Ceepackaging

Analysis

Drugstore chains gaining in strength in Poland

According to PMR estimates, which are included in latest report “Retail market of cosmetics and drugstore items in Poland 2009. Market analysis and development forecasts for 2009-2011”, Poland’s cosmetics and drugstore products market was worth PLN 20bn (€5.7bn) in 2008, which translates into growth of 13% in comparison with 2007. We expect the growth rate to slow down in the coming years and in 2009 will be in the region of 5%. The tempo will slow down as Poles adopt more cautious spending habits in the face of rising unemployment, slower wage growth and more pessimistic consumer moods, all of which in turn are a consequence of the financial and economic crisis impacting both Poland and the world.

In spite of these dangers the cosmetics market will be one of the most resistant to the current recession – “Appearance is very important for women, hence even in the most difficult times they will want to be able to purchase cosmetics, especially mid-priced items, which represent the bulk of the assortments offered by drugstore chains. Moreover, cosmetics are heavily dependent on advertising and brand image, and once customers become attached or accustomed to a given product or a certain standard they find it difficult to abandon it”, according to Patrycja Nalepa, Retail Analyst at PMR.

Chains flexing their muscles
Drugstores as a whole account for the lion’s share of sales on Poland’s cosmetics and drugstore products market. Their share of the market has risen steadily in recent years to stand at 33% in 2008. The second and third biggest distribution channels are hypermarkets and supermarkets (including discount stores) – their combined share amounted to 32% w 2008. In the last few years the share of hypermarkets has declined while supermarkets have grown in importance.

The principal factor driving up the sales and market share of drug-cosmetics stores in general are drugstore chains, which are developing rapidly and increasing in popularity. In the last few years, their growth has been helped by a robust economy and rising consumer demand. Stores in such chains have increasingly become the place of choice for consumers when it comes to buying cosmetics owing to, among other advantages, their convenient location (in shopping centres, on high streets, in shopping arcades and stations), broad and varied assortment, generous supply of medium-range cosmetics, attractive prices and numerous promotions. Other advantages that drugstores in general have over, for example, hypermarkets include qualified and well-trained staff who are willing to offer customers advice, as well as their willingness to stock new items and innovative products. As a result, drugstore chains are not only rapidly building up their share of the drug-cosmetics segment in Poland, both with respect to store count and sales, but they are also increasing their share of the cosmetics and drugstore products market – up by 6 p.p. in 2006-2008.

Even more stores in the pipeline this year
We predict that the share of chains in sales, both in the segment and on the cosmetics and drugstore products market as whole, will continue to increase in the coming years, thanks both to the opening of brand new stores and the incorporation of existing individual outlets into chains on a franchising basis.

According to calculations of PMR, the current year will be even more favourable for drugstore chains than the previous two years thanks to higher store counts. The biggest chains will add approximately 270 new outlets to their store counts this year, in comparison with 170 units in 2008 and 190 in 2007. This trend will partly be helped by the planned opening of many new shopping centres , rescheduled for 2009, in which drugstore chains have leased space (e.g. Galeria Malta in Poznan, Bonarka in Krakow, Galeria Jurajska in Czestochowa and DTC Renoma in Wroclaw).

A second contributing factor is the current economic downturn and the much greater inclination of independent stores to enter chains in which they will have a greater chance of survival than if they continued to operate as individual businesses. Confirmation of this trend lies in the fact that many franchise chains predict a significant jump in their store counts this year: Drogerie Koliber (store count up from 75 at the end of 2008 to 85-90 outlets by the end of 2009), Drogerie Brawo (from 99 to 120-130) and Drogerie Aster (from 29 to 50-60). Thirdly, during the current recession it will be easier for chains to obtain high street locations, which until now have been the preserve of banks willing to pay high rents for such locations. There is also a chance that this trend will bring down high street rents.

Rossmann the biggest performer
The undisputed leader on the Polish cosmetics and drugstore products market , both in terms of sales and number of outlets, is Rossmann. According to PMR estimates, in 2008 the Rossmann chain boosted its sales by 36% up to PLN 2.38bn, as a result of which its market share reached almost 12%. During 2008, the chain opened 64 new shops, bringing its total store count up to 342 outlets by the end of last December. The second biggest player is the perfumery chain Sephora, whose revenues are several times below those of Rossmann. The third biggest chain – Drogerie Natura – is simultaneously the second largest chain in terms of store count (262 at the end of 2008). In 2008 the 10 largest drugstore chains accounted for 21.7% of the market, as compared with 16% in 2006. We expect this share to surpass 24% in 2009.