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Key Issues in Developing Cosmetics, Soaps, and Detergents Value Chains - South Africa and Zambia

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Opportunities and constraints in building viable regional value chains

Farisai Chin'anga

Firm competitiveness can be understood as the ability to provide products and services at least as efficiently and effectively as competitors. At the industry level, international competitiveness is the ability of domestic firms to achieve sustained success against foreign competitors such as in terms of unit labour costs and relative productivity.1 Competitiveness is critical if a country’s firms are to take advantage of the opportunities presented by the regional and international economy. Furthermore, it can stimulate industrialisation and economic growth which subsequently promotes job creation, higher productivity and innovation.

In this context, recent research suggests that South African and Zambian firms can leverage rising urbanisation, increasing populations and incomes and the resultant higher demand for fast moving consumer goods towards building industrial production capabilities in the cosmetics, soaps and detergents industry. Trade data shows that there is a trade deficit of $536m for cosmetics and $667m for soaps and detergents in the SADC region, presenting an opportunity for the region to simultaneously meet this demand internally rather than imports from global markets. This article draws insights from the research conducted by CCRED and ZIPAR on the cosmetics, soaps and detergents value chains in South Africa and Zambia.2 It particularly focuses on how standards and regulations, access to retailers, scale and packaging constrain competitiveness and their implications on the cosmetics, soaps and detergents industry in both countries based on in-depth interviews with stakeholders, firms and associations.

Structure of the retail market for cosmetics, soaps and detergents in South Africa and Zambia

The South African cosmetics industry comprises a number of personal care products ranging from skin, body and hair care. The industry is not concentrated relative to soaps and detergents with four multinationals, namely, Unilever South Africa, Procter and Gamble, Colgate-Palmolive and Johnson & Johnson, accounting for 28.8% in total of the retail market for cosmetics in South Africa.3 Contrary to South Africa, the cosmetics industry in Zambia consists of very few players with a few emerging firms engaged in the manufacture of organic cosmetic products. The industry is dominated by imported cosmetic products from Unilever, Colgate-Palmolive and Johnson & Johnson’s notably from South Africa.

The soaps and detergents industry in South Africa broadly includes the manufacturing of soap, synthetic organic detergents, inorganic alkaline detergents, and crude and refined glycerine from vegetable and animal fats. The industry is highly concentrated with Unilever constituting 51%; whilst Colgate-Palmolive, Procter & Gamble and Bliss Chemicals (Pty) Ltd constitute 13%, 8% and 7% respectively of the total market share.4 In addition, there are several contract manufacturers and small- and medium-sized producers. In the Zambian soaps and detergents industry, Trade Kings Limited is the local industry leader. The rest of the local market comprises smaller players that manufacture liquid detergents and dish washing liquids predominately for industrial use, along with popular international brands.

Standards and regulations

Complying with standards and regulations is often costly and therefore affects the competitiveness of cosmetics firms in South Africa and Zambia. Standards give consumers the assurance that a product is safe and of good quality. Firms that manage to exceed quality standards tend to stand out above their competitors.5 While the cosmetics industry in South Africa is generally self-regulated, firms are still required to comply with certain standards such as Good Manufacturing Practice (GMP), which is costly. Firms that also supply retailers are required to have their products tested to meet the retailers’ own standards. Currently South African Bureau of Standards (SABS) does not offer this service and firms can only resort to private testing which is relatively expensive, but not necessarily prohibitive for smaller players looking to access the mass market.

Furthermore, product certification is critical for accessing export markets. For instance, firms exporting to Europe require EU certification which is very costly. While, the Zambia Bureau of Standards (ZABS) provides Zambian firms with product accreditation, it is not recognised both regionally and internationally making it difficult to export. This compels firms to seek accreditation by other internationally recognised standards organisations which is costly. In an effort to alleviate this exporting constraint, ZABS has entered into a few bilateral arrangements with Namibia and Botswana regarding standards and the export of selected products, however cosmetic products are not among these selected products.

Access to retailers

The challenges associated with access to retailers are identified as a key concern that limits competitiveness, particularly for smaller firms. Retailing is the major route to market for soaps, detergents and cosmetics products, however smaller firms often fail to list with retailers. This is mainly due to constraints which include lack of good quality packaging, barcodes, lack of fleets and own logistic arrangements, limited advertising budgets and the inability to supply consistently the volumes required by retailers. Consequently, some smaller firms are currently making use of alternative routes to market such as direct marketing, salons, spas, hotels and cleaning services to mitigate the above constraints. Scale Smaller firms in the South African and Zambian soaps, detergents and cosmetics sectors produce in low volumes due to various factors such as limited production capabilities and lack of access to markets. Many firms struggle to expand their production due to lack of finance for investing in machinery and equipment. Almost all the small firms surveyed in South Africa and Zambia produce below their maximum capacity. Failure of small firms to meet sufficient production volumes deprives them of the benefits of economies of scale, and renders them less competitive compared to large multinational rivals.

Packaging

Packaging is also highlighted as a key constraint hindering the competitiveness of smaller firms in the cosmetics industry. Packaging firms in both South Africa and Zambia often impose minimum order quantity restrictions on their products to as high as 5000 units, leaving smaller firms lacking scale to resort to standard packaging. Standard packaging is cheaper but may not be as appealing as the unique packaging often used by multinational companies made from costly moulds which range in price between R2 million to R10 million. Furthermore, once a design has been agreed upon and a mould purchased, it becomes difficult to change the design. Large multinational firms have sufficient scale and are able to justify investments in these moulds which gives them a competitive edge over smaller firms. However, 3D printing technology used for prototyping is now available at relatively low prices, costing as little as R15 000. Therefore smaller firms can use it to test out different designs before eventually settling for a particular design.

Cross cutting recommendations

The study recommends that a chemical innovation centre with 3D printing and testing facilities for new products can be developed and shared by two or more countries in the region. Zambia is already working on establishing a centre for packaging. This would provide adequate testing facilities for the two countries and also ease packaging constraints for small firms. Developing a regional content policy for consumer goods such as cosmetics to open up shelf-space to regionally produced product or offtake commitments. This could be implemented in conjunction with supplier development programmes to continuously build capabilities for suppliers. Establishing industrial clusters that aggregate small scale firms could mitigate production scale constraints, and allow for sharing of common costs such as packaging input costs and distribution costs.

  1. Edwards, L. and Golub, S. S. (2004). ‘South Africa’s international cost competitiveness and exports in manufacturing’. World Development, Vol. 32, No. 8, p. 1323-1339. 
  2. Bosiu, T., Chinanga, F., das Nair, R., Mondliwa, P., Phiri, M. and Ziba, F. (2017). ‘Growth and development in the cosmetics, soaps and detergents regional value chains: South Africa and Zambia’. Study conducted by Zambia Institute for Policy Analysis and Research (ZIPAR) and Centre for Competition, Regulation and Economic Development (CCRED). CCRED Working Paper No. 2017/9.
  3. Euromonitor (2015)
  4. See note 3.
  5. Cebos website; and see note 3.