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Nivea Maker Warns of Margin Threat as Niche Brands Disrupt Industry

Beiersdorf was the latest consumer goods company to reset profit expectations for 2019, citing need to reform the troubled consumer goods industry.
Nivea products | Source: Shutterstock
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  • Reuters

HAMBURG, Germany — Shares in Beiersdorf dropped more than 10 percent on Wednesday after the maker of Nivea skin cream warned that its operating margin would fall in 2019 as it invests to compete with niche brands that are disrupting the sector.

Beiersdorf was the latest consumer goods company to reset profit expectations for 2019 after German rival Henkel and Colgate-Palmolive last month, and following Kraft Heinz's write-down last week.

"The consumer goods industry... is in turmoil," new Beiersdorf chief executive Stefan De Loecker, who took over on January 1, told a presentation to analysts. "I need to act now."

De Loecker said the future of mass-market labels was being challenged by the rise of small, disruptive brands as consumers increasingly expect more personalised products and services.

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"Not keeping up to date with changing consumer needs is having a material impact on those companies who have so far done little to adapt and are left with no choice but to invest to catch up," said UBS analyst Pinar Ergun.

Warren Buffett said on Monday that his Berkshire Hathaway overpaid in the 2015 merger that created Kraft Heinz, noting retailers such as Amazon and Walmart are making it harder for brands to push through price hikes.

Jefferies analyst Martin Deboo said the recent warnings added to evidence that the "cost of growth" was increasing in the sector.

Shares in Beiersdorf fell more than 10 percent earlier and by 1003 GMT were down 9.3 percent, with peers Henkel, Reckitt and Unilever also weaker.

Beiersdorf said late on Tuesday that it expects group sales growth of 3-5 percent in 2019, down from 5.4 percent in 2018, and an operating margin of 14 to 14.5 percent in its core consumer business unit, down from 15.3 percent in 2018.

To counter the slowdown in sales, Beiersdorf will invest up to €80 million (£69 million) a year in its consumer business, which makes Nivea and other brands including Eucerin.

The additional spending on opening new markets, innovations, digitisation and training should boost organic growth in this area to 4-6 percent by 2023 and the operating margin to 16-17 percent.

De Loecker, who previously led Beiersdorf in the Middle East, said the company would expand in India and China to counter limited growth prospects in Europe.

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It will also invest in digitalisation, aiming to double online sales to 10 percent of the total in the next five years.

Finance chief Dessi Temperley, who joined Beiersdorf from food group Nestlé last year, said the company was looking for acquisitions, and also to partner with start-ups.

By Emma Thomasson; editors: Thomas Seythal and Louise Heavens.

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