Fireworks have a long tradition in many countries. While Germany welcomes the New Year with fireworks, in the USA the 4th of July, in France the storming of the Bastille on 14th July and in England the Guy Fawkes Day on 5th of November are occasions for private and public fireworks.
According to the Association of the Pyrotechnic Industry (CPI), New Year's Eve fireworks worth 180 million euros were sold in 2022 (137 million euros in 2018 for comparison), a new sales record after a forced break in previous years. However, the share of total consumer spending of 1921.6 billion euros in Germany is very small at 0.09%. In 2020 and 2021, fireworks were not allowed privately on New Year's Eve due to the Corona requirements and only achieved 20 and 21 million euros in sales from events in the industry, respectively. The decline in sales plunged the industry into existential problems, with state aid also being used. In 2022, hardly any fireworks were imported, as the warehouses were still filled with the unsold fireworks from 2020. The fireworks were stopped by the authorities on 22.12.2020 shortly before the sale. However, the goods were already at the retail trade and had to be picked up again by the suppliers for a fee without turnover.
90% of the total turnover of the fireworks industry is sold in the last three sales days of the year. Only party fireworks may be sold all year round, but have only a low sales significance. The supply structure corresponds to a classic oligopoly with only three suppliers and many large and small traders on the demand side. However, demand is concentrated in a few retailers and one can therefore almost speak of a bilateral oligopoly.
Comet from Bremerhaven had sales of around 50 million euros in 2022, which corresponds to about 30% market share. Since 2005, Comet has been part of the Hong Kong trading house Li & Fung, which is active in over 40 countries worldwide. With its sister company Shiu Fung Fireworks, the value chain in sourcing extends directly to China. In 2013, the company Keller Feuerwerk was taken over, so that only three suppliers remained in the market.
Nico, based in Berlin, is the smallest of the three suppliers and sells a wide range of batteries, rockets, mixed, bang and light ranges. Nico opened an office in China in 2016 in Liuyang, in order to increase the proximity to the production markets in order to take advantage of better and faster communication. Nico is estimated to have a 10% market share in 2022. After a loss-making financial year 2020/21, a small profit of EUR 0.8 million was again achieved in 2021/22.
Weco from Eitorf is the market leader with a market share of 60-65% and a turnover of 100 million euros in Germany and also active in other European countries with its own subsidiaries in Austria, Switzerland, France and the Netherlands. The product range includes rockets, batteries, sparklers and large fireworks for events. Weco is owned by the managing partners. In the last published financial statements of FY 2018/2019 before Corona, a trading margin of 32.8% and an EBIT margin of 2.6% were achieved.
With the exception of Weco, which has a share of 15% in Germany, production only takes place in Asia and here in China at the Eitorf and Kiel sites. The number of potential producers in China for a global market has steadily decreased in recent years, deteriorating the bargaining position of the three importers.
The goods are already ordered at the beginning of the year, after the sales figures are available, the negotiations have been concluded and then successively imported from Q2 with the peak in Q3. Shipment as dangerous goods (hazard class 1.4) is time-consuming and expensive and takes place over a large number of shiploads. Not all shipping companies are open to this type of dangerous goods. At Comet, there are 600 containers spread over the year. The goods are successively stored in Bremerhaven with 40,000 pallet spaces.
The balance sheets of the three importers are characterised by an inventory of goods at the beginning of the year due to returns from the trade and from Q2 onwards the successive build-up of the inventory through imports or, in the case of Weco, in-house production. Delivery then takes place to retailers in December, and there is an exchange of commodity items for trade receivables in current assets. Depending on the payment term, the cash inflow will then take place in Q1 of the following year. The inventory is usually counter-financed at short notice by bank loans with matching maturities. Only Weco owns fixed assets in production facilities due to its own production. In terms of fixed assets, rented and own storage space is also required, which must be designed for a maximum of the entire annual turnover. After all, the velocity of goods in circulation is only 1 per fiscal year. As a rule, the delivery does not take place via the company's own logistics, as this is not needed except for December.
There are special service providers in the logistics industry. Due to higher costs in production and logistics, importers' sales prices have increased by up to 70% for individual products compared to 2022.These price increases are passed on to the end consumers, but not always 1:1. In some cases, products are replaced by substitute items, so that the price increases are not necessarily visible due to a lack of comparability. The Kopernikus 86 shot battery at Aldi-Süd and Aldi-Nord cost 12.99 euros in 2023 compared to only 8.99 euros in 2022 (=44.4% price increase in the UK).
The oligopoly has existed for years. New entries and retailers' own imports are not possible due to significant market entry barriers. All products sold in Germany require approval from the Federal Institute for Materials Research and Testing (BAM). Often, identical products with identical approval numbers are sold by different retailers with individual packaging and presentation in order to achieve differentiation for the customer. The naming ranges from Van Gogh and Copernicus to World Champion and Rocket Clash to imaginative names such as Firecracker Inferno and Phantoms and Ghosts.
In retail, most retailers only rely on one or two of the three providers as suppliers (= mono- or dual-sourcing). Lidl marketed 47 (36 Weco, 11 Nico) different items with price ranges between 3.99 euros and 37.99 euros plus 4 table fireworks products. Comet had already delivered displays with table fireworks to Lidl at the beginning of December. Lidl was the only retailer to purchase goods from all three importers. Nico managed to get back into work at Lidl after many years of being ignored. Aldi Süd had 36 items (36 only Weco) starting at an aggressive 2.29 euros for the entry-level battery up to composite batteries at 34.99 euros with 206 shots. The large-scale discounter Kaufland sold 39 items (21 Comet, 18 Weco) and an additional 9 products with youth fireworks. The price differentiation was most pronounced here with the entry-level battery with 20 shots for 2.99 euros up to two composite batteries for over 100 euros retail price. 80 fireworks items were announced in the advertising, but not all of them were shown in the leaflet, a rather unusual approach to communication.
Sales are very labor-intensive and cost-intensive for retailers. Additional mobile storage space often has to be rented for storage. Stock in the sales area is strictly limited and must be constantly replenished. Safety regulations are comprehensive. There are always special situations in the areas near the border. Fireworks are not freely available for sale in Alsace and the LEH branches near the border have additional customer groups here. In contrast, products from Poland are also imported privately in the areas near the Polish border. In Switzerland, higher weight classes (rockets up to 350g, in Germany only 20g) are permitted and are also interesting for some of our customers. These imports fall under the gray market without legality and are not recorded.
The fireworks are always sold to retailers with the right of return. This is a classic commission business. The sell-off risk lies solely with the importers. Deliveries are decentralised and do not pass through central warehouses due to the high volume of explosives. In the first weeks of January, the return delivery and safe storage will again be carried out in a decentralised manner by the three providers with their sophisticated logistics for dangerous goods.
DIY stores such as Hornbach, Bauhaus and Obi (all three since 2020) have already stopped selling fireworks for several years for sustainable reasons. Toom, on the other hand, remains on the market. 18 items (18 Nico) and an additional 3 children's fireworks products were offered. The market shares of DIY stores are very low compared to food retailers, so that purely economic considerations also played a role in the renunciation. Customers buy fireworks where the other products for New Year's Eve are also bought, and that's not in the hardware store. There is a lack of frequency here. Drugstore chains such as dm only sell party and decoration items for New Year's Eve and not fireworks.
In addition to the discussion that has been going on for years about the usefulness of fireworks and about health risks (including deaths) due to improper handling, the topic of sustainability is becoming increasingly relevant. In terms of sustainability, the industry is on the right track with the reduction of plastic content in products, the use of recycled materials, the use of green electricity and its replacement with cardboard. However, it is not possible to recycle the spent products. These are usually collected and disposed of at great expense by the respective city cleaning service. The costs are borne by the taxpayer. In addition, in the case of fireworks, attention is drawn to the very high particulate matter pollution and noise pollution with impairment of residents and animals in the argumentation against fireworks. According to Nico, however, the share of fireworks in the total amount of particulate matter in Germany is only 0.7%. Production in the factories in China is mostly BSCI or SA-8000 certified.
New Year's Eve fireworks are and remain one of the most interesting, but also most controversial product groups in the retail sector.
