. Unilever also introduced its Dove hair care range following its successful performance in a number of international markets. An interesting initiative was launched in 2011 named the “Motions Academy” in South Africa, which aims at training 5,000 hairdressers who want to open their own salons.

Along with this training, this initiative is a way for Unilever to test new products and reinforce its relationships with key local players.

In the skin care category, Unilever launched the first range of facial products that target anti-ageing specifically for ethnic skin with the Pond’s Age-Miracle range. The product formula targets both dark marks and wrinkles, typical signs of ethnic skin ageing.

Unilever also introduced the Dove Men & Care range in Africa in 2011 and a new range of men’s skin care products under its Vaseline Men brand, as the first skin care range specifically developed for black men to be launched in South Africa.

In the body care category, new deodorants have been introduced in the African market dedicated to black consumers notably Beiersdorf’s launch of Nivea Naturally Even. This product has been specifically designed for black consumers by reducing the appearance of dark marks. On the same track, Unilever introduced the Dove Men & Care deodorants range.

In the make-up category, manufacturers are developing more colors in their traditional make-up lines to incorporate darker shades, an imperative to address African consumers’ need for complementing their skin tones.

THE CHALLENGES TO SUCCEED IN BEAUTY AND PERSONAL CARE IN AFRICA
With such development perspectives and strong demand for beauty and personal care products adapted to African consumers’ specificities, major industry players need to tackle five key challenges to win the African market.

Insufficiently and inappropriately served for a long period in beauty and personal care products, East African consumers are eager to gain access to affordable tailored products without cutting corners on quality. Understanding consumers’ preferences and purchase drivers is a key success factor. Companies need to investigate the consumers’ sensitivity to quality and price to implement the right strategy. This is Unilever’s approach when proposing smaller formats (like small sachet of shampoo) to reach people with low incomes. In East Africa, Unilever sells Close Up toothpaste in small pack size, costing less than 10 US cents.

Diversity in African consumers’ preferences also needs to be rightly understood to define a relevant consumer value proposition. For instance, Kenyan consumers are attracted by technology, fashion and are brand loyal, whereas Ethiopian consumers are much more constrained by life’s circumstances. This knowledge is fundamental to unlock the African market’s full potential.

STAY FOCUSED TO MAXIMIZE VALUE
With 54 separate and distinct countries, 2,000 languages, multiple cultures and religions, diverse political stability, varied economic trends, heterogeneous infrastructures and distribution networks, Africa cannot be considered as a single market. For instance, even in one single country like Kenya, there are 150 different ethnic groups.

Therefore, beauty manufacturers need to target their investments and to be efficient in their development strategy. This is well illustrated by P&G’s decision to slow down expansion by focusing on the 10 most important emerging markets and not entering any new ones. Companies should define market entry and prioritisation criteria carefully to
best allocate resources

Amongst all prioritisation criteria, consumer access can be leveraged by focusing on the most dynamic urban centers: the largest 50 cities should account for 40% of total GDP growth until 2025. The 156 middleweight cities like Abidjan or Rabat are expected to represent 20% of GDP growth until 2025

Another key criterion is the geographical delimitation of trading zones. Indeed Africa has 8 major trade zones with eliminated tariffs and quotas. For instance, the Common Market for Eastern and Southern Africa gave P&G the opportunity to open a plant in Egypt to serve 19 countries along the East African coast.

The recently formed and ongoing expansion of the East African Community (EAC) is another advantage for traders as well as manufacturers wanting to set up cosmetic manufacturing plants and units to service the East African markets. The EAC represents a market of over 150 million people with a combined GDP of around $90 billion.

African Buyers of Beauty productsThe EAC Customs Union has assisted to level the playing field for the region’s producers by imposing uniform competition policy and law, customs procedures and external tariffs on goods imported from third countries, which has supported the region to advance its economic development and poverty reduction agenda.

Further to this, the Customs Union has promoted cross-border investment and served to attract investment into the region, as the enlarged market with minimal customs clearance formalities, it is more attractive to investors than the previously small individual national markets. In addition, the Customs Union offers a more predictable economic environment for both investors and traders across the region, as regionally administered Common External Tariff (CET) and trade policy tend to be more stable.

A steady stream of luxury brands has establishing a presence in East African markets over the past decade. Kenya, with its increasing retail space, high-end malls and relatively well-to-do consumers, has been the focal point. But now, with Ethiopia’s economy flexing its muscles as the fastest growing in East Africa, the world of cosmetics and beauty products is increasingly looking towards East Africa.

INCREASINGLY LEVERAGE DIGITAL TO BOOST ADVERTISING PERFORMANCE AND ROI

In Africa, traditional mass-media advertising channels like TV or radio are an important source to gather information , with respectively 90% and 87% penetration rates. However, in order to maximize advertising return on investment, marketing spending should be wisely targeted to effective communication channels that are highly visible to African consumers, even in rural areas. Mobile technology is rapidly increasing and reached an 86% average penetration rate across Africa whereas Internet is still lagging behind with a 25% only penetration rate.

Print advertising has less than 50%. Wireless Intelligence calculates that the total number of unique individual mobile subscriber in Africa was 356 million in Q4 2012, representing 33% of Africa’s population. This impressive growth of mobile technology is supported by the success of the pre-paid model, more affordable for consumers. In South Africa for instance, prepaid ranges from 70 to 86% and in most countries, this ratio reaches more than 95%. It is also supported by the introduction of more affordable handsets and double-SIM phones. This increasing penetration of mobile and Internet, likely to be fueled in the coming years, should be appropriately leveraged in companies’
marketing mix to maximize ROI, in complement with in-store advertising and promotions.

RECENT DEVELOPMENTS
Indian cosmetics giant Godrej Consumer Products (GCPL) has recently fully acquired the hair extensions business of the Darling Group in Ghana. GCPL had in February 2014 had completed the acquisition of 100 per cent stake in Darling Nigeria. With this acquisition, GCPL will own 100 per cent of the hair extensions businesses of both Nigeria and Ghana in West Africa. In June 2011, GCPL had acquired a 51 per cent stake in African hair care company Darling Group Holdings for an undisclosed amount. Darling Group Holdings operates in 14 countries across Africa selling hair extension products under brand names like ‘Darling’ and ‘Amigos’.

The market for cosmetics in East Africa

In 2013, L’Oréal acquired the Health & Beauty business of Inter-consumer Products Limited (ICP) in Kenya from its founding shareholder. With a turnover of approximately 15 million Euros in 2012, ICP is a significant player on the Kenyan beauty market, with strong positions in the hair and skin care markets. The products are manufactured in Nairobi and sold in East African countries. Also acquired are some of the popular brands including Nice & Lovely, Gold Touch, Bouncy, All-Tyme, Golden Shine, Queen Elizabeth, Clarion, Versman, VersEva, and Smooth & Lovely.

L’Oréal East Africa is based in Nairobi since 2011. The subsidiary is in charge of developing the Group’s business in Kenya, Uganda, Tanzania, Rwanda, Burundi, and Ethiopia. With SoftSheen Carson and Mizani brands, L’Oréal East Africa offers products which benefit from the technological innovation developed by the Group’s laboratories and Institute for Ethnic Hair and Skin Research based in Chicago. L’Oréal has been active in the region through its philanthropy programs in particular “Hairdressers against AIDS” and L’Oréal – UNESCO “For Women in Science” program including an award to a young Kenyan scientist in 2012. L’Oréal hosted the Pan-African dermatological congress in Nairobi at the end of 2012.

Procter & Gamble West Africa, decided to invest several-million dollars in a new factory in the Nigeria, to make it as the hub of West African operations. This plant is located on a zone of 40 hectares, allowing future expansion, and will include P&G’s latest technology.

Even if international beauty players are largely dominating the market, there are few local manufacturers successfully fighting for some market shares such as Soulmate Industries Ltd, locally ranked fourth in hair care category, or Cosmos Chemicals, very competitive in bar soap products.

The entry into Kenya of Nigeria’s House of Tara into the local cosmetics industry signalled increased competition for consumers’ wallets in the multi-billion shilling industry. The rapid growth of Kenya’s beauty industry is what attracted House of Tara to the Kenyan market. It is the company’s first entry into an East African country.

As House of Tara was coming to Kenya, local firm SuzieBeauty went in the opposite direction to Nigeria. Locally, SuzieBeauty opened two new outlets in Nairobi – at Valley Arcade and Thika Road Mall (TRM). It also opened a shop at Nakumatt and is planning further expansion.

MIDDLE EAST AND AFRICA
The 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 beautyThe Demand for Cosmetics in Africa manufacturers.

Among the eight key African markets set to prosper, according to market analysts, the ones in our study area include Ethiopia, Mozambique, Tanzania and Uganda. By industry standards, Kenya is already considered a developed market in
East Africa.

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.

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.

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.

The Market for Cosmetics in East Africa

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 African consumers at accessible price points. In addition, there is a social aspect in that it upholds African heritage through its marketing, further enhancing the brand’s appeal to the African consumer.

House of Tara’s share gain coincided with a fall in share of percentage points for Revlon, the leading player in colour cosmetics in the Nigerian market. 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 othermultinationals in the industry.

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