Aspirations of beauty

By Marylou Andrew

The 2008 recession fuelled a lot of talk about the ‘Lipstick Effect’ – the theory that women will buy an expensive lipstick even in hard times because of the ‘feel good’ factor – but this doesn’t indicate that the beauty industry escaped the downturn unscathed. Beauty has traditionally been seen as a ‘recession-proof’ sector, but 2008 proved otherwise and beauty and personal care (BPC) sales plummeted worldwide.

According to Oru Mohiuddin, Beauty and Personal Care Industry Analyst at Euromonitor, consumers, especially those in mature markets, began to streamline and prioritise their beauty purchases, sticking mainly to products which they deemed absolutely necessary. However, as rebounds go, the beauty industry has done a quick one. Euromonitor’s Post Recession Industry Trends Report shows that BPC saw five percent growth in 2010 with mass market products accounting for much of the recovery. Globally a $382 billion business, beauty is now being pegged as one of the fastest growing categories in the world.

Much of the reason for this is that when the recession hit, most large beauty companies decided to focus less on price and more on innovation and marketing, introducing new products and formats as well as novel ways of engaging with customers.

Another major post recession trend that companies have been quick to capitalise on is the shift in demand from West to East; while the growth of beauty has been slowing down or stagnating in many Western markets, the developing world, and Asia in particular, are showing extreme partiality to beauty products.

In response, most, if not all, major beauty brands are working hard to build a strong presence in emerging markets, and specifically in Asia. This presence is not only about putting a brand on the shelf; R&D and product development is localised because companies have realised that products developed for Western markets will not always work in Asia. While China is the frontrunner in the demand for beauty products, several other Asian markets – including Pakistan – are also being eyed with great interest based on their growing middle class and large population.

Pakistani beauty

Pakistan’s beauty care market is vast and diverse. Opinions about its value share vary, mainly because beauty means different things to different people. Some say the category includes everything above bar soap, while others believe that everything from bar soap and personal hygiene products to hair care, skin care, fragrances, oral care and colour cosmetics are part of the beauty business.

The reason for this confusion arises from the fact that for decades Pakistan’s beauty market has been dominated by FMCG companies such as Proctor & Gamble, Reckitt Benckiser, Unilever Pakistan (and others) which manufacture and market all manner of products from shampoos to oral care products to fairness creams, in addition to their other businesses of insecticide, tea, washing powder, etc. These FMCGs have concentrated more on providing products for every aspect of their consumers’ daily lives, rather than focusing on beauty. Additionally, even when international ‘pure beauty’ brands have been made available in Pakistan in the past (Estée Lauder, L’Oréal, etc.), they were imported either through licensed distributors or grey channels, and were therefore not marketed at all. Local beauty companies form a third tier of players in the beauty business and their production and marketing efforts have been mediocre at best.

However, Pakistan’s beauty market has changed significantly in the last three years alone and is still undergoing a serious overhaul as a result of several key game changers:

1. Increased media exposure and changes in lifestyle and mindset

The full impact of the liberalisation of the Pakistani media on different product categories is slowly revealing itself, and beauty is emerging as a clear winner. Apart from the fact that the plethora of TV channels, newspapers and magazines have made consumers more aware of the range of beauty products out there, the need for personal grooming has been brought into sharp focus. The burgeoning media has created a lot of jobs, many of which are filled by women. Beauty experts say that as more women enter the workforce and earn their own living, they feel less guilty about spending money on beauty products. Additionally, as the usage of beauty products grows, beauty becomes less of a fashion statement and more of a lifestyle. Urban Pakistan (home to 65 million people) is slowly but securely latching on to this trend.

2. Influx of international beauty brands

As of result of their strategy to establish a presence in emerging markets, international beauty companies are now understanding the value of setting up an office in Pakistan with local marketing, distribution and sales. One of the key developments in this area is L’Oréal Pakistan’s entry into the market two years ago (see page 6). As the first ‘pure beauty’ brand in Pakistan, L’Oréal is slowly changing the rules of the beauty business.

3. Existing key players have stepped up their efforts

As international players take a greater interest in the Pakistani beauty market, the existing key players are feeling the heat and reacting accordingly. The dominant FMCG players are focusing specifically on ‘pure beauty’ product launches, especially shampoo, hair colour and facial creams. Big companies like Johnson & Johnson which for years only marketed its Clean & Clear cleansing and moisturising range in Pakistan has recently introduced its Neutrogena brand in a bid to capture a more sophisticated audience. Even local players such as Olivia and Bio Nikhar are stepping up their marketing efforts with stronger advertising campaigns featuring film stars and celebrities.

4. New local brands are emerging

As beauty products become more coveted by consumers, local industrialists (most of whom have little or no background in manufacturing beauty products) are launching beauty brands (mostly in the skin whitening segment) targeting smaller pockets of people in specific cities, towns and villages. These new brands are promising consumers all manner of amazing results and are managing to command premium prices.

As a result of these factors, beauty has now become one of the fastest growing businesses in Pakistan. According to L’Oréal Pakistan, the local beauty market (everything above bar soap) is currently worth Rs 35 billion (just over $400 million). Although the number is not very significant in comparison to the value of the global beauty market, it is very interesting to note that when Aurora last did a cover story on beauty and personal care (September 2005), the market was valued at $100 million. This in effect means that the market has grown over 300% in the last six years.

The sprawling nature of the beauty business and its fast paced development can make it difficult to ascertain precisely which categories are driving growth in Pakistan. In order to explore this issue in a more manageable way, the beauty market must first be further subdivided into two categories: hair care and skin care.

Hair to grow

Euromonitor predicts that the global hair care market (shampoo, conditioner, hair styling and colouring products) will grow by about two percent by 2015. The low growth figure indicates that hair care is already a well established market globally but the potential for growth still exists.

In Pakistan, shampoo – the largest sub-category in hair care – is currently valued at Rs 17.4 billion ($180-200 million) and has a 99% penetration, which means that most consumers have tried a shampoo at least once and are aware of its existence.

This makes sense because shampoo manufacturers, and especially multinationals such as P&G (manufacturers of Head & Shoulders, Herbal Essences, Pantene and Pert) and Unilever (manufacturers of Clear and Sunsilk), have consistently hammered the importance of shampoo via advertising making it – according to the Aurora Fact File – one of the top 10 advertising categories on TV for the last 10 years. The Fact File also shows that for the last three fiscal years shampoo has been the second largest advertising category on TV, bested only by the telcos. Another reason for significant growth in the shampoo market is the ‘sachetisation’ of the product, making shampoo popular with rural consumers as well.

Although shampoo growth is slowing down, potential exists on two fronts. The rural market, where per capita usage of shampoo is still low, presents a big growth opportunity. In the urban marketplace, potential exists in terms of brands which cater to specific problems such as dandruff, wavy hair, oily scalps, etc.; as well as those created for specific groups of people, including men and women who cover their hair regularly.

The other hair care sub-category which presents a significant opportunity in the urban market is hair colouring products. Five years ago the Pakistani market had very few brands to speak of, with Revlon and the local Kala Kola being the most prominent. Now the market is flooded with hair colour brands, including three from L’Oréal alone (Garnier, Casting and Excellence Crème) in addition to Koleston (from P&G), Keune, Wella and several other local brands. Additionally, several ‘professional’ hair colour brands are being marketed specifically to beauty salons.

Mozzam Ali Khan, GM Consumer Products Division, L’Oréal Pakistan says that while launching and marketing a shampoo is relatively easy in Pakistan, the hair colour market is where the real challenge and opportunity will lie in the future.

Skin will be the star

Although hair care is set for growth, global beauty analysts are much more excited about skin care, predicting that it will be the ‘star category’ all the way until 2015. Euromonitor’s Mohiuddin says that 23% of all beauty sales in 2009 came from the skin care category. Asia is a critical component in the success of skin care and Euromonitor’s statistics show that the region alone made up 41% of total skin care value sales in 2009, which in monetary terms is a whopping $33 billion. Except for Japan, which as a result of the recent earthquake and ensuing economic troubles is showing a decline in sales, every other Asian country posted healthy growth in skin care last year.

According to Enshe Ahmed Manto, Assistant Brand Manager, Ponds at Unilever Pakistan, the local skin care market is currently valued at Rs 8.5 billion and grew 30% in the last year alone.

Skin care consists of two major sub-categories: body care and facial care.

For decades, body care has been dominated by bar soap, however the growth of bar soap is slowing down; liquid cleansers (body scrubs, washes and gels) on the other hand still form a fairly insignificant part of the market, but are growing at an annual rate of 13-15%. However, it is the facial care sub-category that is accounting for 90% of all growth and activity in the local skin care market.

Shabeeh Ikram, General Manager Pakistan & Afghanistan, Johnson & Johnson (Group of Consumer Companies) explains that globally, facial care demand has developed in three stages: basic facial care, specialised products for specific problems and feel-good products.

The majority of Pakistani consumers are still at the basic facial care stage; bar soaps dominate in the cleansing arena but once again liquid cleansing (gels and face wash) is gaining popularity. In terms of moisturising, skin creams have 99% penetration in Pakistan, although the average per person usage of cream is once a month.

Ikram explains that moisturising is not a very popular concept in Pakistan because of naturally oily skins and intensely hot weather conditions. Instead this space is solidly occupied by the fairness segment which by some estimates has a value share of Rs 2.6 billion and is by far the most popular beauty segment across Pakistan, based in large part on the belief that fair is beautiful.

Manto makes a very revealing statement when she says that while the fairness proposition is most relevant to the lower SECs of the population, it is not irrelevant to any segment of the population. Apart from Fair & Lovely (FAL) – the market leader in this segment – there are a host of locally manufactured fairness creams including Bio Nikhar, Olivia, Stillman’s, Tibet Snow and others catering mainly to the lower SECs.

However, because whitening is not irrelevant to anyone, even established brands which mainly target SEC A and B are offering a fairness proposition: Garnier Light, L’Oréal White Perfect, Neutrogena Fine Fairness and Ponds White Beauty. Some of these products offer solutions for troubled skin or promise a more evenly balanced skin tone but the ultimate objective (whether stated in the advertising or not) is the same: fairness and flawlessness.

While fairness is a major seller in Pakistan, the presence of brands such as L’Oréal White Perfect and Neutrogena Fine Fairness is also evidence that part of the population is now moving away from generic fairness towards the next stage in the skin care hierarchy of needs and demanding products for specific needs.

One particularly interesting category in this regard is that of anti-ageing products (day and night creams, under eye gels, etc.). Manto says that just as fairness is most relevant among the lower SECs, anti-ageing is popular with the higher SECs. However, she is quick to put a caveat on this popularity, clarifying that because most anti-ageing products are priced at a premium, they will not constitute a significant share of the market in the future.

Two other categories of ‘specific needs’ products may become important in Pakistan in the future: medicated skin care and organic products made from natural ingredients. The former category received a major boost when GSK launched Stiefel (the leading brand of dermatological products in the world) in Pakistan recently, while the latter category is already populated with foreign and local brands.

Challenges and opportunities

As things heat up in the Pakistani beauty market, several challenges will have to be dealt with so that local and foreign players can fully capitalise on its potential.

Price is one of these challenges; regardless of where beauty products are manufactured, prices have increased significantly over the last few years because commodities such as palm oil (a key component in beauty products) have become more expensive in the post recession period. Manto believes that convincing consumers to pay more for beauty products through value driven propositions is going to be the most important factor in driving future growth.

Musharaf Hai, Managing Director, L’Oréal Pakistan says that beauty is about belief, not price. Therefore in her opinion, if consumers truly believe that a particular product or brand can deliver what it promises, they will do everything in their power to be able to afford the brand.

While there is truth in both points of view, the fact that many international brands are looking at ways of making their product more affordable is a clear indicator that Pakistani consumers are price sensitive and this issue will have to be dealt with in order to expand the usage of beauty products.

Another area of concern for international and local brands is that of counterfeits and grey market imports. Counterfeiting, a rampant problem in Pakistan, involves small local concerns making copies of well known brands and selling them to consumers at very low prices. Manto says the problem is widespread and requires a consistent push to educate consumers with cues on how to tell the genuine product from the fake one.

Ikram puts much of the blame for the counterfeit menace squarely at the consumer’s door saying, “Why don’t consumers ask questions when they are buying our products at less than three times the price?”

As far as grey imports are concerned, Ikram believes they present an even greater threat in terms of the long term growth of the beauty market because they are priced so much lower than products brought in through legal channels. In such a situation, says Ikram, it doesn’t make sense for a company to bring in the same brand at a higher price because the two cannot possibly compete.

In spite of the challenges, the beauty opportunity is tremendous. While hair care will play a key role in driving demand, there is no doubt that the mega bucks will be made in the skin care market. Of the many skin care categories that will lead growth, face care is the most laden with potential, followed by hand and foot care products (think Nivea and Vaseline) and men’s grooming.

Regardless of the categories, there is one key takeaway: while the beauty market of the past was based on generic offerings, the future will be characterised by specific products for specific needs. The days of globalisation and generalisation are over, welcome to the era of personalised beauty.

First published in the September-October 2011 issue of Aurora.

Box - Setting the bar on beauty

When L’Oréal – the world’s largest cosmetics and beauty company – first started exploring the possibility of establishing its presence in the Pakistani market in 2008, it didn’t take the tried and tested route of market research and studies.

“Instead we walked the streets,” says Musharaf Hai, Managing Director, L’Oréal Pakistan, “and saw consumers who were youthful, elegant and well groomed. This convinced us that we had to do business in Pakistan and we realised we were already late.”

Based on these findings, L’Oréal Pakistan, a wholly owned subsidiary of L’Oréal, officially started operations in April 2009. The launch was a sea change in the Pakistani beauty market as L’Oréal Pakistan is the first ‘pure beauty’ company in the country.

In Hai’s words, “The core of L’Oréal is beauty; we don’t do any other business.”

This single minded focus helped L’Oréal Pakistan realise right off the bat that it couldn’t do business with all Pakistanis; instead it has decided to target the 65 million people living in the urban areas as the core market for its various products. L’Oréal’s offerings are based on two divisions – the Consumer Products Division (CPD) and the Professionnel Division.

Hai believes that L’Oréal can create tremendous opportunities in CPD based on the fact that while there are lots of products at the top and bottom ends of the market, there is very little in between.

“We are developing the masstige sector which falls between mass and luxury.”

Although the consumer products division has a large portfolio consisting of skin and hair care products, Mozzam Ali Khan, General Manager, CPD, says that hair colour is strategic to L’Oréal’s business in Pakistan because that was the first product to be launched here. The company has two high end hair colour brands (Casting and Excellence Crème) but in line with its objective of creating a strong masstige segment, L’Oréal has been heavily promoting Garnier Colour Naturals, which is essentially more affordable hair colour but still benefits from what Hai says is L’Oréal’s “technology driven approach to beauty.”

Along with hair colour, L’Oréal is also focusing on skin care (no surprise considering the growth potential in the skin care market) and has a range of products for people of every age and skin type dealing with common skin problems, offering fairness and anti-ageing solutions.

“I can tell you with confidence,” says Hai, “that there are few other brands which offer this kind of deep segmentation.”

In terms of L’Oréal Pakistan’s Professionnel Division, Hai says that when the company started to market its high end salon products two years ago, most beauty professionals had never heard of them.

“Today we have over 250 salons where you will find our products and many salons are giving preference to professionals who have worked with L’Oréal products before.”

In spite of these developments, Hai understands that L’Oréal is a late comer to Pakistan and therefore has a lot of ground to cover. In response, the company has employed a three-pronged approach of engaging with the market: the bulk of the marketing effort is focused on direct interaction between L’Oréal’s in-store ‘beauty advisors’ and consumers; the company interacts with retailers through trade seminars where L’Oréal technicians talk about the key features of the different brands; and finally there is consumer education through print and digital media which drives home the fact that L’Oréal brands are superior to others because of the company’s focus on technology.

Hai says that even with all this activity, L’Oréal Pakistan is only laying down the foundations now of what will help to set the bar on beauty in the next 10-15 years. Growth, she predicts, will come from hair colour, high end skin care and fragrances, age management products and men’s grooming, all of which are areas where L’Oréal Pakistan intends to build a strong presence in the future. – MLA