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Tips on how to thrive as an online business this holiday season

By Frankline Sunday | Dec 8th 2021 | 5 min read
By Frankline Sunday | December 8th 2021

New levies in the Finance Act 2021 were not subject to public participation, according to KAM. [Courtesy]

In 2013, global cosmetics giant L’Oréal announced the acquisition of Kenyan firm Interbeauty in a multi-billion shilling deal that was viewed as a nod for the local manufacturing industry.

Interbeauty was the producer of the iconic Nice & Lovely brand whose founder Paul Kinuthia started manufacturing beauty products, diapers and sanitary pads in 1995 from Nairobi’s Kariobangi estate.

At the time of the deal, Interbeauty was reporting annual revenues of up to Sh2 billion and the deal made Kinuthia an instant billionaire and gave the French-based giant a foothold in the region’s lucrative cosmetics market.

“Thanks to the popularity of its haircare and skincare brands with Nice & Lovely taking pride of place, Interbeauty is enabling L’Oréal to learn more about the market and increase its penetration in Kenya, while taking advantage of the company’s regional production platform,” stated L’Oréal in a 2013 note to investors about the deal.

Industry comes of age

The deal further signaled to foreign investors that Kenyan companies manufacturing fast-moving consumer goods (FMCGs) had come of age and could hold their own along well-resourced global firms eyeing opportunities in the regional market.

Almost a decade later, however, local manufacturing appears stunted with the sector’s contribution to the country’s gross domestic product GDP falling from 9.3 per cent in 2016 to 8.4 per cent in 2018 and 7.6 per cent in 2020.

The onset of the Covid-19 pandemic last year further dealt a blow to the sector and foreign investors are now pushing the government to review existing policies in favour of a regime that favours the growth of local manufacturing.

“Currently, there is a supply chain shortage and this means a shortage of raw materials that have driven up the cost of production,” explains Thierry Fleurichamp, Expressions Parfumees head of Fragrances for the Southern African and Middle East region.

 Expressions Parfumees head Thierry Fleurichamp. [Wilberforce Okwiri, Standard]

 Small traders, small volumes

“We believe that the shortage driven by the pandemic will take about one to two years to normalise and in the meantime, prices will remain high and the cost will be passed on to the consumer,” he said.

With annual revenues of about Sh100 million, Expressions Parfumees last week opened up regional offices in Nairobi in partnership with Kenyan firm ASL Chemicals and has its sights trained on the regional market.

“Kenya is an important market because of it’s hub status in the East African region and our target is local and regional medium-sized enterprises manufacturing home care products like detergents as well as industrial clients producing paints and plastics,” said Fleurichamp.

According to Fleurichamp, the perfume market in Kenya at the moment is mainly served by small traders with international distributorship agreements.

In addition to this, some foreign producers maintain direct engagement with clients despite having a local distributor, thus creating a conflict of interest that erodes the bottom line for their distributors.

“Most distributors have little guidance, technical support or the marketing budget of the firm they are selling for,” he explained. “At the same time, the products like in our case perfumes, have a short shelf-life and their quality deteriorates with time.”

Fleurichamp says this has informed the firm’s strategy for venturing into the East African market through an exclusive partnership with ASL Chemicals.

“Often customers face technical challenges which take time to be sorted because they have to consult headquarters in London or Paris,” he said. “From our offices in Dubai and now in Nairobi where we have a fully equipped lab we can ensure a faster turnaround and resolution of any challenges that crop up.”

This is how to stay competitive

Ashwani Ganjoo, an executive at ASL Chemicals which is part of Ramco Group said the partnership with Expressions Parfumees is a step in building local manufacturing in the profitable fragrances sector.

ASL Chemicals executive Ashwani Ganjoo. [Wilberforce Okwiri, Standard]

“Leaning on the 70-year market presence of Ramco Group, the goodwill and connections, we seek to professionalise the existing market setup,” he said.

“We did a survey in the market and the regular buyers like those dealing with the production of detergents and cosmetics said consistent and quality supply, as well as reliable customer support, was key in staying competitive.

“There is a huge untapped potential in FMCG sectors and the rise in consumer spending not just in Kenya but in the East African region will be a game-changer for local manufacturing into the future.” 

According to Ashwani, the transition to local manufacturing from imports ensures products become more innovative and tailored to the needs of the local market.

 Why imports are lucrative

“At the moment we have small production of sanitisers and detergents but much of this is sub-standard in terms of packaging and the level of innovation and product development is also low,” he said.

One of the hurdles is the imposition of levies on raw materials that tend to increase the cost of production for local manufacturers and makes imported products more alluring to traders and consumers.

Earlier this year, the Kenya Association of Manufacturers (KAM) called out the National Treasury for introducing new levies in the Finance Act 2021 that were not subject to public participation.

“These new additions have dealt a significantly negative blow to the gains foreseen by many businesses and have a far-reaching debilitating impact on key sectors of industry,” said KAM in a statement.

These included the imposition of 10 per cent excise tax on articles of plastics, imported resins, super absorbent polymer (SAP) used in the manufacture of baby diapers and a Sh200 per kg excise tax on locally produced white chocolate.

“It is imperative that the government understands that the inclusion of these taxes significantly threatens the Made in Kenya goal, and gives an upper hand to cheaper imports from other countries,” stated KAM.

“Additionally, the local manufacturing sector, which is still struggling through the worst of the pandemic effects, continues to lose its competitiveness in both local and export markets.”

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