SKIN CARE CATEGORY IN ROMANIA LUMENE – BUSINESS CASE

SKIN CARE CATEGORY SKIN CARE CATEGORY IN ROMANIAIN ROMANIA

LUMENE – BUSINESS CASELUMENE – BUSINESS CASE

AgendaAgenda

1. Cosmetics & toiletries development in Romania2. Skin care development in Romania3. Distribution – skin care4. SWOT Analysis – Lumene in Romania5. Key conclusions6. Lumene in Romania – Create, Build, Expand Model7. Create Phase8. Build Phase9. Expand Phase10. Create – Build – Expand11. Next steps

AgendaAgenda


Cosmetics & toiletries development Cosmetics & toiletries development in Romaniain Romania

• Cosmetics and toiletries continued its upward trend, with sales reaching Lei 1.2 billion (Euro 340 million) in 2006. The most valuable sectors were the ones where premium and upper mass products have a bigger share, such as fragrances, skin care and colour cosmetics. However, there are basic hygiene products such as bath and shower products and oral hygiene that are underdeveloped due to low product awareness among rural areas inhabitants, which accounts for almost 50% of the population.

• Consumer sophistication leads to increased value Over the past few years, consumers became increasingly interested in their self-image as well as in the quality of the products they purchase. The increase in purchase power, which began in 2001, led to higher disposable incomes and improved lifestyles. Consequently, the products that have risen in popularity are upper-mass and more specialised, as premium products are not sensitive to price in general, having loyal customers.

• The most active consumers were women, for whom lifestyle magazines set trends in terms of self image and promoting more expensive products of higher quality.


• Multinationals dominate cosmetics and toiletries. Multinational producers continued to account for the bulk of cosmetics and toiletries sales in 2006, while only a handful of local producers have worked their way up and managed to face the fierce competition.

• The leading companies are Avon Cosmetics, Procter & Gamble and L'Oreal, followed by smaller players as Colgate-Palmolive, Unilever and Beiersdorf. The most important advantage that multinationals have over local producers is advertising. Having less financial resources, local producers cannot afford spending money on promotional campaigns. In addition to this, local producers do not have the necessary means to innovate as much as multinationals, in order to meet consumers' specialised needs.


• Cosmetics and toiletries were amongst the most advertised products in 2006, with Procter & Gamble leading the way. The fierce competition between multinationals lead to advertising wars between the leaders and runners-up in every area of cosmetics and toiletries. The most advertised product was shampoo with more than eight brands heavily promoted by their producers.

• Apart from TV, another important media channel is lifestyle magazines, both for women and men, promoting upper mass and premium products and setting style and fashion trends. Almost each three months, a new lifestyle magazine enters the market targeting the more health and look conscious Romanian consumers


• Market analysts expects cosmetics and toiletries overall growth to increase by over 60% by 2010. The solid growth will rely mainly on the improved performance of sectors that were nascent until now, and that have a relative low base, and of those hygiene products such as shower products and toothpaste which have low penetration in rural areas.

• Moreover, the increased concern of large urban areas inhabitants with their appearance is expected to lead to strong growth for sectors such as fragrances, skin care, color cosmetics and men’s grooming products.


(million RON) 2003 2004 2005 2006

Skin care 140.3 172.1 205.6 233.2

Baby care 8.0 8.7 9.5 9.8

Bath & shower 104.4 106.4 113.9 115.2

Deodorants 91.0 99.2 107.8 114.8

Hair Care 103.6 115.8 133.2 142.4

Color cosmetics 89.5 114.8 142.5 161.7

Men’s grooming 28.6 34.0 39.5 43.0

Oral hygiene 61.7 66.6 73.4 77.6

Fragrances 108.2 155.8 220.0 291.6

Depilatories 4.7 5.0 5.5 5.5

Sun care 8.0 9.5 11.4 12.7

Cosmetics & toiletries

748.0 887.9 1062.3 1207.5

Source: Euromonitor weighted from in-company information

AgendaAgenda


Skin care development in RomaniaSkin care development in Romania

• Market is in continuous growth reaching Lei 230 million (Euro 65 million) sales in 2006. With an impressive 66% growth across last 4 years, skin care is one of the fastest developing categories in cosmetics & toiletries.

• There are almost 16 million units sold per year in Romania. This is equivalent of 0.8 units per capita or 1.5 units per urban consumer.

• Market is almost equally split between face cleaning products (40% of market) and care products (60%).


• Market is dominated by 4 big players – L’Oreal, Avon Cosmetics, Beiersdorf and local company Farmec which account for 77% of total market.

• L’Oreal is the market leader in skin care with 2 brands – L’Oreal (13% share, sales: RON 30 mil) and Garnier (10% share, sales: RON 22 mil). L’Oreal is playing in the premium segment of the market, while Garnier is the mainstream brand.

• Second largest competitor is the local company Farmec from Cluj-Napoca with 2 brands both playing in the economic sector – Gerovital and Farmec, accounting for 20% share (sales: RON: 45 mil). Gerovital is a famous skin care brand created in 70s by the scientist Ana Aslan, marketed around the world and famous for its anti-aging effects. After 1989, due to lack of property rights legislation, dozens of producers started to produce Gerovital and Aslavital, damaging the brand. After 2000, Farmec took it over and it is sold also outside Romania.


• The local branch of Avon is the third accounting for 18% of total value sales in 2006. Avon Cosmetics success relies on its policy of offering upper-medium, higher quality products at affordable prices. Another strong point is their constant product innovation, especially for skin and hair care, which always comes to meet consumers' expectations. Notably, 12% of total Avon’s sales in Romania are in skin care, making this category a key focus for the company. Avon's eternal rival, Oriflame Cosmetics Is one a declining trend, as it is more rigid to price reductions and promotional campaigns. In addition to this, its monthly catalogues are accompanied by very attractive promotions such as: 2 or 3 products for the price of one, one product plus another one free and multilevel promotions.

• Beiersdorf is playing the in the mainstream segment of the market with Nivea (16% market share, sales: RON 37 mil).


• There is a large price difference between the various pricing segments:– Premium: L’Oreal – 13% of market – price index 100– Mainstream: Garnier and Nivea – 26% of market –

price index 60 - 70– Economy: Farmec, Gerovital, cheap imports – 40% of

market – price index 15 – 30

Avon has a mix of super-premium, premium and mainstream products.

Super-premium segment is c 2 – 3% of the market.


• In all categories, including skin care, there is a strong premiumisation of the Romanian consumers who are switching their preferences from cheap and basic to more expensive and sophisticated products, providing a better experience.

• Another important aspect is to respond to the various and specialised needs of customers, by constantly improving and expanding product lines. Consumers will expect high quality products that, besides natural ingredients, also incorporate advanced technologies.

AgendaAgenda


Distribution – skin careDistribution – skin care

• The pharmacies/drugstores channel represent the most important channel for skin care products, due to the impressive expansion of the number of units more than 5,000. However the fast growing pace of the number of units is expected to slow down in the following years.

• The concept of the "health & beauty pharmacy" also helped this channel gain in share as well as the retention programs initiated by well known companies such as Sensiblu or Help Net which currently have dozens of outlets nationwide and loyalty programs.

• Pharmacies carried products at the upper end of the mass market or premium, and tried to emphasise the products' healthcare attributes.

• Pharmacies/drugstores were very significant for sales of other products seen as more sophisticated products such as baby care and sun care. This was due to the perception of the products as belonging to the healthcare category.


• In Romania, direct sales are the second the most important channel of distribution, accounting for a fifth of total value sales of skin care. Its share constantly increased mainly due to the impressive development of the large multinationals Avon Cosmetics and Oriflame Cosmetics.

• The main advantage of these companies is that they are generally perceived as offering premium products at mass prices. Their presence increased across the country due to professional advice, sampling and sales on credit terms.

• Direct sales of skin care imported illegally from neighboring countries developed over 2002-2003 due mainly to low prices and the perception of making excellent deals among consumers, however after Romania’s steps towards EU integration, this issue started to decline.


• Supermarkets/hypermarkets increased their share in 2006 up to almost 14% of total value sales. Their number increased considerably during the review period and is expected to continue following this upward trend in the future, as there is an extremely high pace of opening new supermarkets / hypermarkets.

• This type of outlet addresses all income groups, offering from mass products to more sophisticated ones at considerable lower prices than other distribution channels.


• Department stores and outdoor markets continue to decline as the new formats are penetrating across the country even in smaller towns and even into villages.

• They continue to be strong in rural and small urban areas, due to their strong tradition on the market. Nevertheless, department stores accounted for almost 10% of skin care sales, mostly because they are widely spread across the country, with an increased presence in rural areas where they were mainly identified with small general stores, selling food, clothing, beverages, tobacco, cleaning products, and cosmetics and toiletries.

• Outdoor markets are the traditional channel for the distribution of illegal imports, counterfeit items and other cheap, locally manufactured products. They are significant for sales of basic products due mainly to the low margins and their perception of carrying cheaper branded products, although it was not always true.


Channel % of total

Pharmacies / drugstores 30

Direct distribution 20

Supermarkets / hypermarkets 14

Department stores 10

Specialists 8

Outdoor markets 5

Others 13

AgendaAgenda


SWOT Analysis – SWOT Analysis – Lumene in RomaniaLumene in Romania

• Strengths:– Distinctive product – Northern origin– Natural ingredients – strong substantiator

(extracts of Northern origin)– Brand name (“lumina” in Romanian means

“light”)


• Weaknesses:– Unknown brand – Few contacts with Finland and even Northern

countries


• Opportunities:– Market is premiumising– High growth of market size– Fast increase in the income of the Romanian

consumers– Increase in modern trade formats – malls,

beauty stores, hypermarkets, etc– Consumers more interested in how they look,

interested in natural products


• Threats:– Strong competition – 2 multi-nationals, 1 well-

established local company and a direct distribution international company control the market

– Extremely limited super-premium segment– More and more “natural” products – Body Shop, Lush,

ayurvedic products, even established brands play the natural card.

– More and more expensive media and marketing activities


Strenghts-Northern origin

-Natural ingredients

-Lumene brand name

Weaknesses-No brand awareness

-Few contacts with Finland

Opportunities-Market premiumising

-High market growth

-Income increase

-Increase in modern trade formats

-Higher consumer interest

Threats-Strong and diversified competition

-Limited super-premium segment

-Intense activity in “natural” products

-Higher cost of doing business

AgendaAgenda


Key conclusionsKey conclusions

• Lumene has a good chance in successfully tackling the market, but:– It needs to develop a different route to market;– It needs to create a super-premium image;– It needs to create a certain mystery and

hence a strong consumer desire;– It needs to invest money

AgendaAgenda


B rand A doption Funnel

Create

% T

arg

et C

on

sum

ers

Build

Expand

Aware Consider Trial Occasional Regular M ost Often

Create

Build

Expand

Convert opinion leaders am ongst the core target audience to establish the brand.

Broaden the reach of the brand togatekeepers still m aintain ingstrong contro l

Expand the brand to the fu ll targetaudience, potentially bringing in additional groups as the brandreaches national status.

Lumene in Romania – Lumene in Romania – Create, Build, Expand modelCreate, Build, Expand model


• Create – Convert opinion leaders amongst the core

target audience to establish the brand.– Create the interest and the desire around the

product, making it highly appealing.– Control the brand appearance and all

consumers touch points to the product.– Stimulate word-of-mouth through highly

targeted activities.


• Build– Broaden the reach of the brand to

gatekeepers still maintaining strong control.– Reveal a bit of the mystery and exclusive

image by enlarging the group of the “chosen ones”

– Move into more typical advertising means– Enlarge distribution still to selected channels


• Expand– Expand the brand to the full target audience,

potentially bringing in additional target groups as the brand reaches national status

– Widespread distribution in elite channels– Full advertising / promotional activity


• There is no specific time how long these 3 phases should last – it depends only how fast the volume objective is achieved. It can last 3 months or 1 year.

• Target group: young (25 – 35 years), high income (above 800 euro), urban, active, dynamic, interested in how they look, health conscious.

AgendaAgenda


Create phaseCreate phase

• Objectives:– Build brand awareness and trial among the

key core target group– Volume: 0.5% of market – RON 1.3 mil

(380,000 EUR).

• Key assumption: yearly market growth – 10%, 1 EUR = 3.4 RON


• Distribution: only in own stores located in the trendy malls of the nation.

• Product: only premium and super-premium products from the portfolio.

• Promotion: PR activities, presentation of product to KOL, in-store activities.

• Price: super-premium, at least + 20% above L’Oreal.


• Distribution: open 20 own shops / kiosks in the most important malls of Romania. These stores and not only selling outlets, but also image builders for the brand. These stores need to create the Lumene world and to strongly communicate its benefits through all 5 senses – light, nature, super-premium environment, Northern cleanliness. They need to be superior in look & feel vs. Body Shop or Lush.


• Products – larger range than Lumene Skin Care. Bring only the power SKUs which can build strong turnover.


• Promotion– No price discounts– Special trial promotions, one product supporting

another range (2 + 1 for free)– Personal selling / sales assistant is an adviser, rather

than a sales assistant.– PR activities targeting KOL in spas, beauty outlets.– Sampling to KOL – in luxury coffee shops / clubs /

spas– Internet contests – win products or a day at spa.


• Pricing:– Consistent super-premium price – minimum

20 – 25% above L’Oreal


– Key costs• 5 flagship stores (20 – 30 sq m): 75,000 set up

costs + 66,000 rental, personnel costs = 141,000 EUR

• 15 kiosks (6.25 sq m): 45,000 set up costs + 60,000 rental, personnel costs = 105,000 EUR

• Sampling – 10,000 EUR• Promotions – 10,000 EUR• Spa program – 25,000 EUR• PR – 9,000 EUR

– TOTAL: 300,000 EUR

AgendaAgenda


Build phaseBuild phase

• Objectives:– Build brand awareness and trial amongst

most of the target group.– Volume: 1.5% of market – RON 4.2 mil (1.2

mil EUR).


• Distribution: continue building the own stores / kiosks network. Enter premium pharmacy/drugstore and beauty chains.


• Promotion: PR activities, presentation of product to KOL, in-store activities (own locations + other locations).



• Distribution: – Expand to 40 own shops / kiosks in the most

important malls of Romania.– Get listed in pharmacy / drugstore and beauty

shops chains: Sensiblu, Help Net, Sephora, Ina Center, etc. However, create Lumene own corners – shelf windows


• Products – Add SKUs to the portfolio. Launch them in the own outlets and later expand to the other outlets.





spas– Internet advertising– Promoters in the outside locations.– Advertising in the locations’ own magazines.





– Key costs• 10 flagship stores (20 – 30 sq m): 75,000 set up costs for the

new 5 stores + 132,000 rental, personnel costs = 207,000 EUR

• 30 kiosks (6.25 sq m): 45,000 set up costs for the new 15 kiosks + 120,000 rental, personnel costs = 165,000 EUR

• Sampling – 15,000 EUR• Promotions – 50,000 EUR• Spa program – 40,000 EUR• PR – 10,000 EUR• Listing + displays in 150 stores: 7500 euro for displays +

150,500 euro for co-marketing and listing (including promoters) = 158,000 EUR



• Objectives:– Build brand awareness and trial among the

key core target group– Volume: 1.5% of market – RON 4.2 mil (1.2

mil EUR).


• Distribution: continue building the own stores / kiosks network. Enter premium pharmacy/drugstore and beauty chains.


• Promotion: PR activities, presentation of product to KOL, in-store activities (own locations + other locations).



• Distribution: – Expand to 40 own shops / kiosks in the most

important malls of Romania.– Get listed in pharmacy / drugstore and beauty

shops chains: Sensiblu, Help Net, Sephora, Ina Center, etc. However, create Lumene own corners – shelf windows







spas– Internet advertising– Promoters in the outside locations.– Advertising in the locations’ own magazines.





– Key costs• 10 flagship stores (20 – 30 sq m): 75,000 set up costs for the

new 5 stores + 132,000 rental, personnel costs = 207,000 EUR

• 30 kiosks (6.25 sq m): 45,000 set up costs for the new 15 kiosks + 120,000 rental, personnel costs = 165,000 EUR

• Sampling – 15,000 EUR• Promotions – 15,000 EUR• Spa program – 40,000 EUR• PR – 10,000 EUR• Listing + displays in 150 stores: 7500 euro for displays +

150,500 euro for co-marketing and listing (including promoters) = 158,000 EUR


AgendaAgenda


Expand phaseExpand phase

• Objectives:– Aggresively enter the market and go beyond

the target group– Volume: 3% of market – RON 9.3 mil (2.7 mil

EUR).


• Distribution: keep the number of own stores / kiosks network. Continue entering premium pharmacy/drugstore and beauty chains, but also enter the hypermarkets and supermarkets.


• Promotion: PR activities, presentation of product to KOL, in-store activities (own locations + other locations), beauty and lifestyle magazines.



• Distribution: – Keep the 40 own shops / kiosks in the most

important malls of Romania.– Keep the listing and get new listings in

pharmacy / drugstore and beauty shops chains. Enter hypermarkets / supermarkets: Cora, Carrefour, Gima, Billa, etc. However, create Lumene own corners – shelf windows in smaller formats and own shelves in bigger formats outlets.




• Promotion– No price discounts– Special trial promotions, one product supporting another range

(2 + 1 for free)– Personal selling / sales assistant is an adviser, rather than a

sales assistant.– PR activities targeting KOL in spas, beauty outlets.– Sampling to KOL – in luxury coffee shops / clubs / spas– Internet advertising– Promoters in the outside locations.– Advertising in the locations’ own magazines.– Advertising in lifestyle and beauty magazines: Cosmopolitan,

Glamour, Elle, Beau Monde.





– Key costs• 10 flagship stores (20 – 30 sq m): 50,000 refurbishment costs +

132,000 rental, personnel costs = 187,000 EUR• 30 kiosks (6.25 sq m): 30,000 refurbishment costs + 120,000 rental,

personnel costs = 150,000 EUR• Sampling – 20,000 EUR• Promotions – 150,000 EUR (including key accounts)• Spa program – 50,000 EUR• PR – 15,000 EUR• Magazines advertising: 150,000 EUR• Listing + displays in 300 small format stores: 15,000 euro for

displays + 300,000 euro for co-marketing and listing (including promoters) = 315,000 EUR

• Listing + displays in 100 hypermarkets / supermarkets: 500,000 listing + permanent displays + 50,000 displays = 550,000 euro

– TOTAL: 1,587,000 EUR

AgendaAgenda


Create – Build - ExpandCreate – Build - ExpandCreate Build Expand

Distribution 5 flagship stores

15 kiosks

10 flagship stores

30 kiosks

150 pharmacies/beauty

10 flagship stores

30 kiosks

300 pharmacies/beauty

100 hyper / supermarkets

Product Power SKUs – at least 3 – 4 ranges: Skin, Men, Lipcare

Add SKUs Add SKUs

Promotion Trial promotions (2 + 1)

Personal selling

PR

Sampling

Internet

Trial promotions (2 + 1)

Personal selling

PR, Sampling, Internet

In-store promos

Advertising in outlets magazines

Trial promotions (2 + 1)

Personal selling

PR, Sampling, Internet

In-store promos

Ads in outlets

magazines

Ads in lifestyle magazines

Price 20 – 25% above L’Oreal 20 – 25% above L’Oreal 20 – 25% above L’Oreal

Sales objective (skin care only)

380,000 EUR 1.2 mil EUR 2.7 mil EUR

Marketing costs 300,000 EUR 610,000 EUR 1.6 mil EUR

AgendaAgenda


Next stepsNext steps

• Portfolio in-depth analysis– This analysis can highlight the optimum entry portfolio

– which lines / products / sizes should be the initial offer. This will streamline the product line to the “power SKUs” lineup required for the launch.

• Purchasing shares about key categories Lumene can enter• Analyse the market drivers for these categories• Qualitative research – product placement• Decide on portfolio• Financial analysis• Final & detailed marketing / operational plan


• Brand positioning– Lumene is an “umbrella” brand which needs

to communicate consistently the strongest message.

• Insights generating qualitative research (preferably with product placement)

• Alternative positionings development• Final positioning chosen (quantitative or less

accurate, qualitative research)• Finalise the positioning (bull’s eye, Big Idea,

Do’s/don’t’s)


• Route to market / trade marketing strategy– Designs the best route to market strategy –

fixes the winning distribution strategy and creates the fundamentals for trade marketing

• Competitive analysis• Specific plans (including locations) for Create –

Build – Expand• Select locations• Recommend visibility kits tailored per channel• Detailed route to market budget

THANK YOU !

Documents

SKIN CARE CATEGORY IN ROMANIA LUMENE – BUSINESS CASE