Detailed analysis of various business sectors in Uganda

Cosmetics business in Uganda – will the real black beauty come forth?

Juliana Kanyomozi

Outside Looking In

D E Wasake, FCCA

About My Guest Writer

Ms. Kongai Grace is a laboratory attendant at the Uganda Industrial Research Institute. 

She has witnessed a number of starts-up’s grow into fully fledged cosmetic companies from the Industrial research Institute Incubation lab. If you harbor any aspirations on making a mark in the beauty and cosmetology industry, chances are, you will most likely be pointed in  Her direction. Email: kongai@yahoo.com Tel: +256(0)706566845

About the Writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business.

Article Summary

“Mirror mirror on the wall, who is the fairest of them all?” “What is your beauty secret?” The immortal questions women of all shades and walks of life are often asking themselves in their strife for eternal beauty and youth.

This article looks at the cosmetics and beauty industry in Uganda and in particular how to set up a perfumed soap and petroleum jelly manufacturing entity.

In an industry dominated by international brands and further more local sector leaders it is critical that a niche is established coupled with stringent quality controls and extensive advertising/marketing to tap into this lucrative sector.

If you are successful, we estimate in our model a return on investment of less than 1 year.

Introduction

I’m certain you have heard the question being asked many times ‘What is your beauty secret?’ This is often at the marvel at a beautiful smooth skin, complexion, radiance and fragrance.

If you are a fan of the movies and cartoons, then you will remember the character of the evil queen in Disney’s ‘Snow white and the Seven Dwarf’s’ who always asked her magic mirror ‘who the fairest of them all was?’….The mirror always answered Snow white much to the anger of the queen!

Snow white and the dwarf’s aside, It’s only Natural that beauty speaks a lot about a person, it’s a known fact (of course unscientifically proven by our tireless team at Inachee) that women would swap anything or give anything to look beautiful, radiant and forever young….One such woman who we are certain never tires of hearing this is the octogenarian princess of Toro, former actress, lawyer, diplomat, model and former face of vogue magazine, the one and only Elizabeth Bagaya!

This article looks to create the perfect beauty secret and an answer to a long lasting, good fragrance and skin complexion by dwelling into the beauty and wellness industry that every woman would love to have.

So, mirror, mirror on the wall, who is the fairest of them all? Let’s find out how you can create the best petroleum jelly and soap with only 39 million.

However, you should note this; any new entrants into this industry must stand out and create a unique product, customer loyalty base and segmentation.

The industry as it is, is dominated by international brands like L’ oreal, Imperial carssons leather and Nivea et al that have penetration and pedigree world over, these are the big players your product will be up against.

Thus by establishing a niche, focusing on quality, extensive branding & advertising,  and venturing into virgin markets of locally manufactured lipstick and lip balm are some of the “advanced thinking tips” to getting you started.

Getting started

The beauty industry in the Middle East and Africa was estimated at about $20.4 billion in 2011. Of this figure, South Africa alone represented $3.9 billion, Nigeria was second and Kenya’s market totaling more than $260 million came third on the African continent.

Uganda in the last few years has seen considerable growth in the cosmetic industry with pioneers like Mukwano Group, Mwana Mugimu, Sleeping baby, Movit and the timeless Samona Jelly making progress and opening up the market space for other players.

The older reader might also remember Mekako , Jaribu and Sabuni kanga among the soaps.

The cosmetic and beauty industry is highly lucrative, but success is hinged on focus on target markets and categorizing of a particular product for sale. Note this, the industry requires a strategic plan that addresses specific needs and an audience, this is the break or make of any product in this industry.

There must also be a strong emphasis on brand creation, distribution channel development and quality of the product as the competition is high from well established brands as already noted above. It being a locally manufactured product, there are bound to be a number of challenges and consumer behavior perceptions that you will need to address first before reaping big.

One of the guarantees however is that once a niche has been created and a loyalty base formed, sales from customers are guaranteed to be continuous as cosmetic products belong to a specific category of goods that create a ‘ life long bond’ between the user and the product.

Once this is understood and placed into practice, like acquisition of a catchy name, use of exquisite packaging and advertising, marketing strategies, this should be enough to give you and the company a detailed understanding on how the Industry operates and the bottlenecks.

Creating the Perfect Beauty Product

There may not be such a thing as ‘perfect’ or the ‘fountain of youth’ product as some advertising campaigns in this industry may suggest(but advertising is very crucial on the other hand), but there is a good and user friendly product.

Thus, before getting started in mixing and boiling up stuff or rolling out the product to shelves, the first and most important steps would be;

  • Doing extensive research on the ingredients and mixing ratios;
  • Pre-testing and doing clinical trials of the products; and
  • Getting certification from the relevant bodies like the UNBS to certify the product et al

The Soap Making Process

A simple method called the cold process method is commonly used by small artisans to produce handmade soaps. The process involves mixing crude petroleum jelly with lubrication oils using a mixer.

The oils are then heated at room temperature until they melt into a liquefied form. Essential oils and fragrance oils are then added just as the mixture starts to thicken.

The batch is then poured into molds, kept warm and left to dry on specially designed trays for 12 to 48 hours during which time they harden. However for milk soaps or others for which sugar has been added, no insulation is required as the presence of sugar increases the speed of the reaction and thus the production of heat.

After the insulation period, the soap is firm enough to be cut into bars. In order to attain some degree of standardization, and unique design, it is important to have a specially built mold. It is from here that a design and logo are imprinted onto each piece of the cut soap using a custom design soap stamper.

During the mixing, avoid using wooden and aluminum and stick to stainless steel products as the latter does not react to the chemical ingredients like sodium hydroxide.

See, creating your own beauty soap couldn’t have been harder!

Making Petroleum Jelly

In order to make petroleum jelly commonly known in Uganda as ‘Vaseline’ ( which is simply a popular brand of jelly), the most crucial items you will need are bees wax and mineral oil (liquid paraffin).

Petroleum jelly is compounded in various ways to suit different purposes. It is simply a mixture of bees wax and liquid paraffin; the proportions vary according to your requirements. A thin version would be 10 gm of Bees wax to 100 ml Liquid paraffin while a stiffer version would be 30 gm bees wax to 100 ml liquid paraffin.

Warm both items slowly in a mixer, when the bees wax is not quite fully melted, stir thoroughly but do not entrap any air pockets, when there is no solid wax left, then pour into a cooling container and allow cooling.

The proportions can be adjusted to test for different outcomes of the product, try it yourself and then experiment with other ratios to see the effect.

With enough practice you will be able to create and mix different fragrances and scents to the mixture and other ingredients.

As a standard niche creation for both the jelly and soap products consider use of local ingredients like Vanilla and Moringa among some of the locally sourced products, this will give a unique touch to the final out-put of the products.

The Sector as it is currently

Never mind what media channel you will find yourself tuned into, not a day will go by that you won’t come across promotional materials for either Movit or Samona products. Such is the level of investment and resources that have been, and continue to be pumped by Uganda’s market leaders in the cosmetics and skin care industry.

One of the latest entrants (at the date of this article) in the beauty and skin market is AMAGARA who in a short time have launched a quality product with a wide range (using natural fruits and vegetables like vanilla, avocado et al).

With having rolled out successful household brands in soaps, detergents, cooking oil, bottled water, flour, et al Mukwano Group dwelled into the manufacture of bath (Meditex & Yeyo soap), and laundry soap varieties (Chapa  Nyota & Star).

The market is currently dominated by the above companies and many foreign brands such as Unilever and Proctor & Gamble et al.

In the recent past, there has been a decline of once-idolized brands like Mwana Mugimu and Sleeping Baby Jelly that were must haves for every household in the 90’s, and for which the catchy tune ‘silika wo baby’ was created by now retired artist Emperor Orlando.

Currently, the market is highly dominated by International brands as already mentioned above, but also newer entrants like Oriflamme have established themselves in Uganda, with local diva and tusker project fame judge Juliana Kanyomozi as the product’s brand ambassador.

Market entry strategy

There are two options for venturing into this business,

  • Option 1: Sell local and international brands( Acting as a middleman and agent)
  • Option 2: Create your own brand and product(the main emphasis of this article)

With the above, you will have to make a choice on production entry; whichever choice you make, will help or bring you a step closer to understanding and making money from this sector. However the emphasis of this article is for the aspiring entrepreneur…..

Now that you are all strapped and ready to indulge in creating beauty the gods would be proud of, note this, there are very few products on the Ugandan market that are considered of ‘international pedigree and standard’ that would give the international brands a run for their money.

This might explain the concentration of local players Samona and Movit on the mass market (lower classes) as opposed to the Middle and Upper class who purchase cosmetics on basis of prestige and luxury. This is something that you MUST get right before you make your first mixture, you must know who the product is being made for.

Option 1 – Being a Middleman and Agent

We are very certain you notice international brand names like "Olay" "L'Oreal", "Dove" "Nivea", "Avon", "Neutrogena" and "Mac" all too well. The first option therefore is to become a dealer or retailer for such products and earn a difference from the sales.

This is very easy to engage in and any beauty and cosmetology ‘wanna-be’ can get started with capital to purchase some stock. This not being a core area of interest, we shall not dwell into this very much.

Sourcing of products (from Kikubo, Miniprice et al) or internationally (from Europe, Asia, the Middle East et al) on a whole sale basis, for sale to final consumers. According to this article, Dubai (United Arab Emirates) has in recent times become a hotspot for African importers for jewelry, perfumes and cosmetic products.

It’s strength as a hub for African cosmetics importers is associated to its strategic location relative to other distant markets in Asia, Europe and the Far East, the UAE is also favored because of the existence of low-priced goods owing to the low-cost environment in terms of import related tariffs.

Depending on the quantity you aspire to purchase, you will require a significant amount of capital as well as a distribution point or shop. This is the key business model, having distribution and outreach capabilities to move the product.

The key advantages of this sub-category include;

  • No attention needs to be paid to manufacturing or quality
  • The business is not affected by factors of production like land, labor and capital et al
  • Starting up requirements can be flexible and less than conventional start-up costs

Option 2 – Creating your Own Product

With guidance of my guest writer and extensive research we have carried out, I recommend this because of the many prospects for expansion. She contends that starting small with only the simple products like petroleum jelly and basic soaps, is the wiser option as you will be able to grow your experience, brand and knowledge for future expansion into the more complicated products like body lotions and make up.

But before you get started, these are basics you must get right!

Have a knowledge and Education base

A formal education in cosmetology and beautification will equip you (or staff you employ for the purpose) with the necessary knowledge on various skin types and how they relate with the different products that you will be making. The last thing you would need is to create monsters with your products –  read destroying people’s skins and beauties…..

There are a number of local institutions like the YMCA Comprehensive Institute, Tiner International School of Beauty and Oriflamme’s beauty academy, which offer certificate, diploma and advanced diplomas in beauty-related courses.

You could also opt for the more practical approach by attending a short training course at the Uganda Industrial Research Institute (UIRI); they have a skin care section with a fully equipped laboratory and offer free hands on training.

It gets better; UIRI also runs an incubation program where startup businesses are nurtured and supported with advanced technology, equipment, legal advice, skills training, physical space et al.

For marketing and advertising training, Mr. Alex Tumwizere, also of UIRI would be the perfect person to speak to, please see the attached contacts list in our model for more information.

Sourcing for Quality raw materials and Mixing

All the ingredients for the products luckily for you are locally available in abundance and cheap. You will need to establish a relationship with a supplier to ensure consistency and reliability of quality products.

Simple products like clay facials and bath salts merely require measuring cups and spoons, mixing bowls, and spoons for stirring and adding the final product into your choice of packaging. Other products such as lotions, balms and soaps require additional equipment and supplies. When it comes to the high tech equipment and machinery, try www.soapequipment.com.

Ensuring Quality assurance and Pre-testing

Any person who introduces a cosmetic product onto the local market must ensure that it is safe for human use when applied under normal conditions of use and does not contain any poisonous, banned or restricted substance.

Different cosmetic products react differently to various skin types and age groups and many ignorant users have had their skins damaged due to ignorance on this. Given the risks associated, you have to invest in proper research to ensure that your products are safe for human consumption.

A sample of your product has to be tested by UNBS before you can be granted a license to begin full scale production.

As you will note, there is a certain section of people who will be critical on whether the product has been animal tested or not, the latter are a growing majority of animal rights lobbyists as seen here.

Having a cash cushion

This is an area that you can’t ignore to sustain production for the first one year at least and other variable costs.

Due to the high cost of advertising and promotion, your financials should be in check even before you start production; no retailer is going to stock your products if there is no demand for them – this means most likely at the onset they will use a consignment stock system – they stock your product but only pay you when a customer buys.

Unfortunately you may be limited to your own personal savings due to the high interest rates charged by banks on top of their demands to deposit security items like land and other assets.

Before approaching any of the funding sources you have in mind, you should put together a business plan with properly laid out projections and carry out feasibility studies of the Industry. See our sources of finance site should you feel you can consider alternative providers.

Create a Good Network through Friends and Family

Your friends and family will have a strong part to play in the success of your skin care products. Firstly, they are your best source of funding for the production and promotion of your products through low interest or interest free loans. Your friends and family will also most likely be you first clients and will offer important insight as a sample market cluster for your products; they will advise you on what doesn’t seem right. Use them as your test subjects before rolling out commercially.

Selecting the right Marketing Strategy

It is not by mistake that I have chosen to make mention of this more than once; the importance of marketing and promotion simply can’t be stressed enough.

Unless you have the patience to wait all those years before your product can be recognized, you better brace yourself for one hell (excuse the “French”) of a promotional campaign rollercoaster targeting the right person, through the right way and expecting the desired right outcome.

This is going to affect the direction the final product is going to take, hence the classifications of who the target audience is.

Once this has been established, then the marketing strategy and execution plan will naturally fit into this scope.

This also goes to aspects like selection of brand ambassador and representative of the product.

Hence it is no surprise Samona Jelly chooses to relate with artists like Mesach Semakula, Omulangila Suuna and Yoyo  who would appeal to their mass market audicene while Oriflame chooses Juliana Kanyomozi, who might appeal to the middle class.

Other international brands like Lancôme use Oscar award winner Lupita Nyongo

The Andrew Rugasira Good African Coffee story, is the inspiration here to follow especially when dealing with supermarkets and new clients. At times, there will be doors shut in your face, but each time this happens, remember the Andrew Rugasira story – it will apply to you.

Having a website

The cosmetics Industry require the highest level of interactive for all customers. This is in line with customers being able to view the latest products produced, quality assurance and ways of accessing the product.

As the world becomes more of a global village, and particularly for Uganda where the bulk of the population is Millenials who have grown up with the internet (or are used to i) the internet is a key driver in this, hence the urgency to have a well-designed website that communicates the power and message of the brand.

We recommend you read our views on a website strategy.

Choosing a Name

This is key to creating a memorable impression to your prospective customers. Whatever name you will pick, will from then on lead the brand on its way up or down. Just as a pointer, keeping the name brief, simple and memorable can be a starting point.

And Now the PROS…..

1. Raw materials availability

Most of the ingredients required for production are locally available here in Uganda as well as in neighboring Congo, Rwanda, Burundi and Kenya. Shea butter, Coconut oil and Aloe Vera are just a few of the many locally available ingredients that you can choose from as raw materials. Many more, especially of the herbal kind are yet to be discovered and fully utilized, with only Amagara among the few that have capitalized on this.

Many of the operational supplies like petroleum jelly, aloe Vera, coloring, perfumes and fragrances et al can be found at Boost House just before Mini Price in downtown Kampala, or at Platinum House overlooking the old taxi park.

Regarding the technical equipment like mixers and moulds, there are a bunch of options offered by the local artisans in Katwe, but be careful to strictly monitor their progress and ensure that the product achieves the desired outcome. Alternatively, you could also visit http://soapequipment.com/

2. Affordable Startup Costs

Despite public perception and lack of knowledge, startup costs as provided in this model will show that starting out this venture is relatively cheap and sustainable. The highest costs of this venture are the steel boiler and stainless steel Mixer, the rest of the start-up costs are for materials and office startup costs.

3. Local Un-tapped potential

After taking a walk through some of Kampala’s major super market stalls, my research team discovered that many of the hair and skin care products like conditioners, lotions, soaps, shower gels, hand washes, and petroleum jellies were all imported. This could be an opportunity for you to produce an unrivalled product. During one of their numerous tours around UIRI, they chanced upon one of the cosmetic incubation projects called Amagara Skin Care Products.

 It is from them that we came up with the affirmation that a quality product backed by superior packaging, and pricing will set you apart, and on your way to success.

That said and done, the Ugandan market will embrace and welcome a product that meets the International criteria and standards but one that is locally made. Because of this, there is a lot of potential for any local product that is of quality and standard to be appreciated.

4. Gateway to Other Products

The cosmetic business is about creating a good and recognizable brand. Once this has been established the company can venture into making of other products for sale.

Most cosmetic startups tend to manufacture products that are already popular overlooking untapped markets opportunities that are easier to break into. Even with the existence of a number of local producers, there is still potential for improved and more affordable shower gels, shampoos, liquid soaps and hand washes on the Ugandan market, despite their popular use and production simplicity, there are currently no commercial producers of perfumes, nail polish, lip stick & lip balm et al in Uganda, this is an area that is un tapped.

5. Government Support and Incubation Labs

Given the unique nature of this sector, there are a number of incentives that can be provided by the Uganda Investment authority and the private equity funders. This is an avenue that can be exploited by a prospective entrepreneur since this is a territory that has less penetration. See our sources of finance website for alternative funders.

The CONS …..

1. High Competition

As we have mentioned previously, there are a number of very many established International brands; this will be one of the key challenges and cons of the business. As the industry products are based on perception, it will take a lot of time to create a recognizable brand that will match and change the perception of the consumer. Thus, whatever is provided to the final consumer by the entrepreneur must be able to fulfill all the quality tests as well as have a creative advertising appeal.

There is bound to be an up hill task in changing the consumer behavior and endearing people to the new product and leave the old tried and tested cosmetic products. Hence having a product side to side with Nivea or L’oreal is and will always be the biggest challenge you will face.

2. Developing the right Marketing, Brand and Advertising strategy

If you haven’t been paying much attention, this is where you definitely ought to do so!

Bear in mind that the products you will be making are nothing new to the world, they have been experimented before! What this means therefore is that you have to spend a considerable amount of resources creating awareness for your product; and there is simply no way out of this.

The specific amount you choose to invest in promoting your product will have a direct association with your eventual sales; after all, nobody is going to buy something they have never heard of before or relate to.

That said there must be a considerable amount of investment or planning for a marketing and advertising strategy that should appeal to a specific target audience.

3. Taxation Policy

We advise all our clients to pay their taxes as it is a good corporate practice. However, we also note that it being the manufacturing industry, all products will be eligible for payment of VAT (Value Added Tax). This is a shortcoming on the other hand as a business being a start-up; taxes on profits will retard faster growth of enterprise.

The other taxes that will be levied on Imports of machinery as well as agricultural products are bound to increase the cost of doing business in the cosmetic industry.

There are no specific tax incentives for the industry.

4. Establishing a distribution channel

This is critical to ensure the product is accessed in all households world over! As a positive step towards better business development in Uganda, the East African Community and AGOA are being emphasized more for better trade and efficiency of doing business.

However, ensuring distribution and effective outreach has a significant cost as many established distributors with all the right networks don’t want to associate with a start-up or a brand that has not been tested and proven on the market. This is another challenge that you will have to face.

5. Accommodating Expansion and growth

There needs to be a cushion plan for expansion and growth of enterprise. This will be in terms of warehousing and factory space for manufacture of the products. Given the growth of the business, this space might be required sooner than later, hence there must be a contingency plan put in place for renting and warehousing.

Just how profitable is this sector?

On the basis of our model analysis and using a 5 year time projection, our estimates are as follows:

  • Startup Capital (A):  39,337,072
  • Av. Profit per year (B): 35,328,450
  • Return on Investment/Capital (years to get capital back) (A/B): 1.11 years

Our model is below.

Cosmetics manufacture model

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be dowloaded after you register.

SUMMARISING AND THE FINAL WORD

FINAL WORD

There is huge potential in this sector that is yet to be exploited and with one flick of brilliance and innovation, you will be on your way to creating the next big product from the pearl of Africa……so will the real black beauty come forth and conquer this industry?

 

END

 

 


With research and contributions by Donald Wasake and Matthew Owomukama, Inachee staff writers.

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Image: The image used is of Juliana Kanyomozi, a Ugandan singer and brand ambassador for Oriflamme.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions.

You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

 

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