Organic Makeup and Small Cosmetic Companies are Changing the Face of the Industry

Many people already have organically grown food in their kitchen cabinets and freezers. Now, organic products are moving into bathrooms, as the absolute hit in the U.S. becomes using organic cosmetic products. The demand for natural cosmetic products, creams, teas, and tinctures whose substances come from organic farming is constantly increasing. Leading the popularization of such products in the U.S. are small and medium-sized companies engaged in cosmetics.

– Just five or ten years ago, people were buying an image. Today, they want to buy science or what they consider science, says Mark Dixon, director at the American company ThinkingLinking, which deals with investments and acquisitions in the global market.

Today’s consumers are very cautious about what they put on their bodies, just as they are about what they put on their faces. Cosmetic products must come from sources acceptable to them. Therefore, they not only demand high quality in the products they buy, but they also want to know where they come from. Consequently, cosmetic products are no longer viewed merely as beautifying products for the face and body; they are also expected to be therapeutic. Global companies engaged in cosmetics are trying to adapt to this trend, whose main promoters are actually small companies and crafts, such as beauty salons, styling studios, and dermatological offices.

– Companies are trying to expand geographical sources and sales channels while also broadening the range of products they control, explains Dixon. Established cosmetic companies offer greater accountability for their products, but numerous small companies have created and patented various ingredients for cosmetic products based on organic or, if it is easier to say, “green dogma.”

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The company ThinkingLinking has therefore conducted research related to numerous acquisitions that have occurred in this sector, and the number of takeovers is significantly increasing. In a report they titled Alchemist in Shopping, they recorded as many as 50 acquisitions involving over 45 different buyers from 2012 to 2016. These are exclusively manufacturers of various substances for the production of cosmetic products. The largest transaction in this market segment in the U.S. occurred between the companies Symrise AG and Pinova Holdings, amounting to $417 million. Some of Pinova’s products were used in the production of organic wax for depilation. The scale of these companies and the impact of this trend on the cosmetic industry is illustrated by the fact that the company International Flavors & Fragrances, which achieved $3.12 billion in sales in 2016, acquired Lucas Meyer Cosmetics for $311 million.

Of the 50 acquisitions, 46 were just below $100 million.

– There is a consolidation of part of the market in progress, which large companies will then seize for themselves, explains Dixon regarding these processes. This activity in the raw material production segment for cosmetic products is a direct consequence of better consumer education, which seeks products with specific characteristics and clear product origins. Consumers want products whose composition they know, they want to be able to choose those that do not contain additives, and all this has opened new opportunities for small, flexible manufacturers who successfully create their own base of loyal customers.

– The brands produced by these small companies have their own story, are specialized for a particular type of hair, skin, and even have an ethnic connotation, says Sarah Jindal, head of the cosmetic product innovation department at the market research company Mintel. – Universal products that suit everyone are no longer what cosmetic buyers are looking for. A product that has its own story is what attracts people, explains Jindal.

These trends have also changed the way acquisitions take place. Large companies buy small ones, but they do not try to integrate them into their production as quickly as possible; instead, they let them do what they do best. In this way, they fill the gaps that arise, and their stores and customers become and remain part of large companies. Karen Grant, an analyst at the global cosmetic company NPD Group, says that there is an increasing number of small companies developing their own brands.

– These are companies that large corporations want to have in their portfolio due to the growth potential that these small firms possess. A company that is small today can become large tomorrow. No brand is wise to underestimate today, concludes Grant.