Markets

Why Kenya’s beauty market is attracting mega takeover deals

beauty

World-class personal care and beauty product makers smell money in the growing population of liquid women. PHOTO | FILE

Summary

  • Kenya’s colour cosmetics market is estimated to be worth Sh5.4 billion and is expected to grow to Sh6.6 billion by 2018.
  • The Flame Tree Group says the cosmetics division, under the manufacturing arm, accounted for 74 per cent of the company’s portfolio with the rest going to the trading arm.

The beauty and cosmetics industry has become Kenya’s new hub of investment that is pulling in big money to establish new lines of business and to snap up successful enterprises through multi-million shilling acquisition deals. 

That statement was firmly made last month when Flame Tree Group acquired a local start-up Suzie Beauty in a deal estimated to be worth millions of shillings.

The Flame Tree Group said it made the acquisition as part of a larger plan to expand its fast moving consumer goods business, especially in cosmetics where it is already a big player.

“Suzie Beauty is a strong brand in Kenya with a niche target. Of the beauty products in our portfolio, all are mass market goods. Suzie Beauty is a niche product that gives us reach to the high-end market,” said Heril Bangera, chief executive officer of Flame Tree Group.

Suzie is the fourth acquisition that the Flame Tree Group has made since its 2014 listing on the Nairobi Securities Exchange.

The beauty products maker bought Miss Africa, Black Angel and Beauty plus hair brands from Beauty Plus Trading East Africa before taking in Monalisa skincare brand shortly thereafter.

Kenya’s colour cosmetics market is estimated to be worth Sh5.4 billion and is expected to grow to Sh6.6 billion by 2018.

The Flame Tree Group’s annual report for 2014 says the cosmetics division, under the manufacturing arm, accounted for 74 per cent of the company’s portfolio with the rest going to the trading arm.

The Suzie Beauty takeover comes barely two years after French beauty and cosmetics giant L’Oreal acquired Nice & Lovely range of products from Paul Kinuthia startup InterConsumer in a deal worth more than Sh1.5 billion.

L’Oreal, one of the largest cosmetic groups in the world, purchased InterConsumer Products, targeting Kenya’s fast-growing lower end of the market, where it had no presence.

That gamble paid off when the company clocked 40 million units in sales after the acquisition, up from just 2 million the year before.

READ: L’Oreal reaps from Nice & Lovely buy

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Mr Kinuthia, the brain behind InterConsumer, had grown the company from its humble roots as a backstreet cosmetics maker to an industrial giant that produced lotions, jelly, baby powder, soap, shampoo and hair dyes.

InterConsumer sold cosmetics worth Sh1.7 billion, earning Mr Kinuthia more than Sh200 million in net profits prior to the sale of Nice & Lovely range of products.

The Kenyan beauty and cosmetics market has also been fired up by Procter and Gamble’s (P&G) 2014 launch of a range of products targeting the mass market. It was that move which introduced the Camay brand of cosmetics in the Kenyan market, turning the heat on existing players such as Unilever, Cussons PZ and L’Oreal.

READ: Procter and Gamble enters cosmetics market

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P&G said its decision to launch its own brand of deodorants, beauty soap, body lotion and fragrance was informed by an in-house research that identified “a gap” in the Sh100 billion market in 2014.

“Improving levels of education, youthfulness of the population, and the rise of female independence are all factors that pointed to great potential,” consultancy firm KPMG says in a report on Africa’s FMGCs market.

The report says that increasing presence of women in the labour market and the decline in fertility rates means more money is becoming available for spending on personal care products.

KPMG estimates the Kenyan beauty and personal care products market to have been worth $260 million (Sh26 billion) in 2011, meaning it grew by double digits in five years to hit Sh100 billion in 2015.

That level of growth has also caught the attention of retailers like Nakumatt Holdings which invested heavily in the cosmetic market and is currently selling 36,472 units estimated to be worth Sh36.8 million annually. The growth is expected to increase to Sh42.2 million by the end of this year.

Nakumatt Beauty was launched in 2013 with the acquisition of an exclusive franchise deal that a local operator had signed with New York-listed Revlon cosmetics. Nakumatt has since invested Sh100 million ($1 million) to market Revlon even as it moved to widen the range of other products in the cosmetics division.

“Nakumatt saw the huge interest women have in hair products – a reality that is aligned with the growing aspiration to look good,” said Neel Shah, the Business Development Lead at Nakumatt Holdings.

Lintons, a beauty products retailer, which has signed a number of deals with international brands, says demand for high quality cosmetics is the magnet that is attracting world-class brands into the Kenyan market.

Joyce Gikunda, the managing director of the chain of outlets, reckons that the cosmetics industry is evolving fast with the entry of international brands in the untapped market where more middle-aged women are becoming more aware of their needs and have the money to buy world-class brands.

The list of high-end international brands that have set up shop in Kenyan malls includes MAC – which now has two stores –, Yves Saint Laurent, Clarins, Estée Lauder, Clinique, Black Up, Essie Nail cosmetics, Black Opal and Nimue, among others.

Lancôme, one of the leading cosmetics brand with sales turnover of $4.5 billion, is the latest world-class player to bring its high end skin care, fragrance and makeup products into the Kenyan market.

The KPMG report attributes growth in the segment to favourable demographic profile and strong economic growth.

“An added driver for this sector is that many Africans appear willing to spend a proportionately large share of their incomes on beauty products,” the report says. 

Increased competition by brands has also given rise to a high number of counterfeits.

“We noted the overwhelming number of counterfeit make up products in the market and saw this as a good opportunity to not only provide quality products but also protect women who risk their health by using substandard products,” said Mr Shah.