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Dermud Leads Ahava to Success

Editor’s Note: The following is the full text of a story that appeared in the Friday, September 13 issue. Due to a production error, parts of the story were unreadable in that edition. <br><br><br><br>NEW YORK — Creating a successful...

Editor’s Note: The following is the full text of a story that appeared in the Friday, September 13 issue. Due to a production error, parts of the story were unreadable in that edition.

NEW YORK — Creating a successful sub-brand within an already successful niche brand is rare in an industry where big names dominate department store skin- care sections. But for Ahava, bigger doesn’t necessarily mean better.

Ahava first came to prominence with its Dead Sea skin care products, which it launched in the U.S. in March 1991. Dermud, a sub-brand it created to target people with chronically dry skin, has also become a surprise success story for the company. Dermud began as a single stockkeeping unit, Dermud Intensive Nourishing Body Cream, in September 2000. The company did not have sky-high expectations for the sku.

“The product had been used by dermatologists around the Dead Sea to cater mainly to psoriasis patients,” said Brett Goldberg, president of the Sommerville, S.C.-based company. “We just thought we’d introduce it as a finished goods product.”

The Dead Sea’s high salt content, which today is near 32 percent, and high levels of potassium, magnesium, calcium and bromine, have been clinically proven to have a therapeutic effect on people with psoriasis.

According to clinical studies performed by the Institute for Skin Research in Tel Aviv, Dermud, on average, brings an improvement of 52 percent in itching and dryness to the skin after two weeks of treatment.

Goldberg found that Dermud was practically alone in the severely dry skin niche. Consequently, response to the product “was overwhelming.”

Looking to capitalize on the hit niche brand, in August Ahava launched several Dermud line extensions, including hand cream and foot cream. This month, additional Dermud products will arrive on shelves. There’s a Moisturizing Shower Cream, The Rich Cream for Elbows and Knees, Body Milk and Moisturizing Shower Cream for Sensitive Skin. Prices for Dermud begin at $18 for the shower cream and reach $30 for the Body Cream.

Currently, Dermud constitutes almost 10 percent of Ahava USA’s annual retail sales, which near $20 million. Overall, Ahava, which has its corporate headquarters in Holon, Israel, generates export sales of $40 million retail annually; other key markets include Germany, Japan and France. Israel also accounts for $10 million in retail. In the U.S., about 15 percent of Ahava’s sales are generated through its catalog and Web site, http://www.ahava.com; 10 to 15 percent of sales come through spas and salons, and department stores comprise 30 percent of sales.

More than 3,000 U.S. retailers carry Ahava, which now consists of 50 sku’s. Retailers include Nordstrom, Bloomingdale’s, Lord & Taylor, Sephora, Saks Fifth Avenue and upscale independent cosmetics and pharmacies.

The company does not advertise. Instead, a budget of between 3 and 5 percent of retail sales is allocated for public relations, sampling and in-store promotions. Seasonal in-store promotions, however, can reach 20 percent of net sales.

“We have always found that we need for someone to try Ahava first, then the dialogue begins,” Goldberg said. “We are a 100 percent trial-generated purchase.”

But consumer advertising is not out of the question. With a tapped-out distribution plan in place, this year Ahava conducted consumer focus groups to find out what the Ahava brand really means to consumers. The results? “Ahava signifies inner healing,” Goldberg said.

The company looks to use this information to get closer to its consumer in 2003. But how this emotion can be translated into an ad still baffles Goldberg.

“I am still trying to figure out the secret formula to generating trial [with an ad]. We still need to figure out a very sharp positioning for Ahava. It doesn’t make sense to undertake a campaign until then. It’s whether we can translate that emotion into a campaign.”

Goldberg admits Ahava can’t take credit for launching the Dead Sea skin care phenomenon. He recalls first hearing about skin care products utilizing Dead Sea properties in the Seventies in Israel.

But Ahava did serve to be the benchmark for a number of companies entering the niche since 1991. L’Oréal, Kima Terramare, Banana Republic, Uvavita and most recently, Dunaliella, have since entered the niche.

Many companies selling Dead Sea skin care products use mud from the same source, Kibbutz Ein Gedi, a collective entity of Israeli workers who live and work near the shore of the Dead Sea. Ein Gedi founded Ahava in 1984 and subsequently received the exclusive licensing rights to mine the mud within Israel, with the proviso that it provides the mud to competitors at fair prices.

Six years ago, Ahava developed its own patented complex, which serves as the basis for most of its formulations, called mineral osmoter complex. The formula reapportions the mineral percentages of the Dead Sea, skewing them in favor of calcium and magnesium, the Dead Sea’s most beneficial minerals.

Goldberg estimates Ahava makes up 70 percent of the world’s market for Dead Sea skin care products, which nears $72 million.

Goldberg came upon Ahava, which means love in Hebrew, in 1991. He was working in Israel, about a mile north of Ein Gedi, as a computer science high school teacher. He used to ship the products to family members in the U.S, and soon began to see their repeat requests as a business opportunity. “I said, ‘There seems to be an unexploited niche here.’”

Goldberg subsequently tried to set up a manufacturing business in Israel but “the ups and downs of the Israeli economy were too much. Plus, I wanted to get involved in exporting,” Goldberg said.