Central Asia today consists of five independent republics, Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan and Tajikistan, and covers an area of almost 4 million square kilometers, which includes some of the most sparsely populated regions in the world.
Its population of nearly 52 million people includes more than 100 different ethnic groups, from Russian, Germans and Austrians to Tibetans and Koreans. The largest ethnic group is the Uzbeks. There were some 10.6 million Russians living in Central Asia in 1992, but there has been a large-scale exodus of Russians from all Central Asia, especially Tajikistan and Uzbekistan because of fears of ethnic violence and violence stemming from Islamic fundamentalism.
While Tashkent and Ashkhabad, the capitals of Uzbekistan and Turkmenistan, have long urban histories, the other three capital cities (Dushanbe in Tajikistan, Alma Ata in Kazakhstan and Bishkek in Kyrgyzstan) were created by the Soviet planners to give a sense of ethnic identity to the prevailing regional nationalities. For similar reasons, the same planners actually have drawn the state border lines for their creations that gave a sense of fictional independence for local communist parties executives-in-charge.
Since gaining independence in 1991, after collapse of the Soviet Union, all five Central Asia countries started to change—introducing political parties, privatizing state owned companies and implementing market economy models with an emphasis on Western style banking, tax laws and global trade. The results were mixed from the beginning, due to the absence of previous statehood experience, strong power grip from the former communist leaders and growing tribalism.
After separation from more industrious Russian regions of the former Soviet Union, the independent countries of Central Asia chose to rely on their own natural resources—such as raw materials, livestock or agriculture. Because the entire Central Asian region is currently a low-income domain, it is inevitable that consumer expenditure on beauty is far from high. With the absence of noticeable local cosmetics and toiletries manufacturing, the region depends on imports.
The Central Asian beauty market is worth nearly $1 billion, and has shown strong double-digit growth from 2003 to 2008. Growing awareness of beauty products on the market is one of the reasons for the increase. Despite the 2009 nosedive due to the economic crisis, the opportunities for retailers and importers based on rising concern about health do exist for products such as baby care, hair care, oral hygiene, skin care and sun care.
Kazakhstan (pop. 15.4 million), the wealthiest Central Asian state with the largest share of Slavic population (more than 34%), was influenced by its mighty neighbor, Russia, to the growing spending pattern on personal care during independence years. With total sales of $660 million in 2008, the country’s beauty market demonstrated healthy growth of 8.4% in a five-year period. The following slowdown was caused by economic crisis attributed to shifting consumer preferences, mainly cutting down on premium products. Premium cosmetics, especially premium hair care and premium fragrances, started to plunge in 2008, which positively impacted mass fragrances and mass hair care growth rates.
According to Kapital.kz, Kazakhstan’s business portal, currently 80–90% of the country’s population prefers inexpensive cosmetics, and a significant number of customers switched to less expensive products in several market sectors—extra spending on oral hygiene or personal deodorants, for example, is no longer considered logical.
By 2008, a legally structured retail industry became a key trend in Kazakhstan’s beauty market, replacing the “gray” market, with Western style stores with certified products taking the place of open air bazaars and markets selling mostly counterfeit goods. Furthermore, Western style retail is spreading further into the regional centers like Karaganda, Aktau, Atyrau and other cities where significant number of specialized outlets opened their doors to customers over the last five years. The beauty market there is far from the sophistication of the U.S. or Western Europe, however, it is the strongest player among all Central Asian states, and is comparable to the Russian market.
Multinational companies dominate the Kazakhstan’s market in all cosmetic product categories, with the biggest investments in beauty coming from the top three global players—Oriflame, Procter & Gamble and Avon. According to Euromonitor International, they accounted for more than one-third of total beauty sales value in 2008. The only local producer, Urker Cosmetic, represent only 2% of total beauty sales, so the market remains divided between multinationals.
Kazakhstan’s fragrance sector is the fastest growing and most fragmented, with all key international brands available for sale. This is the only sector where people’s daily earnings and the country’s economic situation directly relate to actual sales numbers. Fragrances, skin care and hair care represent the fastest growing segments (63%, 55% and 51%, respectively) in the five year period preceding 2009, according to Euromonitor market research. However, an estimated 20% of these products enter the country illegally, attracting shoppers with a 30–40% price reductions.
Kazakhstan’s subsidiaries of direct sales giants Oriflame and Avon make up nearly 25% of the overall cosmetics market. The strong performance of direct sales in the country, which increased its share at an expense of other manufacturers, should be credited to women who out of work because of the economic crisis and who tried their hand at direct selling, which positively influenced the growth of this channel. “Despite that everyone was talking about the crisis in 2009, our company was gaining power and increased sales volume more than 24%, “ says Oriflame’s Central Asia and Kazakhstan’s Regional director Katrin Alakbarov. “ This is quite impressive for a company that started with 20 people in 2000 and currently is a market leader.”
In 2008, the beauty market in Uzbekistan (pop. 27.6 million) was estimated at $240 million. This is almost three times less than Kazakhstan, the region’s leader in beauty sales, and can be attributed to the much lower GDP (over four times less than Kazakhstan). Uzbekistan, the most populous country in the region, experienced an annual market growth rates of 30% in 2004 but gradually fell to 16% in 2008. Explosive growth of image and brand awareness for the beauty market has driven imports from leading global brands coming into the country through the growing certified retail channels and a shrinking gray market.
Improving life standards are creating strong consumer potential and the desire to look good, while the country’s consumer base has gained some stability with the range of beauty consumers expanded from traditional consumers, middle-aged women and young people, to middle-aged and young men.
Development of the market is also based on rising concern about health, boosting sales of products such as baby care, hair care, oral hygiene, skin care and sun care. Hair care is the largest segment, and accounted for 37% of total sales in 2008.
International companies currently prevail in the country, notable in the 2008 upsurge in direct selling, with leading Oriflame Uzbekistan claiming 14.5% share of the country’s beauty market. Direct seller networks now cover main urban areas, and are slowly entering rural areas with almost no competition. Companies that are focused on this area strengthened their positions while the ongoing development of store retailing is slow (with locally produced cosmetics mainly distributed through pharmacies).
Domestic production of cosmetics and toiletries is not well developed due to lack of investment, however, several companies continue operation using imported from European ingredients and local supplies as well. Established in 2003, UzSetGlobal Uzbek-American Joint Venture was one of the first companies manufacturing skin care products from pure organic materials such luffa. Luffa is natural material made from luffa plant. Bioline Kosmetiks from Tashkent imports extracts, concentrates and aromas from France, the U.K., Germany and Ukraine to manufacture 24 BioLife brand skin care products.
Despite the fact that Turkmenistan (pop. 4.9 million) is number two in GDP in Central Asia due to extremely rich natural gas deposits, it is a low-income country where consumer expenditure on cosmetics and toiletries is not high—though there was some rise in cosmetic consumption 2003–2008, notably in depilatories, which experienced a percentage gain of more than 1,200%.
As more of Turkmenistan’s women join the workforce and have personal spending income, they are able to find and purchase locally produced fragrances in supermarkets and other specialized stores, or counterfeit goods at the open-air market and kiosks. However, a majority of local Turkmen cannot afford the expensive international cosmetics. The total beauty market (estimated at nearly $100 million) has shown impressive triple-digit growth for 10 ten years in basic categories such as as hair, skin and baby care, however, this should be attributed to minimum benchmark levels of the post-Soviet period.
Being the poorest regions of the former Soviet Union, Tajikistan and Kyrgyzstan (like the rest of Central Asian fairly new independent states) fell under control of the former communist party leaders and became autocratic regimes with regulated media. With the exception of Kazakhstan, with its large share of Russian population, the Central Asian states are predominantly Muslim. Since gaining independence in 1991, tremendous cultural changes took place in the region, turning the Central Asia‘s population from reasonable secularism or even atheism of the Soviet period to devout followers of Islam, and the rise of fundamentalism in some areas.
Expenditure on beauty products remains very modest, as much of the population is still not able to afford expensive, branded products, choosing to purchase locally produced or Russian made products that can be found in any supermarket. Therefore, it is not surprising that the purchase of beauty products is still relatively low. People in rural areas are employed in farming, agriculture or household jobs, and do not typically use beauty products except on very special occasions. In fact, in many rural areas some women still use traditional means of washing their hair with natural oils.
Traditionally, most marriages in region were arranged, however, since 2000, more "love" marriages have taken place, which has encouraged local women to take better care of themselves and their looks, explaining the increase in expenditure on depilatories and other such beauty products.
And with the growing influence of Islam in Central Asia, the market for halal commodities (currently valued at more than $900 billion globally) is growing. The value of halal personal care products, such as lipsticks, non-alcohol fragrances and deodorants in the Middle East is estimated to be worth more than $600 million. Specific demand for halal cosmetics is still very low in Central Asia, however, increased consumer knowledge of the ingredients used in the formulation of such products, the way they are produced and growing income of middle class will support the demand for halal beauty products in Central Asia in coming years.
Additionally, the decline of global economic is not really impacting the Central Asian beauty market to the same extent as other countries, due to the rather close economy of the region. The low gradual growth is expected in the region, mostly correlated to the population growth rate. However, the risk associated with political instability, economic ambiguity and weak infrastructure might impact the pace of consumption development.
Greg Grishchenko is a packaging consultant and independent market and technology specialist based in the U.S. He has carried out extensive research on Eastern Europe and the countries of the former Soviet Union, and is the author of several reports on the Eastern European packaging, converting and printing sectors. E-mail: [email protected].