What’s behind the mass consolidation in the personal care industry
In a bid to gain an edge in the increasingly competitive personal care industry, smaller brands are getting snapped up left and right.
L’Oréal said in April that it would buy luxury Australian skincare brand Aesop in a deal worth $2.5 billion, the largest acquisition the French cosmetics giant has ever made. Online brand platform Foundry recently acquired direct-to-consumer personal care brand Blu Atlas for an undisclosed eight-figure deal. Textured hair care brand Mielle Organics is also joining Procter & Gamble Beauty’s portfolio, according to an announcement earlier this year.
While every acquisition might have different motivations, analysts agree that the strong growth and rising competition in the personal care category are driving the wave of consolidations in the industry. The personal care category — which ranges from skincare, body care and hair care — has constantly been seeing new and niche players enter the category. It’s no surprise that more companies want to cash in: First-quarter prestige skincare sales grew 11% in the U.S., mass skincare sales grew 10% and prestige hair care sales increased 11%, according to data from Circana.
Katherine Toll, principal at consultancy firm the Parker Avery Group, said that it is common to see personal care as well as beauty brands go through bursts of acquisitions every now and then. “Everything old is new again because the beauty industry and personal care, in general, is very cyclical,” she said. Toll added that the proliferation in the personal care category makes the conditions ripe for conglomerates to acquire smaller brands. “It seems to come back up and then quiets down.”
Many of the companies that are looking to edge their way into this space now see acquiring personal care startups as a way to enter a promising space that has the potential to grow even amid economic uncertainty. AS Beauty, a holding company in the color cosmetics space, said in January that it is acquiring Bliss World, which marks its first venture into the skincare industry.
“One of the really exciting things about the beauty and personal care category is there is this precedent for brands having explosive growth,” Matt Rhodes, co-founder and CFO of Foundry, told Beauty Independent in a July interview.
Both acquirer and acquiree can stand to benefit. For larger conglomerates looking to seize the opportunity in the category, acquisitions can be cheaper than developing an entirely new brand. Smaller brands, on the other hand, can gain access to a more established supply chain network and experienced talent, Toll said.
Last year, P&G indicated plans to focus on personal care by launching a new specialty beauty division. Prior to Mielle Organics, it already acquired three DTC personal care brands — Tula, Ouai and Farmacy. By acquiring Mielle Organics, a brand dedicated to giving Black women access to hair products, P&G gains access to a group of customers that its beauty brand roster might not have historically tapped, said Stephen Picard, associate managing director of consumer products at Publicis Sapient.
“They look to access a category of customer,” Picard said. “Buying a personal care brand can be a good way to get a Trojan horse and… finally get into those markets.”
It also works the other way around where smaller brands agree to be acquired to enter a specific market. L’Oréal said that it would help Aesop grow its footprint in China. Aesop’s vegan beauty positioning also allows L’Oréal to capitalize on ingredient-conscious shoppers.
Niche personal care brands that focus on solutions for specific demographics are particularly popular in these latest round of acquisitions, Picard said. Much like P&G and Mielle Organics, Foundry has been picking up a number of men’s personal care brands, such as razor and beard care brand Supply and men’s cosmetics and skincare brand Stryx. When its acquisition of Blu Atlas was announced, the company said in a press release that it believes Blu Atlas could hit $100 million in sales through increased distribution, awareness and premium products.
“A lot of niche players have been riding the markets,” Picard said. He added that some of these niche brands have gained the credibility and following of specific customer groups, which can be hard for beauty conglomerates to achieve when they develop their own brands.
While this consolidation trend can be beneficial to the parties involved, it does spell trouble for startups that don’t have the backing of a large beauty conglomerate. For these startups, it can be hard to develop new products quickly and expand distribution channels without the funding needed to do so.
“When it comes to the personal care industry, research and development is pivotal,” Toll said. “We love new, we love improved, we want to see cutting edge. If you don’t have the resources to invest in that, that could be a three to five year out… investment in the R&D before that product hits the market.”