As the health crisis continues to cripple the fragrance market, France’s luxury perfumery glassmakers are on the front lines. We spoke to executives from leading suppliers Pochet du Courval, Verescence, Stoelzle, Zignago Brosse and Waltersperger as well as industry associations Cosmetic Valley and La Glass Vallée to understand how these suppliers are facing up to the current challenges, what solutions are in the pipeline to create a more viable business environment and how their luxury brand clients can help make this a reality.
When the health pandemic hit Europe early last year, France’s selective beauty market had been enjoying a string of growth years. Perfumery in particular was performing well: retail prices continued to climb year-on-year and the majority of prestige glassmakers were producing at capacity. Then, early March, the first lockdown was announced, stores shut their doors across the country and business as they knew it ground to a halt.
Barely 12 months on, France’s luxury perfumery glassmakers are assessing the damage. Of the companies interviewed for this article, only Waltersperger, the country’s last glassmaker devoted exclusively to semi-automatic production, saw its 2020 sales fall by less than 10%; its larger competitors registered decreases ranging from -15% to -35% for the hardest hit. “We saw a 15% drop in sales versus 2019, but I think we’re somewhat better off than some of our peers due because we secured new projects in premium cosmetics, and have benefitted from that category’s trend of moving from plastic to glass. We were therefore better able to weather the crisis in light of the fact that cosmetics are considered more as necessities than simple commodities,” explains Hélène Marchand, General Manager France at Verescence. Despite this, production still suffered; in March 2020 the company shut down its smallest capacity furnace at its Mers-les-Bain site (out of a total of three furnaces) and as of mid-February it still hadn’t fired it back up. Nine of its 13 lines are running today and Verescence also cut 70 jobs (at its Mers site and at its headquarters) as a result of the crisis.
For Pochet Group CEO Tristan Farabet, 2020 was dealt with in “permanent crisis management mode” beginning in March. “We quickly realized that the crisis was set to last for quite some time and that we wouldn’t be returning to 2019 levels until 2023. This year (2021) will still be well below historic levels, but we are hoping that business will pick up progressively in the second half.” The French group launched a collective performance agreement for its Pochet du Courval and Solev units in a bid to reduce fixed charges, a knock-on effect from the crisis. The company currently has two furnaces running and went ahead with the reconstruction of one furnace in the second half of 2020.
“Verescence’s and Pochet’s restructuring plans were relatively tame compared to what the industry has faced over the last year and job losses mainly concerned interim staff,” notes Valérie Tellier, president of industry association La Glass Vallée and CEO of decoration company Val Laquage. “We have the government to thank for the measures put into place as without that support the damage would have been much greater, not just for glassmakers, but throughout the perfumery supplier community,” she notes.
“Brands are starting to debut new projects, but for the moment they can’t really gauge how the market will respond, which makes it hard for them to quantify the business they could give us”
Waltersperger CEO Stéphanie Tourres
Stoelzle Masnières, meanwhile, which has since returned to 75% capacity, fired up its new furnace in January as planned, thus boosting its capacity by 30%, and has diversified into spirits at its French site with a fifth hybrid production line adapted to both fragrance and cosmetics and spirits. (Stoelzle already produces glass for spirits at its glassworks in Scotland and in Poland). “The crisis reinforced our desire to not depend on a single market and we’re seeing interest from French spirits brands for local production. Another positive point is that there is a more equitable sharing of margins in the spirits sector. Demand in fragrance and cosmetics, meanwhile, has picked back up slightly, but we are still far behind historic levels,” explains Etienne Gruyez, CEO of Stoelzle Masnières.
Since the onset of the crisis, none of the country’s perfumery glass suppliers have returned to full capacity; as of mid-February, the average ranges from 50% and 75%. As a result, like in numerous other industries, glassmakers have had to put a portion of their staff on part-time status, or, as is the case for Verescence and Pochet du Courval, lay off staff. This brings its own string of problems as in glass production, especially in the premium end of the market, staff is trained in-house and become expert in their trade thanks to years of practice. This makes layoffs especially risky, as workers with expertise are essential in maintaining production quality, not to mention their role in the transfer of knowledge to younger generations.
The crisis is also bringing into the limelight a series of issues that were already profoundly problematic, but less apparent when business was dynamic. Lack of visibility is one. Some executives say they remain “completely in the dark” when it comes to forecasts, making it complicated to be agile when calibrating production. “Brands are debuting new projects, but for the moment they can’t really gauge how the market will respond, so it’s difficult for them to quantify the business they could give us,” remarks Waltersperger CEO Stéphanie Tourres. “Before the crisis, our clients were able to forecast purchases six months or even a year ahead of time. Today, in the best of cases it’s closer to three months,” says Stoelzle’s Gruyez. “This puts us in quite a paradoxical situation, as despite the fact that we aren’t at capacity, we can still have trouble responding to demand; it’s not just a question of equipment, of opening and shutting operations, but also about organizing work flow. We are trying our best to find an equilibrium between our constraints and our clients’ needs,” adds Marchand.
“Before the crisis, our clients were able to forecast purchases six months or even a year ahead of time. Today, in the best of cases, it’s closer to three months”
Stoelzle Masnières CEO Etienne Gruyez
Another issue that renders manufacturers particularly fragile in times of crisis is their fixed costs, and glassmaking is a highly capital- and energy-intensive industry. During a slowdown, when capacity is at half-mast, furnaces generally stay lit, with the associated energy costs.
Inventory is another key problem aggravated by the crisis. “There are practices in the glass industry that are quite unique to our sector; our clients regularly ask us to carry their inventory — goods that we’ve manufactured. When the market slows down, stores are closed and brands no longer need the stock, they ask us to hold onto it for up to six months. This puts us at a disadvantage as we’ve paid our workers’ salaries, put through orders to our own suppliers, paid our energy costs. It’s a penalizing practice; in a way we are being made to pay for the market’s slowdown,” notes Marchand. However, she specifies that some clients did lend a helping hand during the first lockdown last spring by taking their inventory earlier than planned. “The crisis has amplified the inventory issue. Consumption in 2020 hasn’t fallen as much as production given that the stocks were there. It’s only this January (2021) that we started seeing the last of destocking, but it took an entire year. I believe that now we can once again be in sync with market demand,” explains François-Xavier Chéru, Commercial Director at Zignago Brosse.
“When the market slows down, stores are closed and brands no longer need the stock, they ask us to hold onto it for up to six months. It’s a penalizing practice; in a way we are being made to pay for the market’s slowdown”
Verescence France Managing Director Hélène Marchand
Another major talking point among glassmakers — and among other packaging sectors generally — is their continually decreasing margins. Year after year, in seemingly direct contrast to fragrances’ steadily climbing retail prices, suppliers’ margins continue to fall. (One notable figure worth remembering: a fragrance bottle represents less than 2% of a perfume’s retail sale price.) “It all comes down to more equitable margin sharing. Glassmakers are asked to invest, invest, invest, but if our products’ sales price don’t increase it’s truly problematic,” comments Gruyez. “This crisis has revealed the underlying problem of the glassmaking industry’s poor profitability, with margins that have collapsed in the last 10 years. Before the 2008 crisis we were in a flourishing and growing industry with our fair share of value, but all this was destabilized by the 2008 crisis. And yet the fragrance market continued its success story mainly due to significant retail price increases,” remarks Pochet’s Farabet.
Indeed, French glassmakers have not benefitted from these price hikes, but instead are pressured to be more competitive in an increasingly global marketplace and asked to accept smaller orders. “It is really worth continuing to adhere to the strategy in place for the last 10 years to continually pressure suppliers in order to save one or two cents per bottle? Or should the priority be to support a sustainable and competitive industry that is a long-term differentiating advantage for the success of the French perfumery sector? Our clients’ management is well aware of this point of view, but the practice also irrigates their business,” comments one industry executive. “We now need to find the right equilibrium between short-term purchasing conditions and the long-term health of the entire sector,” adds Farabet.
“Brands can no longer boast that they are sustainable while buying their glass in India. A certain level of coherence needs to settle in”
Zignago Brosse Commercial Director François-Xavier Chéru
And even in this time of crisis, glassmakers are being asked to be more competitive price-wise, so as to safeguard their clients from taking their business to countries where labor costs are significantly lower, such as in Poland, and even India. “We try our best to resist, but our clients can always find cheaper options in low-cost countries. The end-consumer would be shocked if they knew that some premium brands purchased their glass bottles in India just to save a few cents on a product retailing anywhere from €50 to €100,” says one executive.
“As luxury glassmakers, our objective is to come out of this period better than we did after the 2008-2009 crisis, which hit us hard as some foreign competitors, with their access to low-cost labor, succeeded in taking some of our market share and French glassmakers took a long time to recover. We need to change some of the fundamental issues that are crippling our industry,” argues Verescence’s Marchand. “Not to mention the fact,” adds Chéru, “that brands can no longer tout the idea that they are sustainable while buying their glass in India. A certain level of coherence needs to settle in”.
Despite their squeezed margins, glassmakers continue to invest (and are asked by their clients to invest) in automation, digitalization and today more than ever, in CSR initiatives. This year, Waltersperger is going ahead with its move to a new site — like some of its competitors, the company received aid in the context of the French government’s recovery package linked to the crisis that in this case will pay for 20% of costs; Verescence is progressing with its strategic industry 4.0 investment plan (namely automation and digitalization) as well as CSR measures to improve the energy efficiency of its production. And, as noted above, Stoelzle has invested in a new furnace.
“We now need to find the right equilibrium between short-term purchasing conditions and the long-term health of the entire sector”
Groupe Pochet CEO Tristan Farabet
The desire to offer solutions to the pressing issues facing suppliers today while promoting the importance of ‘Made in France’ for the sector is behind a number of initiatives spearheaded by French industry cluster Cosmetic Valley. The organization has kicked into high gear since the onset of the crisis through two main actions: it organized Les états généraux de la filière parfums cosmétique, an initiative meant to address the issues brought to the fore by the covid-19 crisis and the creation of a Comité de filière, a structure backed by the French Industry Ministry that is meant to officialize relations between the industry and the French government.
Validating the importance of France’s industrial beauty sector — the country’s second export market after aeronautics — was behind Cosmetic Valley and cosmetics trade union FEBEA’s “letter of intent”, published in January 2021 — a document meant to encourage brands to help out their suppliers in this time of need. The letter, signed by 16 luxury beauty brands, listed a series of “commitments” that included favoring local supply, optimizing payment terms and addressing stock issues. While it read more like a show of good faith, Christophe Massson, Cosmetic Valley Managing Director, affirms that the document served its primary purpose of “getting the conversation going”. “The main idea behind this statement was to bring a real awareness to the issues at hand and highlight the importance of safeguarding made in France for our sector. It’s already beginning to bear fruit; we’re seeing a number of meetings set up between brands and suppliers that we believe will result in solid initiatives. The letter of intent accelerated a much-needed wake-up call that we hope is the beginning of a virtuous circle in this crisis context,” says Masson.
“Glassmakers and their suppliers are facing a deep crisis while continuing to invest in their business. That’s not an easy situation to be in”
La Glass Vallée President Valérie Tellier
The creation of a Comité de filière, a committee that is dedicated specifically to the fragrance and cosmetics industry, will address three major issues: innovation and competition (with the aim that investment plans be seen as strategic by governmental bodies); environmental transition; and cohesion — or creating balanced relations between brands and suppliers. “This committee was the missing element as it’s a chance for us to exchange on fiscal, regulatory and strategic matters. But perhaps most importantly, it provides much needed-recognition to our sector. Beauty was long considered to be a frivolous industry, but with the Comité de filière we are being recognized for what we are: a strategic industrial network.” The meeting that will launch the committee should happen within weeks.
The executives interviewed for this article all agree that the answer to the numerous problems facing the industry could be summed up as follows: for each player in the industry to support its own suppliers, to concentrate purchases on a limited number of suppliers, to not systematically seek out the lowest price and to pay one's suppliers more quickly. “This crisis has been a wakeup call. The idea is to transform this ‘declaration of intent’ into concrete measures from our clients. We are working with them so that some of the support measures they brought us during the crisis be made long-lasting; after all, globally our clients supported us during this difficult time. The idea isn’t to be antagonistic. We are lucky to be in a market segment that is financially sound, and I’m convinced that we’ll be able to find solutions so that each player in the French industry will be able to live from, and invest in, the business in the long term,” opines Farabet.
“The letter of intent accelerated a much-needed wake-up call that we hope is the beginning of a virtuous circle in this crisis context”
Christophe Masson, Cosmetic Valley Managing Director
“All of these measures are in the major brands’ interest; if as suppliers we have what it takes to invest, we’ll be able to be more competitive, lower our environmental impact and innovate—a win-win situation. France’s main luxury brands need to remain the champions in their market. If this crisis allows the market’s main strategic sectors to come out stronger, I think we’ll all emerge as winners,” concludes Marchand.
As to 2021, executives say that the first trimester looks a lot like the same period in 2020. “This year will be one of transition, but we are lucky to be in beauty, a market that reacts quickly and can take off again at the drop of a hat!” enthuses Chéru. For Valérie Tellier, the beauty market could well turn around, but she wonders if given the current state of things, the industry will be able to respond in kind. “Glassmakers and their suppliers are facing a deep crisis while continuing to invest in their business. That’s not an easy situation to be in."