Procter & Gamble Company reported net sales remained unchanged at $16.9 billion in the second quarter of fiscal 2017, compared with the same quarter in the previous year. Organic sales rose 2 percent, with organic sales and organic volume rising in all of the company's five business segments. Diluted net earnings per share rose 157 percent to $2.88, compared with the previous year, including a $1.95 per share gain from the sale of beauty brands to Coty. Operating cash flow for the quarter was $3 billion, with adjusted free cash flow productivity at 82 percent.

PZ Cussons PLC reported profit before tax and exceptionals dropped slightly to ₤40.2 million for the six-month period ending November 30, 2016, compared with ₤42.1 million in the previous period. Despite a difficult macro-economic environment in Nigeria, the company's largest market, brand shares maintained or grew in all major markets and categories, the company said. Also, the company announced interim dividend rose 2.3 percent at 2.67p per share.

Industry analysts Trefis believes that Unilever’s move into premium skincare, through a number of acquisitions, will help the company improve its EBITDA margins from a relatively low 18 percent to something closer to those generated by industry rivals. Trefis says that Unilever’s margins have been held down by relatively high marketing costs as a percentage of revenues; a reliance on mass, low-margin products; and increasing costs of raw materials, exacerbated by the impact of Brexit on sterling. A higher-margin, more premium-oriented portfolio will help address some of the pressures, supported by expected growth in the premium skin care segment and Unilever’s attack on costs from adoption of Zero Based Budgeting. Trefis believes Unilever could push up EBITDA margins to around 25 percent within a few years and the company’s valuation could improve by over 20 percent.

Sales of men’s skincare products in South Korea rose more than 80 percent in the past five years. Driven by the country’s weakening economy and competitive job market, the men’s cosmetics segment now accounts for 10 percent of South Korea’s $10 billion beauty market. Toners, lotions, and BB creams are some of the favorite skincare products of male consumers, who are increasingly convinced that putting on makeup helps improve their self-confidence and, consequently, their chances of landing a job or finding a new partner.

Personal care company Burt’s Bees has entered the functional food market with protein shakes targeted at consumers seeking beauty from "the inside out." The company that has specialized for three decades in selling natural lip and skincare products has developed three protein shakes – Daily Protein, Protein +Gut Health with Probiotics, and Protein + Healthy Radiance with Antioxidant Vitamins A, C & E – that provide 15 grams of protein per serving from peas, rice, flaxseeds, sunflower seeds, and oats. General Manager Jim Geikie said the move into functional foods “is a natural extension for us.” The shakes range in price from $29.99 to $39.99. Each contains 16-18 servings per tub.

A college marketing agency survey has determined that Generation Z, known as the first “digital natives,” easily adapts to new technologies, expects instant gratification of needs and desires, and yet is more cautious and disciplined in the face of economic uncertainty than one might expect. The Fluent survey of 501 college students found that Gen Z-ers: have jobs (75 percent), spend less time gaming, use cash less often, prefer in-store shopping (54 percent), tend to avoid cable TV and radio, increasingly cook for themselves, are hooked on social media to connect with friends or get news updates, and want to work for midsize companies when they graduate.

According to Euromonitor International, the color cosmetics market was worth US$57 billion globally in 2015, driven by growing incomes for women in growth markets like India and China. Nearly two-thirds of the market (64%) was mass products in which consumers came from across the income spectrum, with some consumers limited to the mass market through income constraints and others choosing mass options over premium, with a new wave of mass “fast fashion” cosmetics brands that align with trends and rely on high volumes. Premium continues to grow faster than mass, and Euromonitor expects to see a CAGR for the premium segment of 4% over the next five years, versus 3% for mass. It also expects North America to be the first majority-premium color cosmetics market by 2020. The color cosmetics market will continue to encounter broad consumer megatrends, for example in the form of sustainability and healthy living. And customization remains a major opportunity for brands in this category, with brands catering for different skin tones, religions and cultures.  

A Nielsen report highlights the strength of the premiumization trend that is driving sales around the world and looks set to continue as powerful underlining shifts play out. Rising income and a desire for exceptional quality (cited by 54% as a factor in premium purchases) and superior performance (46%), are core drivers. Interestingly, Nielsen finds that products with social or environmental benefits have premium potential. Some 42% of global respondents say they’d be very willing to pay a premium for products made with organic or all-natural ingredients, while nearly the same proportion (39%) say they’d pay extra for sustainable or environmentally friendly products.

 

Premium is well established in many markets – it already accounts for about 25% of dollar sales in both the personal-care category in the U.S. and Southeast Asia and is growing faster than other segments.  In Southeast Asia, for example, the premium segment grew 21% from 2012 to 2014, over double the rate of the mainstream and value tiers (8% and 10%, respectively). Strong and growing levels of consumer acceptance indicate the segment will continue to expand. Nielsen states that over 25% of global respondents say they’ll consider buying premium personal-care product:  hair-care (27%), body-care (26%) and oral-care (26%).
More: we previously looked at prestige strategies in India.

An analysis of functional dietary supplements found some interesting sales and product trends. Sales of bone and joint supplements to baby boomers and post-menopausal women are expected to hit $9 billion globally this year, even though the numbers on established products like glucosamine and chondroitin are falling. Filling the void are alternative ingredients, including MSM, 5-Loxin, collagen, and plant-derived glucosamine. Except in Western Europe and Asia, where “beauty-from-within” products are on the rise, anti-aging supplements represent mostly an opportunity in the U.S. Sports nutrition has gone mainstream, becoming a $7.4 billion market dominated (72 percent of sales) by protein powder, Probiotic functional foods will be worth $50 billion by 2021, and probiotic dietary supplements are growing even faster and should hit $5 billion by 2021.

Non-toxic beauty is moving to the mainstream as strong sales growth – in 2015, natural and organic personal care grew 8 percent in natural retail – cause traditional retailers to make space available for natural products. It’s also gaining traction with high-end outlets as some natural products push into prestige, suggesting its penetration will continue to grow. New Hope identified nine important trends in natural personal care. These include a shift in consumer sentiment, with consumers increasingly buying natural products not because of what they avoid, but because of what they offer. Innovation and improvements now means naturals are making claims and offering benefits that consumers want.  Another important shift came with the FDA’s 2016 ban of triclosan and 17 other chemicals used in hand and body washes marketed as "antibacterial," which is causing some traditional products to reformulate, often in a naturals direction, shining a development light for other products.  Last, research is starting to show the potential of naturals. One example is growing understanding about how microbiomes matter, especially for skin health. Research is underlining the importance of gut health and ‘good bacteria’ on the skin in promoting healthy skin. Products with topical probiotics will emerge and could bring large benefits.

Glansaol, a new US-based prestige beauty and personal care company formed through a partnership between industry veteran Alan T. Ennis and Warburg Pincus, a private equity company, announced three acquisitions: Laura Geller New York, a prestige color cosmetics brand known as the pioneer of the "baked" makeup category; Julep, a prestige color cosmetics and skincare brand; and Clark's Botanicals, a premium skincare brand. Glansaol’s owners aim to make it a global company through acquisitions, building a portfolio of premium and complementary brands. [ Image credit: Neil Guegan ] 

Sephora is looking to revamp its fragrance business, building its strategy around engagement and education. Fragrance is an underperforming category at Sephora where it accounts for about 10 percent of sales, lagging behind beauty and skincare. CEO, Calvin McDonald, recognizes that Sephora’s current offering fails to differentiate and that the category generally has been “commoditized by discounts.” Working on the insight that buying a fragrance is both a bewildering and personal experience, Sephora is looking to engage and educate consumers so they feel empowered to buy. Online it has buying guides to help consumers clarify their perfume profiles and in-store it has set up demonstrations.  “We know that finding a fragrance is a personal experience, but it needs to be simplified and smart as it can be an overwhelming selection process,” said Brooke Banwart, VP of fragrance merchandising at Sephora. The company has been experimenting with “InstaScent” stations (previously called “Poof”) that let customers smell isolated notes to figure out which elements of fragrances they prefer and to learn about different “scent families.” The approach is similar to its beauty strategy where it uses video tutorial stations to help customers experiment with and perfect different makeup looks. 

 

Fragrance generally looks set for a shift to demystify and simplify purchasing, with valuable lessons likely available from other categories such as wine that has for years worked to make buying fun (and not stuffy) and shows ongoing innovation with different ways to purchase.  

Highlighting a recent report from Research and Markets that projects global cosmeceutical market CAGR of 5.95% over the next five years, industry analysts Trefis outline how L’Oréal is well placed to take advantage. Market growth is expected to be driven by consumer trust in physician recommendations, the aging global population, the growth in demand for premium products, and growth in the global beauty and personal care industry as a whole. Trefis expects L’Orêal’s Active Cosmetics division, the company’s fastest-growing segment, to gain from this growth, helped by its partnerships with healthcare professionals, which supports innovation in this area, and the company’s distribution framework - a multi-channel approach incorporating digital tools. L’Oréal also sells products in this category through dermacenters, e-commerce and travel retail.  

Consumer packaged goods (CPG) companies need to constantly launch new SKUs to keep up with changing consumer preferences and new retail formats. But introducing new SKUs inevitably leads to increased complexity in the whole business, and that’s not a trivial challenge. Complexity among food-and-beverage manufacturers, for example, costs as much as $50 billion in gross profit in the U.S. alone. But, according to McKinsey & Co., controlling complexity in CPG doesn’t have to be a long-term or even difficult job. It can be done in three or four months. Companies need to assess the situation and identify relevant “complexity-management levers.” They need to prioritize, plan and implement initiatives. The results? A simpler supply chain system that leads to better financial performance, faster innovation, and greater customer satisfaction.

Looking back over the year, the author highlights some of the trends observed in cosmetics ingredients. 2016 was a year for product aesthetics with manufacturers using a variety of materials to make a sensory statement, but it’s also increasingly important to hit the market with new products fast and first, but without compromising on quality, compliance or appeal. The popularity of natural and organic has been sustained, but consumers are also expecting to be allowed more customization opportunities, and material suppliers will meet this by giving brands greater flexibility. 2016 also saw launches with increasingly sophisticated science incorporated, especially meeting anti-aging demand for skin care products, and hair care was also a huge growth area for materials this year, offering solutions for hair and scalp problems.

Procter & Gamble’s Oral-B oral care brand is optimistic about the potential for electric toothbrushes in China, supported by increased awareness of oral hygiene and rising incomes. The brand recently launched an intelligent electric toothbrush, the iBrush, and Oral-B's electric toothbrush products have grown between two and three times each year for the last three years. Most sales are online. However, market penetration remains low, with just two percent of Chinese residents using electric toothbrushes. Chinese toothpaste brand Saky believes the Chinese oral care market as a whole will reach 500 billion yuan within 15 years.

Euromonitor reports that the number of hair and beauty treatment establishments globally is up 14% on 2011 and the company expects a 14% CAGR over the next five years with the number of establishments to exceed three million by 2019. A growing number of these upscale treatment centers offer their own skincare ranges, raising challenges for established prestige and luxury products.  Dr Gabriela Mercik, who has both a treatment center and a skincare range, believes that in the next 5-10 years technology and digital information will play an ever greater part in skincare solutions:"Soon we will be able to implement a tiny chip into the skin which will measure our skin’s hydration levels as well as record any sun damage. This information will then be used to create our very own personalised skincare which will be blended to work according not only to the time of day but also to where we live and the overall state of our health."

Europeans tend to rely on daily brushing for their oral health regime, sometimes supplemented with mouthwash and interdental products. Kantar Worldpanel says Spanish consumers have the most diversified approach, using more than one product in 44 percent of occasions, whereas 82 percent of the French only brush their teeth. The main reason for brushing is breath freshening, but the Spanish use it primarily to prevent the build up of tartar and plaque. Whitening is not a major reason for using toothpaste in Europe, despite the proliferation of products claiming that benefit. Interdental products are used mainly to clean between teeth and for healthy gums. Sensitivity is a common problem with teeth that develops with age, linked to over-brushing and acidic drinks. Sustainable packaging is gaining more attention in Europe, with Colgate-Palmolive committing to 100% recyclable packaging. For toothbrushes, manual continues to be favored over electric, and Canadean found that just 10 percent of Europeans use digital tools to as part of the oral hygiene regimen.

The beauty industry is tapping into the power of humor in the same way that other consumer product categories have done, recognizing that Millennials are rejecting some of the characteristics of traditional beauty advertising, including promoting what some see as an unattainable body image, and demanding authenticity and transparency. Also, the established beauty companies are facing intensifying competition from emerging independent brands and need to use new approaches to retain their consumer base. Humor has been used particularly for products aimed at men, and it helps generally to make the beauty category more accessible, alongside other unconventional marketing approaches, such as Dove’s concept of real beauty.

Unilever says it is further applying zero-based budgeting to reset its operating margin goals. The new target for the “core operating margin” will be between 40 and 80 basis points a year from 2017 to 2019. The company’s current goal is annual growth of 20 to 40 basis points. CFO Graeme Pitkethly said the company will continue to improve the mix of the business with “margin-accretive innovation” and a focus on margin in the ice cream and home-care categories. Zero-based budgeting cost savings and savings from organizational changes should be about €1 billion by 2019.

China’s domestic Fast Moving Consumer Goods (FMCG) market has slowed from five years ago. Third quarter growth was a mere 3.6 percent higher than last year, while in 2011 third quarter growth was 15 percent, according to Kantar Worldpanel. Imported FMCG is a different story, however. Sales/consumption of imported goods in China grew 18 percent during the 12 months before June 2016, six times faster than market average. Growth was driven by imported milk, coffee (+32 percent), instant noodles (+29 percent), and snacks (+26 percent). In non-food categories, hair care, personal wash and cosmetics experienced strong sales growth.

A recent Harris Poll found that in-person purchases remain dominant for cosmetic and grooming products, and especially so for trialing and first time purchases.  The research underlined the importance of in-person channels, finding that around 90% of purchasers shop in-person for a range of personal care items, including hair styling products, shampoos and conditioners, cosmetics, non-sunscreen products with SPF protection, and sunscreen.  “Big box” retailers continue to be the preferred purchase location. Online channels are more popular for smaller items, with 40% of purchasers shopping online for cosmetics and 34% for facial/skin care products. They are less likely to shop online for bulkier items, likely reflecting shipping costs: just 17% shop online for shampoo/conditioner and 22% for sunscreen.  In all this, price remains the most important determinant of where consumers will purchase: 87% say they’ll buy a product wherever they can get the best deal.

Beauty and personal care brands and companies continue their drive into prestige, tempted by stronger growth rates and the lure of greater profit margins. In the US, for example, sales of prestige beauty products grew at 8% in Q3 2016 about two or three times the growth rate of the wider market.

 

We previously set out L’Oréal’s strategy to push into prestige: the company is continuing to acquire prestige brands, push high-touch channels and invest in innovation, strategies that are yielding superior financial performance – its L’Oréal Luxe division is growing at 7.1% versus 4.5% for the Group as a whole and has shown a growing profit margin for each of the last four years. 

 

Many other companies are playing to the trend: Marc Jacobs and Tom Ford launched premium make-up, bath products, and nail polishes, Unilever established a prestige skincare division based on the acquisition of four prestige companies and Shiseido’s prestige business grew 18.1% in H1 2016.  

 

But in a sign that the trend will endure, prestige is driving growth in emerging markets too. In India, the premium cosmetics segment, for example, is growing at 24% and companies there are jostling for position. 

 

An interview with Fabrizio Freda, CEO of Estée Lauder Companies, gives some insights to its India strategy. 

The company’s approach looks to be working. Its Indian brand portfolio — MAC, Estée Lauder, Clinique, Bobbi Brown, and others — is growing ahead of the market and Freda believes demand will continue to grow and be stable: “People may not be able to invest in a big luxury item but they can still afford a lipstick. And also the desire of quality cosmetics is growing so much in the world that it limits volatility.”

Oriflame, the Swedish direct selling brand, is looking to narrow its focus to concentrate mainly on skincare and wellness, supported by cosmetics and fragrance products. It will focus less on personal care, but the change could take some time. It hopes eventually to increase the share of skincare and wellness from 34 percent to 50 percent of its total sales. The decision reflects what the brand sees as global trends, including the growth of interest in wellness. A study by KPMG together with the Federation of Indian Chambers of Commerce and says the direct selling industry in India could grow to Rs.64,500 crore in revenue by 2025 but, at just Rs 7,500 crore in 2013-14, accounted for less than one half of a percent of total retail sales in India.

Following its recent restructuring, Avon’s broad strategy continues to clarify. In its latest investor presentation the company emphasized its three-pronged approach: drive out costs through improving its operating model and supply chain (target savings of $350MM), strengthening its balance sheet and investing in grow ($150MM allocated to media investments and social selling and $200MM invested in IT and service model evolution). The company is strongly focused on beauty (74% of sales) and intends to concentrate on 40 brands centered in skincare, personal care, fragrance and color. To boost sales, Avon is promising to invest in innovation, improve representative engagement and leverage social media in selling, which it sees as strongly synergistic with its direct selling model. 

Unilever and marketing/advertising expo Ad:tech conducted a contest during the early November event to determine “The Next Big Thing” in advertising technology. The winner among 15 finalists was Fluid Ads, which demonstrated a technology that allows brands and agencies to create HTML5 multi-shape, multi-device ads in a matter of seconds. The technology was able to deliver in real-time 480 dynamic ads in five minutes – more than one a second. Product Director Dan Cohen created a dynamic campaign for Unilever food spread Marmite by shifting the messages and images to target different days of the week and times of the day.

Reckitt Benckiser’s CEO, Rakesh Kapoor, is warning the UK to stabilize and strengthen its trade arrangements with other countries as Brexit threatens to jeopardize the economy’s growth prospects. He was talking in the context of the UK’s ties with India, during a trade trip to the country accompanying British Prime Minister, Theresa May. Kapoor sees India as a natural trade partner for the UK, because of the historic ties as well as shared values. India is also one of the biggest investors in the UK, and vice versa. There are sticking points, however, including issues around freer movement of people between the countries. Kapoor also highlighted the problems that emerged recently around rising prices in the UK caused by the plunge in sterling. He said that UK companies will need to find a way of passing on cost increases to consumers, and that will require innovation to continue to deliver value. He also talked about the vagaries of the current economic climate, where growth around the world is being challenged both in developed and developing regions, and the need to focus on those markets where it knows the growth fundamentals are strongest, such as the two huge markets of China and India.

A paper published by Facebook looks at how the beauty industry is using and being changed by mobile, and outlined seven key insights in a concluding “cheat sheet”. Its main takeaways included the observation that m-commerce is now mainstream and taking an increasing share of beauty and personal care purchases. It also noted how mobile is being used within physical stores to help consumers in their purchase decisions, and predicts that everyone will be mobile shoppers within 10 years. It found that shoppers are encouraged to pursue beauty purchases by content on Facebook and Instagram, but it also said that there’s more to do in mobile to make the shopping experience more convenient and frictionless.