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World Wide Watch: Germany

Germans are united in their desire for value and quality, leading to a thriving mass market beauty business and challenges in the prestige sector.

This fall, Germany is celebrating the 20th anniversary of the fall of the Berlin Wall and the mood is cautiously upbeat. The country has weathered the economic crisis, bounced back from the strain of declining exports in the last year and currently has the highest level of employment since reunification in 1990. Germany may still have its regional differences, but consumers seem united in their search for a harmonious blend of value and quality.

 

That includes the recently reelected leader, Chancellor Angela Merkel, the most powerful woman in the world, according to Forbes magazine, and a woman for whom glamour ranks low on the agenda. She’s not the only one.

 

“For German consumers, ‘natural beauty’ is a widespread beauty ideal,” says Maximilian Conze, managing director of Procter & Gamble beauty and grooming for Germany, Austria and Switzerland. “German women want to achieve both inner and outer beauty—that’s why they strive for radiance and not just for ‘superficial’ outer beauty.”

 

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But inner beauty doesn’t really translate to cosmetics sales, leaving Germany a difficult market for selective brands, and one of the smallest in the region, though it’s Europe’s biggest economy and the second most populous country after Russia. Germany’s cosmetics and toiletries retail sales totaled about $17.13 billion in 2008. Of that, premium cosmetics accounted for about $3.5 billion, according to Euromonitor International.

 

“It’s a lot in the psychology of the German consumer. That’s an assumption, but most of us think like that,” says Gabriele Medingdörfer, managing director for Estée Lauder and Tom Ford Beauty in Germany, pointing to the consumer mentality of careful buying forged by surviving several wars and various economic hardships. “Germans are extremely price conscious.”

 

“Some go even further. “The German consumer is Jekyll and Hyde—two people in one,” exclaims Martin Ruppmann, director of VKE, Germany’s association of cosmetics producers. “On the one side, consumers like to indulge themselves—they like to spend money on nice things. Twenty-five percent of Germans have an affinity for luxuries and are ready to indulge in them. On the other side, they scrimp and save in order to afford these luxuries.”

 

The geiz ist geil (saving is sexy) trend, which, in the oft-quoted quip, has shoppers wearing “Armani to Aldi,” has gripped Germany for several years. But since consumers are cautious, the market has stayed stable through the financial crisis, rising 2 percent in 2008. Medingdörfer says, “The selective market has not moved an inch in the last 10 years. It’s the same size.”

 

 

That means mass market brands dominate, led by L’Oréal, with its L’Oréal Jade and L’Oréal Paris brands, and Beiersdorf, with Nivea. Procter & Gamble, Henkel and Unilever round out the top five.

 

Still, the audience itself is on the decline in Germany. Emigration figures topped immigration figures last year; the birthrate stands at 1.3 children per German woman, or 8.3 per 1,000 inhabitants. The German Federal Office for Statistics estimates there will be a population fall of nearly 10 million people in the year 2050, and twice as many 60-year-olds as newborns that year. According to the figures for 2008, there are more people 65 and older than 15 and younger in Germany.

 

Companies are embracing the mature market by rolling out specific products aimed at older skin, including Beiersdorf ’s top seller, Nivea Visage Expert Lift face cream (for 50-plus skin), and its pharmacy-distributed Eucerin DermoDensifyer range (for 55 and over), and Fribad’s San Soucis Time Excellence (50 plus) and Biodroga Systems Age Performance Formula for the over-60 set. According to the Nuremberg, Germany–based market research firm GfK, sales of antiaging products grew 57 percent from 2004 to 2009.

 

In hair care, Germany’s Dr. Wolff-Gruppe saw a sales increase last year, driven by the popularity of its anti– hair loss lines Alpecin for men and Plantur39 for women. The company is predicting growth for 2009. But young label-loving Germans are also a force to be reckoned with—what they lack in numbers, they make up for with determination. A VKE online poll done in conjunction with Bauer Media KG shows that teen shoppers are brand savvy and brand loyal. Moreover, more than 50 percent of young people are spending more money on body, hair and facial care products than a year ago, and boys spend more than girls.

 

Those boys are contributing to the expanding men’s market, which currently outpaces overall demand for cosmetics and toiletries, with notable growth in skin and hair care, according to Euromonitor. Says P&G’s Conze: “Especially the male skin care market continues strong growth pace in 2009, up 12.2 percent versus a year ago.” He notes that midprice products from Gillette in the pre- and aftershave areas are successfully targeting men who were previously not using skin care products at all. GfK reports that sales of men’s products soared 181 percent from 2004 to 2009.

 

In fragrance, Lancaster Group’s general manager for Germany, Nicole Nitschke, says the selective men’s market has been on the upswing for the past two years, powered by a lineup of both classics and new launches.

 

Classics are also key in the women’s fragrance market. “They play an important roll, with many consumers reaching for perfumes they are familiar with, that consistently give them a good feeling,” says Nitschke. “For example, 20 years after it launched, Jil Sander Sun continues to be at the top-selling position in perfume sales.”

 

 

 

Chanel No.5 also hovers in the top 10, but new releases are clawing their way up, responsible for 20 percent of sales in the last two years. Store exclusives such as Ed Hardy at Douglas are making a dent, and smaller-size bottles, such as the 20 ml., are attracting bargain shoppers and younger buyers at drugstores and supermarkets, where fragrance sales are up by 2 percent, notes Sabine Hefter of Information Resources Inc. Last year, premium fragrances beat out mass, as German consumers gave up the love affair with the celebrity fragrances that had been driving growth in the mass market sector, according to Euromonitor.

 

The German fragrance retailing landscape has close to 2,800 doors—many quite small, family-owned perfumeries. Among them, Hagen, Germany–based Douglas is a key
player, with 452 doors. The gray market, which sends brands to drugstores and discounters, is a consistent source of complaint in the industry. Information Resources reports that one drug chain alone, Schlecker, rang up about $4.4 million in prestige scent sales in the first five months of 2009, representing double-digit monthly growth.

 

Wherever they shop, many in Germany are going green. Germans are generally health and environmentally conscious, consuming organic food, carrying reusable shopping bags and taking natural remedies, though ironically, smoking is rampant. An estimated 12 million consumers are willing to pay extra for environmentally friendly goods, reports Euromonitor. Some of the best-known brands in the sector come from Germany, including Weleda, Lavera and Dr. Hauschka, which generates 55 percent of its sales domestically.

 

“Natural cosmetics are gaining in importance. Increasing numbers of customers in our store are explicitly asking for natural cosmetics,” says Renate Engelmann, head of the beauty department at Berlin’s grand Kaufhaus des Westens, or KaDeWe. GfK reports natural cosmetics grew 112 percent.

 

That’s true, too, at Berlin’s trendy Departmentstore Quartier 206. Tim Fischl, manager of the cosmetics department, points to IQV, an eco-luxury brand with sleek gold packaging and prices of $250, as proof that natural doesn’t have to smell or look bad. “These days, organic is fun, too. That wasn’t the case five years ago,” he says.

 

Traditional brands are wooing green consumers by limiting packaging or offering recycling or trade-ins of empty bottles and tubes. “In Germany, we need refills,” says Lauder’s Medingdörfer. “Refills are cheaper than the original product, but also she doesn’t want to throw away more than she needs to.”

 

Capital: Berlin
Largest city: Berlin
Official language: German
Area Total: 357,022 square kilometers
Time zone: Central European Time
Currency: Euro (EUR)
Population: 82,329,758
GDP (per capita): $35,400
Internet TLD: .de