Disruptive Concepts Rewriting the Rules in Beauty: Part I

Strategy Briefing

About This Report

Feb 2017

The niche beauty segment has been under the spotlight over its impact on legacy brands in multiple categories, and its greater influence on the industry course in innovation. In turn, M&A activity is heating up for those players with the financial muscle to catapult their market sturdiness, as they seek high-yield ventures to widen their scope and renew their brand portfolios. The market is expected to become more fragmented, as more brands compete with a differentiated proposition to consumers.

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Disruptive Concepts Rewriting the Rules in Beauty: Part I

Premium route in developed markets precedes rise of the niche segment

As BPC prospects increasingly favour the premium segment, the opportunity for niche brands is enhanced. Meanwhile, as mass brands feel the squeeze, it becomes imperative for brand owners to improve their price-value equation.

“Old” niche brands among industry growth drivers

Trendsetting niche brands were among the best performers over 2010-2015, fuelling M&A interest among key industry players. While their success can be attributed to a unique standing in the market, growth may falter unless these brands are reinvented, as new disruptive entrants move in.

High income linked to discretionary spending but education spawns interest in niche in the mass segment

Euromonitor International’s Beauty Survey gives evidence of greater demand for luxury labels among high-income earners. On the other hand, while this demand can be linked to educational attainment, low-income professionals seek authenticity in their products, opening prospects for mass niche brands.

Niche beauty thrives as they leverage a wave of factors driving the beauty industry

Small brands have been among the pioneers in spearheading evolution in the beauty industry manifested in product proliferation based around green and clean living, hybrids, wellbeing and multicultural influences among others. This is fuelling competitive pressures for legacy brands such as Johnson’s.

M&A by cash-rich beauty companies fuelling industry polarisation

L’Oréal, Estée Lauder and Unilever have been among the most active players in pursuing niche labels to profit from their novelty and high value generation, consolidating their industry position, as mid-sized rivals become more distant.

Concentrated markets hold potential for disruptive entrants

In markets where few brands hold a significant category share such as oral care in Western Europe, the potential for niche entrants is high. Conversely, in fragmented markets, growth by acquisition is a better suited strategy, while seeking growth through targeted customisation.

Introduction

Scope
Objectives
Key findings

Niche Segment Propelling Growth in Beauty and Personal Care

Robust premium BPC projections put mass power brands to test
Niche segment can be disruptive in mass staple categories
A challenging dichotomy for mainstream brands: local and niche
Regional and local brands fuelling global industry growth
“Old” niche brands, today’s power-gaining brands
Do income levels impact reception to niche brands?
Choice of luxury and discretionary linked to higher incomes
Niche status accentuates recognition from educated consumers

What Differentiates Niche Brands?

Search for authentic experiences a driving force to niche segment
Healthy and “green” lifestyles a core focus to niche beauty brands
Beauty category blurring gets dimmer as hybrid products proliferate
Costly alternative technologies boost high-end niche beauty
Regional players next in line to bring niche offer as they globalise
Regional influences a source of experience to the curious consumer
Niche segment development alters distribution landscape
Niche beauty brands and retailers potential M&A contenders

Thriving Niche Segment Brings M&A Opportunities

Niche brands fuelling beauty company polarisation
Market concentration levels indicative of niche segment strength
Fragmented markets increase scope for disruptive customisation
Oral care in Western Europe holds potential for disruptive entrants
Mould-breaking niche brands spurring growth in men’s grooming
Online retailing thrives as subscription-based men’s beauty booms
Premium colour cosmetics a hotbed for niche acquisition activity
Fragmented baby care market game-changing mainstream brands

Recommendations

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Authenticity crucial as legacy brands fight back
Niche brands a path for pushing company boundaries
Core trends in niche beauty to continue shaping industry direction