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Merz Covid19 Business Impact

As coronavirus infections surge across Europe, national governments are reintroducing lockdown measures to keep the virus under control.

At the beginning of November, Germany, like other countries, introduced a “circuit-breaker” national lockdown, closing restaurants and bars, and banning non-essential travel.

However, the virus continued to spread, and the country recently hit a record 23,542 daily cases. The government is now considering extending its partial lockdown restrictions until at least 20 December.

“You won’t have the panic buying that you had in March when there was no toilet paper, no pasta or things like that,” predicted Frank Baldauf, CEO of Frankfurt-based Merz Consumer Care GmbH.

“When we had the first lockdown, we still had issues in China and Italy was closed,” Baldauf reflected, in an exclusive interview with HBW Insight. “We were all getting raw material from China, so it was much more difficult to ensure supply. The difference this time is the supply chain is safe.”

As with many consumer health companies, Merz Consumer Care saw sales of its tetesept range of OTC cough and cold medicines and vitamin and mineral food supplements boosted by the initial COVID panic buying.

This time round, however, cough and cold sales will not only suffer from this earlier stockpiling, Baldauf suggested, but also from people staying in and generally avoiding any kind of infection. Cosmetics are also expected to struggle, affecting Merz Consumer Care´s other main brand, Merz Special.

VMS sales, on the other hand, Baldauf said, will continue to sell at levels higher than before. “People have changed,” he said, “they take better care of themselves now.”

Shift To E-Commerce

The other COVID-related trend that he said would continue is the shift to e-commerce. “Two years ago, everyone in Germany was talking about e-commerce, but in terms of market share, this channel remained small compared to bricks-and-mortar retail.”

But with its premium cosmetics range and drugstore focused consumer health growth strategy – which has doubled the firm’s turnover in the last eight years, Baldauf point out – Merz Consumer Care has struggled to capitalize on this COVID trend.

“We tried several times, with special offers for online purchases of our shower gels, for example,” he continued. “But people want to smell the products.”

“Some things do well, like gift boxes, or our Femi Baby pregnancy range,” he added. “This is because woman go on the internet to find out how they can improve their chances of becoming pregnant, and find our products online.”

To help drive its e-commerce strategy, Merz Consumer Care has recently invested in “hipster beard brand” Brooklyn Soap GmbH.

Describing itself as “invented in Brooklyn, made in Germany and available right where you do your shopping: at the drug store and online,” Balduf explained the company aligns perfectly with both the Merz Consumer Care business model and its future ambitions.

Despite being a well-established consumer health player with category leading brands in the DACH – Germany, Austria and Switzerland – region, Merz Consumer Care still acts like a start-up, he said, with “very fast decision making and small teams.”

Nevertheless, Brooklyn Soap was even more agile, he revealed, which is why Merz Consumer Care is leaving them alone to do their own thing. But in the meantime, the idea is that Brooklyn Soap will help Merz Consumer Care scale up its e-commerce operations in exchange for help with R&D and product innovation.

“We believe in the brand,” Baldauf insisted. “We believe in their positioning, which is organic men’s care and grooming and they have a really key competence in e-commerce.”

Men's Care Opportunity

With no existing expertise or footprint in this booming segment of the German cosmetics market, Baldauf said it also made more sense for Merz Consumer Care to enter via a successful, growing brand like Brooklyn Soap.

“It’s a big market, with roughly €1bn sales,” he explained. “But we didn’t feel that that we had the right brand portfolio and that is important.”

“Brooklyn Soap is the perfect fit for us and therefore we have decided to invest instead of creating our own range of men’s care,” he added. “I think it’s the smart way of entering to new segments where you don’t have a core competence.”

However, Merz Consumer Care´s key competences in premium skin care will help Brooklyn Soap broaden its footprint from beard care into face care, hair care, body wash, and body care, Baldauf suggested.

As well as seizing opportunities represented by new trends like men’s health and e-commerce, Baldauf said that Merz Consumer Care will continue to invest in the other pillars of its growth strategy.

Internationalization, for example, is another important area for the expansion, he said, with Merz Consumer Care recently launching in the Netherlands with “tetesept Formula” a premium bath and shower  range via a local partner.

More and more tetesept and t:by tetesept products – launched in Germany – are “free of many things, no microplastic, no mineral oils, you name it,” Baldauf enthused, and are housed in 100% sustainable packaging.

 “We found out through our market research that this kind of natural, sustainable approach is missing in the Dutch drugstore market.”

In Merz Consumer Care's core markets, capturing market share in existing categories and moving into new categories is also still high up on the agenda, Baldauf explained.

Merz Consumer Care has just added a new footcare range to tetesept in Germany, he pointed out, which combines appealing packaging with therapeutic efficacy.

There are two successful approaches to foot-care in Germany, Baldauf noted. On the one hand, there are established OTC pharmacy brands, and on the other, white-label products in drugstores and mass market retail outlets.

“People have often told us, ‘We love the own label brands because they are really appealing. But, the functionality or the result might not be that good,’” he commented.

“They also say,‘We know that the traditional OTC brand really works if I have an issue. But will I put it in my bathroom? No, I will hide it in the cupboard,’” he continued.

With the tetesept footcare line, Baldauf said that Merz Consumer Care is offering products which do a good job but are more appealing.

Green Future

Other trends that Merz Consumer Care is looking at right now, Baldauf said, are probiotics and also sustainability.

“[Sustainability] is not really a trend, but more of a strategy,” he argued. “Everyone talks about no microplastics and sustainable packaging, but this is for us something more important and a fast-growing issue.”

“For us, this is not only something being driven by the market,” he said. “We are a family owned company and the next generation are challenging us on what we are doing about sustainability.”

But going green presents real challenges for consumer health companies, Baldauf insisted. For example, blister packs are one of the worst offenders when it comes to non-recyclable plastics.

However, regulations on how pharmaceuticals must be packaged to ensure stability and safety are very strict, even outside pharmacy, he pointed out, and plastic blister packs are currently the only way to ensure products meet these regulations.

“What we have done instead is reduced the packaging material for pills but also bath products and face mask,” he explained.

And Merz Consumer Care is not the only company looking into this, with many start-ups offering very expensive food supplements on the internet packaged in cardboard boxes without any blister packs.

“We did some research and found that these products look fantastic, but the ingredients aren’t very good,” he revealed. “So we said, ‘Okay, let’s take our ingredients, which are great, and package them sustainably for a new generation.’” 

If Merz Consumer Care can square this circle, combining sustainable packaging with quality, safe ingredients, it will certainly be at the vanguard of the new, green wave sweeping its way across the consumer health industry. (Also see "GSK Says New Consumer Health JV Will Be Climate Action ‘World Leader’" - HBW Insight, 19 Nov, 2020.)

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