Beiersdorf AG (BDF), together with its subsidiaries, engages in the manufacture and distribution of branded consumer goods primarily in Europe, the Americas, Africa, Asia, and Australia. The company operates in two segments, Consumer and Tesa. The Consumer segment offers skin and beauty care products under the Labello, NIVEA, 8×4, la prairie, JUVENA, atrix, Eucerin, FUTURO, Hansaplast/Elastoplast, and Florena brand names. The consumer division represents over 80% of the company’s total value sales. The Tesa segment engages in the development, production, and marketing of self-adhesive system and product solutions for industrial customers and consumers.

Beiersdorf Aktiengesellschaft was founded in 1882 and is based in Hamburg, Germany. The group has around 17,300 employees and over 150 affiliates worldwide. Since 2003, the company has been part of the Tchibo Group.

The group recorded revenues of 5,120 million during the fiscal year ended December 2006, an increase of 7.2% over 2005. The operating profit of the group was 477 million during fiscal year 2006, a decline of 15.8% over 2005. The net profit was 664 million in fiscal year 2006, an increase of 99.4% over 2005.

This report analyses the economic aspects of the business of cosmetics and the consumer segment of Beiersdorf AG.

2. Introduction

In 2006, the cosmetics and toiletries industry posted $163 billion, a growth rate of more than 5% over 2005 $155 billion. Euromonitor International forecasts average annual growth of 3% to reach global sales of more than $313 billion by 2011. (GCI, 2007).

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The industry continues to benefit from a combination of strong macroeconomic trends (including a worldwide rise in consumer spending power); key demographic factors such as aging populations and higher life expectancies; an increased interest in appearance and personal care as a means of preventive healthcare; and lifestyle and climatic changes that are creating opportunities for new product niches. Legislative restrictions are having a positive impact by improving consumer confidence and facilitating international trade, and technological advances are improving product efficacy and providing manufacturers with new marketing tools and advertising opportunities.

3. Competition and Markets

Microeconomics: Porter’s 5 Forces

Based on Porter’s five forces model which determines the intensity of the industry competition and profitability (Porter 1980, p3), Beiersdorf has an advantage in the cosmetics industry; their heritage and unmatched leadership in skin care through NIVEA has created an immediate stronghold over its competitors in the industry as well as differentiation. However the threat of substitute products and services could affect Beiersdorf’s popularity.

Threat of New Entrants – Medium

A large number of firms differentiate their products and maintain a certain degree of control over their pricing. This monopolistic competition has relatively low barriers to entry and exit. Government regulation, mostly related to safety issues, and distribution channels appear to be the most significant barriers to entry in the cosmetics industry. Beiersdorf has the advantage of economies of scale, an established supply and distribution channels and high product differentiation, to compete and have an incumbent advantage. The capital requirements of entry, customer and supplier loyalty, legislation, and retaliation are moderate, which indicate that a new entrant is hindered to enter the market and compete. To stay competitive, Beiersdorf needs to continually innovate.