A Tour of Eastern Europe – Part 2

Bulgaria and Romania are places to make and market beauty products.

By Greg Grischenko, Contributing Editor

Over the next three years, two more Eastern European countries will join the European Union—Bulgaria and Romania. Both countries have rarely been thought of as major cosmetics producers, however they possess a unique range of local brands and a highly educated, low-salaried labor force. These factors, as well as the recent growth of both foreign and domestic investments in packaging, printing and converting equipment, will help to bring the cosmetics industries of these countries to a higher level.

Bulgaria

Bulgaria (pop. 7.8 million) is blessed with a unique climate that contributed to the rise of the essential and aromatic oil industry in the mid-17th century. Nature was incredibly generous to the people of this small country, rewarding them with thousands of wild and cultured flower species. Rose oil extraction was started in plantations in the Rose Valley region around 1664. With the introduction of the steam process in 1902 and the petrol-ether technology from France in 1918, the industry took off, experiencing steady growth until World War II. This industry became a state monopoly during the years of the Socialist Republic of Bulgaria. After the collapse of the Soviet block, the country changed from being one of the most devoted Soviet allies to a country with political stability, economic growth (over 5% annual average), low inflation, low production costs and an educated labor pool.

Domestic Source of Essential Oils

There is a strong cosmetics manufacturing base in Bulgaria based on an abundance of locally processed aromatic and essential oils. According to the Bulgarian Trade Promotion Agency (BTPA), currently over 60 cosmetics producers operate in the country, with company sizes ranging from a dozen employees to a few thousand strong. After sluggish growth in 2002 (as in most of Eastern Europe), the Bulgarian C & T market grew over 5%, reaching $270 million in 2003, according to Global Information Inc., a global market research firm based in Tokyo, Japan. The highest growth rates have occurred in skin care products (7%) and cosmetics direct sales (10%), helped by consumption shifting from economy to mid-priced brands. The country recently became involved in contract manufacturing, as multi-national beauty brands are now making some products in Bulgaria.

Retailing and distribution channels in Bulgaria have experienced a significant change, evolving from the selling of merchandise through open-air markets, small kiosks or privatized former state stores to modern supermarkets and hypermarkets run by major foreign chains. The first hypermarket (a huge store combining elements of a department store and grocery store) in the capital city of Sofia was opened in 2001 by Ramstore, a Turkish retailer, with the $12.8 million loan from the London-based European Bank for Reconstruction and Development (EBRD).

Bulgaria’s purchasing power is still quite low, and with the absence of shopping malls, high-end perfume sales are limited to a few department stores in Sofia. Big cities-Sofia, Varna, Plovdiv and Burgas-have started to attract major retailers including: Metro (Germany); Wal-Mart (U.S.); Billa (Austria); and ENA (Greece), according to a study conducted by Strategis, an online Canadian business information source. Direct sales companies Avon and Oriflame (Sweden) recently reported successful growth in cosmetics.

While imports of cosmetics and toiletries are growing rapidly, domestic companies are keeping up with the growing demand for popular mid-priced cosmetics, while also increasing exports to other former Soviet Union countries and the Middle East. The two leaders in Bulgarian cosmetics that are far ahead of the industry’s small producers are Alen Mak and Aroma, according to the Bulgarian Pharmaceutical Group (BTPA), which represents pharmaceutical and cosmetic products of Bulgarian origin. These two account for as much as 80% of the country’s beauty product exports.

With annual sales of approximately $36 million, Alen Mak AD is the largest Bulgarian cosmetics company, according to BTPA, employing 1,300 in Sofia and Plovdiv. A privately-owned C & T producer with over 110 years of experience, Alen Mak is a well-known expert in healthy and environmentally friendly cosmetic products and fragrances. Established in 1892 in the city of Plovdiv by the rose oil merchant Anton Papasov, the company was the first manufacturer of cosmetic products in Bulgaria.During the 1930s the company grew significantly and the owner was granted the status of Purveyor to the Royal Household. Over the years Alen Mak has evolved into the largest domestic producer with a strong export business, selling to more than 25 countries worldwide with a strong orientation to the countries of the former Soviet Union, especially Russia and Ukraine. Alen Mak has a wide range of reputable brands in skin care, hair styling, personal care, make-up and oral care (Bendida, Achromin, RoseMary, Caro and Pomorin). It runs state-of-the-art facilities and combines the latest developments in modern cosmetics with traditional natural recipes. A substantial investment has been made in packaging and design in cooperation with world leaders in cosmetic products, such as L’Oreal, Schwarzkopf, Dior and Yves Rocher. In 2002, Alen Mak was acquired by Effekten & Finanz, a holding company in Baar, Switzerland.

Aroma AD, with sales of $33 million, according to BTPA, is the second largest cosmetics manufacturer in Bulgaria with an 80 year history. An export-oriented company, which sells over 70% of its output in 57 countries, Aroma specializes in fragrances, cosmetics for men, and body, face, hair and oral care. Aroma is located in Sofia, employs more than 800 people, and with 11 fully-automated production lines, it plans to further modernize its technology, develop new products and expand its presence in world markets. The company has developed proprietary formulations on its own and in cooperation with leading research groups such as ISP Europe, Schulke Mayr, DPV, ICI and Goldschmidt (fragrance brands Sun Dream, Natural Dream and Wild Dream). The export line Astera Cosmetics has been very successful in Russian, Ukrainian and Romanian markets. Over the last 6 years, Aroma has produced private label cosmetics for some of Europe’s most advanced retailers (Spar, Tesco, Carrefour, Ahold, Coop, Kaufland and Axfood).

Bulgaria also has a number of small cosmetic producers that produce economy-priced brands. Packaging concepts may vary from a “no frills” type (simple self-adhesive label on a plastic jar) to contemporary, more sophisticated containers produced by foreign suppliers.

Rubella, with sales of $16 million, according to BTPA, was founded 21 years ago in Rudozem. The company concentrates on products for skin care, hair styling, oral hygiene and make-up. Rubella employs 500 and in addition to the domestic market, supplies cosmetics to 22 countries spread over Europe, America and Asia. Rubella is ISO-9001 certified, and claims to be the only Bulgarian producer that acquired modern packaging technology to produce products in laminate tubes. The company presently claims a 12% share of the Russian toothpaste market and has introduced its Diva brand, which competes with L’Oreal and Nivea products in Bulgaria, in the competitive U.S. market.

Bulgarian Rose Company, with sales of $6 million, is a producer of essential oils extracted from a variety of flowers (Rose, Lavender, Salvia, Hyssop, Wormwood and Milfoil), as well as natural flower waters and cosmetics based on natural ingredients. The company was established in 1973 in Kazanluk (Rose Valley) and exports to Western Europe, North America, Japan, Taiwan, Russia and Ukraine.

Recently established quality cosmetics suppliers, according to BTPA report, include FreshUp Cosmetics, Varna ($3.7 million, established in 1996), Lavena, Shumen ($2.9 million) and Aries Cosmetics, Varna ($0.5 million, established in 1992). FreshUp and Lavena have ISO-9001 certification and export about 30% of their output to the countries of the former Soviet Union and the Middle East.

Beauty Business Future in Bulgaria

The Bulgarian economy has shown a more positive acceptance of liberal market reforms than many of its developing neighbors in the Soviet Block.While the size of the country’s C & T market does not attract much attention, its location, friendly business policies, abundance of quality ingredients and skilled professionals make it a very attractive destination for foreign investors.

Romania

In many ways, Romania, with a population of 22.7 million, is the country that for years has been neglected by the news media. The economic changes that began after the 1989 revolution were limited by the reluctance of early governments to commit to the unpopular yet necessary market reforms suggested by the International Monetary Fund. Hampered by corruption, a lack of transparency, strict government regulation and high import tariffs, Romania’s economy wavered for much of the 1990s and has only recently begun to recover.

In late 2002, the Repton Group, a global economics New York City-based consulting company, reported that the Romanian government owned about 65% of the country’s manufacturing resources. However, as the country prepares for European Union membership, positive reforms have been implemented specifically to lower import duties and expedite privatization of government-owned industrial assets.

All these initiatives may have influenced the Romanian cosmetics and toiletries market that reached over $360 million in 2003 and is now showing a growth trend after temporary decline, according to Global Information Inc. Growth is coming as Romanians, still with relatively low purchasing power, are switching from basic consumer goods to more sophisticated products including cosmetics and toiletries. Fragrances, skin care and hair styling products are gaining a larger share of overall C & T sales, with basic C & T (hair care, bath and oral hygiene) sales still prevailing at 62% (the-infoshop.com).

Most cosmetics and toiletries in Romania are still sold through traditional department stores, general stores and kiosks. However, starting in 2000, the major supermarket/hypermarket retail chains (Metro, Carrefour, Mega Image, La Fourmi, Billa, Artima, Profi, Universal, Intermarche, Bricostore and Praktiker) have gained over 20% of the cosmetics retail market, according to Global Information Inc., which expects further growth in that channel. Direct sales of cosmetics and toiletries are growing as a very appealing option for the Romanian consumer, with Avon taking the lead and claiming the highest share in 2003.
A few large multinational companies dominate Romania’s C & T market, with the top five-Unilever, Beiersdorf, Colgate-Palmolive, Procter & Gamble and L’Oreal-accounting for over 50% of market value in 2003, according to Magazinul Progresiv, a Romanian business publication. The largest domestic producer, Farmec, ranked ninth in the same year.

An Early Center for Anti-Aging Products

Romania’s best known worldwide contribution to cosmetic science is Gerovital. Dr. Ana Aslan from Bucharest, a top researcher in the field of cytology, designed and developed GH3, a special formulation of a procaine drug, said to have anti-aging properties. GH3 later became a base for numerous lines of Gerovital cosmetics. These cosmetics also contain vegetable oils with beta-carotene extracted from Romanian plants and are active in skin protection.

In the early 1950s, several small cosmetic enterprises specializing in Gerovital merged into a state-owned company, which began producing the line of branded cosmetics Gerovital H3 Prof. Dr. Ana Aslan in 1966. After privatization in 1995, the company split in two, each maintaining the right to manufacture the Gerovital brand.

Farmec S.A, the largest Romanian cosmetics company with sales of $18 million, employs 700 in Cluj-Napoca. It produces 80% of all Gerovital anti-aging cosmetic products. The company makes a wide variety of skin and body care products, perfumes, deodorants, make-up, men’s care products and products for professionals (Gerovital H3, Gerovital Plant, Ecovital and Aslavital), and creates over 50 new products annually. Farmec is ISO 9001 certified, makes its own aluminum cans and runs its own filling and mixing equipment. Gerovital products represent 90% of Romanian cosmetics exports and are sold in Spain, Italy, Sweden, Japan, Germany, France, Denmark, Asia and Latin America. The Gerovital brand is not available in the U.S. because it has not been accepted by the Food and Drug Administration, according to a research report by Ron Kennedy, M.D., Santa Rosa, CA. Gerovital products are, however, promoted and available through online sites, although the consumer runs the risk of purchasing imitations.

Gerovital Cosmetics S.A., Bucharest, is the other privately-owned company able to produce the Gerovital brand. The company is ISO 9001 certified and makes over 170 cosmetic products in the skin care, hair care, make-up and perfume categories. Gerovital Cosmetics sells on-line and operates its own distribution network.

The 27 strongest cosmetics companies in Romania that are listed by PubliRom, the Romanian Advertising Agency, were founded in the 1990s when economic reforms started to be enforced.

Elmi Prodfarm S.R.L. (trademarks Elmiplant and Bioten) makes a full range of cosmetics including face, body, hair care, sun protection and baby products. Founded in 1992, the company has gained ISO 9001 certification, exports to five countries, creates new products and, in 2003 invested $1.5 million in a new 43,000 square foot headquarters in Bucharest.

Gerocossen S.R.L. is a privately-owned company located in Bucharest.Founded in 1990, the company manufactures and sells high quality natural cosmetics (complete lines for skin and hair) based on active ingredients from plants in combination with modern synthetic components. Gerocossen sells products in Romania and exports to the U.S., Italy, Greece, the Czech Republic and Turkey.

Genmar Cosmetics S.R.L., founded in 1994 in Bucharest, specializes in quality skin care products. The company’s Herbagen line utilizes active substances (derived from seaweed and plants) formulated in Genmar’s own research laboratory.
Dr. Soleil is a French-Romanian joint venture, founded in 1991 by a group of cosmetic and medical specialists. It makes its own line of skin care products composed of herb extracts, natural essences and high quality imported raw materials.
Cosmetics production in Romania is highly fragmented, with many small-scale producers and only one large manufacturer—Farmec.

As the Romanian economy continues to improve, foreign investors might look to the unique local brands and recipes.