If you can't beat them join them

Copycat behaviour has always been a feature of the C&T industry, but this year ‘me toos’ have become more prevalent than ever as sluggish western markets are pushing C&T companies to explore the nearest lucrative avenue. ECM looks back at the year and asks industry experts what to expect in 2007

With the Big 5’s national markets experiencing so little improvement on 2005, organic growth was yet again hard to come by, which meant one of two things for the corporate world of the cosmetics industry. Either manufacturers and retailers looked further afield, expanding to markets that offer a greater growth potential than the highly penetrated western markets, or for those who missed out on the relentless M&A activity of the previous year, they picked up sales and market share through purchasing weight in the few areas of the market that are still experiencing healthy value growth in Western Europe.

As 2006 came to a close amid rumours of poor retail sales throughout the Christmas season, and on the back of travel retail restrictions that have chipped the lustre off a prized asset to the luxury markets, the Big 5 will no doubt be grateful for any positive result they can come by.

Early indications show that France’s C&T market will pick up to lose just a fraction of a percent over 2006, while Unipro is confident that the domestic Italian market will improve on 2005’s static result to deliver growth once more. Germany has been picking up the pace as the year progresses and may well stave off the decline of recent years for a small, but perfectly formed rise. Spain and the UK have enjoyed the most encouraging results in the last decade, but pride comes before a fall and growth is slowing across both of these markets as high oil prices, a soaring property market and rising utility bills put pressure on domestic spending.

Two become one

While Procter & Gamble denies that 2005’s merger with Gillette was aimed at fighting back against the retail conglomerates, who have used their might to force high promotional activity on manufacturers in the past, it is surely an unintended result that the combined weight of P&G and Gillette will give both companies greater clout in the retailer-manufacturer relationship.

Retailers have not taken the creation of these multinational giants lying down however, and in a number of cases have themselves joined forces while continuing to compete against branded products with an ever expanding private label offering.

The retailers are also battling it out among themselves. French Marionnaud, Sephora and Nocibé were all fined by the Conseil de la Concurrance, France’s anti-trust body for price fixing in April. In the UK, Superdrug and Boots have been involved in a three month spat after Boots issued leaflets stating that its prices were lower than at Superdrug. Now Tesco has issued what can only be viewed as a direct challenge to its main competitor, Boots, launching and expanding its own label offering to include a fragrance line, spa line and natural/organic line, using its capacity to buy in bulk to keep prices unnaturally low.

But with the big news of the cosmetic retailer’s year being the merger between Boots and Alliance Unichem, cleared by the OFT in early March 2006 and finalised in August, Boots does not have cause for undue concern. Post merger, the newly formed Alliance Boots has announced encouraging interim results, up 2.9% for the six months ending 30 September 2006. Rival Superdrug responded in February by announcing a massive expansion plan, which saw the retailer open 35 new doors across the UK in 2006, costing £14.6m.

On mainland Europe, Aqua e Sapone picked up the majority of German dm’s Italian operation, while the controlling share in French perfumery chain Nocibé was sold to British investment fund Charterhouse when it purchased the shareholding of Bridgepoint.

The Department stores also got in on the game, with Italian Oviesse announcing plans to trial in-store perfumeries. Rinascente, meanwhile, snapped up French department store chain Le Printemps from PPR in July and the German Karstadt restructured its store portfolio to concentrate on 13 premium stores in the most prestigious city locations in Germany.

With 2005’s prolific M&A activity, one could be forgiven for thinking that there wasn’t an awful lot left for manufacturers to snap up in 2006. When Kao finally won through in the Kanebo auction, finalising the purchase on 31 January, the cosmetics industry breathed a collective sigh of relief and looked forward to a relatively quiet year in the wake of the upheaval of 2005. And so it appeared for a time. All was quiet on the western front, with the exception of Henkel beefing up its Dial Corporation portfolio with the pickings from the ex-Gillette carcass in March, allowing the company to climb to third place in the US deodorants sector.

The peace didn’t last for long. L’Oréal, who must have felt a little left out as it watched Coty pick up UCI and P&G and Gillette become one, shocked the industry with its out of the blue cash purchase of The Body Shop for £625m. Despite considerable outrage from consumers, who considered Body Shop owner Anita Roddick to be selling out on her ethical values with the sale to the multinational L’Oréal, the media attention did not seem to translate into a dent in sales and L’Oréal ceo Jean Paul Agon has since announced grand plans to take the chain’s store base up to 5,000. L’Oréal then cemented its natural credentials with the recent purchase of Sanoflore.

Some kind of superstar

Elizabeth Arden, who has been competing with Coty for the celebrity fragrance market ever since its Britney Spears portfolio went stratospheric, was loath to be left out of the race and purchased the brand licences and assets of Riviera Concepts in August, quickly followed by the acquisition of fragrance distributor Sovereign Sales for $101m.

The distribution business will buoy up Arden’s distribution weight in the face of news that Coty has signed a worldwide distribution partnership deal with Selective Beauty. Selective will now control the management and distribution of Coty’s Vivienne Westwood, Chopard and Nikos brands. Considering that both Coty and Selective Beauty have indicated hugely ambitious future plans, the partnership should serve them both well.

Not content with its UCI acquisition in 2005, Coty has been hastily signing licence deals with every last celebrity and in 2006 Desperate Housewives, Kylie and Gwen Stefani all signed on the dotted line, while Lindsay Lohan is rumoured to be in talks with the company. Ceo Beetz has openly stated that Coty intends to double its fiscal 2006 turnover of $2.9bn to $5bn by 2010.

Selective Beauty, meanwhile, jumped into the world of manufacturing when Max Mara signed over its fragrance licence to the company in June. Selective’s new strategy was cemented with an agreement with Dualstar to develop and distribute fragrances and related products for the teenage market. Selective’s ceo, Christophe Cervasel has plans to grow by 25-30% a year which, given that the company has increased its sales ten-fold since it was founded in 2000, does not appear to be an unattainable target.

Johnson & Johnson wasn’t to be outdone and bought the French Groupe Vendôme in May to strengthen its baby and skin care business with the Laboratoires Vendôme and Prim'Age brands, and later in the year was named as the successful candidate in the race for Pfizer’s OTC division, which includes mouthwash brand Listerine. Lauder found a buyer for Stila in Stila Corp and Lornamead snapped up Finesse and Aqua Net from Unilever.

Poor Unilever suffered repeated rumours that it was under pressure from shareholders to divest non-performing brands and split its food and personal care businesses, but the company appears to have held fast under pressure and is yet to succumb. Alberto Culver also came under fire after its failed merger with Regis, but eventually sold a 47.5% stake in Sally Beauty to private equity firm Clayton, Dubilier & Rice.

Parlux Fragrances was beleaguered by foiled plans. First the company’s proposed privatisation deal, which would have seen PF Acquisition (owned by Parlux ceo and chairman Ilia Lekach) purchase all outstanding common shares in the company, was blocked by its board, then a deal to sell the company’s Perry Ellis licence to Victory International failed following vociferous objections by both the board and Perry Ellis. In November, stakeholder Glen Nussdorf filed his intention to conduct a business combination transaction with the US Securities and Exchange Commission which would see Nussdorf acquire a controlling interest in the company if Lekach nods his approval. The latest instalment came in the run up to Christmas as Perry Ellis repurchased its fragrance rights from Parlux for $63m, a far cry from the $140m that would have resulted from the sale to Victory.

Tell me what you want

L’Oréal's acquisitions of The Body Shop and Sanoflore is a sure sign that 2006 was the year that the cosmetics industry is taking natural, ethical and organic products seriously. While the grocery market has taken full advantage of the burgeoning interest in green credentials, allotting ever more shelf space to fair trade and organic products, the cosmetics industry has only recently sat up and taken notice of the growth potential of this niche market.

With growth of the natural and organic C&T markets continuing apace, in stark contrast to the dampened enthusiasm for the rest of the market, it is no surprise that manufacturers everywhere are jumping on the bandwagon.

Johnson & Johnson launched a natural baby care range, Baby Soothing Naturals and Lauder is using its Origin’s banner to make its mark on the organics sector and organic group Dorling Kindersley’s investment in Neal’s Yard after its purchase of a controlling share in the company in early 2006 is already beginning to bear fruit after the company opened two new stores in November, bringing the total to 27 in the UK. And gaining a foothold on the naturals market was surely the impetus behind French Monoprix’s new beauty concept store, Beauty Monop in Paris, eventually to be rolled out across France for a total of 60-80 stores. The Beauty Monop concept will see Monoprix gain a foothold in the still lucrative niche and naturals market in France.

What is so interesting about this trend, and indeed the other trends that have come to light in 2006, is the consumer movement behind them. Where once consumers were seen as the marketers’ dummy, blindly following where the retailers and manufacturers led, the tide is turning and those manufacturers and retailers who risk paddling upstream can reap the rewards. The natural and organic brands that have sprung up from nowhere and realised rapid success are one such example. It seems that for all the talk of dull spending in recent years, what was really dull was the selection.

Nowhere in the cosmetics industry was the naturals trend more evident than the bathroom products sector. Shower gels, soaps and bath additives promising natural or organic ingredients were a key feature of 2006’s launch activity.

Consumers are increasingly difficult to stereotype; now is the time of the Prav – the consumer who will happily go to a discounter for items that fail to excite her, yet equally buy into lifestyle choices, spending disproportionate amounts on anything that can promise exclusivity and luxury, or that is perceived to be good for her or the environment.

It is this phenomenon that has fuelled the success of the crop of luxury lotions and potions that have popped up in the last year. Virtually every prestige beauty company has upped the ante pricewise, launching moisturisers that command upwards of €150. So far the cosmeceuticals market, which pioneered the trend for expensive creams, has benefited from the competition from these new launches, as consumers have become increasingly accustomed to high price tags.

To maintain momentum throughout 2007, the cosmeceuticals niche will have to work hard to emphasise its point of difference, calling on its strong medical heritage and segmenting into new areas.

Now the mainstream has latched onto the popularity of cosmeceutical-like treatments, more and more mainstream brands are developing increasingly technological treatments. Lauder’s Clinique, for example, developed Turnaround Concentrate Visible Skin Renewer and 15-minute facial, two home treatments that promise dramatic anti-ageing results. Arden started the year with the roll-out of Prevage, the result of its collaboration with pharmaceutical company Allergan.

Npd in the facial skin care sector continued to be fast and furious throughout 2006. But companies seemed to be distancing themselves from the gimmicks of 2005, perhaps sensing a certain consumer ennui, and launches in 2006 tended to promise a one-stop shop suited to particular skin types, times of the day and demographic groups. The watch words for 2006 were simple: hydration, hydration, hydration.

Dior (LVMH), for example, kicked back against specific segmented anti-ageing creams, launching what it claimed to be the first global anti-ageing treatment with Capture Totale.

Estée Lauder and rival prestige brand L’Oréal’s Lancôme catered for all times of the day. Lancôme’s Bienfait Multi-Vital was billed as the perfect hydrating breakfast for the skin, while Lauder’s RepairWear Lift Firming Night Cream was on hand to finish off the daily beauty routine. The two also battled for the upper echelons of the anti-ageing market with Lancôme delivering Absolue Premium BX, aimed at the 50+ age group, and Lauder launching Resilience Lift Extreme, designed for menopausal skin.

Bright young things weren’t ignored and Decléor aimed its Hydra Floral anti-pollution range at the over 25s as a preventative measure against the ageing effects of dehydration and pollution.

Launches in the offing for next year seem to be taking on board that many women just don’t have the time to apply several lotions at once and are instead condensing all of the various treatments into one product. RoC’s cleansing pads, for example, will offer micro dermabrasion, anti-ageing and hydrating ingredients as well as removing make-up residue.

Spice up your life

The increasing disillusionment with highly branded and marketed products has also made a considerable impact on the fragrance market, not only on the products that have been produced but also on the way that they are being sold.

The last two years have seen a wholesale movement away from the branded islands that have come to define the department store experience and now department stores are trying to communicate a point of difference by breaking away from the mould.

One such example is House of Fraser, who installed Roja Dove Parfumeries in three stores in autumn 2006. The perfumeries are building on the concept of a store within a store, that began with the Haute Parfumerie in Harrods’ Urban Retreat in 2005, and will help consumers to find a fragrance suited to them using the Quest olfactive database software. Roja Dove and George Hammer, the partnership behind the project, have not ruled out exporting the concept to the rest of Europe when their exclusivity deal ends with House of Fraser.

Aspects Beauty has also picked up on the demand for new selling techniques. Following the success of its Le Forêt concession in Harvey Nichols, which was expanded to take a quarter of the floor in August 2006, the company has come up with a number of new concepts for the fragrance retail industry, including Clandestine, a niche fragrance POS concept, which will roll out to selected stores of department store chains Harvey Nichols, Selfridges and John Lewis in the UK, as well as globally in the next 12 months.

For stores that attract a younger clientele, Aspects has come up with DZNR to collate a number of small designer brands on an installation aimed at creating a point of difference for the retailer and increasing awareness of the more niche designer brands such as Exté, Mandarina Duck and Gai Mattiolo.

Fragrance manufacturers have also come up trumps in terms of launch activity, in many cases distancing themselves from the reams of limited editions and flankers that have dogged the fragrance industry in recent years.

P&G’s portfolio concentrated on youthful, exuberant fragrances with Hugo Boss’ Pure Purple and Lacoste’s Inspiration, each with an emphasis on gourmand notes, also a feature of Nina Ricci’s Nina.

Seductive, highly feminine fragrances were also rife. Ferragamo made a splash with its seductive F fragrance, while Cartier celebrated its first new fragrance in two years with Délices de Cartier. Lanvin targeted elegant women with Rumeur, while Sisley’s Soir de Lune is designed to recreate the most intense sensuality and Agent Provocateur jumped in with Maîtresse, said to seduce and drive men wild just like the eponymous lingerie.

‘Celebrity sells’ is a well worn phrase but remains true in the fragrance market, especially when in 2006 the Beckhams, Kylie and Britney all launched new fragrances.

Men’s fragrance also heralded the arrival of some big hitters. The long awaited Prada Man from Puig made its bow in September and so did Euphoria Men from Coty’s Calvin Klein brand.

Something kinda funny

The industry has been waiting with baited breath for the male market to finally take flight and the addition of L’Oréal and P&G in late 2004/early 2005 was surely an indicator that male grooming is now big business. Sure enough, the investment that these large multinationals can offer in terms of advertising and promotional activity can only serve to raise awareness of grooming products and hopefully up penetration.

Manufacturers were certainly positive, jumping in with all kinds of weird and wonderful products to make our men more easy on the eye. With the arrival of fake tan from L’Oréal, concealer from King of Shaves and even full colour-based lines from Spanish brand Raout’ in the running for 2007, the men’s market is certainly getting bold.

In the sun care market the message appears to have hit home and consumers seem to be persuaded that protecting themselves from the sun is a must during the summer months; indeed, the sun protection sector buoyed up the less successful self tan and after sun categories in most Big 5 countries. And for those stick in the muds who still persist on sunbathing, manufacturers have been busy creating sun protection with every conceivable beauty benefit. Coty’s Lancaster, for example, launched Sun Slim, a range of toning and slimming sun care products including sun protection, a scrub and a tan prolonger. Formats that provide easy application are also helping to boost the category, with spray variants particularly popular.

And just as sun care products are borrowing tips from the body care market, body care products are rapidly combining self tanning ingredients and anti-ageing formulas into their ambit of expertise.

The big news for the body care market in 2006 came on the back of Johnson & Johnson’s 2005 launch of Holiday Skin, a moisturiser that takes the leg work out of self tanning by combining a very small amount of self tan into a body moisturiser. Johnson’s kept ahead of the game with an overnight variant and then added firming ingredients to its original Holiday Skin. But other manufacturers weren’t going to sit back and let Johnson’s enjoy the limelight for long and Olay, L’Oréal Paris and Garnier all came up with a rival cream. Anti-cellulite treatments and creams that promise to add a little oomph to the décolleté were also popular.

Using beauty positioning to distance themselves from commodity products was something that the deodorants market has become very adept at, promising no white marks, moisturising, limited edition fragrances and so on, in a bid to persuade consumers to trade up, and 2006 was no exception. The emphasis was firmly on gender positioning, with several launches demonstrating particularly feminine or masculine scents.

The hair care market watchword was condition and the sector is rapidly coming up with treatments aimed at correcting the damage caused by heated styling appliances; ghd’s Thermodynamics range, for example, has been expressly designed to address this issue. The colourants sector also received a much needed boost as John Frieda went out on a limb to combine high shine and conditioning agents with a small dose of colourant for Color Glaze, a range said to deliver a high gloss finish that will keep colour bright between salon visits. The flailing hair styling category took note of hair care’s success and additional hair care benefits were rife in the launch activity in this sector throughout 2006.

Colour cosmetics was not immune to the blurring of C&T categories everywhere and foundations, mascaras and even lipsticks and eye shadows all promised the world in terms of durability and caring benefits.

The gradual merging of product functions and claims certainly means that consumers are getting a lot for their money, but in terms of value and volume sales these multifunctional products must surely be upping the competition between manufacturers for a slice of every euro spent. Where once facial skin care companies had only to worry about their direct competitors, they are now having to guard their share of the market from the sun care and colour industry too. It is worth asking whether the industry is doing itself any favours by cutting out the middle man.

Skin care in 2007

“Developments in skin care have fuelled some of the most interesting
product additions within the cosmetics and toiletries market in 2006. Substantial moisturising, conditioning and wrinkle minimising claims are now commonplace but, interestingly, so far whole ranges with age-defying attributes are relatively rare, possibly because this may detract from lucrative skin care sales. In 2007 this trend will continue.
In 2007 and beyond we will also see a strong move in the US and European markets towards natural positioning, including mineral and organic claims.
We will also see an increase in trends, products and influence from Brazil, Russia, India and China (the BRIC countries), which have the potential to be bigger than countries such as the UK, Italy (although this has seen strong growth in the market), Spain and Germany in the next five years. Statistics from Euromonitor show that the US market is growing at around 3% each year, the French market at 3.3%, Japan at 1.6%, Brazil at 12.8%, Russia at 9.9% and China at 11.5%.” - Bev Paddon, product development manager COSi

Hair care and styling in 2007

“There’s a huge difference between the UK and the mainland European markets. In the UK the power of individual retailers is governing the market at present and therefore there are more and more brands launched that are exclusive to a particular retailer. Boots pioneered this strategy about ten years ago with brands such as John Frieda and Trevor Sorbie and now the big supermarkets are jumping on the bandwagon. Tesco, for example, has enjoyed great success with Denise McAdam and has just introduced the Adee Phelan line. There is no question that designer hair care is, and will continue to be, the driving force of the market. It is in everyone’s interests to encourage consumers to trade up to these lines.
In mainland Europe, where the celebrity culture is not as strong and large retail chains have less of a monopoly on the market, celebrity hairdresser lines are less common, but that is not to say that they cannot be successful. Here the strategy is to market the products as good quality, premium brands – John Frieda and Jacques Dessanges, for example, have been very successful – and we are pursuing this strategy with Adee Phelan outside of the UK. The key to designer brands today and in the next year is to ensure they are well differentiated from the more established brands. We are marketing the Adee Phelan range as a youthful, designer culture brand and it is key to develop a range that offers something different as you now have to justify your place in the market.
However, the multinationals need not be concerned – there will always be room for the middle market brands as these brands offer a very good incentive to retailers, given that they are well supported above the line. They also have the power to dictate pan-European distribution. There is no doubt that branded products will maintain their strength in the middle ground.” - Mark Barclay, managing director, adee phelan products

Fragrance in 2007

“I think that the industry will continue to be saturated with celebrity fragrances but those that are launched in 2007 will be less successful than those that are already in the market – more also ran than burning star. I think there will continue to be a real need for luxury perfumery: the renaissance continues. Last year Jean Patou and Cartier both opened up high end perfumeries in the wake of the success of Harrods' Haute Parfumerie and this year Chanel is set to join them. The very top end of the fragrance market will enjoy a continued interest and resurgence.
What is happening in the fragrance industry now is very similar to what happened ten years ago in the cosmetics industry. Nobody took Mac and Bobbi Brown seriously when they launched – now they are serious contenders and the same thing is happening in perfumery. Niche brands like Lalique are being appreciated for their creativity and consumers are voting with their feet. Our House of Fraser concessions have outperformed all of our forecasts so far and we plan to open another six next year. This success just goes to reinforce my mantra: not everybody wants an over-marketed world. If we forget the power of creativity we will not be left with an awful lot.” - Roja Dove, professeur de parfums

What's in store for retailers in 2007?

“Our ranges have expanded and in 2007 we will be offering our customers a much larger choice of beauty ranges. These will add excitement to the category, by offering products at prices customers can afford.
Overall, the category has grown and we are dedicating more and more space to beauty and more brand exclusives, as well as our tremendous own label offering. I think Tesco – I can’t speak for other grocers – will make beauty more
accessible, more affordable and, because we operate in a fast moving environment and can adapt, change and create new products more quickly, more exciting for even more customers.” – Alex Holt, beauty buyer, Tesco
“Our refurbishment is now reaching
completion and we are experiencing a very positive increase in sales. We’d expect to close the year up around 6.5% overall, which is much more bouyant than expected. And on the back of our refurbishment we’d be looking at double digit growth between February and July 2007 – though that is reliant on the housing market and retail sales in general.
Niche is now where we’re at – with our refurbishment we’ve moved away from the toiletry market and are concentrating on a more premium assortment. We want brands that will excite and entice our customers. We are trying to encourage consumers to trade up and there is a lot of demand for these niche brands and people expect to see them in an Oxford Street store. Editorial coverage is so prolific nowadays that people are much more aware of what is on the market. People want something different.
We find that Oxford Street is very much about lunch time shopping, so we haven’t installed treatment rooms beyond the Elemis concession.
The traditional premium brands are enjoying the competition. They have the strongest brand recognition, consultant-based sales teams and continue to perform very well. They recognise that the excitement surrounding the newer brands brings traffic through the store, which benefits everyone.
Next year our goal is to up the percentage of sales represented by beauty and fashion at John Lewis. Stores such as Debenhams probably take 15% of sales in beauty and fashion and this is our target; at present our share is closer to 7%.” – Sophie Clarke, department manager, beauty John Lewis Oxford Street store

Colour Cosmetics in 2007

“Major trends during 2006 were the use of bold colour round the eyes, especially shades of purple, green and peacock blues. In contrast, these looks were often accompanied by comparatively subdued colours used on the lips. Buyers often purchase products a year in advance of them arriving in store so it requires great foresight to both predict and keep on top of fashion and trends. In fact, it could be argued that because of the modern day buying cycle, trends are determined by manufacturers rather than consumers. We now have the rights to Calvin Klein Beauty Products which we plan to launch this year. Adding this fashion-led, prestige brand to our impressive portfolio can only strengthen our position in the cosmetics market.” - Mark Hartin, UK managing director, Markwins International

Men's Lines in 2007

"The end of 2006 will signal the sixth year of continuous growth for the UK male grooming market, which is reported to have grown close to £1bn. In my opinion, this means that men’s grooming is no longer a niche market. It is being driven by men becoming increasingly conscious of their need to look clean and well presented, both at work and socially. The mass market brands have invested heavily in marketing campaigns to reinforce this message and have enlarged the market. Paradoxically, this has created an opportunity for specialised, niche brands which have entered the market either as extensions of more established women’s ranges or – as is the case with Flint Edge – an exclusively male focused range.
Looking ahead to 2007, in my view we will see a further growth in the number of these specialist brands. There are many more brands in the pipeline looking to launch over the next 12 months. In addition, we will see the introduction of several international brands. The challenge for us all is obtaining the all-important distribution points. I believe the internet will play an increasingly important part in the success of many of these brands, as we all know men prefer to shop online. The men’s market is in for a very exciting 2007."  - Ratan Daryani, founder, flint edge

Naturals and Organics in 2007

“The demand for natural and organic products will continue to grow in 2007 and there will be increased pressure on manufacturers to demonstrate their environmental credentials in the process of developing those products.
In 2007, formulators will continue to look at naturals to provide the solutions that consumers are demanding in skin care products. However, new ways to extract these precious ingredients from plants will emerge. There will be a search to solve some of the issues of the decade such as natural preserving techniques and reducing the environmental impact of products. There will hopefully be an increase in the range of materials available organically.” - Pauline Hill, techincal director, Neal’s Yard