With its strong domestic brands and excellent growth rates over the past few years, Poland s C&T market is one of a kind, reports Annemarie Kruse

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1 Provoke is a new range of colour cosmetics from Dr Irena Eris, one of Poland s strongest domestic brands POLES APART With its strong domestic brands and excellent growth rates over the past few years, Poland s C&T market is one of a kind, reports Annemarie Kruse With its 38.5 million inhabitants Poland is the biggest market amongst the Central and Eastern European (CEC/CEEC) countries. The Polish economy has shown excellent growth rates over the last few years, outperforming several other European countries. Poland is also the sixth largest personal care market in the European Union. According to personal care association Cosmetics Europe, Poland s C&T market reached a turnover of t2.862bn in 2013, a slight dip of 0.4% compared to 2012, while research company Canadean valued Poland s personal care market at USD $3.4bn (t2.52bn) in 2013, forecasting a rise to $4.0bn (t2.97bn) in 2017, with an overall CAGR of 4.2%. In a recent study, market research group AC Nielsen pegged the C&T retail market at Polish zloty zł8.1bn (t1.96bn) in However, this figure only looks at mass market retailers and does not include perfumery, online and direct sales. Market researcher PMR Publications, on the other hand, has estimated the personal care market at zł20bn (t4.84bn) in 2013, an increase of 2% compared to By 2016, PMR says, the market will have reached zł23bn (t5.56bn). Sector breakdown Looking at the Canadean figures in more detail, skin care was the largest sub-category in This sector accounted for turnover worth $615.93m (t457.42m) and is estimated to grow 4.3% to $728.89m (t541.31m) by Hair care was next in line with sales of $589.01m (t436.88m) last year and a prognosticated value of $692.08m (t513.34) by 2017, up 4.1%. Personal hygiene, including bath and body care, reached $469.21m (t348.04) in 2013 and will grow 3.5% to $538.00m (t399.07) by Fragrance is one of the fastest-growing subcategories. Canadean estimates that this sector will be worth $603.25m (t447.50m) in 2017, up 5.9% compared to last year s $479.74m (t355.90m). Colour cosmetics was the fifth-biggest sector in 2013, with turnover of $340.43m (t252.55m) and an estimated $386.54m (t286.76m) in 2017, up Poland: Country facts Size sq km Inhabitants 38.5m Capital Warsaw GDP bn GDP 2014 (est.) 407.8bn Source: Germany Trade and Invest (GTAI) 3.2%. Oral hygiene reached a turnover of $333.81m (t247.65m) last year and will increase 4.2% to $393.30m (t291.78m) by Feminine hygiene products are an important part of the Polish market. This sub-category is dominated by domestic brands; it was worth $268.01m (t198.83m) in 2013 and will grow 4.1% to $315.33m (t233.94m) by 2017, according to Canadean. Men s care is also a growing field. Last year this sub-category reached $236.04m (t175.11m) and will grow a further 3.2% to $268.13m (t198.92m) by Sun care, on the other hand, is a worryingly small market. In 2013 sales of sun care products reached just $67.94m (t50.40m). By 2017, however, the category will have grown 4.9% to $82.14m (t61.68m). Brand nation Unlike some other Eastern European markets, Poland has very strong domestic beauty brands. A 2013 report by German economic development agency Germany Trade & Invest (GTAI), estimated some 400 national beauty companies. Only around 100 of these companies are medium-sized or large companies but even so, Polish brands have cornered some 50-60% of the cosmetics market. The biggest domestic manufacturers include Ziaja, Dr Irena Eris, Dax Cosmetics, Oceanic and Bielenda. Ziaja was founded in 1989 and the company s portfolio comprises some 900 products across different categories, including face and body care, hair care, men s and baby care, sun care and feminine care. There is also a salon range which is retailed under the brand name Denovo Pro. Like other Polish C&T companies Ziaja also has a large international distribution and is currently present in some 49 countries. Among the company s biggest product lines are the Goat s Milk range of skin and body care and the Olive Oil range of skin and hair care two classic ranges which are also amongst the company s best sellers, according to Export Manager Lidia Ziaja. Ziaja s facial skin care portfolio is highly segmented, with product ranges for different skin ages rather than skin types. The Safran range, for example, is aimed at skin aged 60+, Jasmine is for women aged 50+, Lifting is an anti-ageing range for skin aged 40+ and Rose Butter is for dry skin aged 30+. There is also the fragrance-free Sensitive line for allergy-prone skin, PhytoActive for September 2014 ECM 29

2 COUNTRY REPORT POLAND sensitive skin and the company s most recent launch, the Manuka range for combination and oily skin. The Irena Eris group specialises in mass market and luxury cosmetics as well as salon products which are retailed under four different brands. Dr Irena Eris includes premium and professional products, Pharmaceris is a dermatological brand primarily retailed in pharmacies, Lirene is the firm s umbrella brand for mass market cosmetics and Under Twenty is a mass market teenage skin care range. The Dr Irena Eris premium portfolio includes 12 facial skin care ranges for different skin ages, with the majority of face creams priced between t18 and t28. There is also the ten-sku Body Art firming care range and the six-sku Men Platinum men s care range. One of the company s latest launches was Provoke, a range of colour cosmetics. The line-up includes some 25 products and 94 colours. Foundations are priced at around t20, twin eye shadow palettes at t16 and mascaras at t18. Dax Cosmetics was founded in 1984 and manufactures mass market and luxury products. Dax s ranges have a very wide distribution and are especially strong in drugstores and supermarkets/ hypermarkets. The company s main mass market beauty brand is Perfecta. The Perfecta portfolio comprises some 20 facial care ranges like other Polish brands, the company s face care line-up is segmented according to skin ages. Perfecta offers dedicated ranges for 35+, 40+, 50+, 60+, 65+ and 70+, as well as 11 skin care ranges for different skin types. There is also a baby care range, a product range for pregnant women, ten body care ranges and a line of foundations. The group s portfolio also includes sun care range Dax Sun and men s products line Dax Men as well as premium skin care brands Cashmere and Yoskine. Cashmere comprises seven face care products, a range of cream masks and several foundations and primers. Yoskine offers segmented product ranges for skin aged 30+, 40+, 50+, 60+ and 70+, body care and a range of cleansing products. Yoskine face creams are priced at around t30 which makes this a distinct luxury brand. Dax s brand stable also includes colour cosmetics range Celia. The company acquired the brand in 2007; Celia itself was launched in 1959 and is considered one of the classics in the Polish make-up market. Oceanic is the manufacturer of AA and its selection of product ranges are present in all distribution channels. AA stands for anti-allergic and products are formulated for sensitive and allergy-prone skin. The AA portfolio comprises AA Cosmetics which is the main skin care label and also includes body care and liquid foundations, AA Prestige, a more high end anti-ageing face care brand with nine different ranges, AA Men, AA Sensitive Nature Spa with its six fruit-inspired body care ranges, Me and Mommy, a range which includes baby care and pregnancy cosmetics, and AA Eco, an organic face and body care range. Bielenda is another company which is very active in the mass market. It was founded in 1990 and specializes in natural cosmetics. The company s portfolio comprises seven skin care ranges, each of which is built around a main ingredient. Besides the Aloe range there is Cotton, Collagen, Chestnut, Cucumber & Lime, the lifting Liquid Crystal range and Pharm Acne for problem skin. Although Poland doesn t have any major certified organic brands to speak of, natural-inspired cosmetics are definitely a trend, says Lidia Ziaja: One of the major developments in the Polish C&T market are product formulations with natural ingredients. And indeed, most Polish brands have at least one natural-inspired brand in their line-up. Skin specialists The domestic brands are especially strong in the skin care category. Besides those already mentioned the market also includes manufacturers like Delia Cosmetics, Eveline and Soraya. Delia Cosmetics was founded in 1998 and specialises in products formulated with hyaluronic acid and argan oil. The line-up includes face cream, facial serums, masks and scrubs and the company has a small colourant, home perm and styling portfolio as well as a range of colour cosmetics. Eveline was founded in 1983 and produces skin and body care products and colour cosmetics. The brand is active in some 70 countries worldwide and its highly segmented portfolio includes 18 face care ranges, 16 hand and body care ranges, six sun care ranges, a small hair care portfolio and a men s care range. And skin care company Soraya was originally founded in A few years ago the company was acquired by Swedish retail group Cederroth, who also snapped up fellow Polish brand Dermika. Soraya s portfolio focuses on face care but the company also manufactures bath and body care. Besides these Polish brands the biggest international skin care brands include Beiersdorf s Nivea and L Oréal s Garnier and L Oréal Paris brands. In colour cosmetics, on the other hand, there are few domestic brands. This category is dominated by international labels like Bourjois, L Oréal Paris, Essie, Rimmel, Revlon, Max Factor, Catrice and Essence. The notable exception is Inglot which not only has some 150 stores in Poland but also operates around 300 outlets in more than 50 countries. In hair care, western brands also reign supreme. The ranges of German C&T manufacturer Henkel & Schwarzkopf especially Gliss Kur and Schauma are popular and L Oréal with Elseve, Fructis and Garnier Ultra-Doux is also strongly Poland: C&T market by categories, 2013 Sector 2013 $m 2017 $m +/-% Total 3.4bn 4.0bn 4.2 Skin care Hair care Personal hygiene Fragrance Colour cosmetics Oral hygiene Feminine hygiene Men s care Sun care Source: Canadean One of domestic brand Ziaja s best-selling product lines is its Goat s Milk range of skin and hair care (below) 30 ECM September 2014

3 represented. Other important hair care brands include Nivea, P&G s Pantene and Wella and Unilever s Timotei and Dove. And as far as colourants are concerned, Henkel & Schwarzkopf and L Oréal rule the roost. Bath and body care is another category which is split between local and international brands. Domestic bath care brands include Ziaja, Luksja and Soraya as well as J&J s brand Le Petit Marsellais, but also western favourites Dove, Palmolive and Nivea. Men s care is a thriving segment in Poland. Ziaja says: Beauty care products for men are gaining more and more importance. This category develops in terms of sales and number of products introduced to the market. Although shaving preps and razors still account for the majority of men s care sales, skin care products are becoming increasingly sophisticated. Market researcher Euromonitor notes that the men s sector grew 4% in 2013, with antiageing products being a main driver. Drugstore dominance Drugstores are the most important retail channel for personal care. According to a recent GTAI report, more than half of all personal care sales in Poland take place in drugstores. PMR Publications has estimated that in 2013 this channel accounted for 43.4% of sales, reaching a total of zł8.7bn (t2.1bn). The Polish drugstore market is very competitive. The sector is dominated by big retail chains which offer spacious, modern stores and a wide product selection. The biggest drugstore retailer in Poland is actually from Germany: the Rossmann group, which is partially owned by Hong Kong based AS Watson. It has just opened its 900th store in the country. Rossmann first entered the Polish market in Since then the retailer has become the national market leader. For Rossmann, Poland is the most important international market; the majority of Rossmann s international sales are generated here. And in 2013, Rossmann s business went very well indeed: the Polish subsidiary posted turnover of zł5.8bn (t1.4bn), an increase of 13% compared to Rossmann Polska has also announced further expansion plans; by the end of 2014 there will be an additional 100 Rossmann outlets in Poland. Polish C&T brand Eveline is available in 70 countries worldwide Poland: growth mindset Lidia Lewandowska, Editor-in-Chief of Polish beauty magazine Magazyn Kosmetyki, talks to ECM about the current state of the cosmetics market in Poland How is the Polish cosmetics market performing? The cosmetic market in Poland is constantly growing, and currently valued at zł19-20bn. Certainly the market is growing both internally, powered by stronger consumer knowledge regarding cosmetic use although the growth is not as dynamic as it was couple years ago. Export rates are growing thanks to no trade barriers within the EU and because Polish companies are ready to sell to the developing markets in Asia, Africa or Middle East. In addition Polish companies are encouraged to develop export by the Programme to Promote Polish Cosmetics Industry on Foreign Markets, run by SPC House of Media for the Polish Ministry of Economy. Poland s ten years of EU membership was well used. Producing companies benefited from various EU funds, modernising factories, laboratories, investing in R&D, new production lines and equipment. Cosmetics manufactured in Poland fulfil the highest EU quality standards. Also, the strong position of Polish brands on the Polish market is an achievement worth mentioning. Polish consumers appreciate local brands and often choose them over global ones. What are the biggest trends in the market? Today the Polish market is quite similar to other developed markets. As elsewhere, consumers buy products that incorporate natural ingredients with latest technology developments. A boom for cosmetics based on natural oils, used in skin, face and hair care, is still visible. Recently, cosmetics inspired by aesthetic medicine (with hyaluronic acid, ingredients causing laser-like effects etc) sell well. Polish women spend a lot on make-up and colour cosmetics. Two out of five Polish women wear make-up every day and the colour cosmetics market is forecast to reach the level of zł1.5 billion in a couple of years. Recent developments of BB and CC cosmetics gained popularity in Poland. According to Nielsen research, the biggest sales groups in colour cosmetics are: foundations 23.2%, mascaras 20.7% and nail polish 13.2%. Eco and organic cosmetics are popular mainly within a small but growing group of consumers. The sales of selective brands are growing visibly, as a result of both growing resources and growing aspirations in certain social groups. Which distribution channels are experiencing the best performance? The cosmetic distribution market in Poland is estimated to reach the level of zł23bn in 2016, growing from almost zł20bn in 2013 (2% growth), according to PMR research. The fastest growing distribution channel over the last few years has been discount stores. Both discount stores and drugstores are opening new points of sales in Poland, with double digit growth every year. Discount stores recently broadened their offer of well recognised brands, drawing clients away from hypermarkets and drugstores. The growth of drugstore points of sale is mainly a result of new locations being opened by large international drugstore chains, especially the market leader Rossmann. However, also franchise chains like Drogerie Laboo and Drogerie Polskie are growing and altogether the number of chain drugstores grows by several hundred a year, displacing independent stores. Today, almost 1800 stores operate under franchise or partner system. According to PMR, consumers asked about preferred cosmetic shopping channel, pointed to Rossmann (63%), Avon (20%) and Drogerie Natura (10%). September 2014 ECM 31

4 COUNTRY REPORT POLAND In 2012 another international drugstore chain appeared on the Polish market. After German drugstore retailer Schlecker went bankrupt in 2012, Austrian retail chain Dayli had taken over Schlecker s drugstores in Italy, Austria, Poland, Belgium and Luxemburg. Just one year later Dayli announced its own insolvency and the Dayli stores disappeared from the European retail landscape. However, since the Polish stores had been operated as a joint venture with Polish partner Hygienika, Dayli Polska was the only subsidiary to survive the cull. Today Dayli operates some 160 stores across the country, with a modern drugstore portfolio similar to Rossmann s offering. Local flavour The strongest local chains include Drogerie Natura which stocks primarily Polish brands, and Drogerie Aster which has some 128 stores across the country. Both chains belong to domestic retail group Interchem. Natura is positioned as a more premium store brand and is present in all larger cities in Poland. Aster drugstores, on the other hand, are more mass market oriented and usually found in smaller towns. Drogerie Hebe is a 75-strong perfumery chain specializing in mostly international mass market and upper mass market beauty brands. The Hebe chain belongs to Portuguese retail group Jéronimo Martins which also runs the Biodronka chain of discounter hypermarkets. Another important personal care retailer is Super- Pharm, a Canadian chain which entered the Polish market in Today Super-Pharm runs some 25 stores across the country. The Super-Pharm outlets offer a pharmacy department, a drugstore area and a perfumery section. Super-Pharm stores also stock a wide selection of primarily French pharmacy brands, including Avène (Pierre Fabre), La Roche- Posay and Vichy (both L Oréal). In addition to these international and national chains, Poland has many independent drugstores which are often located in rural areas and smaller towns. For the last few years these small retailers have been struggling against the power of the big chains. The increasing importance of own label beauty is also making life difficult for the independent drugstores. Proprietary brands, particularly those of international retailers like Rossmann, are becoming very popular with Polish consumers. As a direct result, a price battle is developing on the market which is further affecting the economical situation of the smaller stores. However, some of these retailers have now begun to fight back. In 2010 a number of independent drugstores formed the network Drogerie Polskie. The goals of this association are to strengthen the economic position of independent drugstore retailers, counter the influence of the big western chains and focus all efforts on developing a strong domestic sector to keep the traditional Polish retail heritage alive. Today some 200 drugstores are organised in Drogerie Polskie and the member stores all feature the association s logo and corporate colours. Poland: Supermarket retailer ranking, 2013 Company Turnover Outlets Retail space m 2013 in sq m Jéronimo Martins (Biodronka) 7,505 2,393 1,500,038 Schwarz group 4, ,109,861 Eurocash 3,712 5,196 10,322,300 Tesco 2, ,453 Metro group 1, ,500 Lewiatan 1,724 2, ,000 Carrefour 1, ,165 Auchan 1, ,800 Zabka 899 3, ,000 Polomarket ,750 Source: Planet Retail Supermarket success Supermarkets, hypermarkets and discounters are also becoming important retail channels for C&T. Discounter market leader Biedronka with its 2400 stores has already started to extend its offering of beauty brands, as has German chain Lidl which operates some 550 stores in Poland. According to a retail ranking by market researcher Planet Retail, Jéronimo Martins was the biggest supermarket retailer in Poland. Biedronka is an especially successful business; in 2013 the company opened 280 new stores and domestic turnover grew 15% to t7.5bn. The second place in the ranking was occupied by the German Schwarz group with its Lidl and Kaufland chains and t4bn turnover in The Polish Eurocash group was in third place, followed by the UK s Tesco with 450 outlets and the German Metro group with 98 stores and turnover of just under t2bn. French retailer Carrefour with its 600 hypermarkets and t1.59m turnover was in 7th place. Like in other Eastern European markets, directselling companies like Amway and Avon from the US and Oriflame from Sweden play a very important role in C&T retail. According to a 2014 report by Euromonitor, direct sales of beauty brands in Poland have seen a steady demand over the last few years. In 2013, Avon led the market with a 38% retail value share, followed by Oriflame with 15%. The Euromonitor report predicts that direct-selling will The personal care market in Poland will remain highly competitive over the next year as there are many important players, both local and international LIDIA ZIAJA, EXPORT MANAGER, ZIAJA LTD Dosmetic brands are particularly strong in skin care, although Nivea, L Oréal Paris and Garnier are the biggest international players 32 ECM September 2014

5 Super-Pharm runs 25 personal care stores across Poland, and offers a wide selection of French pharmacy brands such as La Roche Posay and Vichy continue to develop well, with an expanding consumer base especially in rural areas and small towns. The luxe factor Although the C&T market has slowed down a bit over the last years, the luxury market is in pretty good shape. According to Euromonitor, luxury cosmetics grew 2% to zł329bn (t79.5bn) in 2013, and although consumers are starting to look more closely at prices, Polish women still love their premium cosmetics. The luxury sector only accounts for a small share of the entire C&T market so far but retailers are hoping that the category will continue to grow stronger over the next few years. Euromonitor estimates that turnover of premium beauty will reach zł330m (t79.4m) in 2014, an increase of 3% compared to the previous year. The two largest perfumery chains are Douglas from Germany with 110 stores the Douglas group is the perfumery market leader in Poland and US chain Sephora with 93 outlets. Both chains are locked in a battle for market share, not just with each other but also with the growing role of e-commerce in Poland. Online retail is becoming very popular among Polish consumers and although the national e- commerce average is still lower than in other European countries, Poland is catching up fast. According to Polish market research company Gemius, 55% of internet users purchase cosmetics online, or said that they were planning to do so. Among female consumers this percentage was even higher, with 66% of women saying that they bought beauty products online. Poland: C&T retail channels % share, by value, 2012/ Drugstores/beauty 55.1% 55.8% specialist retailers Supermarkets 17% 18.8% Hypermarkets 15.9% 14.3% Pharmacies 3.5% 3.6% Groceries 3.2% 2.8% Larger groceries 2.3% 2.1% General stores 2.1% 1.9% Kiosks 0.9% 0.7% Source: AC Nielsen And over the last few years many online perfumeries have appeared on the market. For obvious reasons these retailers are especially popular with consumers living in areas where Douglas or Sephora stores are few and far between. In order to counter the online competition, Douglas and Sephora are both trying to draw customers into their stores by offering added value services, such as free makeup consultations, beauty treatments and exclusive offers. Both retailers are also investing into their own online stores. Douglas e-commerce portal offers almost 200 beauty brands, including the usual international favourites as well as domestic premium brands like Inglot, Dr Irena Eris, Yoskine, AA Prestige and fragrance manufacturer Pani Walewska. Sephora launched its online store just a couple of months ago. So far only lists some 115 labels. Compared to Douglas much bigger brand choice this might seem like a poor showing at first. However, Sephora sells more niche labels than the mainstream Douglas portfolio and Polish consumers appreciate this. Positive positioning Poland has been a major recipient of the EU s structural and cohesion funds in the legislative period of This is one of the reasons why the Polish C&T market has been doing so well over the past few years. And from 2014 to 2020, the country will receive some further t100m, which will also boost the economy and with it the retail industry. The increase in EU funding also makes Poland a popular country for foreign investors. In 2014 the member companies of the German Chamber of Commerces voted Poland as the best country for investments in the entire CEC/CEEC region, for the second year in a row. L Oréal has one of its largest European factories in Poland, as does Oriflame and competitor Avon is also producing a large part of its cosmetics here. And US consumer goods manufacturer Colgate-Palmolive considers Poland one of its most important European locations for product manufacturing. The group recently announced that it would invest some t100m into its Swidnica factory for oral care products. All of this bodes well for the Polish economy. Industry observers believe that in 2014 GNP will grow 3% and might even reach an increase of 4% in This will also benefit the retail industry and with it of course the C&T market. Ziaja says: The personal care market in Poland will remain highly competitive over the next year as there are many important players, both local and international. In the longer term the situation will depend on the changes in the retail trade. Due to consolidation processes the access to trade may become more difficult. On the other hand, the growing role of internet and social media in the sales and promotion of cosmetics creates new possibilities. September 2014 ECM 33