GCC: Looking Good

The region’s intense predilection for fragrances and cosmetics ensures a healthy outlook for the coming years.

After a buoyant performance in the fragrance and cosmetic industry last year, experts are anticipating a promising 2011.

In the GCC alone, total sales are expected to exceed $1.6 billion by year-end, $500 million in colour cosmetics and $1.13 billion in fragrance sales.

According to Euromonitor International, by year-end 2014 the sector could increase by 15.1 per cent to reach annual sales of $1.88 billion – $578.5 million in cosmetics and $1.3 billion in fragrances respectively.

Growth prospects

Saudi Arabia’s F&C sector is set to report the biggest increase in sales this year, with total sales reaching $1.1 billion, of which cosmetic sales will account for $292.3 million this year.

Fragrances, meanwhile, are forecast to jump from $821 million in annual sales this year to $939.2 million by the end of 2014.

The UAE, too, will report strong sales figures, with the fragrance sector reaching $213 million this year and $248.2 million in 2014. Oman and Kuwait will see total market sales reach $79.6 million and $55.5 million respectively in 2011, increasing to $91.1 million and
$63.4 million annually by the end of 2014.

Total sales in Bahrain and Qatar are expected to reach $23.9 million and 23.3 million this year, and $29.9 million
$25.9 million by 2014.

Products expected to experience most movement in 2011 are eyes and nails “as younger women start challenging make-up brands with more interesting and trendy looks,” says Peter Widmann, marketing manager, colour cosmetics at Max Factor, Procter & Gamble.

“Most of the countries in the Arab world show strong promise for 2011, especially in the GCC, but also in North Africa, despite recent events. The most promising product areas will be those that introduce strong innovation.”

With growth, however, comes challenges. Competition across colour cosmetics is expected to intensify due to the expanding retail landscape and strong economic recovery. For mass brands such as Max Factor, Widmann says challenges include “sustaining category value in the face of increasing competition, a changing retail environment moving from traditional trade to big retailers, and shifting consumer habits as a younger population of more informed and engaged consumers enters the category.”

Retail landscape

The colour cosmetics segment continues to be dominated by international brands and manufacturers. However, in the UAE domestic players have proved themselves highly capable of grabbing a portion of sales, with Kamal Osman Jamjoom – owner of the Mikyajy brand – increasing its value share from three per cent in 2005 to more than five per cent by the end of 2009.

Similarly, Saudi Arabia, albeit a little slower, has experienced a rapid expansion in terms of the number of outlets and product variety offered by retailers active in private label offerings – such as Mikyajy, Faces, Paris Gallery and Gazzaz.

Domestic manufacturers are notably present in fragrances as a result of increased demand for Arabian perfumes. This heightened interest in Middle Eastern-inspired fragrances has presented domestic players with a greater opportunity on their home turf, and in overseas markets.

In May 2010, Omani House of Amouage opened its first stand-alone store in the UAE, followed by the opening of its first branch in Europe in July. While the firm already sells its products within high-end
retailers across Europe, the US and Russia, the opening of the London store marked the first step in Amouage’s plans to go global.

David Crickmore, CEO, Amouage, says both openings are a key step in the firm’s “expansion strategy to open mono brand stores in key opinion-forming cities throughout the Gulf, Europe and the US.”

He adds: “What sets us apart is longevity. We have always remained true to our roots with an aim to be timeless, not trendy. We never compromise on quality or creative integrity.”

Saudi-based Arabian Oud, which already has a strong international presence, accounts for more than 30 per cent of fragrance sales in Saudi Arabia, boasting a 35 per cent market share at the end of 2009.

In the UAE, major domestic manufacturers Ajmal, Rasasi and Designer Shaik, together accounted for 21 per cent of total fragrance value sales in 2009, with Ajmal holding a retail share of nine per cent, the second largest in fragrances after L’Oreal Middle East FZE. And like its international counterparts, Ajmal remains one of the most prolific fragrance houses, regularly promoting limited-edition line extensions.

Market trends

Impetus is building behind the latest marketing concept, Arabian oud. While the fragrance sector typically welcomes thousands of new launches every year, it seems more manufacturers are incorporating Middle Eastern scents into their products, such as amber and oud.

Christian Dior, Guerlain, Tom Ford and L’Artisan have all followed this fragrance direction by adding oud to their prestige list of ingredients.

Most recently, Georgio Armani launched a Prive Oud Collection and Jo Malone unveiled its Oud and Bergamot scent, part of its Intense Cologne Collection.

Local and faith-based tourism will also favour the ‘oud movement’ as many visitors prefer to purchase gift perfumes due to the huge variety in terms of both fragrance and price.

Changes are also taking place in the halal cosmetic industry.

Latest figures show halal beauty products account for $500 million of the $2 trillion global halal market. And while western brands are seeking to prove their commitment to the Muslim consumer, the market is facing tougher scrutiny to meet buyers’ expectations.

“Being pork- and alcohol-free is no longer satisfactory for the discerning consumer,” says Dr Mah Hussain-Gambles, founder of Saaf Pure Skincare, A UK-based halal cosmetics brand.

“Like the west, there is a green movement going on in the halal industry where consumers are starting to look beyond ‘halal-washing’ and at the quality of ingredients used in so-called halal products. They also want ingredients which do not harm the body in their halal consumables. Natural or organic is the next development in halal.”

Premium vs mass

While a shift from premium to masstige is expected, markets such as Saudi Arabia are likely to experience greater sales in prestige fragrance brands. According to Euromonitor, premium fragrance sales are forecast to reach $714 million this year and increase to $818.7 million by 2014.

Sales in mass brands are expected to reach $107 million this year and $120.3 million in 2014. And while most
TV-advertised brands in Saudi Arabia have included mainly mass offerings over the years, thus supporting a shift to mass products, the impact on luxury brands was marginal.

This indicates that a large proportion of wealthy Saudi females are still willing to spend lavishly on having premium brands – either for prestige or brand loyalty. The cosmetics industry in the kingdom differs slightly. Figures up to 2009 show that the gap between premium cosmetics and mass products is closing, with the market split 55 per and 45 per cent respectively, compared to a 62.5 per cent and 37.5 per cent split in 2004.

“Mass remains the larger share in the sector for skincare and cosmetics, but it’s not clear whether this is a new shift for consumers or remnants from the downturn,” says Stefan Herzog, VP and GM of Estée Lauder Companies in the Middle East and India. But for this year, he adds: “As everywhere else in the world, the consumer is expecting the best products at the best price, delivered with the best service. We and our retail partners need to assure that we can match this expectation.”

For Sana Toukan, senior research analyst, Euromonitor, demand for mass products will remain very high in 2011, while premium offerings remain profound in the market “as people across the region, especially in Saudi Arabia and the UAE, continue to enjoy a high disposable income.”

© Gulf Marketing Review 2011