Are Multinationals Missing the Natural Movement?

November 4, 2008

Small and mid-sized personal care companies have embraced the natural trend. Meanwhile, large companies only enter the category via acquisitions.

Are Multinationals Missing the Natural Movement?

Small and mid-sized personal care companies have embraced the natural trend. Meanwhile, large companies only enter the category via acquisitions.

By Imogen Matthews
Consultant to In-Cosmetics

At first glance, it seems that every company is jumping on the natural products bandwagon, making it the hottest trend in today’s beauty markets. But are they? Most natural/organic launches have come from smaller, niche brands, while those from multinationals can probably be counted on one hand.
The major multinationals have not been reticent in addressing the naturals trend, not by creating their own brands, but by acquiring others with potential. Estée Lauder jumpstarted the trend back in 1993 when it bought Aveda, while L’Oréal has probably been the most active this decade, adding The Body Shop, Kiehl’s and Sanoflore to its portfolio. Yet among the major companies, only Estée Lauder has launched its own natural line, Origins, which has recently been extended with an organics sub-range.
Estée Lauder made news when it acquired a stake in Forest Essentials.
The multinationals have been deterred from entering the naturals market due to the high cost of natural and organic ingredients. To date, this has allowed niche natural/organic brands to gain the upper hand on bigger brands.
So why do the multinationals acquire existing natural brands rather than launch their own? Euromonitor cosmetics and toiletries analyst Oru Mohiuddin insists that it makes more strategic sense to invest in products that have been tested and proved to be successful.
“It saves large multinationals time to research and develop products that may not pass the test or take a long time before being ready for the market,” she said.
By investing in products already on the market, it leaves the multinationals with responsibility for marketing and promoting the brand. This arrangement works well, for they have the resources to invest in marketing and promoting brands globally. By contrast, the smaller companies have the expertise to research and develop new products, but are unable to market them at the same level.

A Movement Grows

There are signs that the natural trend is going mainstream. Burt’s Bees, once a niche natural toiletries line, has grown into a $100 million enterprise. Now under the ownership of Clorox, Burt’s Bees is proving that it can compete with the larger brands. “Growth can come when a large multinational gives a particular brand a big global push,” explained Ms. Mohiuddin.
Estée Lauder Companies is hoping for great things from its latest acquisition, a stake in the Indian natural beauty spa brand Forest Essentials. Not only will the brand give it a foothold in the growing Indian market, but insight into traditional Ayurvedic practices as well.
“This agreement will help us expand our growing expertise and competitiveness in the natural products arena,” commented William P. Lauder, chief executive officer of The Estée Lauder Companies, in a statement.
Carrie Mellage, director, personal care products industry at Kline & Co., points out that while the multinationals may not be launching dedicated natural ranges, they may be taking steps to become more green.
“P&G is doing more to reduce its carbon footprint, such as producing more concentrated laundry detergent. It may not be natural, but it uses less packaging and creates less waste,” she affirmed.
Kline has undertaken a study to look at whether ingredients in beauty products are natural or synthetic on a scale of 1 to 10. The degree of naturalness ran a broad spectrum, but out of the 26 brands covered, L’Oréal and P&G were lower down the scale.
“P&G is jumping on the natural bandwagon, but the company is not going all the way,” said Ms. Mellage. “P&G may say its formulations are nature-inspired but they are more synthetic than natural.”

What’s in a Name?

P&G’s Nature Fusion is a good case in point. The four moisturizers contain skin active natural extracts, including grape seed and ginseng, and were the result of years of study into the natural cycles of living plants. However, P&G cannot claim the line to be natural as it is formulated with synthetic ingredients.
Similarly, Garnier (L’Oréal) claims that it always gives preference to active natural ingredients using bioscreening technology, yet the formulations cannot be considered to be natural as they also contain synthetics.
Companies can also fall foul in their efforts to be green. Unilever claimed to be leading the search for sustainable ingredients by using palm oil in its Dove products, but a demonstration by Greenpeace protesters earlier this year at two Unilever sites highlighted a flaw. Greenpeace claimed that the palm oil sourced by Unilever is damaging the Indonesian rainforest and urged the conglomerate to use its influence to stop palm oil suppliers clearing areas of rainforest to support the crop.
Future growth in naturals will come in two ways, argues Euromonitor’s Ms. Mohiuddin.
“If a large number of niche brands enter the market there can be growth, but at the same time growth can come about when a large multinational gives a particular brand a global push,” observed Ms. Mohiuddin. “In recent years, we have seen the number of smaller players growing globally, but particularly driven by the market in western Europe, where consumers not only trust the brands of the smaller players but also enjoyed the customized attention.”

Growth Through Acquisition

Ms. Mellage agrees that the multinationals are more likely to get behind existing brands than launch their own. “Growth will come through acquisitions, although some of the more successful natural brands will remain independent,” she said.
However, it may not be enough, if the multinationals are to maximize future growth in naturals.
A new report by research company mymarketmonitor.com analyses advertising and editorial coverage of natural brands in the UK market. At present, the weight of editorial coverage for the power brands; e.g., Aveda and Origins, to smaller niche brands is 60:40 in favor of the larger ones.
“We have run this out to 2010 and predict that the situation will have reversed,” states mymarketmonitor chief executive Mike Ramsayer.
“Unless the larger companies embrace the natural trend more wholeheartedly, the smaller brands will continue to nibble away at their power base and will dominate editorial coverage,” he warned.

Kline, Mymarketmonitor.com and Euromonitor are participants in the marketing trends presentations at next year’s In-Cosmetics, which will take place in Munich, April 21-23, 2009. For further information, visit the website, www.in-cosmetics.com
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