Beiersdorf White-Space Investments Bear Fruit In Drive To Strong 2022 Finish

In two years, prestige products, China and digital have gone from weak points in Beiersdorf’s business to leading sources of growth. After recording 11.7% organic sales in its Consumer business for the nine-month period ending 30 September, the firm is targeting 9%-10% growth in the division for the full year.

Beiersdorf’s burgeoning presence in China, digital acceleration, and skin-care strength across prestige, mass and professional channels have the German firm on track to finish fiscal 2022 at pace.

The Hamburg, Germany-based firm now is projecting organic sales growth of 9%-10% in its Consumer business for the full year, after targeting growth at “the upper end of the mid-single-digit range” in August.

“Beiersdorf is heading in the right direction in terms of pricing, is pushing a positive product mix, and continues to press ahead with efficiency initiatives,” Beiersdorf says in its 27 October release on third-quarter and nine-month results.

Organic sales in the firm’s Consumer business increased 11.7% for the nine-month period ending 30 September, reaching €5.4bn ($5.4bn). Nominal growth of 18.1% reflected foreign exchange effects and additional sales from its most recent acquisition, Chantecaille, the firm said. 

All of the company’s consumer brands contributed to organic growth, with NIVEA up 10.8%, its derma business – Eucerin and Aquaphor – up 25.3%, and La Prairie up 5.5%, according to the announcement.

"With our portfolio, we have mastered recessions previously, and are now preparing for the next potential downturn." – Astrid Hermann

In a same-day call with analysts, CEO Vincent Warnery underscored that while growth was mainly driven by pricing, sales volume was positive for every brand in the division.

“A quick look at the competition shows that we are in line with the market when it comes to pricing, but our volume performance remains better than most of our competitors. This is a clear indication that we are finding the right balance between pricing and volume growth and that our brands are highly resilient in term of price sensitivity,” the CEO said.

Beiersdorf has noted some difficult conversations with retailers around pricing.

Warnery provided an update: “We've been obliged like all our competitors to do price increases. We even did two price increases in Europe, and we are now entering the execution of the second price increase which is pretty high. So we have some tension, some irritation in some countries. But overall, the acceptance of our price increase is pretty good.”

Meanwhile, Beiersdorf is reaping the benefits of investments in recent years in under-developed areas of its business. Two years ago, pre-COVID-19, analysts were ambivalent about the firm’s Consumer business, which was growing around 5% organically at the time. (Also see "Beiersdorf Making Strategic Moves In Natural Skin Care, China, Digital; Better Late Than Never?" - HBW Insight, 8 Nov, 2019.)

Alan Erskine of Credit Suisse noted, “On the one hand, Beiersdorf benefits from its c50% sales exposure to the skin-care category which is growing [high single digits] globally. On the other hand, its skin-care growth is lagging that of the category because it is under-indexed the premium segment, under-indexed Asia and under-invested in digital.”

Fast-forward to the first nine months of 2022 and Beiersdorf’s luxury brand La Prairie is back to double-digit growth, up 14% for the period despite ongoing COVID-19 lockdowns in China, specifically Henan. “This clearly demonstrates that our intensified focus on strengthening the online business is having a positive impact,” Warnery said. (Also see "Beiersdorf Is Having Record Year For Sun Care, Seeing China Recovery, But Full-Year Outlook Is Guarded" - HBW Insight, 9 Aug, 2022.)

The CEO expanded on the firm’s developing ecosystem in China, where Beiersdorf recorded 41% growth in the third quarter. “We used to be very dependent on brick-and-mortar. … What is bringing the additional growth and leading to the 41% you see is the fact that we were able to develop our online business.”

In addition to booking 20% growth in Tmall, Beiersdorf launched on JD.com in the third quarter. At the same time, the firm is advancing its premiumization strategy in China, focused on high-end product development and upgrades of lower-priced products.

“Since the start of our valorization process in 2020, we have increased the average selling price in our online business by more than 32%,” Warnery said.

Iconic mass brand NIVEA, which has been a strategic priority for the firm, saw 24% growth in China in the third quarter. NIVEA Cellular Luminous 630 Anti-Dark Spot in particular is driving market share gains, the CEO said, adding, “This is all coming only from cross-border e-commerce business. The formal approval to sell in domestic China, which we are working on, will be a huge milestone.”

Outside of China, NIVEA experienced especially strong growth in Latin America and India, contributing to 10.8% organic growth worldwide for the first nine months of the year. Personal care (sunscreen, deodorant) and skin care (face and body) contributed equally to the brand’s growth, Beiersdorf says.

Dermocosmetics have surged in the COVID-19 era, including Beiersdorf’s Eucerin and Aquaphor brands, which outstripped the market significantly in the first nine months of the year with especially strong showings in North America and Latin America, according to the company.

“In addition, Eucerin’s entry into the Polish market represents an advance into one of eastern Europe’s largest markets for dermocosmetics,” Warnery noted.

‘Globalizing’ NIVEA

Beiersdorf’s group net sales, including its tesa adhesives business, grew 11.1% organically, 16.9% nominally, to €5.8bn for the nine-month period.

Asked about tough comparables in the year ahead and the prospect of a looming recession, Warnery declined to offer fiscal 2023 guidance. “What I can tell you that it will be the first year where we are doing fewer, better, bigger launches. We have decided to globalize NIVEA and to come with big initiatives that are spread across the world,” he said.

While raising its full-year sales growth target, Beiersdorf confirmed its Consumer business guidance of a slight year-over-year increase in EBIT margin from ongoing operations (excluding special factors).

CFO Astrid Hermann noted the company is reinvesting heavily in its brands. “We very much want to come out of this year very strong, and we're supporting the business significantly.”

She added, “We're also not seeing a decline, unfortunately, in terms of cost pressure. That continues to be very high – a bit of a different mixture, energy-related increases and so on – but certainly continued strong pressure from a cost perspective.”

Beiersdorf is confident it can weather any storm ahead. “Despite a more cautious view on the fourth quarter, we see governments reacting to the high inflation number, limiting the financial impact on consumers,” Hermann said. “With our portfolio, we have mastered recessions previously, and are now preparing for the next potential downturn. We are pushing our skin-care categories, we're seeing our businesses become more profitable, and we are winning in former white spots. These developments make us confident going into the next year,” the CFO concluded.