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Beiersdorf’s 10-Year Plan

After weathering 18 months of takeover rumors, Rolf Kunisch reenlisted for another two years as chief executive officer of Beiersdorf, and discussed his plans for the firm.

HAMBURG, Germany — If everything had gone as planned, Rolf Kunisch would today be living under the beautiful and beneficent gaze of Mount Merapi in central Java. However, after successfully weathering more than one-and-a-half years of unrelenting takeover rumors and a shaky shareholder structure, the 62-year-old chief executive of Beiersdorf has instead signed on for another two-year term at the helm of the German company. He’s held the position since 1994.

“I was asked and I happily accepted,” Kunisch said in his office at Beiersdorf headquarters here. “I think it’s an honor. Talk to my wife, and she’ll give you a different story,” he noted, holding a photo of her standing in front of the chosen Javanese peak. But he added, “I could convince her that given the uncertainty about Beiersdorf, it would be helpful to have some element of stability [in the company]. Not that I ever thought I’d be an element of stability,” he said with a light chuckle in his voice.

Kunisch discussed the state of the company — and the market — with WWD almost two months to the day after a consortium lead by Tchibo bought Allianz’s long-shopped-around 40 percent stake in Beiersdorf, thus securing the company’s independence from would-be suitors like Procter & Gamble.

While Beiersdorf employees shouted in the halls with relief and joy when the news broke here on Oct. 23, 2003, Kunisch himself felt “empty,” he recalled. “The last time I felt like that was after my exams. You think it will be a day of excitement, that you will do all sorts of things, but you do nothing. Luckily, I had a speech, so I wasn’t here Oct. 24.”

Things are almost rumor-free at Beiersdorf these days, but not quite. While the EC has given the deal its blessing, the German financial regulator BaFin has yet to make its formal ruling. Minority shareholders have asked BaFin to look into the German coffee and retail chain Tchibo’s exemption from a new German takeover regulation requiring anyone taking over more than 30 percent of a firm to make an equal offer for all outstanding shares. As Tchibo already held 30 percent of Beiersdorf prior to the new law, the clause is widely held not to apply, but shareholders contend they’ve been given short shrift and are threatening lawsuits.

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Nevertheless, analysts and observers expect BaFin to give the green light. And in the meantime, Kunisch is almost visibly champing at the bit to generate a few takeover rumors of his own. There is no sympathy for acquisitions during a “period of shareholder shuffle,” he pointed out. “Everybody wants business as usual, and so for many years, we had growth from within, which was okay, but anything major was not desirable.”

The climate has now changed, but acquisitions can’t be forced, he commented. “With an acquisition, you can’t say, I want to go there and then. You have to be at the right place at the right time,” he stated. One lost opportunity he regrets is Clearasil. “I would have liked Clearasil. Nivea is for healthy skin, and while we have all the R&D know-how,” he said, it would not have been smart brand policy to address troubled skin under the Nivea name. “So Clearasil would have been great. If something like that comes up, then…” he said, choosing not to finish the sentence. Instead, Clearasil was snapped up by Boots.

Beiersdorf has made no secret in its interest in acquisitions to “accelerate growth,” especially in the American market. “America is a huge country, and the market is five to 10 times bigger than any other. Development from within, which we are doing, is fine, but if you really want to make a breakthrough and to double sales in the U.S., you have to buy something,” he told WWD.

But Beiersdorf is “in no negotiations at this stage, and if we were, we wouldn’t tell you,” he added. Nevertheless, when pressed, he acknowledged there are still “some interesting companies” in the American market, though he wouldn’t be more specific.

For now, the company’s portfolio is clearly focused on 10 brands: Nivea, La Prairie and Elastoplast/Hansaplast as “brands with a leading global position”; Futuro (bandages) and Eucerin as “brands with global potential,” and Atrix, Juvena, Labello, Florena and 8×4 (deodorant) as “brands with regional strength.” Not all brands have to be global, he stressed. “You must only define who and what the brand is and how far and where you want to move it.”

America looms large in Beiersdorf’s future strategy, a market the company views as having “unlimited potential.” Beiersdorf Inc. is the company’s largest affiliate, but in the U.S. the Nivea cash cow does not dominate the business as significantly as elsewhere. Eucerin, the medicinal skin care brand Kunisch describes as possibly the first cosmeceutical, generates $101 million, or 80 million euros, in sales, compared with Nivea’s approximate U.S. turnover of $126 million, or 100 million euros. Globally, Nivea is a $3 billion brand. All figures are converted from the euro at current exchange rates.

Eucerin’s strength is not surprising, Kunisch said, when one looks at Beiersdorf’s history in the U.S. It was only in 1977 that Beiersdorf bought back the American trademark rights to Nivea, a move that required a large follow-up investment, whereas Eucerin was a name already known by the medical community.

“The good side in the States is that Eucerin, which is recommended by dermatologists, doesn’t follow the mass market investment rule,” Kunisch remarked. Word-of-mouth support was easier from the start, supported by dermatologists who knew the brand from their medical textbooks. Eucerin facial care is being introduced in selected American markets, a “major step” Kunisch said, for what was previously a pure body care line.

Other recent key launches in the U.S. include Nivea for Men, which Kunisch said has had a very positive response. “Fortunately, it seems to be the right time. Even Midwesterners, if I may say so, seem to be ready to use a caring product.” The Nivea for Men balsam has a low level of alcohol, he explained, preventing “this burning sensation.”

“For up to now,” Kunisch continued, “real Americans suffered and felt like they were ‘real men.’ But that seems to be turning. And we had pretty dramatic advertising for it,” showing a man shaving and then putting his head in the refrigerator.

“We said, ‘You can have it a bit easier,’ and it’s working really well. Like everything, when you come with the trend or are even a little bit ahead of the trend, then you have something going for you,” Kunisch stated.

Another major U.S. initiative next year is the reintroduction of the Nivea Visage face care line in March. (See related story below.)

Globally, Beiersdorf’s long-term objective is to achieve 8 percent growth annually, a growth rate that would double sales in 10 years. In 2004, he said Beiersdorf is expecting sales growth of “about 7 percent” — an improvement over the previous year.

Final 2003 figures will be released at the end of February 2004, but the company is projecting 2003 group sales of $5.91 billion or 4.684 billion euros, compared with $5.98 billion or 4.742 billion euros in 2002. This represents a decline of 1.2 percent, though when adjusted for currency effects, a gain of 4.6 percent.

For 2003, its cosmed brands, including Nivea, Labello, La Prairie, Juvena, Florena, Atrix and 8×4, are expected to generate sales of $3.98 billion or 3.156 billion euros, down 0.3 percent, or up 5.1 percent when adjusted for currency effects. The medical group, including Eucerin and its plaster and bandages brands such as Hansaplast, Elastoplast, Curad, Curitas and Futuro, is projecting sales of $1.06 billion or 842 million euros, down 4.6 percent nominally, or a currency adjusted gain of 2.3 percent. The Tesa adhesives division is expected to contribute $866 million or 686 million euros.

Group EBIT is expected to amount to $597.3 million or 473 million euros, compared with $596 million or 472 million euros the year previously, with cosmed’s operating profits projected at $505 million or 400 million euros, compared with $519 million or 411 in 2002. Profit after taxes is forecast at about $379 million or 300 million euros, an increase of about 3 percent.

To achieve it new objectives, a primary focus at Beiersdorf has been a shift to a new executive board structure to get the product assortment and investments in different brands better organized for global development. Beiersdorf is replacing its cosmed, medical, Tesa (adhesive tape division), finance and human resources divisions with four new headings: brands, supply chain, finance and human resources.

The logic behind the new setup, explained Kunisch, is that brands are the biggest investment and supply chain is the second largest investment. “We had an artificial line between the cosmed brands and medical brands which doesn’t exist in reality. In the U.S., for example, Eucerin, Nivea and Futuro [bandages] are in the same shop, and we think these global brands should be treated equally.” Or in the case of factories, “the product supply will be optimized for global production,” he said. Starting in 2004, all consumer sales will be reported together.

Looking ahead, when it comes to Nivea, Kunisch is particularly bullish. “I think we can double [sales] again in a five-year range.” Between 1990 and 2002, Nivea’s sales more than quintupled, growing from $688 million or 545 million euros to $3.28 billion or 2.6 billion euros, but at Nivea’s scale, he pointed out, adding just 10 percent to sales “is another global brand. According to ACNielsen, a global brand starts at 1 billion euros, so Nivea is now close to three global brands, and there aren’t that many global brands around.

“The nice thing,” he continued, “is that when we bought La Prairie in 1991, sales were at about $20 million. They’re now at $130 million, so they’re also more than five times bigger.”

New product categories don’t figure prominently in the “growth from within” aspect of Beiersdorf’s strategy. “We want to be number one [with existing products] before we move into the next thing. We are now in about 130 number-one [market] positions with Nivea. Five years ago, it was only 50,” he remarked, pointing to a chart listing Nivea’s market positions per country in the categories of skin, face, sun, men’s, deodorants, bath, shower, hair care, styling, decorative cosmetics and baby. “The key source of growth comes from this matrix, and one of the nice things with all these number ones — and something which makes us unique — is that’s where you make money.”

Obviously, we have far to go in hair care,” he went on. “The business is respectable in Germany at number three, but we can be number two or even number one. It’s the same with decorative cosmetics. We have major growth prospects in this area, but the art is to set priorities, to decide, ‘Do I want to be number three here or two there?’ It’s a question of checking investments against the payout. You have to involve local management to help pick your chance.”

Indeed, Beiersdorf’s corporate culture puts a strong emphasis on local management. “They know how to grow the bottom line. Our La Prairie ladies in New York know how to make money and are some of the toughest I know,” he stated. “Many of these so-called coordinators know how to spend money, but not how to keep it together.”

Kunisch views Beiersdorf’s business as “an addition of local businesses,” with most of the products produced in the currency region where they’re being purchased. On the other hand, he’s an avowed globalist, especially in light of the beleaguered German economy and stagnant domestic sales.

“At this stage, we’re not growing in Germany, which means that if you want to grow the company, you have to grow in the rest of the world. I tell Germans not to give me that ‘globalization is bad’ talk. We’re living from globalization, and we can afford our research and development because we can use it globally.”

But global or local, it’s imperative to “know what your brand stands for and to take care of it. Many people in branded goods are charlatans. If anyone tells you they’re going to reposition a brand, you can forget it,” he asserted. “You can only take care of your brand. You can guide it in a certain direction, but you’ve got to stay with the genetic code.”

Kunisch remains optimistic about the future of the beauty market. “I think it will be a growth market, as it’s been for the last 40 years — whether it’s at 5, 6 or even 3 percent. Why? People are getting older and more affluent,” he commented, “and are taking better care of themselves. Our business is a nice business because it makes you feel good in the morning. It’s an experience and a positive one.”

He sees a continuing trend toward active ingredients like Q10 — a hallmark of its Visage collection — “which is more difficult than you might think, because it has to be the right product day in, day out. Every jar has to have the right color, the right tactility and so forth, every time.” Hidden persuaders can help motivate a consumer to try a product, he went on, “but if they’re not perfectly satisfied with everything, they’ll never buy it again. So in the future, you will need technology, constant improvement in performance, state-of-the-art active ingredients and a way of mixing them in high production. If you do that and have a big brand, you can grow, and grow faster than the market,” he said.

In the months Beiersdorf drifted in takeover speculation, Procter & Gamble was the name most often cited — and, particularly in German circles, disparaged — as the most dangerous and hostile suitor. Kunisch, many say, did a masterly job of portraying the American beauty giant as the “big bad wolf.”

“P&G would have kept Nivea and Eucerin and got rid of the rest,” Kunisch asserted. He rattled off formerly strong brands from former acquisitions that P&G has dropped: Shamtu Shampoo, Cliff body shower, Rei detergent and Spulli dishwashing liquid.

“People say it’s now a totally different P&G, but that’s bull….What would they do with a Juvena/La Prairie, or a Futuro or Elastoplast? Why would they have a local organization in any country where their own organization is three to 10 times bigger than ours? Why would they invest money in Nivea Visage in the U.S. when they have Oil of Olay? They wouldn’t invest anything,” he declared. “They would use our strengths in Europe where they’re relatively weak. They would have taken those parts which would have been an enrichment, and the rest would have been eliminated.” P&G, which never confirmed rumors of its acquisition interest, declined to comment Thursday.

At one-third of the size of P&G in terms of beauty sales and less than one-quarter of L’Oréal, Beiersdorf, which ranked number eight in WWD’s 2002 Beauty Top 100, is a David, albeit a large one, in a world of Goliaths. “But we’re a successful David,” said Kunisch. “The word doesn’t exist in English, but [the Goliaths] have ‘unlearned’ how to grow from within.

“When you get to be over 60, you realize that the only real limiting factor in growth is energy,” he continued. “Energy is not endless. It’s limited and it needs priorities. Critical mass, obviously, is essential, but it’s easier and more successful to grow a unit such as ours than one 10 times bigger. Which is why we will hopefully double our size in 10 years’ time and they won’t,” he concluded.