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Despite the 113 degree heat late one night in February, there were few complaints from the crowd grooving in a Nigerian hotel as DJ Sose spun his rhythms and the local Beyoncé, known as Tiwa Savage, warmed up her vibe. All was OK—MAC Cosmetics had landed in Lagos.
This story first appeared in the May 10, 2013 issue of WWD. Subscribe Today.
That verdict was emblazoned by the women flashing their badges of chicness, Ruby Woo red lipstick in full pout.
That best-selling bluish-red shade is the color of the new Africa, one of the most promising emerging markets on the world scene as major global beauty players pinpoint regions for future growth, once the BRIC countries have been tapped.
“Where are you going to get your growth in 20 years?” asks Karen Buglisi, global brand president of MAC, which has opened three stores in the region (Nigeria, Botswana and Zambia) and expects to swell that total to 10 to 15 within five years. “You have to have a plan. Every market has its time. Africa is going to be a longer build for us, but I think we’ve shown we’re in it for the long run. We just have to do it in a very strategic way.”
MAC primed the pump and created pent-up consumer demand before even opening its doors in Lagos by creating a store in the Paris neighborhood dubbed “the French Harlem,” Strasbourg-Saint Denis. Buglisi notes that 95 percent of the customers who walk into that store are African and says it doubled as a laboratory to test the viability of the brand’s shade range. Even though MAC positions itself as appealing to all races, adjustments were called for. “We needed to expand our shade lineup, especially in foundations,” Buglisi says. “It’s a different tonality.” As a result, The Studio Fix line of foundations was expanded with a half-dozen darker shades.
MAC executives also learned to pick up on the nuances of consumer preferences between the three sub-Saharan countries. The Nigerians—driven by imagery from the country’s Nollywood entertainment center—are perhaps the most aspirational. “They want trend, they want fashion, they want luxury. They were traveling outside their country when they couldn’t get it,” Buglisi says. “The start- ing awareness going into Nigeria was very high.”
Botswana and Zambia are more buttoned up. “Botswana is the closest one to South Africa; they really are influenced by what is happening in Europe, in the U.S. and in South Africa,” Buglisi says. “It’s a more conservative beauty look that the women prefer there. In Botswana, of our top 10 products, five are related to foundations and concealers. These are all noncolor items until you get to the last one, which is Amber Lights Eye Shadow. Nine of the top 10 products in Botswana are more dedicated to neutral. When you go into Zambia, it’s the same thing, where you have primarily foundations. You have one rose blush. Then you go into Nigeria and you have four lipsticks. The number-one selling product in Nigeria is Ruby Woo,” she adds, referring to the $24 lipstick.
Cedric Prouvé, group president, international, of the Estée Lauder Cos. Inc., views the company’s foray into Africa as “seeding the market,” or getting the corporate feet wet by converting mass-market consumers into prestige beauty buyers, not only through the new MAC stores but pioneering sprouts of business by Clinique, the Lauder brand and Tom Ford, in concert with its South African retail partners—Edgars and Foschini. MAC’s free-standing Nigerian stores were opened with Essenza Co.
“There is a middle class that is evolving right now,” says Prouvé, adding that there also is a core of Nigerian jet-setters, who shop in Paris and London. “Of the international Africans who travel, the top two or three customers are from Nigeria,” he observes. As for the rest of the population, there’s movement there, too. “It’s changed a lot in the last two or three years,” he adds. “We see an emergence of a younger population that are moving into cities, urban centers, and have more income. They want to find the brand and they want to find the products.”
While it’s difficult to affix hard values, the market is still in its molten stage. “It’s going to evolve pretty fast,” Prouvé speculates, “and it’s going to be very interesting—almost as interesting as the Middle East.” He adds that he simply was comparing rough sizes, and not comparing Africa now with the Middle East, which is a bastion of luxury.
Prouvé observes that usually in underdeveloped mar- kets, “fragrance is the biggest category by far.” With MAC, Lauder has a wide-open door “because makeup is an easy category to graduate from mass to prestige.” He later adds, “The game here is not to go for a market share among what exists, it’s really to create a prestige segment in the market.
“The skin-care category is underdeveloped in prestige, it’s completely into mass in a less-sophisticated level of usage,” he says. “The hard work needs to be done [in skin care], but we know Clinique is the right brand for this because it has all the basic products and takes the consumers through all the motions.”
Despite the high price points, the Tom Ford fragrance business ranks second in Lauder’s Africa stable, behind MAC.
“[The market] has great potential long term,” agrees Geoff Skingsley, executive vice president, Africa and Middle East Zone, at L’Oréal. “It’s going to be a slow game. I don’t think it’s going to be an overnight success. The majority of these markets are economically stable and have a lot of natural wealth and they also have a stronger middle class than they had a generation ago. The whole continent is interesting. Right now, it’s very uneven. But if you pick the right spots, they have a lot of potential.”
L’Oréal recently took a stand by acquiring the health and beauty business of Interconsumer Products Limited, a Kenya-based company with sales of ap- proximately 15 million euros, or $19.5 million at current exchange. The company manufactures skin and hair-care products in Nairobi and markets the products in East Africa. “ICP’s acquisition is an important milestone for L’Oréal in Kenya,” Skingsley said when the deal was announced. “It broadens our product offer with accessible brands, and strengthens the group’s position in the mass market. This acquisition will also accelerate our development in Eastern Africa.” Skingsley says the goal is to expand distribution of the newly acquired brands into five or six East African countries, including Ethiopia and Burundi.
The purchase of ICP adds to L’Oréal’s leadership position with Softsheen Carson, which operates an Institute for Ethnic Hair and Skin Research in Chicago and distributes its products in 25 countries.
Skingsley divides the continent into three hot spots. South Africa remains key by virtue of its size. Then there’s West Africa, specifically oil-rich Nigeria. It is huge, with a population of more than 170 million. “There are more babies born in Nigeria than in the whole of Europe,” he notes. The other locus of interest is Kenya, which is not that large, he points out. “But when you put together Kenya, Tunisia and Uganda, the East African states are kind of an economic block— you’re talking about 100 million consumers. So that becomes significant. What you have in East Africa is a lot more stability and well-founded economic growth than maybe what we had a decade ago.”
“For us, this market is large,” says Deb Henretta, Procter & Gamble Co.’s group president of global beauty care. “We see it as a very important future market and we see it as having huge growth potential.” P&G estimates that the beauty-care category is about a $4 billion business and growing rapidly. “We figure that the beauty business is growing at about 8 to 10 percent there,” Henretta notes. That jibes with Skingsley’s estimate of 7 or 8 percent.
Henretta continues, “Our journey in sub-Saharan Africa has just started. What we see in this market are some unique and specific consumer needs.”
Henretta says P&G is exploring and learning how these new consumers compare and differ with others in the rest of the world. The company is currently doing business in South Africa with Old Spice, Safeguard antibacterial soap and “some” Olay stockkeeping units. In sub-Saharan Africa it is represented by Safeguard, which was launched in 2011 in Nigeria, Ghana, Senegal, Kenya, Uganda and Tanzania. Rather than simply present a product—even though it is the second-largest bar soap market in the world behind India—P&G has launched a mission of promoting hand washing as a way of protecting the health of children. Henretta points out that one million children die every year in sub-Saharan countries from pneumonia and diarrhea and hand washing can cut the risk of contracting those diseases by 50 percent. To help put across its marketing message, P&G has recruited David Rudisha, 2012 Olympic gold medalist from Kenya and current world-record holder in the 800 metres, as a hand-washing ambassador.
As for market dynamics, P&G has been attracted to sub-Saharan Africa because “it’s large and growing fast.” It also is youthful with a large Gen Y population. Referring to the sub-Saharan region, Latin America, the Middle East and Southeast Asia, Henretta says, “These regions are going to consist of the world’s biggest working-age population. These younger generations also are more rapidly urbanizing.”
According to P&G, nine sub-Saharan countries are among the 20 fastest-growing in the world this year. Over the next six years, the gross domestic product of sub-Saharan Africa will grow faster than that of Brazil and Russia. The population is due to double to two billion by 2050.
Lauder choreographed its entry into Africa by aiming at well-defined population areas as a way of coping with the continent’s vast complexity. “It is a very fragmented continent with different ethnicities, languages and currencies,” Prouvé observes. “We’re not looking at it country by country; we’re looking at the urbanization aspect of it. There’s a great move of the population to the urban environment, so we think that there will be 65 to 70 cities that will have over a million inhabitants in Africa. We’re looking at it across borders.” He adds that Lauder entered sub-Saharan Africa by reaching out from the company’s base in South Africa. Lauder previously had used a similar logistics strategy in entering India via its established infrastructure in Dubai. “We like this idea of having a platform from which we expand.”
Prouvé continues, “We see that something is happening. There is a lot of money; the Chinese have invested tremendously, they’re buying a lot of commodities in Africa. We’re already mapping an organization that can accelerate out of South Africa.” He says that the North African Coast, the Maghreb—Tunisia, Algeria and Morocco—is handled right now by the French operation because those countries are former French colonies. Together, they comprise 91 million people, while the sub-Saharan countries constitute about 900 million more.
These seemingly bureaucratic questions of logistics can have large implications down the road when the population explodes and the opportunities multiply. Increasing urbanization, improved political stability and rising disposable incomes have resulted in unprecedented economic growth in sub-Saharan Africa, marking the region as an attractive prospect for brands and retailers searching for new markets.
As tempting as it is to consider the region as one entire, homogenous market, subSaharan Africa is in fact comprised of 49 countries, each one with diverse populations and diverse priorities with regard to beauty, depending on their income levels and specific skin and hair requirements. South Africa remains the region’s economic powerhouse, with a sophisticated beauty retail industry. Many brands, running the gamut from mass to prestige to ultra niche, are well established in the country, which often serves as a launching pad for further expansion into Africa. According to a Euromonitor International report, despite the country’s economic woes, which can be attributed to a weak rand,labor issues and the effects of the global recession, the beauty and personal-care industry continued to show healthy growth in volume terms, valued at $3.8 billion in 2012, and forecasted to hit $4.2 billion in 2013.
The same report said that while local companies made steady gains in a number of categories, multinationals dominated the South African beauty market in 2012. It cites Unilever as the market leader, with L’Oréal, Colgate-Palmolive, P&G and Revlon rounding out the major players.
In recent years, however, markets such as Nigeria, Ghana, Botswana and Kenya have shown impressive growth in the beauty sector, particularly in skin care and hair care.
Sue Fox, managing director of the Estée Lauder group of companies in South Africa, who also oversees the rest of the region, says, “In our opinion, the markets with the most potential are Nigeria, Ghana, Kenya, Angola and the Ivory Coast; however, there are also positive outlooks in Mozambique, Zimbabwe and Ethiopia.”
In Nigeria, MAC now has 20 makeup artists plus a senior trainer; the brand is seeking a senior artist, a national training manager and a national sales manager to cover sub-Saharan Africa. MAC’s second Lagos store was scheduled to open in late April, as of press time, and next on the drawing board is a store in Abuja, Nigeria’s capital, and possibly Nairobi, Kenya, within one to three years. The company is also looking into other major cities. “When you build a structure, you have to have critical mass in these countries, or else you can’t afford the infrastructure,” Buglisi says. “We want to make sure we have enough business so we can properly serve these markets.”
“It’s a great opportunity,” she says, noting that only .4 percent of households in Nigeria have more $100,000 in annual disposable income. But that is in a large population of more than 170 million people and the brand has been greeted with great enthusiasm. “They are very aspirational,” she says. “They want the best of the best.” Like others, Buglisi points out the bursting youthfulness of these markets. More than 70 percent of the Zambian population is 18 to 35 years old. In Botswana, the majority is 18 to 45, and the Nigerian population is only “a little bit older.”
The beauty and personal-care industry in Nigeria, according to Euromonitor, was worth just over $2 billion in 2013, and is forecasted to improve by at least 10 percent in 2013. “Urbanization, and attendant lifestyles, has helped to increase the demand for beauty and personal-care products,” stated the report, “as consumers strive to acclimatize to urban environments. Positive economic growth has boosted consumer disposable income and confidence, leading to a higher spend on beauty and personal care.”
While the Kenyan economy has seen some decline in the last few years, growth is forecasted for this year, from $443 million in 2012 to $472 million in 2013. Given pressure on disposable incomes, significant numbers of consumers switched to mass brands, according to Euromonitor, with premium brands losing share. This resulted in companies focusing their expansion strategies on this segment, leading manufacturers to concentrate on producing mass brands rather than investing in innovation. The major players in the market are Beiersdorf and Unilever; deodorants are a particularly strong category, as well as hair.
Ruth Mwangangi, marketing director of L’Oréal East Africa, headquartered in Nairobi, describes the East African woman across all income levels as being “very beauty-conscious. They take time to present themselves well to the outside world.” Their notion of beauty, however, is more natural, and “they use products that will enhance their natural beauty as opposed to the extremely glamorous look. They want to look as if they were born beautiful. But it is considered vain to spend too much time and money beautifying.” Hair care is by far the biggest beauty concern of African women across the continent, with L’Oréal the continent’s largest player. “Hair is key,” says Mwangangi. “All women want to have good hair and spend a lot in this category, from relaxers to maintenance products. Dry hair, including weaves and braids, are also big, as they avail customers with styles that their normal hair cannot keep.”
In terms of skin care, she notes that “all homes have petroleum jelly and the market has evolved to the extent that lotions are a big category in the beauty industry.” Makeup is the “new kid on the block,” for a long time the preserve of the upper classes, “with the average woman only using blotting paper.” There is now great interest in makeup, however, since “Revlon launched in Kenya this year; P&G is expected to launch Max Factor this year, too, and L’Oréal, not one to be left behind, will launch Maybelline. This category will be driven by the emerging middle class who travel more and are more exposed to international trends.”
Henretta declines to discuss P&G’s launch plans.
For any player in the various markets in the region, the importance of the distribution network and the retail environment cannot be overlooked. Fox says that “the retailing environment is in its infancy across sub-Saharan Africa, with some markets more developed than others.” She adds that Kenya and Zimbabwe have a very good selection of malls, but Nigeria only has a few malls in its major cities.
“There is a need for new shopping centers in many of the African countries,” she says. “There is a huge opportunity for mall developers to focus on these countries and to bring the consumer there a modern shopping experience.” The lack of retail infrastructure generally is a challenge, says Fox, as well as duties. “Sub- Saharan African markets have some of the highest duties in the world.”
The other barriers to business are the gray and counterfeit markets. “The gray market is an informal but legal channel,” says Robert Priebatsch, chief executive officer of Africa Sales Company, distributors of fragrance brands Prada, Givenchy and Hugo Boss, among others. “It’s a problem, but it can be controlled.”
Counterfeiting, however, is more difficult to corral. Zeenat Ebrahim, an analyst with Euromonitor in Cape Town, notes that it is particularly prevalent in fragrance and that many fake goods originate in China. “There is growing awareness among consumers about the dangers of buying fakes,” Ebrahim says. “But sometimes the cash-constrained consumer will still rather buy the counterfeit perfume at a perceived bargain than fork out much more for the real thing.”
Despite the challenges, the excitement of building something from the ground up has proved irresistible. “It’s very exciting to go into a market and create a new sense of service and a new sense of experience,” says Buglisi. “We really look to educate these consumers. That’s what makes it so compelling for the women there. They want to develop their skills, they want to learn about makeup, they want to learn about trends and we are perfect to be those educators.