You will then receive twice a week a short overview of articles recently published by Organic-Market.Info.
Natural cosmetics: ”Quality and company development secure the future”
by Karin Heinze (comments: 0)
Interview with Elfriede Dambacher
The first quarter of 2016 the market registered growth of roughly 10 %. Together with the turnover of nature-based cosmetics, natural cosmetics have achieved a market share of around 15 %, i.e. turnover of approximately two billion euros. A super result in view of the saturated cosmetics market. Looking at these figures, it's important to note that long-term commitment by the companies pays off, not only in financial terms but also in physical growth. We talked with natural & organic cosmetics expert Elfriede Dambacher about developments, concepts and the future.
Last year, in 2015, the turnover of natural cosmetics in Germany cracked the one billion euros mark. Is that success story continuing this year too?
Yes, we're again seeing stable growth this year – in the first quarter the market registered growth of roughly 10 %. Together with the turnover of nature-based cosmetics, natural cosmetics have achieved a market share of around 15 %, i.e. turnover of approximately two billion euros. A super result in view of the saturated cosmetics market. Looking at these figures, it's important to note that long-term commitment by the companies pays off, not only in financial terms but also in physical growth. This expansion of the industry brings its own rewards: natural cosmetics already reach a large number of consumers and every day they are attracting new users as well. And one of the reasons is that products and performance are getting better and better. An interesting fact is that an increasing number of young consumers in particular (born after 1990) are opting for natural cosmetics. Among other things, this is because they are looking for consumer goods that embody ethical values and are genuine alternatives to ”corporate products”. This means the young generation is increasingly exerting its influence on society, with their choice of products and brands expressing their personal scale of values relating to the environment, fairness and sustainability. This generation is, you might say, voting with its purse.
What general impact is this having on the cosmetics industry?
Naturally, the whole cosmetics industry is reacting to the increasing shift in the direction of natural cosmetics. We can see the overall tendency for cosmetics as a whole to become greener. The manufacturers of natural cosmetics have a huge advantage because in the early days they established very high quality standards. At the outset, the focus was mainly on the ingredients, but today other factors are given priority like fair working conditions, sustainability and manufacturing processes that conserve resources,etc. For this to be successful they need a new kind of communication. For example, a natural cosmetics company ought to make consumers much more aware of how the company practises sustainability internally and externally, in other words along the whole value chain. Comsumers are becoming better informed all the time and this benefits natural cosmetics companies because many customers pay a lot of attention to the credibility of information.
Success engenders acquisitiveness. We keep hearing about planned takeovers - are the cards being reshuffled?
These reports are unsettling the industry for no ngood reason, especially as they often can't be confirmed. It's quite natural for a young market like the natural cosmetics market to create thoughts of acquisition because it is growing so dynamically. When a pioneer market gets up and running, interested parties are watching. That's no different from what happens in other sectors. At the moment we can see this on a particulalry large scale in the organic food market as well as in natural cosmetics. The mature German market is attracting internatioinal attention on account of its many years of stable above-average growth rates. So for natural cosmetics companies, whose prioriy for decades was gowth in quantity, the focus in the years ahead should be more on the improvement of quality and on internal company development because that's the way for a company to secure its future. Unfortunately, internal company development was for a long time not regarded as important. It involves attending to capitalisation and the succession regulations in terms of a sustainable, ethical concept. It is incumbent on the natural cosmetics industry to remain loyal to its ideals and to go its own way. Some examples reveal that a purely monetary approach doesn't always lead to finding the right partners. SMEs (small and medium-size enterprises) are a feature of the natural cosmetics sector. So many of them are often too small for the capital market.
How can you secure the future?
Quite simple: first of all, in the process of creating clarity about what they are doing, all companies have to look far beyond their own narrow perspective. The wholefood and natural cosmetics sector is characterized by pioneers who achieved great things by drawing on their own experience and acting inspirationally. It's not easy for a pioneer to change the perspective and not sugar-coat his own situation.The essential requirement for developing strategies for the future is looking critically both within and beyond your own company. In order to do so sometimes means you have to follow new paths.
For many years, wholefood and natural cosmetics companies have achieved success and good turnover because the market has been growing steadily. So faults in the organization of the company or in the offer were not really visible. Only now, with more vigorous competition and the market becoming more differentiated, is it apparent whether the direction of the company is still the right one. At this point in time, many companies find themselves in the situation of their processes, efficiency, offer and capitalisation no longer being appropriate and having to be adapted. Not to mention the challenges created by digitisation. Now is the time to make your company fit if it's to be at all capable of facing the future. I can see some catching up has to be done.
There are encouraging examples and they stand for the performance capability of the industry. In some family-owned companies the generation change, for example, has been successfully accomplished. Some brands are conquering new markets and are developing well. In some cases, mergers have been successful too, although others have not. I'm convinced that when ideals are actually put into practice it shows in the viability of companies - because the mission of the company is lived by the people in that company and is ultimately rewarded by customers buying its products. If a company lives its message with authenticity it is preparing itself in the best possible way for the future, even if changes in the leadership of the company are imminent.
You have insights into many marketing concepts. What's happening in the trade? Is it going the right way?
Market shares say it all: drugstores with almost 40 %, organic and specialist health food stores around 25 %, although stagnating. Actually it's a pity since here the potential has not been fully exploited. At this year's Natural & Organic Cosmetics Conference we're deliberately addressing the issue of how the traditional sales channels (organic store and health food store) have developed and could develop. What they have in common and what makes them different. Themes like exclusivity, price demarcation and training staff are being addressed. I'm looking forward to the examples of best practice. They show that there's much more to it than declaring average figures. The discussion will, I hope, also reveal what they have failed to do to familiarise customers with natural cosmetics in the traditional specialist trade and how important it is for manufacturers and retailers to be pulling in the same direction. Included in this is, for example, a reorganisation of the multi-brand training and qualifications for the natural cosmetics product range in the wholefood trade. Totally new approaches ranging across brands could also be implemented by means of digitisation. There are different sides to the natural cosmetics market. There will always be brands suitable for the mass market and there will always be brands that are best located in the specialist trade.
Verticalisation of the trade is another important theme. I'm convinced natural cosmetics will not disappear in the mass market but that we'll continue helping to determine the market in our different ways.The target group for natural cosmetics is getting younger and more discerning. However, they can rarely find in the fixed-location trade the shopping experience that takes account of their high demands. There are so many lovely rarities in natural cosmetics and in the natural goods sector, but where can they actually be seen? This is where there are huge opportunities for combination concepts of digital shopping and bricks-and-mortar stores.
At the Natural Cosmetics Conference experts will discuss shopping worlds of the future – what awaits the participants?
Digitisation in the trade affects us all and all sectors and that's why we've made it a focal point of the first day of the Conference. In the forefront will also be the issue of how purchasing decisions are made today and how specialist retailers can make use of this information. The fixed-location trade cannot survive without an online strategy. Many young sophisticated customers already cover their need for special products and brands online. And we'll present the latest figures on this from the Institut für Handelsforschung. A whole range of international niche brands are building up their marketing principally via the internet. Moreover, the offer in the specialist organic trade is becoming less and less differentiated on account of the BNN guideline for the natural cosmetics product range that permits only certain logos. This doesn't appeal to new younger customers. They succeed in finding other ways to buy interesting brands that don't reach the fixed-location trade because of the guideline or are not listed by the wholesale trade. The consequence is that the specialist organic trade for natural cosmetics loses these inquisitive customers.
The biggest organic market in the world, the USA, will be the international focus at the NCC . Could we please hear a few key words?
The USA is the biggest market for organic food and natural cosmetics. It's interesting from the manufacturer's point of view – but not easy to understand. That's why it was time, from our point of view, to have a closer look at this market. So that manufacturers can assess it better. We'll examine the structures and the development of product ranges. We were able to get the specialist market research company SPINS to present insider knowledge. In addition, two experts will familiarise us with the American lifestyle and market.
Many thanks for this discussion!
Natural & Organic Cosmetics Conference is held on 27 and 28 September in Berlin.
Taking place on the day before: the popular Trendtour through Berlin to special shops for natural cosmetics.