German beauty firm Cosnova has made big business of small prices. The family-owned firm's strategy of variety paired with value has international cosmetic giants taking notice and losing sales to the German upstart.
Essence spotted a gap in the German market
Among the pharmacies and shoe shops lining the pedestrian shopping street in the German town of Offenbach near Frankfurt, one store stands out - a pink and white box containing a rainbow of colors.
Essence Unlimited could be considered a sort of girlie heaven. The walls are lined with beauty products like eye shadow, mascara, lipsticks. Plastic bubbles hung from the ceiling hold gel eyeliner and nail polish. The store is the only one of its kind, and quite unusual, because it's the flagship and testing ground for essence, a budget makeup line aimed at girls and young women that is usually found in drugstores.
Filling a gap
The founders, Christine Oster-Daum and Javier Gonzalez, met while working at US fragrance and beauty giant Coty, where they decided to start their own company.
They noticed that most entry-level cosmetics brands in Germany had raised their prices, whereas cheaper products also looked cheap and unappealing - something to hide in your handbag rather than use with pride.
"For me it was clear there must be a market, because the Germans are really price-conscious people," explains Oster-Daum. "And if you offer something that is really great quality and even then looks stylish, modern and trendy, and has a great price, it must work in Germany."
Douglas is tapping into the cheap but trendy makeup trend
Oster-Daum and Gonzalez launched essence in 2002, without advertising or high-profile celebrity spokesmodels. Its friendly packaging appeals to young girls, and a steady stream of new products ensures there is always something new to buy.
With price points starting under one euro, essence is cheaper than pretty much any other brand on the market, meaning shoppers walking into a store with five euros can walk out with three to four products, and most do. Within five years, essence made a stealth climb to cosmetics market leader in Germany, bypassing global giant L'Oreal, and Coty.
Big brands playing catch-up
In October 2007, the brand took out an advertisement in the German trade paper Lebensmittel Zeitung, declaring its number one spot in the German market.
"It was the first time we were standing up and saying to the market we are the number one and we are aware it was the first time many realized that about us," recalls Gonzalez with a laugh.
"If you make it to number one and your competitors basically haven't realized you are there - it's good. We are thankful for that low attention to us in the early stages of our company."
The big brands are now playing catch-up to this upstart sold in 35 countries around the world. Last year, L'Oreal's Maybelline line launched a direct competitor to essence with its trendy, low-cost MNY label.
Cosnova quickly adapts to changing tastes
Today, essence is market leader in 10 European countries, and also sold in North America, South Africa, and the Middle East. And with Cosnova 2010 net beauty sales leaping 46 percent to 133 million euros, the company is feeling pretty good about relaunching its second cosmetics brand, Catrice, aimed at women 30-50 years old. The company owes its success not just to its entry-level pricing, but also to its speed.
"Cosnova is very close to the pulse of the trends and what is happening. See fast, learn fast, implement fast," Gonzalez explains.
That's an approach closer to fast-fashion chains like H&M or Zara than mega cosmetic brands. Every year 50 percent of the product line is revamped or replaced, and Cosnova puts out numerous uniquely packaged and highly collectable limited editions a year.
Since the global financial crisis, businesses that would not have looked at Cosnova's brands five years ago have started to take an interest.
"They started to rethink their whole strategy - are we getting the low-income people, are we getting the young people, and they started talking to us," Gonzalez says.
Expansion into prestige channels like Italy's Oviesse fashion stores and German-based international perfumery group Douglas has been a gift for the essence brand.
"Essence is a very strong and good, let's say new brand...They're really successful, growing. And they are appealing to a customer base that we also want to start with in our trend stores," explains Douglas general manager Jochen Halfmann.
Many of the perfumery chain's 1200 stores are being redesigned to target different consumers types, and specific brands can help them make connections. While essence appeals to the young and trendy, refined and boutiquey shoppers might go for Cosnova's glamorous Catrice nail polish line. In Douglas's newly refurbished boutique-style stores on Berlin's elegant Ku'Damm shopping street, Catrice keeps company with Givenchy and Dior, which was unthinkable before the brand's recent revamp.
Becoming a lifestyle brand
Meanwhile, Cosnova is thinking beyond makeup. Their essence Unlimited store also sells scarves, headbands, and bracelets, even cute t-shirts and playful gift items. In a few weeks, the company will be moving the shop to a more high-profile spot in downtown Frankfurt. For Gonzalez and Oster-Daum, it's about using the flagship to test potential items for the brand's next step.
"We hear from our consumers that they feel like essence is like a lifestyle brand, everything that is fun - fashion, trendy, lifestyle products - we could imagine testing them there," Oster-Daum explains.
Becoming a lifestyle brand is one of the ultimate goals for today's companies. To form a tight bond with consumers, to embody positive emotions like fun and aspirational concepts like fashion, means loyal repeat customers, less need for advertising, and a quick return on investment.
Author: Susan Stone
Editor: Nicole Goebel