German Firms Deal with Hard Times

FRANKFURT, Germany -- Prestige fragrance manufacturers here are wrestling with a tough market.<BR><BR>The high-flying double-digit growth of the late Eighties nose-dived during the last two years into the mid-to-low single digits, as the European...

FRANKFURT, Germany — Prestige fragrance manufacturers here are wrestling with a tough market.

The high-flying double-digit growth of the late Eighties nose-dived during the last two years into the mid-to-low single digits, as the European recession took hold and Germany shouldered the burden of absorbing the former East Germany, with its 16 million inhabitants and decimated economy.

Individual market forecasts for fragrance business range from flat this year to an average gain of no more than 3 percent annually through 1996.

As consumer spending slackened, gray market discounting began making inroads into a market that has known only price uniformity.

Recession-squeezed consumers are demanding smaller bottles of fragrance — 20 and 25 mls. — at lower prices. What was once a trial size is now a regular item, and manufacturers such as market leader Lancaster are trying to limit quantities to avoid cannibalizing the regular-sized business.

Major prestige fragrance manufacturers have come up with a variety of countermeasures, including more focused product launches with more reliance on electronic advertising, more innovative promotion and more emphasis on selling merchandise through to the consumer, rather than merely unloading the goods onto the stores.

Eurocos Cosmetic GmbH, a subsidiary of Procter & Gamble based near here, has scored a series of hot launches in the last two years, including Laura Biagiotti’s Venezia and Elements by Hugo Boss last fall. According to P&G, the Eurocos fine fragrance business has been running 25 percent ahead since July 1, the beginning of the fiscal year.

Within the prestige German fragrance market, Eurocos is a player. The market research organization Gesellschaft fuer Konsumforschung (GFK) ranked Biagiotti as the third best-selling women’s brand last year through October. The Boss brand ranked second in the men’s market.

Now Eurocos is rolling out Roma Uomo, which the company hopes will become Laura Biagiotti’s first major men’s fragrance. It is being introduced across much of Europe and the Middle East, including Germany, Italy, Switzerland, Australia and Saudi Arabia.

Although Eurocos executives declined to disclose volume figures, sources indicate that Roma Uomo is projected to do $20 million to $25 million worldwide this year. The U.S., France and the U.K. are scheduled for next year.

This year’s projection for Germany is reportedly $8 million to $10 million.

The Roma Uomo line consists of 10 items, with the fragrance stockkeeping units ranging from a 75-ml. eau de toilette pour, priced at $36 (62 DM) at current exchange rates to a 125-ml. spray version for $58 (99 DM).

As part of the launch, Eurocos is tapping into a hot retail trend by offering 5-ml. deluxe miniatures at $8.50 (14.50 DM) each. Perfumeries and department stores all over Germany have been merchandising tiny bottles of scent, mostly aimed at collectors.

“I think it’s an ideal tool in limited quantities because it’s actually the fragrance and the real presentation,” said Walter Farnsteiner, Eurocos president. “You give the customer just enough so that if he likes it, he will go back to buy a larger size.”

He said Eurocos will manufacture up to 400,000 bottles.

Eurocos also has been expanding its overseas network. The company is building distributor organizations in Mexico, Venezuela and Brazil. According to industry estimates, Eurocos did $150 million worldwide in its last fiscal year, and the target for this year is $200 million.

Within the product assortment, roughly 50 percent of the Eurocos volume is generated by Biagiotti, 40 percent by Boss and 10 percent by German designer Otto Kern, whose fragrances are distributed only in Germany and the surrounding markets of Austria, Switzerland, Scandinavia and the Benelux countries.

His fragrances are the Noa Noa women’s and Cycle men’s scents. A new Kern women’s fragrance, called Ypno, will be launched in the fall.

Farnsteiner said Eurocos is talking to other designers about possible fragrance deals.

“What we need is a good French name,” he said, adding, “We’re looking for a meaningful acquisition to become a global player.”

The biggest domestic player in the German prestige market is Lancaster, with a worldwide cosmetics and fragrance volume in 1993 of $800 million, one-third of it done in Germany.

GFK ranked four Lancaster brands among its top 20 women’s scents and five of its brands among the top 10 men’s rankings. Not content, Lancaster plans to launch a women’s fragrance brand next fall endorsed by a designer who would be added to its stable. The company declined to be more specific.

Lancaster recently moved its worldwide corporate headquarters to New York in search of a more global stature, but its German operating company has not lost its sense of local competitiveness.

It developed and launched a treatment product last September that shattered expectations by grabbing a 40 percent share of the skin care market in three months. According to Jochen Pink, Lancaster president, the subsidiary had aimed for a sell-in of 150,000 units, a level that would have made Skin Therapy the top-selling German treatment item. Instead, the total hit 215,000 units, with a wholesale value of $5 million (8.5 million DM).

“If we had reached 150,000 units, this already would have made us number one,” said Detlef Braun, Lancaster marketing director. “Never, ever before has anybody done this in such a short time period — and we sold in 215,000.”

Pink noted that Skin Therapy was an example of the company focusing more on star products whose impact can stimulate sales of an entire brand. Skin Therapy was the first skin care product Lancaster advertised on TV.

“Our thinking is to concentrate our power, our budgets, our thinking, our creativity on the existing brands,” he said, noting that it takes a powerful ad campaign to cut through the clutter of a very crowded market. “We were very much convinced about the unexploited potential.”

In addition to Skin Therapy, ad budgets were increased last September for the Joop fragrances, Jil Sander’s No. 4 and Background and Zino Davidoff.

Pink said the industry began adopting a “pull” strategy with increased ad budgets after sales began to slow in 1991.

“Two or three years ago, if you wanted to be in the top 10 in men’s fragrances, the spending level would be around 2 million deutsch marks,” Braun said, adding that now the figure would range from 4 million to 6 million.

Lancaster and other companies not only spent more, they also experimented with different vehicles — TV, for one. Without disclosing budgets, Braun said TV’s share of Lancaster’s outlays rose from 6 percent in 1992 to 30 percent last year.

The company also began advertising in movie theaters after realizing that 70 percent of German moviegoers are under 29.

“So if you have a product with a pretty high target appeal to young people,” Braun said, “it’s a perfect medium, no doubt about it.

One of Lancaster’s overriding concerns, however, is increasing inventory turn in the perfumeries by whetting consumer demand with increased advertising and better trained sales help.

“Our policy is to help the trade [retailers] increase the sell-through and keep or increase market share of the brand,” Pink said.

“That means supporting our brands to get the turnaround in better shape, and to cooperate more closely than before with our trade partners [retailers]. The trade and the industry in the future have to cooperate in a much better way — in terms of administration, in terms of processing and logistics and so on. Otherwise, we are not able to reduce our cost.”

Among the companies that understand the concept of sell-through are the Americans. Estee Lauder, which does business in 1,400 perfumeries, claims to have the highest volume per door.

Lauder executives in Munich and in the New York headquarters provided no sales figures, but market sources estimate that the Lauder brand does more than $59 million (over 100 million DM) and the Clinique brand, called Linique, does about 20 percent less.

Fred Langhammer, an executive vice president of the New York parent, who headed Lauder’s German subsidiary from 1982 to 1985, said he expects the brands to continue on their present growth trajectory — high single digits for Lauder and double digits for the smaller Linique.

One newcomer that had an effect on the fragrances marketed here was Calvin Klein Cosmetics, a Wiesbaden-based affiliate of the New York-based company. Industry sources estimate Klein’s 1993 volume at $25 million (42 million DM).

When Klein launched its Obsession women’s scent in early 1991, the company became one of the first to popularize scented strips, according to Ron Rolleston, vice president and general manager of Klein’s international business.

Klein entered the fray with a heavy media budget at the same time other players like Lancaster began increasing their budgets.