Middle East, States of Flux

By Ian Bell, Head of Tissue and Hygiene Research, Euromonitor International | June 12, 2013

The Middle East is a region of great diversity and is also undergoing something of a period of transition, both socially and culturally. The Arab Spring is the most obvious expression of this, but much of this ‘revolutionary’ activity has occurred on the periphery and has had a less clear and indeed critical impact on the core Gulf states.

To the east is Iran, something of a pariah state and subject to international sanctions on the one hand but at the same time is a modernizing Islamic democracy which boasts a high literacy rate, a birth rate lower than in many Western countries and a quarter of its population now has Internet access. While its own neighbor Iraq is recovering from war and occupation, Syria is descending into its own civil war and arguably the region’s most liberal grouping, the UAE, has been developing as a truly international center. Government efforts to develop itself have drawn in large numbers of expatriates from around the world.

The region can increasingly be seen as a melting pot where indigenous Arab and imported Western as well as Eastern cultures meet. It is unlikely that any other region can boast such wide variety, providing both challenges and opportunities in a tightly defined geographical area.

On the world stage

In terms of global significance, the Middle East region, excluding Egypt, boasts a population of 215 million, roughly equivalent to that of Brazil and Argentina or 3% of the global total. Through a combination of high birth rates and immigration in some areas, the region’s population has grown rapidly, increasing by as much as a third over the last decade. Relatively high birth rates, certainly compared to Western counties, have been a reflection of the incredibly youthful demographic, with the mean age being as low as 21 in Yemen in 2013 and typically below 30 for the region as a whole.

There remains a huge opportunity in the region, solely based on demographic patterns. This, linked with rapid urbanization, rising incomes and modernization in terms of retail as well as consumption culture, makes for a heady mix of trends which have translated into a particularly buoyant hygiene industry. In 2013, the Middle East is expected to generate retail hygiene sales somewhere in the region of $3.5 billion, with 15% value growth on 2012. Double-digit growth is not unfamiliar, however, having been achieved five years out of the last six since 2008 and this during a global recession.

Petro dollars and personal incomes

While the region’s petrochemical-based economy has had much to do with it largely sidestepping the worst of the global economic crisis, world-leading GDP per capita incomes are misleading. Per capita disposable income rates make for more somber reading, with only the UAE ($26,000 per capita in 2013) enjoying an income level similar to consumers in the West. It might come as some surprise that Saudi Arabia can only boast $7700 and Iran an even lower $3700. While comparatively low income levels may be something of a surprise given the common portrayal of conspicuous consumption in the media, rapid growth in personal incomes is something to hold on to, with average income in Saudi Arabia doubling since 2000, for example.

Diapers lead the way

With comparatively low income levels, it may be a surprise that diapers continue to account for the lion’s share of regional sales within retail hygiene, with on average 70% of value generated by the category. Procter & Gamble enjoys market dominance and typically commands two-thirds of diaper sales across the region due to local production and the relatively long history of its Pampers brand in the Middle East. Other international players such as Kimberly-Clark and Unicharm have also looked to enter but with limited success, suggesting that the Middle East is already something of a closed shop when it comes to consumer preference in diapers.

Although currently closed off, Iran could offer an interesting long-term opportunity as the category in the country is led by domestic manufacturers such as Zarin Seloloz and Morvarid-E-Panberes. Taking a broader view, regional players such as Indevco and Nuqul Group only really enjoy much of a presence at the value end of the market, reinforcing the primacy of Western brands in this category and Pampers in particular.

A demographic red herring

For the wider hygiene industry there is a strong base both demographically and economically and given the large number of children as well as women between the ages of 12 and 54, the region is certainly showing all the signs that it is heading towards a rapid growth phase, driven by wider diaper and sanitary protection usage. The elephant in the room, however, is the role women play. Female consumers are typically the driving force behind retail hygiene sales but the landscape across the Middle East is quite different. While not wholly divorced from the consumption norms associated with the Western world, where through a combination of female employment and the associated development of independent female incomes, emancipation, that have been the driving force of the hygiene market the Middle East continues to develop along its own path

Sanitary protection a key development category

While growing incomes and a relatively high birth rate compared to more mature Western markets will likely drive the diaper category forward over the medium term, the most interesting trend hints at a more central role for sanitary protection. At income levels typical to the region, one might expect that diapers would be far less significant. Other examples where this is the case can be found in emerging markets such as Indonesia and even India where cultural factors play a much more significant role than incomes in shaping the broader market profile.

While the role of women in the Islamic world is necessarily different from that in the West, female consumers are seen as increasingly influential. The clearest expression of this can be seen in the UAE where arguably conservatism is less pronounced. A mixture of higher female incomes and local production encouraging widespread availability has allowed affordable sanitary protection to become the norm rather than the exception, which is still the case in some areas.

Other countries such as Saudi Arabia and Qatar have penetration rates of around 65%, with traditional alternatives seemingly still in widespread use, but use of disposables is growing rapidly, suggesting there is still significant room for additional volume sales across the region, especially in the least developed northern quarter where Iraq and Syria have usage rates 10 times (or more) lower than might normally be expected. Iran is perhaps the surprise package, with initiatives having very much popularized the usage of more modern sanitary protection products as feminine hygiene becomes more important. Usage currently stands at around 50% in comparison with Israel and is growing particularly rapidly due to government-sponsored educational campaigns.

Wider opportunities

In keeping with the rising profile of feminine hygiene there has also been a very discernible upturn in sales of feminine hygiene wipes and also pantyliners, which continue to gain popularity across the more developed countries in the region. As an outside observer, it would appear that a mixture of very hot conditions coupled with traditional clothing would likely see per capita consumption rates be even higher than those seen in Western Europe or North America, for example. Sanitary protection sales are likely to reach $900 million this year and could potentially reach $2-2.5 billion if the category maintains the growth momentum seen over the past decade. Consumers in the UAE, for example, can generally choose from the same brands as Western consumers, the same advertisements aired as in the West. This, however, cannot be said of all states in the region, with limitations placed on female roles in advertising in Saudi Arabia and an outright ban in Iran, meaning the industry must rely on word of mouth and those who have access to the internet for this kind of product information.

Growth of wipes an indication of modernity

While in one sense matters of religion make adoption and marketing more problematic for manufacturers than might be the case in more secular countries, the importance of hygiene within Islam should rather be seen as a boon. Supported by education and wider availability, the retail hygiene industry is in a good position to deliver strong future growth. While this is true in diapers and sanitary protection, there is also evidence that the region is adopting wipes, especially in the area of personal care. Saudi Arabia, for example, has seen wipes usage triple in a decade, with sales set to reach almost $50 million in 2013, for example.

The emergence of the region as an important air transportation hub has brought with it the risk of transmitting any number of infectious diseases, which are increasingly finding their way into the international media. At the time of writing, the emergence of the Novel Coronavirus (similar to SARS) in Saudi Arabia and Qatar at the tail end of 2012 was a further indication that hygiene will undoubtedly play a much higher profile in the region, which bodes well for the nonwovens industry as a whole, with everything from surgical masks to wipes likely to benefit from greater Middle Eastern sensitivity, as was the case in Southeast Asia and further afield following the SARS and more recent swine flu and bird flu outbreaks.

The development of wipes, the preponderance of international brands as well as strong growth rates point to what should be an investment priority for manufacturers, both local and international alike. While instability in the north will likely rumble on, the latent potential of the Middle East to develop into a key market for hygiene products globally over the medium and long term is not in question. The issue is, are manufacturers ready to turn potential into reality?

Ian Bell is head of tissue and hygiene research at Euromonitor International. He can be reached at ian.bell@euromonitor.com.

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