Tom Branna, Editorial Director04.01.20
Tuna, toilet paper and toiletries, too? Yes, toiletries, too. Coronavirus (COVID-19) has created shortages for each around the world as consumers work themselves into a frenzy. With every snowflake and persistent rainfall, shoppers have stripped store shelves of indispensable consumables. But the current crisis has created shortages of hand sanitizers, liquid soaps and other personal cleansers, and manufacturers and their suppliers are scrambling to keep up with demand (see Cleaning Up in the Cleaning Aisle on Happi.com). But long-time industry executive Neil Burns, Neil A. Burns LLC, maintains that the household and personal care industry supply chains are reasonable diversified, particularly in North America.
“This is the moment for our industry to shine!” he asserted.
Burns maintains that this outbreak, concentrated largely among the old and already sick will not, on its own, up-end the global supply chain.
“It will, however encourage companies to reassess how many eggs they have in the China basket or, indeed any other basket,” he said. “Having too concentrated a supply chain over-reliant on any one company, country or region, increases risk for whatever reason.”
To find out how Happi readers are reacting to coronavirus, read the results of our survey on Happi.com.
JacksonFill’s Director of Sales and Marketing Christine Haroldsonn confirmed that supply chains are tightening and slightly elongated lead times emerging for materials in general.
“A small number of specialty ingredients are out of stock or just unavailable with no restock date at this time,” she explained. “Many of our chemical vendors produce domestically but use materials that come from China and have alerted us to certain upcoming shortages.”
As a result, manufacturers that regularly buy directly from China are turning to distributors that hold inventory domestically, resulting in those stocks being depleted more quickly than usual because of supply disruption.
“We are anticipating some chemical shortages and continuing increases in raw material lead times,” she said.
According to Burns, companies were already looking at China with a more critical eye due to geopolitical reasons anyway.
“COVID-19 has probably just accelerated that process. It’s probably healthy overall,” he asserted. “If there’s a potential winner, it is the global consumer who will see a more robust and balanced system of production and consumption coming out of this.”
Haroldsonn concurred that more companies will diversify their supply chain to countries other than China.
“We’ve already seen some of that starting to happen due to trade tensions,” she said. “They may even turn to the integrity, quick response times, and quality of domestic suppliers.”
As we went to press, the coronavirus threat has dampened expectations for the global economy. Last month, the Organization for Economic Cooperation and Development said the coronavirus could slash 2020 global growth in half, to 1.5% this year, and push Japan and Europe into recession. In the US, most analysts expect zero or negative growth in the second quarter, with some pundits forecasting a recession by the end of the year.
Gar Labs CEO Tom Raffy insists his company is not experiencing any problems getting materials.
“But we have had a policy for the last 30-plus years to pay our suppliers in less than 30 days…so Gar Labs gets priority over slow-paying customers,” he explained.
No wonder, then, that Raffy remains upbeat.
“Short term, bad news gets 10 times the attention of good news,” he noted. “But in the end, people will still want and need hair care and skin care products, so long-term, I am not worried.”
Haroldsonn agreed that contract manufacturing is a very healthy business as multinationals seek to outsource and startups get started.
“We can move so much more quickly, whether that’s presenting formulas or filling orders,” she explained. “I worked at Estée Lauder Companies, where projects could take two or three years. Now, I am benchmarking six months for JacksonFill.”
Kline Group conducted its first contract manufacturing study last year and Analyst Nikola Matic expects to create a report every two or three years as the market grows, due, in part, to the development and rapid rise of indie beauty.
“When we started the work we essentially wanted to make an advanced directory of contract manufacturers and notably focus on those offering formulation services to their customers,” she recalled. “We found out that a majority of these companies are now having this type of offering; of course, expertise varies.”
No Place Like Home
As concerns over germs grow, more consumers are expected to let their fingers do the walking via online shopping, which has made it easier than ever for consumers to purchase fashion, food, and home and personal care products. The worldwide web makes it easier for entrepreneurs to turn their ideas and their passions into products, too. And why try to convince a couple of dozen fickle retail store buyers to stock your creams and lotions, when the world is willing to beat a path to your online door?
Yes, technology is an entrepreneur’s best friend these days, which explains, in part, the surge in demand for contract manufacturing services in the global household and personal products industry. In Happi’s annual article of leading contract manufacturers, all of them report sales gains, new customers and robust new product development programs across a wide range of product categories. Times are good, to be sure; but boom times don’t last forever. For example, everyone expected China’s 30-year manufacturing dominance to continue for at least another 30 years. But the coronavirus has raised questions about China’s manufacturing prowess.
In a recent column on Forbes.com, Contributor Kenneth Rapoza says China’s markets are getting hit much harder than anyone realizes, and the impact on China’s supply chain could be permanent. According to Rapoza, Chinese auto manufacturers and chemical plants have reported more closures than other sectors. It could spell trouble for contract manufacturers and other companies that source materials and finished products from the world’s No. 2 economy.
Yet, contract manufacturing executives who spoke with Happi remain unperturbed by coronavirus threats with good reason. They’re enjoying a boon time of their own, a boon that’s captured the attention of private equity that’s beginning to consolidate the industry.
Cosmetic Solutions was acquired by a PE firm in October, a move that COO Warren Becker explained enabled Cosmetic Solutions to invest in a range of operations including filling, batching, R&D and innovation. He noted that, over the years, Cosmetic Solutions has helped startups grow into $50 million businesses.
“Traditionally, investors invested in one brand and had one horse in the race,” explained Becker. “Investing in a contract manufacturer gives PE a mutual fund of brands.”
From an investment perspective, contract manufacturing is more stable and predictable than owning individual business, added Becker. Plus, the contract manufacturing story has been one of growth—a prerequisite for private equity groups.
“Up to this moment, the contract manufacturing industry has been growing; private equity is putting a lot of money into the space and there are a lot of bets on it,” agreed C-Care President Cornelius Grupp. “I hope that coronavirus is a bump in the road; we haven’t felt anything yet, but it will have an impact on 2020. Still, we have experienced tremendous growth.”
Other contract manufacturing executives concur with Grupp. With startups revving up and multinationals reducing hard assets, demand for contract manufacturing services has soared in recent years.
“The contract manufacturing sector is heating up,” agreed Lorne Lucree, chief innovation officer, Voyant Beauty. “What was once a fragmented business is becoming coordinated.”
Voyant has played a big role in bringing those pieces together. Wind Point acquired Voyant Beauty in March 2017 and renamed the combined, integrated platform in June 2019. During that time, the company acquired Vee Pak, CEI and Aware Products.
“At Voyant, our customers experience the benefits of integration,” he explained. “We are a true solutions provider with fully integrated operations.”
The company has seven manufacturing facilities in the US and Europe, more than 115 filling lines and over 1,000 employees.
“We can decouple the process; formulating in Los Angeles and filling in New Jersey, for example.”
As a result, there are no capacity issues at Voyant, according to Lucree.
JacksonFill added more than a dozen new brands during the past 12 months and still has plenty of capacity, according Haroldsonn.
2019 Gains for Most
According to Grupp, the contract manufacturing business remains healthy and growing; as proof, he pointed out that private equity (PE) continues to invest in the space.
“PE sees the huge potential of the market,” he explained. “C-Care has experience tremendous growth.”
Some of the biggest gains for C-Care have come in niche hair color, hair and skin care. Grupp credits some of the gains to social media.
“Women and men want to look ageless and the most obvious way to achieve that is through skin care,” he said. “There is movement toward a real appreciation of skin.”
An appreciation of good times, too. According to Allan Burd, president, Lady Burd Cosmetics, the contract manufacturing business remains healthy and growing because the economy is strong and people are going out and enjoying their lives.
“They like to and can afford to look their best. The means good things for the cosmetic retail brands, thus good things for the manufacturers,” he explained. “Now more than ever, business-minded people are eager to start their own brands.”
At the same time, Lady Burd’s business has been aided by more retail businesses asking the company to create, design, and manufacture their finished products, said Burd.
What are companies looking for? Anything and everything.
“Skin care always does well. Consumers are always on top of the latest trends, looking for the newest cosmeceutical product to keep their skin healthy and youthful, and color is always in for the lips and the eyes,” he explained.
According to Burd, the hot looks in color cosmetics right now are metallics, festival makeup (fun and playful bright hues, glitter and sparkles), strong brows, statement making lip colors (nudes, pinks, neons) with a glossy finish. In contrast, blush tends to trend behind because women don’t always want as much color on their cheeks, he added.
Becker agreed that skin care, in general, has been a big driver for the HBA industry. In fact, it helped propel his company’s sales by 25-30% last year, but at the same time, color is softening.
The men’s grooming category, including beard oils and pomades, has been a boon for JacksonFill. Demand for hair care, especially hot fills, is soaring, too. More specifically, there is growing interest for edge control and curly hair.
“There used to be a wall between ethnic and nonethnic formulas,” recalled Haroldsonn. “Now all brands are targeting curly hair. There is a lot of cross-over due to changing demographics.”
Kirker’s entire business is devoted to nail lacquer and nail care products. Brittany D’Ambrosio, director of marketing, Kirker, admitted that there are some struggles with the regulatory environment becoming increasingly more global and difficult to operate. But at the same time, she insisted that the outlook for the overall business is extremely positive.
“As we learn to accomplish the goals put before us and overcome the challenges, it will lead us to continued growth and success,” she said.
Voyant Beauty’s business is growing on several fronts, according to Lucree, who said complex, high performance skin care formulas are in demand. Meanwhile, body care is posting big gains and hair care, too, is driving growth as multicultural populations continue to grow.
“The biggest wins are around products that we can partner early on and help develop new packaging, provide fragrance help or suggest a new active,” said Lucree. “That’s where we all grow.”
According to IBF’s Scott Eaton, skin care is trending up among the smaller entrepreneurs. In addition, consumers are demanding more clean and natural formulas also. Demand for CBD and other unique raw ingredients will continue to drive demand.
“For IBF, 2019 was a breakout year in which we moved beyond word-of-mouth to a more dedicated business development program,” he explained. “We are starting to see the orders come in from our efforts from last year. We still have plenty of capacity to grow in our new, 167,000 sq. ft., state-of-the-art facility.”
Clean Beauty Options
No one truly knows what “clean beauty” means, but every formulator is keeping an eye on the trend. For most, the term means a shrinking list of formula ingredients on the back panel, coupled with an expanding list of unacceptable materials.
Some beauty executives maintain that retailers are forcing brands to rework their formulas. For example, they point to “Clean at Sephora” as a major driver behind the growing clean beauty space.
“If retailers demand paraben-free formulations we have to comply if we want to be on-shelf,” explained David Rodrigues, co-founder, Elysian Cosmetics. “I get “No” lists from retailers all the time and I must formulate with their wishes in mind.”
Pinch of Colour Founder Linda Treska recalled that one retailer presented her with a list of 287 banned ingredients.
“The retailers are creating a challenge,” she admitted.
Obviously, contract manufacturers are determined to meet their customers’ demands, but the demands can be, well, demanding.
“When customers come to us, my standard question is what is on your ‘no’ list?” said Haroldsonn. “No one wants to formulate with parabens or sulfates. The newest request is for plant-derived ingredients. Customers think they want organic, then they see the cost. The cost of certified organic ingredients is a deterrent, so we go with plant-derived.”
Grupp explained that C-Care has always worked with clean lists and has developed its own list, too. At the same time, the company formulates with sustainably-sourced materials, including actives. A new water system helps significantly reduce water consumption and cold-processing also helps conserve resources and money.
“These approaches resonate with existing customers and new clients,” he explained. “They understand that the closer they work with the manufacturer to preserve energy and water, the more profitable they will be. It is a holistic approach and the clean movement is a part of it.”
Demand for clean formulas propelled Kirker to develop Kirker Konscious, a vegan and sustainable formulation created using bio-sourced ingredients obtained from renewable resources.
“There is a big movement toward sustainable, clean beauty, and people are using less makeup, opting for a clean look,” said Becker. “The treatment side is always strong, but secondary to that is clean, healthy wellness.”
Customization
Artificial intelligence, virtual reality and other technologies are transforming businesses, beauty included. At Kisaco Research’s Personalized Beauty Summit earlier this year, experts in the field came together to explore and explain how companies can harness the science. According to a study by Forrester, 77% of consumers have chosen, recommended or paid more for a brand that provides a personalized service or experience. Experts say the $532 billion beauty industry is poised to make more money and enhance customer experience.
According to Burd, customizing beauty has always been a part of Lady Burd’s business.
“We thrive on it and have been doing it well for over 50 years,” he told Happi.
“At Kirker we are known for both our creative team and our passion to innovate the industry,” explained D’Ambrosio. “Customized beauty is our business and we truly believe we are the expert in our field. We strive to develop and manufacture a complete range of creative and innovative nail products for customers worldwide, while providing superior quality and utilizing the most advanced technology.”
Grupp said C-Care thrives on the challenge and opportunity of customization.
“It is absolutely exciting; we are flexible to handle personalization. It calls for investing in new filling capabilities.”
He cited Henkel’s recent 51% acquisition of eSalon as an example of how the industry is embracing personalization.
Other well-known manufacturers are heavily involved in the technology/customization space. At the recent Personalized Beauty Summit, executives from Philips, L’Oréal, P&G and others agreed that technology and product performance are critical to enhancing the consumer’s experience.
“It’s all about delivering the right product to the right customer at the right time,” explained Wael Safi, disruptive market innovation leader, global skin, hair and personal care, P&G.
He agreed that the future of cosmetics will blend online with brick and mortar stores, all enhanced with technology such as augmented and virtual reality to help consumers see what they will look like before they make a purchase.
“Retail partners won’t be eliminated, they will co-exist with new technology,” Safi explained. “But right now, there is a lot of confusion about personalization.”
Raymon uit de Bulten, director, Philips Beauty, agreed that AR is a big part of the personalization movement, along with biomarkers, RNA, DNA and artificial intelligence.
“AR is not possible without AI,” he asserted.
Claim Your Independence!
Every contract manufacturer noted that the indie beauty trend has energized the cosmetics industry and the statistics mirror that assessment. Lauren Ettlinger, senior analytical lead, beauty, Google, said indie brands now rival luxury brands in market share, especially among GenZ consumers. More specifically, 65% of adults 16-24 and 63% of adults 45-54 shopped for mass brands. Among luxury brands, the breakdown was 36% adults (16-24) and 25% (45-54). The biggest disparity was evident in the indie category, 38% of those 16-24 shopped, compared to just 14% of the older group.
“Beauty looks different than it used to be,” said Ettlinger. “Eighty-two percent of beauty queries in 2019 were on mobile devices and 74% of all beauty queries are generic or non-branded.”
The list of beauty pacesetters looks different, too. Gone are names like Revlon, CoverGirl, Chanel and Lancôme. They’ve been replaced, for the most part, by indie brands like MoxieLash and Copycat Beauty. Brands to watch in 2020, according to Google data, are shown on the chart in the slider above.
Indies are also at a turning point, as brands such as Kylie, Drunk Elephant and Fenty Beauty have been snapped up by multinationals.
“Last year was the year of M&A for the top indie brands,” explained Ettlinger. “Can they still solve the needs of the consumer?”
If they can’t, there are plenty of indies online and waiting in the wings. The New York Chapter of the Society of Cosmetic Chemists’ recent Indie 360 symposium introduced members to several up-and-coming indie brands including Pinch of Colour, Pursoma, Elysian Cosmetics and La La Leaf.
Nearly all of the speakers credited a close relationship with their contract manufacturers as reasons for their success.
“My contract manufacturing partner tells me what is trending and what’s new,” explained Michael Faiella, CEO and founder of La La Leaf.
Treska works closely with her manufacturing partner to reduce Pinch of Colour’s water usage and minimize its carbon footprint as well.
“That’s my definition of sustainability,” she explained. “I don’t believe that 100% organic is always the answer. Sometimes, synthetics are more sustainable. Sustainability should be a bigger discussion than organic.”
According to Burd, every entrepreneur has their individual ideas on how they want to present their products to their target market.
“We assist them by having a wide range of formulas and colors, along with the ability to custom make almost any formula, and keep minimums as low possible so independents can compete and succeed in a very competitive market place,” he explained.
D’Ambrosio of Kirker agreed.
“It is very satisfying to help guide and nurture these brands whenever we are challenged with the opportunity,” she said. “Indie brands are not only influential, but they continue to energize the industry.”
At the same time, multinationals have awakened to the fact that they must move more quickly to thrive in the Age of Indies.
“I find it interesting how open the bigger customers are to work faster for innovation,” said Lucree, whose 35-year career was spent at multinationals. “Incubator programs have become common, and partnerships are flourishing. We all win when we can compare notes with packaging and fragrance partners. It is a much more interesting way to work.”
Some of the benefits of working with JacksonFill is a direct line of communication, years of experience and outstanding customer service, according to Haroldsonn.
“We are able to offer competitive pricing, but we are not the cheapest to work with; we are a flat company too, and offer outstanding service and project management for indies,” she explained. “We have decades of experience and we can steer indies away from problems before they happened.”
According to Eaton, IBF is well-equipped to work with indie beauty brands to help them get started by offering lower minimum order quantitiies than most contract manufacturers.
“In our niche, this is where much of our growth will emerge,” he explained.
As demand for their services grows, contract manufacturers are investing in equipment, capabilities and human capital. JacksonFill is installing a state-of-the-art ERP system that will provide customers with up-to-the-minute updates on their product status and possibly shorten lead times, explained Haroldsonn.
“I will know, for example, the minute that their packaging components are received at our shipping dock. I will be able to find out what raw materials are still outstanding and see their ETA.
“We are really excited about this great improvement to our process and to our customer service,” she added.
C-Care is building a new beauty campus at its headquarters in Baltimore. The laboratory will exceed 3,000 square feet, an auditorium will seat 90 and the space will also house a full-service salon and 500 square feet of office space for customers to use.
“The auditorium gives our customers a space to launch their brands, update their Instagram accounts and invite influencers in for a real product launch,” said Grupp.
“The improvements are designed to impact real-time development. Customers can come in, work with us and increase speed-to-market from concept to shelf.”
Lady Burd Cosmetics has added chemists with new skill sets and ideas. The product development team continuously works to keep Lady Burd ahead of and on-trend, explained Burd. In other moves, the company strengthened its social media presence and added online ordering to make it easier for business customers.
“We’ve bought new hi-tech machinery so we can keep up with demand,” he said. “The cosmetics industry is always changing and we’re always changing with it.”
Cosmetic Solutions is expanding its capabilities to ensure it delivers the most innovative ideas to its customers so that they can offer unique products that are not me-toos.
“For all of our customers we perform gap analysis to identify the white spaces in beauty,” explained Becker. “We also create annual trend presentations that look two or three years down the road.”
Through it all, says Becker, the company remains hyper-focused on efficacy. The company was founded by Mervyn Becker, who, with his brother Hilton Becker, a medical doctor, created topical skin care formulas based on glycolic acid and squalene.
“Our core business was doctors and the medical community,” recalled Becker, who is Mervyn’s son and Hilton’s nephew. “Today we work with hundreds of companies, but we still watch developments in the medical, clinical and surgical space and see if there are topical applications.”
IBF has successfully add powders manufacturing and filling and expanded sachet filling capabilities.
“Developing a sales team and ramping up for a swing shift in production are also impactful,” added Eaton.
Tips & Quips
Contract manufacturers agree that working with startups is one of the joys of the business. However, they all provided some tips to smooth out the process.
The best tip for a start-up to know about to make working with a contract manufacturer easier would be understanding and establishing a target market, said D’Ambrosio.
“It’s okay to go into the process with questions and anticipations, but the more you have prepared the more you will get out of the manufacturing experience,” she explained. “Formula benchmarks, quantities, packaging, color range, are all important components a startup should have an understanding for to make the process quicker and more efficient.”
Becker urges startups to seek a true manufacturing partner who provides the right capabilities and can add value to the brand beyond making products.
“Pick the right partner,” he urged. “Anyone can make it; the question is, can you find a true partner who can work with you in the trenches?”
According to Grupp, C-Care has a timeline in place to help startups mitigate risks.
“If you don’t know exactly what you want, our on-boarding process can help,” he said. “It is important for us to support the brands so that there are no big disappointments.”
Startups must realize that they are not alone in their journey, asserted Lucree.
“Let us help you! We want our customers to look good and we can help them with sourcing, packaging, even clinical testing.”
JacksonFill is eager to work with startups, but Haroldsonn, urged indies to start with a price point in mind.
Burd recommended that startups define their client base and stay within budget.
“An overnight success never happens overnight,” he observed. “Start small. Grow your business organically. Be true to who you are.”
“This is the moment for our industry to shine!” he asserted.
Burns maintains that this outbreak, concentrated largely among the old and already sick will not, on its own, up-end the global supply chain.
“It will, however encourage companies to reassess how many eggs they have in the China basket or, indeed any other basket,” he said. “Having too concentrated a supply chain over-reliant on any one company, country or region, increases risk for whatever reason.”
To find out how Happi readers are reacting to coronavirus, read the results of our survey on Happi.com.
JacksonFill’s Director of Sales and Marketing Christine Haroldsonn confirmed that supply chains are tightening and slightly elongated lead times emerging for materials in general.
“A small number of specialty ingredients are out of stock or just unavailable with no restock date at this time,” she explained. “Many of our chemical vendors produce domestically but use materials that come from China and have alerted us to certain upcoming shortages.”
As a result, manufacturers that regularly buy directly from China are turning to distributors that hold inventory domestically, resulting in those stocks being depleted more quickly than usual because of supply disruption.
“We are anticipating some chemical shortages and continuing increases in raw material lead times,” she said.
According to Burns, companies were already looking at China with a more critical eye due to geopolitical reasons anyway.
“COVID-19 has probably just accelerated that process. It’s probably healthy overall,” he asserted. “If there’s a potential winner, it is the global consumer who will see a more robust and balanced system of production and consumption coming out of this.”
Haroldsonn concurred that more companies will diversify their supply chain to countries other than China.
“We’ve already seen some of that starting to happen due to trade tensions,” she said. “They may even turn to the integrity, quick response times, and quality of domestic suppliers.”
As we went to press, the coronavirus threat has dampened expectations for the global economy. Last month, the Organization for Economic Cooperation and Development said the coronavirus could slash 2020 global growth in half, to 1.5% this year, and push Japan and Europe into recession. In the US, most analysts expect zero or negative growth in the second quarter, with some pundits forecasting a recession by the end of the year.
Gar Labs CEO Tom Raffy insists his company is not experiencing any problems getting materials.
“But we have had a policy for the last 30-plus years to pay our suppliers in less than 30 days…so Gar Labs gets priority over slow-paying customers,” he explained.
No wonder, then, that Raffy remains upbeat.
“Short term, bad news gets 10 times the attention of good news,” he noted. “But in the end, people will still want and need hair care and skin care products, so long-term, I am not worried.”
Haroldsonn agreed that contract manufacturing is a very healthy business as multinationals seek to outsource and startups get started.
“We can move so much more quickly, whether that’s presenting formulas or filling orders,” she explained. “I worked at Estée Lauder Companies, where projects could take two or three years. Now, I am benchmarking six months for JacksonFill.”
Kline Group conducted its first contract manufacturing study last year and Analyst Nikola Matic expects to create a report every two or three years as the market grows, due, in part, to the development and rapid rise of indie beauty.
“When we started the work we essentially wanted to make an advanced directory of contract manufacturers and notably focus on those offering formulation services to their customers,” she recalled. “We found out that a majority of these companies are now having this type of offering; of course, expertise varies.”
No Place Like Home
As concerns over germs grow, more consumers are expected to let their fingers do the walking via online shopping, which has made it easier than ever for consumers to purchase fashion, food, and home and personal care products. The worldwide web makes it easier for entrepreneurs to turn their ideas and their passions into products, too. And why try to convince a couple of dozen fickle retail store buyers to stock your creams and lotions, when the world is willing to beat a path to your online door?
Yes, technology is an entrepreneur’s best friend these days, which explains, in part, the surge in demand for contract manufacturing services in the global household and personal products industry. In Happi’s annual article of leading contract manufacturers, all of them report sales gains, new customers and robust new product development programs across a wide range of product categories. Times are good, to be sure; but boom times don’t last forever. For example, everyone expected China’s 30-year manufacturing dominance to continue for at least another 30 years. But the coronavirus has raised questions about China’s manufacturing prowess.
In a recent column on Forbes.com, Contributor Kenneth Rapoza says China’s markets are getting hit much harder than anyone realizes, and the impact on China’s supply chain could be permanent. According to Rapoza, Chinese auto manufacturers and chemical plants have reported more closures than other sectors. It could spell trouble for contract manufacturers and other companies that source materials and finished products from the world’s No. 2 economy.
Yet, contract manufacturing executives who spoke with Happi remain unperturbed by coronavirus threats with good reason. They’re enjoying a boon time of their own, a boon that’s captured the attention of private equity that’s beginning to consolidate the industry.
Cosmetic Solutions was acquired by a PE firm in October, a move that COO Warren Becker explained enabled Cosmetic Solutions to invest in a range of operations including filling, batching, R&D and innovation. He noted that, over the years, Cosmetic Solutions has helped startups grow into $50 million businesses.
“Traditionally, investors invested in one brand and had one horse in the race,” explained Becker. “Investing in a contract manufacturer gives PE a mutual fund of brands.”
From an investment perspective, contract manufacturing is more stable and predictable than owning individual business, added Becker. Plus, the contract manufacturing story has been one of growth—a prerequisite for private equity groups.
“Up to this moment, the contract manufacturing industry has been growing; private equity is putting a lot of money into the space and there are a lot of bets on it,” agreed C-Care President Cornelius Grupp. “I hope that coronavirus is a bump in the road; we haven’t felt anything yet, but it will have an impact on 2020. Still, we have experienced tremendous growth.”
Other contract manufacturing executives concur with Grupp. With startups revving up and multinationals reducing hard assets, demand for contract manufacturing services has soared in recent years.
“The contract manufacturing sector is heating up,” agreed Lorne Lucree, chief innovation officer, Voyant Beauty. “What was once a fragmented business is becoming coordinated.”
Voyant has played a big role in bringing those pieces together. Wind Point acquired Voyant Beauty in March 2017 and renamed the combined, integrated platform in June 2019. During that time, the company acquired Vee Pak, CEI and Aware Products.
“At Voyant, our customers experience the benefits of integration,” he explained. “We are a true solutions provider with fully integrated operations.”
The company has seven manufacturing facilities in the US and Europe, more than 115 filling lines and over 1,000 employees.
“We can decouple the process; formulating in Los Angeles and filling in New Jersey, for example.”
As a result, there are no capacity issues at Voyant, according to Lucree.
JacksonFill added more than a dozen new brands during the past 12 months and still has plenty of capacity, according Haroldsonn.
2019 Gains for Most
According to Grupp, the contract manufacturing business remains healthy and growing; as proof, he pointed out that private equity (PE) continues to invest in the space.
“PE sees the huge potential of the market,” he explained. “C-Care has experience tremendous growth.”
Some of the biggest gains for C-Care have come in niche hair color, hair and skin care. Grupp credits some of the gains to social media.
“Women and men want to look ageless and the most obvious way to achieve that is through skin care,” he said. “There is movement toward a real appreciation of skin.”
An appreciation of good times, too. According to Allan Burd, president, Lady Burd Cosmetics, the contract manufacturing business remains healthy and growing because the economy is strong and people are going out and enjoying their lives.
“They like to and can afford to look their best. The means good things for the cosmetic retail brands, thus good things for the manufacturers,” he explained. “Now more than ever, business-minded people are eager to start their own brands.”
At the same time, Lady Burd’s business has been aided by more retail businesses asking the company to create, design, and manufacture their finished products, said Burd.
What are companies looking for? Anything and everything.
“Skin care always does well. Consumers are always on top of the latest trends, looking for the newest cosmeceutical product to keep their skin healthy and youthful, and color is always in for the lips and the eyes,” he explained.
According to Burd, the hot looks in color cosmetics right now are metallics, festival makeup (fun and playful bright hues, glitter and sparkles), strong brows, statement making lip colors (nudes, pinks, neons) with a glossy finish. In contrast, blush tends to trend behind because women don’t always want as much color on their cheeks, he added.
Becker agreed that skin care, in general, has been a big driver for the HBA industry. In fact, it helped propel his company’s sales by 25-30% last year, but at the same time, color is softening.
The men’s grooming category, including beard oils and pomades, has been a boon for JacksonFill. Demand for hair care, especially hot fills, is soaring, too. More specifically, there is growing interest for edge control and curly hair.
“There used to be a wall between ethnic and nonethnic formulas,” recalled Haroldsonn. “Now all brands are targeting curly hair. There is a lot of cross-over due to changing demographics.”
Kirker’s entire business is devoted to nail lacquer and nail care products. Brittany D’Ambrosio, director of marketing, Kirker, admitted that there are some struggles with the regulatory environment becoming increasingly more global and difficult to operate. But at the same time, she insisted that the outlook for the overall business is extremely positive.
“As we learn to accomplish the goals put before us and overcome the challenges, it will lead us to continued growth and success,” she said.
Voyant Beauty’s business is growing on several fronts, according to Lucree, who said complex, high performance skin care formulas are in demand. Meanwhile, body care is posting big gains and hair care, too, is driving growth as multicultural populations continue to grow.
“The biggest wins are around products that we can partner early on and help develop new packaging, provide fragrance help or suggest a new active,” said Lucree. “That’s where we all grow.”
According to IBF’s Scott Eaton, skin care is trending up among the smaller entrepreneurs. In addition, consumers are demanding more clean and natural formulas also. Demand for CBD and other unique raw ingredients will continue to drive demand.
“For IBF, 2019 was a breakout year in which we moved beyond word-of-mouth to a more dedicated business development program,” he explained. “We are starting to see the orders come in from our efforts from last year. We still have plenty of capacity to grow in our new, 167,000 sq. ft., state-of-the-art facility.”
Clean Beauty Options
No one truly knows what “clean beauty” means, but every formulator is keeping an eye on the trend. For most, the term means a shrinking list of formula ingredients on the back panel, coupled with an expanding list of unacceptable materials.
Some beauty executives maintain that retailers are forcing brands to rework their formulas. For example, they point to “Clean at Sephora” as a major driver behind the growing clean beauty space.
“If retailers demand paraben-free formulations we have to comply if we want to be on-shelf,” explained David Rodrigues, co-founder, Elysian Cosmetics. “I get “No” lists from retailers all the time and I must formulate with their wishes in mind.”
Pinch of Colour Founder Linda Treska recalled that one retailer presented her with a list of 287 banned ingredients.
“The retailers are creating a challenge,” she admitted.
Obviously, contract manufacturers are determined to meet their customers’ demands, but the demands can be, well, demanding.
“When customers come to us, my standard question is what is on your ‘no’ list?” said Haroldsonn. “No one wants to formulate with parabens or sulfates. The newest request is for plant-derived ingredients. Customers think they want organic, then they see the cost. The cost of certified organic ingredients is a deterrent, so we go with plant-derived.”
Grupp explained that C-Care has always worked with clean lists and has developed its own list, too. At the same time, the company formulates with sustainably-sourced materials, including actives. A new water system helps significantly reduce water consumption and cold-processing also helps conserve resources and money.
“These approaches resonate with existing customers and new clients,” he explained. “They understand that the closer they work with the manufacturer to preserve energy and water, the more profitable they will be. It is a holistic approach and the clean movement is a part of it.”
Demand for clean formulas propelled Kirker to develop Kirker Konscious, a vegan and sustainable formulation created using bio-sourced ingredients obtained from renewable resources.
“There is a big movement toward sustainable, clean beauty, and people are using less makeup, opting for a clean look,” said Becker. “The treatment side is always strong, but secondary to that is clean, healthy wellness.”
Customization
Artificial intelligence, virtual reality and other technologies are transforming businesses, beauty included. At Kisaco Research’s Personalized Beauty Summit earlier this year, experts in the field came together to explore and explain how companies can harness the science. According to a study by Forrester, 77% of consumers have chosen, recommended or paid more for a brand that provides a personalized service or experience. Experts say the $532 billion beauty industry is poised to make more money and enhance customer experience.
According to Burd, customizing beauty has always been a part of Lady Burd’s business.
“We thrive on it and have been doing it well for over 50 years,” he told Happi.
“At Kirker we are known for both our creative team and our passion to innovate the industry,” explained D’Ambrosio. “Customized beauty is our business and we truly believe we are the expert in our field. We strive to develop and manufacture a complete range of creative and innovative nail products for customers worldwide, while providing superior quality and utilizing the most advanced technology.”
Grupp said C-Care thrives on the challenge and opportunity of customization.
“It is absolutely exciting; we are flexible to handle personalization. It calls for investing in new filling capabilities.”
He cited Henkel’s recent 51% acquisition of eSalon as an example of how the industry is embracing personalization.
Other well-known manufacturers are heavily involved in the technology/customization space. At the recent Personalized Beauty Summit, executives from Philips, L’Oréal, P&G and others agreed that technology and product performance are critical to enhancing the consumer’s experience.
“It’s all about delivering the right product to the right customer at the right time,” explained Wael Safi, disruptive market innovation leader, global skin, hair and personal care, P&G.
He agreed that the future of cosmetics will blend online with brick and mortar stores, all enhanced with technology such as augmented and virtual reality to help consumers see what they will look like before they make a purchase.
“Retail partners won’t be eliminated, they will co-exist with new technology,” Safi explained. “But right now, there is a lot of confusion about personalization.”
Raymon uit de Bulten, director, Philips Beauty, agreed that AR is a big part of the personalization movement, along with biomarkers, RNA, DNA and artificial intelligence.
“AR is not possible without AI,” he asserted.
Claim Your Independence!
Every contract manufacturer noted that the indie beauty trend has energized the cosmetics industry and the statistics mirror that assessment. Lauren Ettlinger, senior analytical lead, beauty, Google, said indie brands now rival luxury brands in market share, especially among GenZ consumers. More specifically, 65% of adults 16-24 and 63% of adults 45-54 shopped for mass brands. Among luxury brands, the breakdown was 36% adults (16-24) and 25% (45-54). The biggest disparity was evident in the indie category, 38% of those 16-24 shopped, compared to just 14% of the older group.
“Beauty looks different than it used to be,” said Ettlinger. “Eighty-two percent of beauty queries in 2019 were on mobile devices and 74% of all beauty queries are generic or non-branded.”
The list of beauty pacesetters looks different, too. Gone are names like Revlon, CoverGirl, Chanel and Lancôme. They’ve been replaced, for the most part, by indie brands like MoxieLash and Copycat Beauty. Brands to watch in 2020, according to Google data, are shown on the chart in the slider above.
Indies are also at a turning point, as brands such as Kylie, Drunk Elephant and Fenty Beauty have been snapped up by multinationals.
“Last year was the year of M&A for the top indie brands,” explained Ettlinger. “Can they still solve the needs of the consumer?”
If they can’t, there are plenty of indies online and waiting in the wings. The New York Chapter of the Society of Cosmetic Chemists’ recent Indie 360 symposium introduced members to several up-and-coming indie brands including Pinch of Colour, Pursoma, Elysian Cosmetics and La La Leaf.
Nearly all of the speakers credited a close relationship with their contract manufacturers as reasons for their success.
“My contract manufacturing partner tells me what is trending and what’s new,” explained Michael Faiella, CEO and founder of La La Leaf.
Treska works closely with her manufacturing partner to reduce Pinch of Colour’s water usage and minimize its carbon footprint as well.
“That’s my definition of sustainability,” she explained. “I don’t believe that 100% organic is always the answer. Sometimes, synthetics are more sustainable. Sustainability should be a bigger discussion than organic.”
According to Burd, every entrepreneur has their individual ideas on how they want to present their products to their target market.
“We assist them by having a wide range of formulas and colors, along with the ability to custom make almost any formula, and keep minimums as low possible so independents can compete and succeed in a very competitive market place,” he explained.
D’Ambrosio of Kirker agreed.
“It is very satisfying to help guide and nurture these brands whenever we are challenged with the opportunity,” she said. “Indie brands are not only influential, but they continue to energize the industry.”
At the same time, multinationals have awakened to the fact that they must move more quickly to thrive in the Age of Indies.
“I find it interesting how open the bigger customers are to work faster for innovation,” said Lucree, whose 35-year career was spent at multinationals. “Incubator programs have become common, and partnerships are flourishing. We all win when we can compare notes with packaging and fragrance partners. It is a much more interesting way to work.”
Some of the benefits of working with JacksonFill is a direct line of communication, years of experience and outstanding customer service, according to Haroldsonn.
“We are able to offer competitive pricing, but we are not the cheapest to work with; we are a flat company too, and offer outstanding service and project management for indies,” she explained. “We have decades of experience and we can steer indies away from problems before they happened.”
According to Eaton, IBF is well-equipped to work with indie beauty brands to help them get started by offering lower minimum order quantitiies than most contract manufacturers.
“In our niche, this is where much of our growth will emerge,” he explained.
As demand for their services grows, contract manufacturers are investing in equipment, capabilities and human capital. JacksonFill is installing a state-of-the-art ERP system that will provide customers with up-to-the-minute updates on their product status and possibly shorten lead times, explained Haroldsonn.
“I will know, for example, the minute that their packaging components are received at our shipping dock. I will be able to find out what raw materials are still outstanding and see their ETA.
“We are really excited about this great improvement to our process and to our customer service,” she added.
C-Care is building a new beauty campus at its headquarters in Baltimore. The laboratory will exceed 3,000 square feet, an auditorium will seat 90 and the space will also house a full-service salon and 500 square feet of office space for customers to use.
“The auditorium gives our customers a space to launch their brands, update their Instagram accounts and invite influencers in for a real product launch,” said Grupp.
“The improvements are designed to impact real-time development. Customers can come in, work with us and increase speed-to-market from concept to shelf.”
Lady Burd Cosmetics has added chemists with new skill sets and ideas. The product development team continuously works to keep Lady Burd ahead of and on-trend, explained Burd. In other moves, the company strengthened its social media presence and added online ordering to make it easier for business customers.
“We’ve bought new hi-tech machinery so we can keep up with demand,” he said. “The cosmetics industry is always changing and we’re always changing with it.”
Cosmetic Solutions is expanding its capabilities to ensure it delivers the most innovative ideas to its customers so that they can offer unique products that are not me-toos.
“For all of our customers we perform gap analysis to identify the white spaces in beauty,” explained Becker. “We also create annual trend presentations that look two or three years down the road.”
Through it all, says Becker, the company remains hyper-focused on efficacy. The company was founded by Mervyn Becker, who, with his brother Hilton Becker, a medical doctor, created topical skin care formulas based on glycolic acid and squalene.
“Our core business was doctors and the medical community,” recalled Becker, who is Mervyn’s son and Hilton’s nephew. “Today we work with hundreds of companies, but we still watch developments in the medical, clinical and surgical space and see if there are topical applications.”
IBF has successfully add powders manufacturing and filling and expanded sachet filling capabilities.
“Developing a sales team and ramping up for a swing shift in production are also impactful,” added Eaton.
Tips & Quips
Contract manufacturers agree that working with startups is one of the joys of the business. However, they all provided some tips to smooth out the process.
The best tip for a start-up to know about to make working with a contract manufacturer easier would be understanding and establishing a target market, said D’Ambrosio.
“It’s okay to go into the process with questions and anticipations, but the more you have prepared the more you will get out of the manufacturing experience,” she explained. “Formula benchmarks, quantities, packaging, color range, are all important components a startup should have an understanding for to make the process quicker and more efficient.”
Becker urges startups to seek a true manufacturing partner who provides the right capabilities and can add value to the brand beyond making products.
“Pick the right partner,” he urged. “Anyone can make it; the question is, can you find a true partner who can work with you in the trenches?”
According to Grupp, C-Care has a timeline in place to help startups mitigate risks.
“If you don’t know exactly what you want, our on-boarding process can help,” he said. “It is important for us to support the brands so that there are no big disappointments.”
Startups must realize that they are not alone in their journey, asserted Lucree.
“Let us help you! We want our customers to look good and we can help them with sourcing, packaging, even clinical testing.”
JacksonFill is eager to work with startups, but Haroldsonn, urged indies to start with a price point in mind.
Burd recommended that startups define their client base and stay within budget.
“An overnight success never happens overnight,” he observed. “Start small. Grow your business organically. Be true to who you are.”