The global cosmetic and personal care market is growing, the upward swing especially boosting companies that produce organic and sustainable products. The specificity of new manufacturing trends and the evolution in marketing funnels, such as the rise of micro social media influencers, is shifting the research-intensive health-related sector towards viability of small enterprises, niche producers, and customized lifestyle products.
Due to the Covid-19 pandemic, the overall social appreciation of proper personal care is increasingly on peoples’ minds. This begs the question for all countries that do not have the benefit of being homes of vaccine makers or personal care giants: how can our countries benefit from the changes in the marketplace, and improve the local production of personal care products?
As with pharmaceuticals, this supply question is made much more urgent in Lebanon by the demise of the national currency’s artificial stability. In 2018, the Investment and Development Authority of Lebanon (IDAL) opined that there were four notable market opportunities in the healthcare sector, notably advocating the growing market for natural cosmetics. “Demand for natural and organic products is growing exponentially driven by increased awareness of health and wellness. Lebanon’s cosmetics industry ranks amongst the top 5 Lebanese exports indicating its strong position and its potential to grow to address regional and global demand.”
This global demand is not to be scoffed at from the positions of small and medium suppliers in small countries. In its annual report for 2019, Cosmetics Europe, a lobbying and advocacy voice for the industry, expresses the expectation that “improvement in deliveries and technological progress will help online sales of cosmetics to grow significantly. Ecommerce represents an opportunity for small and large companies to expand their sales and client base.”
hygiene and care market booms
According to Cosmetics Europe data, the European cosmetics and personal care market is the world’s largest at 79.8 billion euros in retail sales. “Including direct, indirect and induced economic activity, the industry supports over 2 million jobs. In 2019, over 206,800 people were employed directly, and a further 1.65 million indirectly in the cosmetics value chain,” says the organization. Modern cosmetics is not about torturing yourself with applications of potentially toxic substances for the sake of making a fake impression. “The vast majority of Europe’s 500 million consumers use cosmetic and personal care products every day to protect their health, enhance their well-being and boost their self-esteem.”
A 2019 global cosmetics market report by retail data research company Edited, similarly described the beauty industry as an economic landscape where direct-to-consumer (D2C) selling is increasingly sophisticated, due to positioning of products by pricing and highly-informed digitally native customers. Additionally, according to Edited, there is a great consumer desire for transparency in beauty products, as mind sets are changing to favor non-harmful, sustainably produced and cruelty-free tested products, and demand trends are shifting towards plastic-free recyclable packaging and economic transparency.
“The beauty industry is seeing a greater regulatory crackdown against increased ‘greenwashing’ across the sector”, the report says and cites with initiatives such as the US Personal Care Products Safety Act to substantiate its prediction that the future “will force large beauty brands to rethink their approach to natural cosmetic formulations’’.
Credit Covid-19 for the exponential rise in hygiene and care awareness: a paradigm shift that is likely to translate into significant opportunities for companies in that market, whether established or start-ups. Moreover, in the Lebanese economic context, it is a valid question to inquire about the national capacity for production of care products, just as it paramount under the national economic emergency to substitute as much as possible imported brand medicines with far more affordable products of similar quality and local manufacture.
are swarming regionally
In Lebanon, the production and exportation of organic care products appears, at least in one case, to be thriving. Beesline, a Lebanese, family-run, apitherapy-based enterprise, initially had a slow-growing market presence in Lebanon. With time, their market presence evolved, and in combination with moderate exports for well over a decade, it eventually reached a stage where the company was invited to join the Endeavor network of companies in Spring 2014.
Reported to have about approximately $7.5 million in annual sales in 2013 and a workforce of 180, company revenue took off. “In the past five years, Beesline focused its strategy across the region and accelerated growth in core markets. The company more than doubled its size in revenues in the past four years,” Hassan Rifai, marketing manager and second-generation member of the company’s founding family, tells Executive. According to him, the headcount is still 180 employees but the solid double-digit year-on-year revenue growth of more than 20 percent has propelled the enterprise into a new dimension of economic performance.
And this performance has not waned in 2020. “Like all Lebanese, we are used to challenges and work harder when they come. Despite all the challenges that we have faced, 2020 is still on a similar path of growth as in the past years,” he enthuses.
Factors that cannot but be noted as drivers of this growth according to Rifai are the company’s allocation of about 5 percent in annual turnover to research & development, alongside intellectual property protection of its formulas; the consistent focus on exports, and the multi-tiered reliance on channels to market that entail traditional collaboration with distribution and wholesale intermediaries, as well as a focus on e-commerce through an proprietary platform plus third-party platforms.
In terms of selling and marketing, the main marketing channel is digital, but online communication and selling channels are augmented with selling channels through pharmacies, and for some product lines, through hypermarkets and some beauty shops.
“Quick use products, which are off the shelf and low-cost such as face masks, go to beauty shops and hypermarkets. Flavored lip balms go there too. More health focused products remain in pharmacies, but everything can be found on the online platform. Since we started our own e-commerce platform, we have been keen on growing it quite aggressively, and our platform generates more [turnover] than any other platform in itself,” Rifai explains.
What, on the other hand, is not a factor for the company’s success is the ability to rely on domestic raw materials. “We have to rely on imported raw materials up to 90 and sometimes 95 percent,” Rifai tells Executive without elaborating on the role of locally produced beeswax in the product range of Beesline. With the majority of raw material cost related to dollarized imports, he says, “Our cost actually increased quite a lot, yet we picked a pricing strategy where we tried to stand as much as possible on the side of the Lebanese consumer, by limiting the transfer of inflation to them.”
Consequently, the company looks at a red zero in the home market for 2020 and its strategic projection for next year is similar. In this mix of seeking to acquire market share in Lebanon by sacrificing short-term profits and maintaining price levels in regional export markets, it is notable that the share of the Lebanese market in overall business according to Rifai amounts to only about 8 percent, whereas revenue and growth come from Gulf markets such as Saudi Arabia and the United Arab Emirates and ongoing expansions of sales in large regional markets such as Egypt, but also include forays into European and farther-flung markets in the United States and Oceania. “We started selling in some of these markets as of 2020 and are planning to push further from 2021 onwards,” Rifai says.
Rifai explains that customer concerns have been shifting to organic product certification, compliance with environmental sustainability practices and fair governance standards.
“The challenge or issue here is not about the origin of manufacturing but on the value proposition. We have pushed our value proposition towards sustainability and commitment to the environment,” Rifai concludes.
Startups on the organic case
One would expect the global market opportunity for producing and marketing organic cosmetics to naturally reverberate with some diverse minds in the Lebanese startup talent pool. One example of such a startup is Lagom Organics, an organic skincare company, whose founders Jennifer and Samer Abouarab spent serious time on research and development. They found themselves compelled to jump straight into exports because of the near total demise of the domestic market at the time of their venture’s launch in late 2019.
Similarly, Salma Loves Beauty is a natural beauty startup with a range of olive-oil based soaps that has expanded into liquid soaps, potions, shampoos and sanitizers. Founder Rosemary Romanos had been working on and running the startup already for many months when the crisis first hit and she felt an immediate impact on the business. Nonetheless, in a decision to pursue her startup dream even as the tidal waves of depressed economic mindsets were washing over the Lebanese market, Romanos incorporated her venture in August of this year.
Thirdly, the start-up Potion Kitchen has been included in the 2020 batch of ventures at the SMART ESA demo day in December. Founder Rafa Hojeij, who first came to the market purporting messages of plant-based skincare and clean beauty in 2018, is seeking to raise $65,000 in funds for expansion of production capacities and marketing in 2021. Her startup’s initial export orientation is directed at West Africa, where the Hojeij family of south Lebanese origin has extensive market knowledge. Potion Kitchen’s next target markets after that will be located in the Gulf region, Hojeij tells Executive.
Among these young enterprises, Lagom Organics is based in Zghorta, North Lebanon. Co-founder and commercial head Samer Abouarab says that Lagom Organics is endeavoring to pioneer the regional market niche for skincare under an originally Scandinavian lifestyle concept of lagom and position the brand as the region’s first in the “indie organic skincare segment”. Lagom is a concept that refers to the perfect balance: not-too-much, not-too-little. The company is thinking to expand its market to Europe, South Korea, and the Pacific Northwest in the US.
In the reality of doing daily business from Lebanon, Lagom Organics has discovered that local ingredients did not satisfy the quality requirements for the company’s luxury formulas of essential oils and “wild harvested” raw materials. While including up to 20 ingredients in the company’s two existing products (two more are in late-stage development and others under preparation), Samer Abouarab says he cannot locally source even one ingredient. Even as the company’s products when sold abroad are not heavily exposed to the Lebanese currency exchange rate problem, he concedes that the importation problem is one of the main issues faced by the startup.
Farmers and growers still lack knowledge in essential oil production and high quality products, and certified ingredients are not available from Lebanon, Abouarab tells Executive: “There is no local production. I have been in touch with several local farmers and growers because we use a lot of essential oils, but local production is still very low in quality and quantity.”
These barriers notwithstanding, Abouarab is committed to producing the Lagom Organics product range in north Lebanon, noting the labor cost advantage and high work ethics of the company’s small production workforce of local women. Besides requiring certified imported ingredients and relying on special glass containers made from imported, novel and expensive, photonic glass, the company is artisanal in nature and committed to local production in Lebanon. Abouarab explains, “We don’t use machinery and our batches are very small, we produce like 1,000 pieces at a time whenever someone requests our product, manufacturing immediately and shipping to them,” he says.
Salma Loves Beauty founder Romanos confesses, just as the other two maker startups, that she is highly insistent on the sustainable and environmental characteristics of her brand’s organic skincare products. She tells Executive that she joined up with a manufacturing partner who is a chemist and formulator that wants only to produce natural care products. She is marketing these products on the basis of a shared commitment to “never manufacture something that is toxic to the environment or the consumer.” She does not want to divulge performance numbers of the business, which has a monthly capacity of producing 4,000 soap bars, but tells Executive that her startup is already achieving turnover of below half a million dollars.
Lebanese start-ups adapt and step up
Economically, the venture handled its 2020 market experience with a strategy to distribute cost increases by first reducing the company’s profit margin and next seek reduction of supply costs. Passing cost on to consumers is only the final option when mandated by the need to have a healthy business with a healthy margin. “We took a cut in our margin. Because we have been [operating] before and after the [start of] the crisis, I have personally seen the changes in my margin and the first decision that I took was that I reduced my margin before I passed this cost on to the customer,” Romanos says.
Romanos, who earned her first chops as an entrepreneur in Lebanon with an alternative energy startup in 2017, says that up to 80 percent of her cost base is tied to foreign currencies. She explains that she obtains all raw materials and inputs from Lebanese companies, but adds that many of these local suppliers in turn rely to varying degrees on imported materials such as plastics and packaging. Her products’ ingredients include olive oil, honey, jasmine, lavender, and laurel oil.
“I personally made a switch to natural products when I was 21. I wanted to be more conscious about the things that I consume and it made a big difference with my skin and hair. The first product that I switched to was deodorant because I wanted something that was free of aluminum and preservatives. This was because I believe that anything that you put on your skin goes inside of your body,” she says.
Two factors that the three startups and the established care player Beesline have in common are firstly that all of them are relying on native e-commerce platforms – in cases of Beesline and Salma Loves Beauty in conjunction with traditional distribution – and secondly that none of them has seen any state incentive, tax break, ministerial initiative or public sector support of their own company development in the cosmetics sector.
“The beauty industry is seeing a greater regulatory crackdown against increased ‘greenwashing’ across the sector.”
One factor that the three startups, and the established care player Beesline, have in common is that all of them rely on native e-commerce platforms.