מהמורה נוספת לגרופון בדרך להנפקה: תיקון חשבונאי הוריד הכנסותיה בחצי
On the company's start, and plans for the future
It was easier for Arthur Braun to do business than it was for his grandson, Yehuda Braun.
Grandfather Braun began to work in the Israeli toiletries industry in the 1930s, establishing Intercosma (TASE: INCS ) after immigrating to Israel from Germany.
In 1952, he traveled by train from East to West Germany on a routine business trip. With him in the railcar sat one of the owners of the Wella hair-care products company. At the end of the journey, Braun got off the train with an agreement sealed with a handshake for the exclusive representation and production of Wella products in Israel.
"For years, Wella was almost a monopoly in Israel," says Yehuda Braun, who is now Intercosma's CEO. "My father expanded and established the company; but over the years, strong international players like L'Oreal joined the market, and mighty local manufacturers such as Careline and Natural Formula developed here. The market became more sophisticated and competition increased. My way of dealing with this business reality is to add brand names."
Over the years, Intercosma has expanded its operations to cosmetics, mainly by importing international brands and manufacturing unique local one. It imports and manufactures for international brands such as Piz-Buin tanning products, toiletries and cleaning products under the Golden label, which is owned by Sara Lee, Kiwi home maintenance products and Vileda cleaning materials.
In 1999, Braun acquired Belmon-Nurit - the leading company, at that time, in importing luxury cosmetics to Israel. The deal was valued at $8 million and doubled Intercosma's revenues. The merged company will finish 2002 with sales of NIS 240 million.
By acquiring Belmon-Nurit, Intercosma gained brands such as Christian Dior, Nina Ricci, Paco Rabanne, Gucci, Lancaster luxury skin care products and many others, including products independently developed by Belmon-Nurit, such as Mineral Care and Protein for hair.
"We have grown a lot thanks to the acquisition," says Braun. "But in the past three years since the merger, we have reduced the number of brands. Our business core today is hair products and luxury cosmetics."
It seems, however, that the Belmon-Nurit acquisition was only an appetizer. "There are too many players in the market, which is unable to bear them all," explains Braun. "Over time, a few groups will develop."
When Braun speaks about the big cosmetics companies, he is referring to L'Oreal, Estee Lauder, Lilith Cosmetics, Alpa Cosmetics, Diplomat and Careline.
"In the past, we conducted negotiations for a merger with Careline, but in the end, the deal didn't go through," says Braun, who remains undaunted. "There is no choice. The market makes mergers inevitable. The luxury cosmetics field suffered a very heavy blow in 2002: The uniform European currency appreciated by 25-30% compared to the shekel and precipitated a major slump in luxury cosmetics purchases and a crisis in the whole cosmetics industry. Hamashbir Lazarchan's problems also harmed all the players in the market."
Hamashbir Lazarchan owes Intercosma NIS 7 million, which the company's management already views as a bad debt. Intercosma is still supplying Hamashbir, but only on a cash payment basis.
"The power of the importers is waning, because some of the big suppliers opened independent headquarters in Israel and are no longer working with the importers," says Braun. "The big chain stores that operate in our field - Superpharm, Neopharm and April - have a lot of power. Anyone who wants to survive in this market has to grow."
Braun believes that the Israeli market has accumulated a lot of knowledge and that the most prominent advantage of the Israeli market is the local production and development of products for the cosmetics market. "Israel has gained a lot of expertise in the technology and chemistry required for developing such products," notes Braun. "The strengths of the Israeli universities and companies are very great. I am referring to sophisticated and expert production and relatively small production lines. There is, therefore, no reason to fear that production in this area will be transferred abroad like that of other industries. We are planning to expand exports, mainly of cosmetics products made with extracts from the Dead Sea."
Excellent manufacturing capabilities as an obstacle
Intercosma's plant in Beit Shemesh manufacturers Wella and Mineral Care products as well as products for other companies, such as personal care products under the Castro, Gigi, and Dr. Scholl's labels. "We are manufacturing here using their formulas," says Braun.
Braun believes that Israel's excellent manufacturing capability has blocked the entry of big international companies that have tried to enter the industry. Among the other companies mentioned favorably by Braun are Dr. Fisher, Careline and Natural Formula.
"We are the market leaders in most categories of hair care," says Nadav Harari, CEO of Intercosma' consumer products company - a subsidiary that handles most of the company's labels - "from hair color to hair spray and other conditioning products." The only field in which Intercosma is not a leader is that of shampoos and hair moisturizers that do not require rinsing.
"One has to differentiate between trends and gimmicks in the hair color field," says Harari, noting the stiff competition that Intercosma faces from L'Oreal, Indola and Natural Formula.
"The core of the hair color market is the 18-45 age group and not necessarily teenagers," says Harari. "Worldwide, however, young people are a strategic market audience in efforts to lower the age of the hair color market. In 2003, Intercosma will be launching a lot of new products for teens, but without neglecting our main adult market population."
Harari also promises new products that moisturize the hair and don't have to be rinsed out - a product field currently controlled by Natural Formula.
"We intend to become the market leaders in all areas of hair styling," says Harari. "We have no plans to invest resources in the shampoo and conditioner field in 2003."
Harari also promises surprises in cosmetics. Intercosma is planning to start manufacturing or importing upmarket cosmetics - products whose market position and price are between the cheap and luxury cosmetics.
"This is a very underdeveloped market in Israel," he says. Sales of upmarket cosmetics in Israel contributed 5% to the markets sales, compared with 25% in Europe.
While Intercosma is going forward with its plans for the future, it is still unclear if members of the fourth generation of Brauns will continue to manage the family business. Meirav, Yehuda's 29-year-old daughter, is currently in charge of software at the company. The other children and cousins (Arthur has seven more great-grandchildren) are not involved in the company's activities.
"Only proven business and management capabilities will determine whether the fourth generation will join the company's operations," says Yehuda. "We believe in professionalism above all. I would be happy to see the fourth generation taking over for us here, but it is not essential."