Spain - A passion for living

The Spanish, particularly Spanish men, are increasingly interested in spending time and money on their appearance

Since Spain’s formal joining of the European Union in 1986 the country has been transformed in numerous ways and many of the current trends in the Spanish C&T industry can be traced back to this initial event. Other important social and demographic factors have also played an important role in defining today’s current market. As a result, Spaniards are more affluent, urban, diverse and, as a whole population, older than they were prior to 1986.

The National Association of Perfumery and Cosmetics (Stanpa), whose members represent nearly all Spanish cosmetic and perfumery manufacturers, estimates the Spanish retail cosmetics market in 2004 amounted to €6,801m. The Spanish C&T market is the fifth largest in Europe and employs 27,000 people - 19,200 directly and 8,100 indirectly. There are approximately 250 manufacturing companies which include large multinational companies such as L’Oréal through to small Spanish laboratories that tend to specialise in specific market segments. The number of companies has tended to decline, with greater consolidation within the market brought about by a more globalised marketplace. A handful of multinational companies control approximately three quarters of total market turnover. In the case of Spain, these multinationals include the home grown, Barcelona-based Puig Corporation, which is well consolidated as the leading Spanish perfumery and cosmetics manufacturer competing neck and neck with L’Oréal in the Spanish market.

Time for treatment

In a further study carried out by Ipsos for cosmetics trade fair Cosmobelleza, per capita annual spending on beauty including services amounts to approximately €700. This demand has spawned new types of businesses such as spa centres in traditional Spanish mercados or food market complexes. There is even a new spa complex incorporated in the new Madrid Barajas airport terminal for weary travellers, which is quite a novelty for Spanish airports. The number of men’s spas and body care centres have also grown steadily over the past five years in Spain. With names like Ego Homme, Life &Men, Only Men, Logic Men, these specialist centres cater exclusively for men who are becoming more visible in Spanish urban areas where demand is the strongest.

Indeed today most of Spain’s population is concentrated in large urban areas centred in and around the country’s largest cities such as Madrid, Barcelona, Bilbao, Valencia and Seville, or along Spain’s Mediterranean coastline. And rising immigration, especially from South America, Northern Africa, Eastern Europe and Asia, is bringing with it new demands on the Spanish cosmetics and toiletries market for certain ethnic products.

Men and age concerns

In addition, more young people are having a harder time becoming independent due to expensive housing prices and a precarious labour market. As a result, more young people are leaving home later and starting families later in life, which has prompted a redefinition of target markets where the youth market is the under 35 year old group. According to government statistics, 44% of Spanish males aged 24-34 still live with their parents. There are more single people in this youth group today and, as a result, more disposable income is spent on alternative expenditures rather than for mortgages and childcare.

Younger men are driving sales for skin and body care products that their fathers would never have imagined using. Interestingly, the first men’s complete cosmetics lines were introduced to the Spanish market in 1985. L’Oréal’s Biotherm Homme and Estée Lauder’s Aramis Lab Series pioneered men’s cosmetics lines unrelated to the shaving market in Spain where today nearly every major brand in mass, selective and pharmacy channels offers a complete line of men’s personal care. In 1985, a men’s eye contour cream was hard to find in Spanish shops, but today it can be found in the smallest perfumery outlet. Men as new cosmetic consumers are driving sales. According to Cosmobelleza, there is a steady rise in cosmetic spending among men at a an annual rate of 5%.

More money is also spent today on sophisticated advertising campaigns. There was a time in the not too distant past when Spanish women were relegated to the kitchen in a homemaker’s role in many Spanish publicity campaigns. Even though stereotyping still sells products in Spain, more campaigns, such as the Dove Real Women ads, are striking chords with Spanish women of all ages and shapes. In fact, a bombardment of advertising has helped bring about greater awareness among Spaniards for health and personal care in every age segment. As a spokesperson for Stanpa points out: “There is not a baby in Spain whose mother doesn’t use a moisturising cream or skin care product on them.” Indeed, a rapidly ageing Spanish population is also driving demand for more specific skin care products, especially anti-ageing and body firming products. “Every skin care segment has posted gains in Spain from solar protection to anti-ageing,” says Stanpa’s spokesperson. Demand for specific skin care is likely to increase as more Spaniards enter middle age and the +65 age group.

Sector analysis

Stanpa has provided preliminary data on 2005 based on manufacturer’s prices and these figures are subject to change. Nevertheless, this data allows for a more complete picture of the Spanish C&T market, which continues to post important growth, outperforming most other European markets where sales have been relatively flat. Since 2002, value sales at manufacturers’ prices have risen by more than 6%, though in 2004 this rate fell to 4.25% due primarily to a deceleration in consumer spending in the overall Spanish economy, where other sectors have also been affected by these macroeconomic trends. Perhaps the most significant figure is the negative result in hair care products, a backbone of the Spanish cosmetics industry which represents nearly a quarter of total value sales. Hair care as a product category fell 1.47% and hair care products sold through professional hair salons fell by 1.50%.

Industry sources suggest that one factor that may have affected this market is the growing importance of large distributors’ private label. Hair care products are easier to produce at competitive prices than specific skin care, perfumes or colour cosmetics. At the same time, the personal hygiene segment has risen steadily year-on-year and today accounts for nearly 21% of total value. In 2005, this segment rose by more than 9%, reaching sales worth €907m for manufacturers. It is likely that the personal care segment has gained share at the expense of hair care as bath and shower gels often double as shampoo in many Spanish households. In general, salaries and wages have not kept up with a higher cost of living in Spain and many families have had to economise to make ends meet at the end of the month. This market reality has boosted sales for more competitively priced private label personal care brands.

Skin care continues to represent the lion’s share of the market. Year-on-year sales growth for skin care rose slightly less (6.53%) than the previous year when this segment experienced double-digit growth of more than 11%. According to Stanpa, skin care rose in every category from solar protection and baby lotions to anti-ageing and anti-cellulite products. Perfumes also got a boost where sales, rising by 4.35%, pushed over the €1000m mark. Colour cosmetics sales have remained relatively steady, hovering around 8.5% of total sales since 2002, but they did rise nearly 2% in 2005.

Distributing the goods

In distribution channels, the mass market holds the greatest weight in Spain, though it continues to lose share to other channels, selective and pharmacy outlets in particular. Sales in selective channels rose by 6% in 2005 when pharmacy sales posted nearly 9% growth, while at the same time mass channels rose a more moderate 3%. Interestingly, professional aesthetician outlets, though still a small market segment, experienced a 12% rise in sales. As mentioned earlier, the proliferation of urban spas has certainly played a role here.

The highly favourable business prospects in the Spanish perfumery and cosmetics sector has prompted an increase in the number of top Spanish fashion designers to venture beyond a signature fragrance and launch their own cosmetics lines. Adolfo Domínguez has created a full line of men’s and women’s Unica facial and body care products while Agatha Ruiz de la Prada’s brightly coloured trademark can be found on numerous cosmetic and personal care products ranging from colour cosmetics and lip balms to bath and shower gels.

Of course signature fragrances by sports figures and actors have always been popular in Spain and have helped to strengthen the Spanish industry’s image abroad. Spanish actor Antonio Banderas, who has had several perfumes on the market since first launching Diavolo in 1997 in collaboration with Puig, continues to back the Spanish fragrance industry. Banderas has two new signature fragrance launches: Antonio men’s cologne and Spirit Antonio Banderas for Women. Puig Beauty and Fashion has also reached an agreement with the young Spanish tennis star, Rafael Nadal to launch a signature fragrance in the spring of this year. The Andalusian company, De Ruy Perfumes relaunched its top selling Carlos Moyá signature fragrances, extending the line to include roll-on and spray deodorants as well as a new hair gel for men. The Spanish tennis champion’s fragrance was first launched in 2000 and continued to post strong earnings in 2005.

Distribution in perfumery and cosmetics continues to be highly fragmented in Spain despite the entrance of larger, usually foreign groups who have bought out many of the small, often family run regional perfumery chains in Spain. Large food distributors have also entered the C&T sector to diversify their businesses.

In 2005, there were important developments in cosmetics and perfumery distribution which has led not only to further consolidation within the sector but also to the emergence of even more powerful groups in the Spanish C&T marketplace. Department store giant El Corte Inglés, Spain’s largest perfumery and cosmetics distributor, for instance has entered into a joint venture with one of its main competitors, the French Sephora chain. Sephora, who entered the Spanish market in 1998 and whose open outlet format helped to bring down barriers to cosmetic sales in Spain, has needed to form allies with El Cortes Inglés to further expand in the country. Both companies have embarked on an ambitious plan to open more perfumery outlets. Sephora plans to inaugurate 30 new stores and ten spaces in El Corte Inglés department stores in addition to the chain’s 20 existing outlets by the end of 2006.

In May 2005, Eroski announced the opening of one hundred more IF Perfumerías to the group’s existing 172 outlets throughout the country. The Eroski Group, better known for its supermarkets and hypermarkets, entered the perfumery sector in 2001 through an aggressive acquisition campaign. Eroski plans to invest €140m over the next three years in new IF outlets to compete with El Corte Inglés in selective perfumery channels.

In some cases, these larger groups have overextended themselves by entering into buying sprees and leaving themselves vulnerable to takeover bids. One high profile case is that of the French perfumery chain Marionnaud, which after an aggressive acquisition campaign in Spain, eventually ended up being bought out by the Chinese Hutchinson-Whampoa Group. The Chinese entrance into European C&T distribution also took place in 2005.

Finally, capital risk groups brought about important changes in the Spanish C&T industry. The Cortefiel group, Spain’s second largest textile company after Inditex, was subject to a leveraged buyout in the spring of 2005. As a result, Cortefiel ended its long-standing joint venture with the Douglas perfumery and cosmetics chain by selling its 50% stake to Douglas Holding. Douglas has more than 60 outlets in both Spain and Portugal. And in March, the Dinamia group acquired Bodybell, one of the most important perfumery chains in the Spanish market with 112 outlets. The Eroski group had also made a bid for Bodybell’s distribution chain.