Natural cosmetics

This year, 2007, is likely to be a big year for the European natural cosmetics industry with a surge in investment activity envisaged.

Investment is expected to pour into natural cosmetic companies from various sources. Private investors, private equity firms, venture capital firms and large cosmetic companies are all looking to invest in natural & organic cosmetic companies.

The natural & organic sector is seen by some as the future of the cosmetics industry, whilst others are attracted to the high margins.

Mergers and acquisitions have already had a major impact on leading natural cosmetic companies. Neal’s Yard Remedies has opened two new London stores since it was acquired by a private investor just over a year ago. The British chain of natural cosmetics is poised to have over 30 outlets in the coming years. After integrating Sanoflore into its Active Cosmetics division, L’Oreal plans to launch the brand in the international arena. For the first time, an organic cosmetics brand will be introduced in mainstream retailers on an international scale.

Investment in non-European companies is also flowing into Europe. The Australian company Jurlique is looking to expand in Europe since it was acquired by JH Partners last year. The private equity firm aims to make Jurlique the leading Australian brand of natural cosmetics in the international market.

Organic food retailers and mainstream retailers are also pumping capital into natural cosmetic brands and products. Organic food supermarkets, drugstores and even discounters in Germany have already launched natural cosmetics under their private labels. Retailers in other European countries are following suit. The launch of bnatural this month has given Tesco the distinct honour of becoming the first British mainstream retailer with Soil Association-certified private label cosmetic products.

Organic food companies are also not sitting quietly. Leading organic food brands like Duchy Originals and Alnatura have already developed natural & organic cosmetic product ranges. Hain Celestial, the world’s largest organic food company, is likely to have most impact on the European market since its acquisition of Avalon Natural Products last month.

Hain Celestial already owns the Jason Natural brand, which is highly successful in the UK market. Hain Celestial is likely to build synergy between these brands and expand distribution into mainland Europe. An acquisition of one or more European natural cosmetic companies is possibly on the cards. The American company has deployed a similar strategy with non-dairy products and vegetarian foods. It acquired a number of leading brands in North America and Europe and consolidated them to develop marketing & distribution synergies.

Hain Celestial acquisitions are putting it in direct competition with large cosmetic companies like L’Oreal and Estee Lauder. L’Oreal plans to make Sanoflore into a mega organic brand, following the footsteps of Aveda. Aveda institutes have been set up across the globe since the organic cosmetics brand was bought by Estee Lauder in the late 1990s.

Investment in the natural & organic cosmetics industry is en vogue, however finding suitable partners remains the major challenge. Large cosmetic companies are looking at mergers & acquisitions as a market entry route, organic food companies & retailers are investing to develop new products for existing customers, whereas the financial community is investing for financial returns. Whatever the motives for investing, the pace of change in this dynamic market makes sitting on the fence no longer a strategic option.