GERMANY’S NEW TITAN LOOKS FOR A GLOBAL EDGE
Byline: Melissa Drier
DUSSELDORF, Germany — This country’s new beauty giant, Schwarzkopf & Henkel Cosmetics GmbH, is banking on the combined strengths and know-how of the recently consolidated Henkel and Schwarzkopf cosmetics businesses to maintain an edge in an increasingly competitive market.
With the Nov. 1, 1995, acquisition of a majority stake in Hans Schwarzkopf GmbH, the Hamburg-based hair care company, Henkel practically doubled the size of its beauty business in one step.
A quiet market force and the number one seller of consumer hair colorants in Germany, Henkel’s 1995 global beauty sales hit $842 million (1.38 billion marks).
With Schwarzkopf on board, the company’s worldwide beauty sales reached about $1.65 billion (2.7 billion marks) in 1996 and moved it into the number one position in domestic consumer hair care sales.
The new firm is also neck and neck with Beiersdorf as total cosmetics sales leader in Germany. And as a global player, Henkel now ranks as one of the world’s 15 largest beauty companies.
Under its new German corporate umbrella, which came into effect Jan. 1, Schwarzkopf & Henkel Cosmetics aims to add up more than just sales.
“We reorganized our whole cosmetics business,” said Thorsten Hagenau, director of the new Schwarzkopf & Henkel concern.
He said one step was to bring the activities of the two companies together in the countries where Schwarzkopf and Henkel both operated a branded consumer business.
The main countries concerned were Germany, Austria, Switzerland and Benelux, he continued, though in Germany, the integration also involved the small skin care company AoK-Nerval, previously an independently operated, Henkel-owned firm.
The Schwarzkopf acquisition also brought Henkel a salon-based business, Hagenau pointed out. Under the name Schwarzkopf Professional, this will operate as a separate division with central headquarters in Hamburg.
In some countries, the consolidation basically meant that Schwarzkopf was integrated into the existing Henkel organization, Hagenau explained.
But in Germany, “We really created a new company with new hierarchies, organizational structures, procedures, priciples, trade systems and portfolio structures,” he said.
Three separate sales organizations have now been set up according to distribution channel, with a key account management for drug chains, another for hypermarkets and department stores, and a third for affiliated retailers.
“It allows us to better react to the needs of specific types of retailers,” Hagenau said.
Schwarzkopf & Henkel has also split its marketing organization into two divisions: one for all consumer hair care — including color, shampoo and styling products — and a second for body and skin care, mouth and oral care products and fragrances.
Field organizations have also been split by product groups: one for hair, body and mouth care products, and a smaller, specialized organization for skin care and fragrances.
In terms of their product portfolios, the Schwarzkopf acquisition was “really a perfect fit,” Hagenau said. “It was like the key in the lock, because Schwarzkopf had strong positions in areas where we weren’t present or had weaker positions the other way around.”
For example, Henkel was relatively strong in consumer hair color, whereas Schwarzkopf was not in the consumer color business at all, he explained.
In shampoo, Henkel’s position was “not that strong” with Fa and PolyKur, whereas with the brand Schauma, Schwarzkopf was the market leader in Germany and had strong positions in other countries.
The same held true for hairspray, where Henkel had a so-so position with its Poly range, but Schwarzkopf was the leader in Germany and most European markets with Drei Wetter Taft.
Even where problems of cannibalization were possible, as in the deodorant category, where Henkel’s Fa brand ran up against Schwarzkopf’s BAC, “the positionings were somewhat different,” according to Hagenau.
“We relaunched both and separated them more as far as co-op positioning, consumer benefits and pricing are concerned,” he said.
Similarly, PolyKur (Henkel) and Glise Kur (Schwarzkopf), natural competitors that remained engaged in a battle for first place in German hair conditioner sales, were also relaunched, profiling PolyKur as a botanically based brand and Glise as the specialist for damaged hair.
The Schwarzkopf & Henkel product portfolio includes toothpaste, deodorants, body care and bath and shower ranges, fragrances, depilatories and feminine hygiene aids under such well known brand names as Teramed, Vademecum, BAC, Dane, Fa, AoK, Kaloderma, Aapri, Moschus, City Men, Hattric, Pilca and Vionell.
But the company chose to put Schwarzkopf at the front of its new corporate moniker to both emphasize its hair care core and help create a stronger corporate identity.
Schwarzkopf’s black emblem of a woman’s profile will also now appear on all products “as an endorser,” he said, adding, “So you can see we really want to stress the positive aspects of Schwarzkopf in this business.”
As it prepares for the run up to the year 2000, Schwarzkopf & Henkel expects its business to be dominated by hair care, which currently contributes more than 50 percent of sales.
New product ranges are in development in almost all categories where the company is now active, and a slate of relaunches are also being planned, Hagenau noted.
He declined to give further details, but said that new enterprises in other cosmetics areas such as makeup are not being considered.
In the past, Henkel has fueled growth primarily via acquisitions, most notably the takeover of Barnengen, the consumer goods division of Nobel Industries, Stockholm, in 1992, and then Schwarzkopf in 1995.
While not ruling out further acquisitions, Hagenau nonetheless emphasized that the company is now looking to internal growth to move it further up the line.
“We want to be number one in the total cosmetics business in Germany and improve our position in Europe, where we are now number three,” he said.
In Austria, the Netherlands, Belgium and Switzerland, the company claims it already occupies the number one or two slot, but is looking to strengthen its performance in France, Spain and Italy.
Outside of Europe, Asia is the major focus, especially China, where the company already operates several joint ventures.
At present, there is little-to-no interest in trying to develop the American consumer brands market, and Schwarzkopf’s salon business here is privately owned by Hans Peter Schwarzkopf and thus doesn’t directly effect the corporate picture.
“We all know we need more international, European or even world brands, because you have a lot of synergies,” Hagenau said. “You can roll out innovations faster, you have better economy of your spending, but on the other hand, the more you are international, the more you are transparent.
“If you have local products,” he continued, “let’s say if Theramed costs 2 marks in Germany and Licor del Polo costs 1.20 in Spain, it doesn’t matter so much. But as soon as you have the same brand, the same concept at different prices, the problem becomes obvious.”
The European market, which is the company’s main field of action, is also a stagnating market. Repeating the experience of the last two years, Hagenau projects 1997 will be another difficult year for Europe’s cosmetics makers, with almost no growth on the horizon.
Further complicating the trade outlook is the continued concentration of retail distribution channels.
“Today, there are 20 clients which make up 80 percent of our turnover in Germany,” Hagenau said. “In Europe, 10 accounts make up 40 to 45 percent of our European turnover and this concentration, with all of its impacts, will continue.”
Hagenau sees a ray of hope for the future, however, in improved communication and closer partnership between manufacturers and retailers. Both parties “must realize that by working together they can make a better business than working against each other.”
If all big trade partners would have scanner cashiers, Hagenau went on, “they would know every evening who entered the shop, what product they bought and with that information, they could steer their business and reduce their inventories considerably.”
But the distrust is deep, and progress being made toward computerizing the industry is very slow.
“There’s the fear that by exchanging information you give power away, that the other could use this information against you,” he said. But it’s a question of proper analysis of the data and of coming to the correct conclusions, he pointed out.
“We’re starting client by client. And the moment both partners realize business is going better than before, it encourages the others,” Hagenau said.
“It just takes time, but there is no other way,” he concluded, stating he does not believe the industry can successfully develop on a basis of heavy promotions and discount-oriented activities.
“Over the long run, these crazy promotional activities don’t increase sales. You win tomorrow, but lose the day after,” Hagenau said. “It simply confuses the consumer to find the same product today for 2 marks, tomorrow for 1 mark and the day after for 2.50. It causes problems in production and down the whole supply chain.”