The Spanish cosmetics market has responded well to societal and demographic changes. Alice Corson reports on this Western Europe market which still shows strong growth potential
Over the past decade, the Spanish cosmetics and toiletries industry has posted solid growth and has outperformed many other sectors of the economy. Despite the current economic downturn, the sector managed to increase value turnover in 2007, according to the National Perfumery and Cosmetics Association (Stanpa) which represents almost total market turnover through approximately 225+ member companies within the Spanish market. Sales at manufacturer’s prices amounted to €4,920.15m, which was a 5.76% increase over the previous year. Based on these figures, Stanpa estimates the retail market at just under €8,000m (€7,872.34), which makes the Spanish C&T market the fifth largest in the EU.
Behind the healthy performance in the Spanish market is the pro-active response on the part of manufacturers and distributors to both demographic and macroeconomic changes in Spain since the country formally joined the EU in 1986. Today, the Spanish population of 44 million inhabitants is older, more affluent and more diverse and demands greater sophistication in cosmetics and toiletries. As a result, the industry has striven to open new markets focused on growing segments in consumers who are over 50, men and the new immigrant population. At the same time, a growing awareness among Spaniards of the relationship between diet and health has opened doors to innovative products such as the so-called nutricosmetics or dietary supplements aimed at producing cosmetic effects from within the body. Sales of these products in 2006 amounted to €184.2m in pharmacy and OTC channels. Anti-cellulite products alone brought in €32.2m for specialist perfumery chains, according to data provided by the marketing research firm ACNielsen.
Spaniards now use on average from between six and eight C&T products which range from personal hygiene to highly sophisticated luxury products, according to Oscar Mateo, director of statistics at Stanpa. Per capita consumption rose steadily to an estimated €174.16 in 2007, up 7% from just two years ago.
The Spanish woman continues to be responsible for the lion’s share of purchases, and market research firm Taylor Nelson Sofres in a recent study of the Spanish C&T market reported that Spanish women spend €199.55 a year on beauty products and make an average of 19 shop visits. In contrast, Spanish men spend less than half that at €83.2 on an average of eight shop visits. In reality, the C&T markets for men and women should be considered as two entirely separate markets. To date, there is still no reliable method to quantify the division between overall male and overall female sales. Stanpa readily admits to the impossibility of making even an educated guess on gender segmentation for many cosmetic and toiletry products. However, products specifically for men are advancing at an annual rate of 20%, whereas the mature female market is growing at 5%, primarily due to hefty investment in advertising and advances in R&D.
There are real differences in shopping habits between men and women. Industry experts point out that the Spanish woman is likely to have an array of specific products at her disposal aimed at making her feel attractive and look younger, while the Spanish man would prefer to have an all-in-one product for a more polished, youthful appearance, especially for the workplace. In selective perfumery, where there is perhaps a clearer picture of the divide between men’s and women’s purchases, four out of every ten fragrances target men. For many industry insiders, a future goal would be to have this same proportion in other segments such as hair, skin and body care.
MARKET LEADERS
The overall market is concentrated in a few hands, despite a plethora of brands in the various product categories as well as product lines specifically developed to be sold through distinct distribution channels. Though Procter & Gamble, L’Oréal, Estée Lauder, BDF Nivea, Unilever, Johnson & Johnson may still sound foreign to the Spanish ear, these companies have all managed to become household names in Spain. Two home-grown Spanish companies stand out among these giants – Puig Beauty & Fashion Group and The Colomer Group.
Puig Beauty & Fashion Group came into being in 1996 to consolidate the numerous brand acquisitions Antonio Puig Corporation had made in luxury brands - Nina Ricci, Paco Rabanne, Carolina Herrera and former Spanish competitors Myrurgia and Perfumerías Gal. The year 1996 also ushered in the third generation of Puig family members to manage the company. Within the Puig Beauty & Fashion fragrance portfolio are the designer brands Prada, Adolfo Domínguez, Antonio Miró, Victorio & Lucchino and Agatha Ruiz de la Prada as well as fragrance brands for Spanish fashion chains Zara and Mango. In 2006, the company divested mass market brands Hidrogenesse, Cabello Sano and Hydroceán and more recently the bath and shower brands VF, Nelia, Kopos and the colour cosmetic brands Lina Bocardi, Maderas de Oriente, Pinaud and Misslyn to focus on brands considered strategic, especially in selective perfumery.
The Colomer Group recently inaugurated new headquarters in Cornellà on the outskirts of Barcelona. The Colomer Group is a major player in mass market and professional hair care through the Revlon, Flex and Natural Honey brands sold in supermarkets and mass perfumery chains as well as American Crew and Revlon Professional and Creative Nail Design, sold in professional hair salons. The company has operations in more than 150 countries and production centres in the US, Latin America, Europe and South Korea.
SECTOR ANALYSIS
Each April, Stanpa publishes an annual report on the state of the Spanish industry. The report is based on information gathered by Stanpa member companies through the manufacture of five principal product categories: fragrance, colour cosmetics, skin care, hair care and personal hygiene. The evolution of the principal distribution channels - mass, selective, pharmacy, professional hair salons, direct sales and aesthetician salons - is also analysed in the report.
According to this year’s Stanpa report, the largest and most dynamic product category is still skin care. For several years skin care has made the most gains but the pace of growth has slowed somewhat. As recently as 2004, skin care’s year-on-year performance was in double-digits and in 2007 skin care outperformed the overall market, growing by more than 7%. Within this three-year period, total market share for skin care rose from below a quarter of the total market to clearly dominate sales, capturing nearly 27% of total market turnover. The driving force behind this spectacular advance is undoubtedly the demand for facial treatment products. Facial products have attracted consumers from all areas of the Spanish population regardless of age or sex.
Every segment wants some form of facial care product. Indeed, in many segments there has been a convergence among product categories. For example last year sun care was the second most dynamic skin care segment after facial care, according to Mateo. A key factor behind the increase in sun protection products can be explained not only by greater awareness among the Spanish of the need for protection against the damaging effects of the sun but also by product innovation. Best selling sun care formulas differentiate between facial and body sun protection. Facial formulas are likely to include anti-ageing and anti-spot remedies, firming and moisturising features while many body formulas now incorporate body firming and anti-cellulite ingredients.
Interestingly, children’s skin care products also performed well in 2007. It is no coincidence that health professionals highly recommend that children’s and adolescent cleansing and moisturising products contain ingredients that screen against UVA and UVB rays.
In contrast, Stanpa saw body skin care products underperform. After several years of important gains, body care was virtually flat in 2007. Reasons behind the decline in body care products are likely twofold. Greater competition and convergence among segments - in this case sun care - are cannibalising body care sales. A further explanation can be found in the rise of specialist aesthetician centres and urban spas which offer increasingly affordable treatments for cellulite and body reshaping. In addition, medi spas that treat eating disorders also offer programmes for body reshaping through radio frequency, laser and other state-of-the-art medical techniques. It is worth noting that aesthetician distribution channels have had to compete on a greater scale with medical spas in Spain as evidenced by the small but not insignificant loss in overall share in the Spanish C& T industry in 2007.
Fragrance and colour cosmetic sales have maintained market share from 2006. Sell-in prices for fragrance rose 6% in 2007, perhaps signalling a recovery in sales value which lost nearly a percentage point in 2006, falling from 23.56% of the total market to the current 22.8%. Colour cosmetics remain stable and maintain 8.3% of market value while hair care is showing positive gains despite negative growth in 2005 when sales fell nearly -2%.
DISTRIBUTION DIVERSIFICATION
Changes within Spanish society have also led to changes in C&T distribution. Supermarkets have taken a leading position in hair care, skin care and personal hygiene sales. Their own label brands are gaining acceptance among Spanish consumers and have made inroads in volume sales. In contrast, value sales for these product categories have seen their market share eroded by the competitive prices that own label brands offer.
At the same time, the once regional perfumery chains have become more consolidated into a handful of chains that operate on a national basis. These perfumery outlets specialise in selective fragrances and cosmetics. Some, such as the Sephora chain, operate on an exclusive basis with brands offering cutting-edge technology found nowhere else in the market. Others, such as the 150+ chain Bodybell, continue to offer a mix of both selective and mass market brands. The distribution giant Eroski, better known for its supermarkets and hypermarkets, owns the 300+ store IF selective perfumery chain. Marionnaud, Douglas, Juteco, Prieto and Gilgo rank among the top selective perfumery chains in Spain.
An alternative niche are specialist shops founded on green principles. The Body Shop pioneered beauty products inspired by nature and produced through environmentally sustainable practices. Since first opening in Madrid in 1986, The Body Shop has led the way for other eco-friendly brands that are attracting the attention of a growing number of Spanish consumers. Aveda, Lush, Kiehl’s, Alquimia, Korres, H20 Plus and Origins have all found a loyal following among Spaniards who want to reap the benefits from natural, plant-based cosmetics.
But a snapshot of Spain’s C&T distribution would not be complete without taking into account the extremely significant role Spain’s only major department store, El Corte Inglés, plays in cosmetics and toiletries distribution. El Corte Inglés, with stores in every major Spanish city, holds a dominant position in many segments of the Spanish retail market. More than a quarter of total volume sales in the C&T market take place in El Corte Inglés outlets which sell a wide spectrum of mass, selective and pharmacy cosmetics and fragrance brands. El Corte Inglés is not a mere department chain but rather an icon in the Spanish retail industry. For this reason, many companies choose El Corte Inglés brand corners to introduce new technologies in cosmetics, granting exclusive distribution rights to their products. Even top competitor Sephora looked to El Corte Inglés to further expand within the Spanish market. In 2005, Sephora entered a 50-50 joint venture with the department store chain to boost its presence in the Spanish market. So far, the deal has been a boon to Sephora, which has not only been able to inaugurate more new stores throughout Spain but also benefits from the greater exposure of having exclusive Sephora brand corners in El Corte Inglés.