The German C&T sector had a much healthier year in 2005 and the market is undergoing considerable change
On the whole 2005 was a good year for the German cosmetics industry, particularly when compared to its dismal performance in 2004. Although the market did not register any spectacular results it did manage an increase of 0.2% to €11.10bn, according to industry association Industrieverband für Körperpflege und Waschmittel (IKW). Per capita expenditure on C&T grew to €134.60.
Hair highlights
Looking more closely at the IKW figures, hair care, the biggest C&T category, grew 0.1% to €2.81bn, though this figure also includes salon sales.
Over in consumer retail IRI data for the first half of 2005 reported turnover of €351.46m, down 0.9%, while volume sales fell 0.3% to 5.57 million units. First figures for 2006 show a similar picture, with value sales for shampoos, conditioners, treatments and colourants growing 0.8% to €522.04m in the first six months. Volume sales however dipped 0.4% to 78.49m.
Despite these subdued results launch activity in the sector was high. German multinational Schwarzkopf & Henkel launched an Asia range containing lotus oil and soy proteins in its Gliss Kur brand while rival Beiersdorf’s Nivea Hair introduced Beauty Care, a range formulated with rice proteins, and P&G’s Herbal Essences brought out two new ranges in its Fruit Fusion brand.
Manufacturers also tried to attract consumers with increasingly tight product segmentation, especially in colour care. Nivea, Guhl and Dove all added to their colour care line-up for blonde, brown and red hair but in a bid to distinguish itself from the competition drug store chain dm’s reell’e label came up with something rather unusual - a product range for black hair formulated with blackcurrant extract and black henna. This is the first brand in the German market to offer products for this hair colour, leaving industry observers to speculate when other brands will follow suit.
Skin & body
Moving on to the next biggest IKW sector, skin and body care (including facial skin care, body care and sun care) increased 3% to €2.5bn. Sun care was up 8% thanks to the hot summer in 2005. According to IRI figures facial skin care turned in a solid if unexciting performance in 2005. Face creams dipped 0.8% to €385.53m with volume sales sliding 1.4% to 3.25 million units while cleansers turned out to be more popular than creams, increasing 2.8% to €161.715m and jumping 3.9% to 6.13m.
The anti-ageing category was particularly busy in 2005/06. L’Oréal, for example, launched a collagen refiller pen in its Decontract’Falten range while Claire Fisher (Omega Pharma) introduced a similar anti-wrinkle pen product with green algae extracts and duboisia plant extracts. German spa brand Sans Soucis (Fribad) brought out Spa Elixir, a thermal water-based anti-ageing moisturiser, while Schwarzkopf & Henkel decided to tackle wrinkles with a seven-day treatment in its Diadermine skin care brand.
For consumers requiring something a little more drastic there are always dermabrasion kits, one of the more interesting trends of recent years. Last year IRI Germany started to track the category for the first time and promptly reported a 2811% jump in value to €1.91m and volume increase of 1554% to 13.4 million units. New launches in this category included L’Oréal’s glycolic acid-based Dermo-Expertise Renoviste while Sans Soucis chose powdered aquamarine and quartz sand as the main ingredients in its Royal Aquamarine Formula.
Colour story
Colour cosmetics put in a disappointing performance, falling 5.8% to €1.18bn, a result which can be traced back to decreasing usage across all sectors but also to the continued pressure of discounters and own labels, says IKW. IRI results for 2005 reflect this estimate, posting a 4.7% drop in annual turnover (including eye, face, lip, nail, multipurpose products and others) to €891m while volume slipped 2.8% to 147.7 million units. But figures for the first half of 2006 show that all is not lost, with a rise of 2.8% to €459.77m and 2% increase to 75.7 million units. The biggest category was eye products which grabbed a 35% share of the market in 2005, closely followed by face products (33%), lip products (21%), nail care (10%) and multipurpose products (1%).
The German colour cosmetics market as a whole is dominated by domestic labels. Although Beiersdorf’s Top ten value brand ranking for colour cosmetics in 2005 is topped by Jade Maybelline and L’Oréal Paris, Manhattan (Dr Scheller/Kalina) comes in third place followed by Ellen Betrix/Max Factor (P&G), Nivea Beauté, own labels, Astor (Coty), Artdeco and Essence (Cosnova).
Fragrance issues
Women’s fragrances fell yet again in 2005, dipping 1.9% to €741m, partly due to price pressure and discounting activities but also as a result of the general decrease in consumer spending. IRI figures reflect a slightly more cheerful situation, posting an increase of 0.7% to €732.18m for the mass and selective market (excluding hard discounters) in 2005 and volume up
4.7% to 32.89 million units. The mass market put on 9.48% for €139.06m and grew 14.7% to 14.98 million units while the selective sector slid 1.15% to €593.12m and dropped 2.56% to 17.9 million units.
Despite the slack performance of the luxury sector there were many launches in all areas. Coty, for example, launched a new Jennifer Lopez fragrance and the group also brought the floral Kenneth Cole Black for Her over from the US and introduced Euphoria by Calvin Klein. Rival P&G Prestige Products weighed in with Hugo Pure Purple and the sensual floral Escada Signature while L’Oréal brought out the unusual Armani Code, a composition built around different orange notes. Another interesting launch was designer Jette Joop’s (daughter of Wolfgang) first fragrance, the floriental Jette (Coty), which promptly made it into perfumery chain Douglas’ Top ten list and scooped a FiFi award for best new prêt-a-porter fragrance.
Speaking of the FiFis, the German Fragrance Foundation recently decided to rename the event Deutscher Parfumpreis (which awards the Duftstars) in a bid to increase public interest and understanding.
Male mores
The men’s cosmetics sector showed a 1.1% drop to €636m, according to IKW. The culprits were aftershaves and shaving preps as facial skin care products, worth €49m, registered double-digit growth for the third consecutive year. According to IRI the men’s cosmetics market (comprising shaving preps, fragrance and aftershaves) rose 1.6% in value to €600.04m in 2005 but fell 2.6% in volume to 78.31 million units. Skin care products, on the other hand, increased 4.1% to €18.44m and 1.9% to 0.69 million units. These figures, however, are derived from perfumery and specialist stores and include premium brands only.
The healthy growth of men’s skin care was driven by a number of key launches, not just by the luxury labels but also by mass market contenders. Nivea Men, for example, introduced an eye product with co-enzyme Q10 and vitamins while Coty’s adidas brought out a new range of skin care products. In the prestige sector Fribad’s Biodroga came up with an oil-free face gel while Estée Lauder’s Lab Series for Men introduced a thermo-technology scrub and intensive cleanser and Clarins Men developed a new anti-shine product.
Bathing rituals
The bath & shower category showed slight growth for the first time in years, up 0.4% to €724m. However, this increase was primarily due to special promotions such as multi-buy offers, says IKW.
For several years this sector has been strongly dominated by the home spa and wellness trend. Claire Fisher went gourmand with the launch of a chocolate-macadamia nut flavoured bath additive while Nivea struck an Asian note with Reis & Lotus shower gel and Schwarzkopf concentrated on yoghurt protein as a key ingredient in two new Fa shower gels. Another big brand in this category is Merz Pharma’s personal care label Tetesept, best known for its Sinnenbad range of bath salts and foams. Natural brands such as Weleda, Kneipp and Lavera also play an important role in the bath and shower sector.
In fact the natural cosmetics sector registered yet another successful year in 2005. IRI Germany’s latest study of the natural cosmetics market found enormous untapped potential in this category. Natural cosmetics were very successful in the last two years, says IRI, with 53% of consumers polled saying they purchased at least one natural C&T article per month while 10% bought one item per week. Drug stores were the sales channel of choice, followed by Reformhäuser (health food shops), pharmacies and bio markets. Experts estimate that 2006 will see a further increase in turnover.
Luxury gap
On the other side of town the luxury C&T sector reported a year that was, considering the circumstances, quite encouraging. At its annual press conference at the trade show Beautyworld 2006, industry association Bundesverband Parfümerien announced an increase of 0.3% to €2.58bn with volume sales growing 0.7%; a positive sign after three negative years. Women’s fragrance was the biggest slice of the total, slipping 0.8% due to price pressure between perfumeries. Facial skin care grew 1.2% while body care increased 2.4%. Colour cosmetics on the other hand fell 1.6%. Finally, the men’s sector grew 0.9% with skin care products increasing 4.6%. For 2006 the Bundesverband forecasts a better result than last year, pointing out that the general economic mood appears to have lightened and consumers are again investing in luxury products.
The Verband der Vertriebsfirmen Kosmetischer Erzeugnisse (VKE), representing 46 mid-size and luxury companies that between them make up 30% of the German perfumery sector, reported a similar set of results in March 2006. According to VKE figures turnover dipped 0.1%. The wellness sector registered the biggest percentage leap, growing 10.4% while colour cosmetics increased 1.8% and men’s lines grew 1%. Women’s fragrance on the other hand fell 1.8% while skin and sun care dropped 1.5%. Still, president Gunter Thoss said the VKE is expecting a good year. He did however stress that price pressure and discounting activities amongst perfumeries had to stop to prevent luxury brands from falling in the estimation of the consumer.
Retail development
Looking at more conventional retail channels, the German market has seen a distinct polarisation for some years, with discounters and the luxury segment flourishing while mid-sized businesses struggle. The same applies to the C&T sector where drug stores and discounters have been steadily expanding their market share while small, independent perfumeries have suffered. Luxury stores as well as the big chains on the other hand have been doing very well indeed. In fact the Douglas group, which owns several prestige retail chains besides its ubiquitous perfumeries, has just posted its latest results. In the nine months to June 2006 the retailer’s 430 domestic perfumeries grew 4% to €650m, with total group sales up 10.9% to €2.1bn. “The positive development of our group shows that the consumer is willing to pay a fair price for friendly, competent service and good quality products,” says Douglas ceo Henning Kreke. And indeed some industry observers have seen this development as an indication that the German mania for discounted products has now reached its peak and that consumers are again looking for quality goods and service and a pleasant, upmarket shopping experience.
Despite these encouraging signs, discounters are still a force to be reckoned with in Germany. Although grocery, beverages and household products remain their core business, big chains like Aldi, Lidl and Plus now derive a considerable proportion of their turnover through the sale of non-food items, such as electronics, clothing, computer equipment and most recently, mobile phones and related services. The discounters are also increasingly offering branded products, particularly in the confectionery sector... and in personal care.
While Aldi, Lidl and the like have been selling own label C&T for years, Schwarz group owned Lidl grabbed the headlines last year by beginning to retail Beiersdorf’s Nivea products. The initial five sku line-up was recently expanded to 18 skus sparking speculation that the German multinational might soon be supplying Lidl rival Aldi as well. Beiersdorf ceo Pieter Nota quickly countered these rumours, saying: “We are not in negotiations with other discounters”. Not to be outdone, the Plus chain, part of Tengelmann group, recently convinced image-conscious French multinational L’Oréal to take a first step into the discount sector. According to media reports Plus outlets will now sell a selection of L’Oréal products. At the same time Plus is upgrading its stores, investing into properly lit shelves and product presentation in an attempt to create a more upmarket shopping ambience, something that discounters in other retail sectors have also started to do.
Other sales channels are changing their approach too. The German department store channel has been ailing for years, losing market share to discounters and luxury outlets, but now the big chains are rethinking their strategy. At an international department store congress in May Karstadt Quelle manager Helmut Merkel pointed out that consumers were expecting an exciting shopping experience and marketing expert Joachim Zentes added: “We cannot compete successfully with the discounters on their own territory, instead we have to focus on creating a fascinating shopping experience”. Key words include top brands, first class service, international ambience and special events; in short, trading up.
The Karstadt Quelle chain is taking the lead in this strategy. Karstadt, which has been struggling for several years with falling sales, empty stores and a cheapish image, is currently engaged in restructuring its group, implementing a tough consolidation programme that has seen the retailer getting rid of smaller businesses and interests and in general divesting as much of its multibillion property portfolio as possible in a bid to allay its huge debts. And it seems that this new strategy is paying off. Although group results for the first half of 2006 fell 4.2% to €6.47bn, the department store division registered an increase of 3.2%, the most positive first half for years. However, in view of the recent results the retail group halved its full year forecast.
At the same time Karstadt is restructuring its remaining department store division. Earlier this year the group established a new premium department store brand; after all, its existing 90-strong store portfolio already includes the luxury department store KaDeWe in Berlin and the selective Alsterhaus outlet in Hamburg. Investment of €100m will see 13 of the retailer’s biggest and most prestigious outlets upgraded to luxury stores over the next few years. The new brand will trade under a new name and identity in order to distinguish it from the remaining Karstadt stores. Patrice Wagner, in charge of KaDeWe and now also heading Karstadt Quelle Premium Group says: “The German market is ready for a premium department store segment”.
It could be argued that the country, and especially its capital, already has its share of luxury stores. According to industry sources, Berlin’s KaDeWe, the biggest continental department store in Europe, has a higher turnover per sq m than London’s Harrods. KaDeWe has been systematically upgrading its different departments over the last few years in time for its centenary in 2007. The store’s 3000 sq m beauty department was reopened in 2004. Featuring 40 counters and several hundred beauty brands, the retail area is structured around a ‘fragrance pool’ which displays 1500 fragrances from around the world. In mid-September a Kiehl’s counter opened in KaDeWe and this month (October) four new treatment cabins from Dr Hauschka, La Prairie, Kanebo and German nail care brand Alessandro join the existing Shiseido and Estée Lauder beauty lounges.
Berlin boasts of yet another luxury store - Galeries Lafayettes - the French retail group’s only foreign branch. Berlin’s Galeries Lafayette also recently invested in a store expansion, boosting its retail area and adding new fashion, gourmet and beauty brands. The beauty department on the ground floor was revamped in 2002 and now comprises 16 counters and a total of 127 beauty labels. The beauty area also includes a Shiseido Beauty Gallery which offers make-up consultation, salon treatments and a testing area.
Other luxury cosmetics outlets in Germany include Hamburg’s Alsterhaus perfumery while further south Munich has Ludwig Beck and Frankfurt plays host to yet another beauty temple, Douglas’ flagship store - a five story building with a spa area and restaurant. So far these stores have been few and far between, but the arrival of a dozen or so luxury department stores with a mission to bring back excitement and glamour to a jaded consumer culture may well prove to be the necessary impulse to bring about a change in Germany’s discounter influenced shopping habits.
It has been an exciting year (2005/06) for the German C&T market. There has been plenty of change and more is to yet come. The World Cup certainly boosted public morale, and the will to spend, but a proposed VAT increase which will hit Germany in early 2007 may have a more negative effect on C&T consumption.