Switzerland - Staying neutral

Its status of neutrality has given Switzerland the strength to unite despite cultural differences, but if the C&T market is to show improvement, it may be time to get off the fence.

With a meagre 1% increase in value to SF1.9bn in 2005, Switzerland's cosmetics and toiletries market showed that reaching maturity doesn't always pay.

This is underlined by the fact that the largest product categories – fragrances, hair care, skin care and colour cosmetics – barely moved at all, while the smaller categories proved to be much more dynamic.

Baby care, for example, was the fastest growing sector with a 3.5% increase to SF26.4m. Depilatory sales rose 2.2% and men's grooming put on 1.57%. Oral hygiene also made gains, up 1.48% on the back of rising sales of electric toothbrushes and value-added products such as mouthwash and dental floss, whose sales grew 4% and 6% respectively.

There are conflicting reports, however, on the sun care sector. Euromonitor says that sun care sales made a 3.3% gain to SF41m but ACNielsen points to a drop of 10% to SF23.9m for the year ending May 2006, excluding sales through drugstores and pharmacies. Nielsen attributes the decline to a relatively bad summer, as sun creams account for the lion’s share of sales (SF20.9m), while after sun products took just SF2.8m. On a more positive note, Swiss consumers chose higher factor creams than in previous years.

There was no such conflict over the bath and shower category, which suffered from low brand loyalty and high penetration, falling 3.5% to SF204.1m.

Swiss consumers are generally happy to part with a little extra in return for high quality goods. The average Swiss spends more on C&T than any other nationality in Western Europe. In 2005, €214 per capita was rung through the tills, although this represented a slight decrease on the previous year’s €222.

This drop in spend may well be explained by the rise in popularity of the discounters in the last year. With the relatively recent introduction of Aldi (four stores opened in Switzerland in October 2005) and the probable future arrival of Lidl, Swiss consumers have been given a taste for discounted prices, which Migros and Coop, the two leading retailers, and Denner, a soft discounter, have traditionally offered. However, due to relatively affluent local population, Aldi has introduced its wares at relatively high price points in Switzerland, as compared to Austria and Germany, and has yet to build the customer loyalty and reputation that both the homegrown Migros and Coop have built up over the years.

La Prairie says, however, that the discounters are now having to do more than merely offer low prices. Since buying cosmetics is an emotive experience, the discounters need to invest in trained staff who can advise on products and make their selling space more appealing. This is particularly good for the customer who, according to La Prairie, is once again king – or queen.

Both Migros and Coop are fighting back with their own budget lines. Migros has expanded its M-Budget range considerably, it says, in response to rising demand. Coop makes much of its sales through brands, but launched the Prix Garantie label last year in an attempt to ward off the discounters.

Swiss stores

Indeed the Swiss distribution structure differs from many other European countries in that pharmacies and drugstores stock high-end, as well as low-end brands and have trained staff on hand to explain their benefits. Pharmacies have lost their traditional image and are now seen as health and beauty temples. These stores tend to be small, independent businesses and are therefore suffering under the strain of the discounters, taking a disappointing 12% share of C&T retail sales in 2005.

According to La Prairie, distribution has changed a great deal in the last few years with the distinction between mass and selective markets becoming blurred. However, the classic perfumeries are still easily distinguished and have performed relatively well – both Marionnaud and Import Parfumerie made visible gains in 2005.

Department stores also floundered, representing just 25% of total C&T sales. However, these stores are still important for the colour cosmetics sector, with over 39% of the category.

Only supermarkets and hypermarkets gained share in 2005, weighing in with just over 30% of the Swiss market. The channel performed well across all categories, taking 55.7% of baby care sales, 54.7% of oral hygiene, 52.8% of deodorants, 44.9% of bath and shower products, 41.4% of hair care, 38.4% of men's grooming products and 35.5% of sun care sales.

This success has made other stores look hard at their offer. In 2003, leading Swiss retailer Migros began stocking brands from Beiersdorf, Procter & Gamble and L'Oréal, giving them an even larger market presence.

Perfect neighbours

The leading five cosmetics companies in the Swiss market – Beiersdorf, L’Oréal, P&G, Mibelle and Unilever – together accounted for 49% of C&T value sales in 2005.

Beiersdorf sits at the top of the tree with a 12% market share and takes the lead in the bath and shower, skin care and sun care categories. The company was founded in Switzerland by joint partners Beiersdorf Hamburg and Swiss-owned Doetsch Grether in 1977. Beiersdorf's two Swiss subsidiaries, Juvena and La Prairie, now produce up to 10% of Beiersdorf's products.

L'Oréal Suisse took an 11% share of the market, leading in both hair care and colour cosmetics and lying second in sun care. Procter & Gamble followed close behind, taking the lead in men's grooming products and depilatories. Mibelle, the only domestic company in the list, came fourth. Although Unilever sold its fragrance division to Coty in May 2005, it still managed to stay in fifth place.

Despite its strong market share, Mibelle, a subsidiary of Migros and distributed nationwide in Migros supermarkets, lost 8% in share for gross sales of SF200m in fiscal 2005. The company also manufactures Migros' private label products, accounting for 75% of the retailer’s C&T sales. These have proved so successful that consumers view them in the same way as branded products. Examples include the oral hygiene label Candida, body care range Iduna, facial skin care brand Jana and Curl, a hair care line. The company also develops private label products for Schlecker, Superdrug, Tesco and The Body Shop.

In fact, Switzerland has a strong reputation when it comes to contract manufacturing. The country has an impressive science base and many international brands rely on contract manufacturers in Switzerland for their products.

Centre de Recherches Biocosmétiques, for example, produces cosmetics for approximately 180 world renowned brands with one third of its business in Switzerland and one quarter thoughout the rest of Europe and Asia.

Switzerland is also a major player in fragrances and flavours. Geneva-based Givaudan is the world leader with an 18% share of the global market and sales of SF606m in the first half of 2006 for its fragrances division. Firmenich, a family-owned Swiss business lies third in the fragrance market.

Beyond borders

The country's geographical position, with its transit routes running over the Alps, means that it is well placed to take advantage of its reputation as a world leader in research and export to the rest of Europe. And with the domestic economy slowing in recent years, Swiss manufacturers are increasingly looking further afield to invest in foreign markets.

One of the most successful exporters is La Prairie. La Prairie’s products focus on turning back the clock, promising to delay the ageing process with the company’s patented Cellular Complex. Other Beiersdorf brands exporting from Switzerland include Juvena, Marlies Möller and Skin Biology Therapy.

Another home-grown company is Mavala, a nail and beauty manufacturer. Now working alongside 30 French cosmetic schools at which its products are used, Mavala also has sister companies in France, England and the US. It also produces colour cosmetics and facial skin care under the Mavalia banner.

Herbs are particularly popular in the Swiss market, tying in with the popular concept of wellness. Swiss company Rausch has been using herbal extracts in its products since 1890 and exports to countries all around the world. Marco Baumann, ceo, says that the company is looking at expansion to South Korea and the Middle East, stating that more than half of its turnover came from outside the traditional Swiss, German and Austrian markets in the past year.

According to Euromonitor, C&T sales could reach SF2bn by 2010. Bath and shower products are expected to reap SF201m as consumers continue to swap bar soap for liquids. Deodorants, however, especially cream deodorants, are set to decline. On the hair care front, 2-in-1s will continue to be marginalised by separate shampoo, conditioners and colourants. Conditioners in particular will be affected by trends in fashion, while the increase in teenagers experimenting with colour will benefit the colourant sector. Skin care products should see further a rise in value from the 1.43% noted by La Prairie in 2005, to approximately SF274m, boosted by nourishing, anti-ageing, firming and anti-cellulite products. This in turn will lead to an inevitable slide in general purpose body care and facial moisturisers.

La Prairie has high hopes for the Swiss market in the coming years, pointing to the potential for the 'fit for beauty and youth' trend which it says is emerging. However, with an ageing C&T market in every sense, manufacturers are going to have to pull out all the stops on value-added products and new, innovative formats if they are to see an increase in sales over the coming years. The key will be to keep up with the Swiss consumer’s demand for more sophisticated technology, convenience and improved benefits.