Natural Products Well-positioned to Weather the Storm

By Karen Doskow, Associate Project Manager, Kline & Company


As consumer spending tightens, the natural personal care market is bracing for the same impending downturn that will likely impact every consumer goods industry from shoes to shower gels. With sales gains more gradual than ever at Whole Foods Market, one of the leading retailers of natural personal care products, it’s clear that a change is coming. While no doubt there will always be a loyal contingent of consumers committed to a naturals lifestyle, mainstream consumers may be forced to make a choice between going green and saving green.

Over the last five years, the natural personal care market has ridden a wave of double-digit growth annually, with a CAGR of 14.9% since 2003 (see figure). In 2008, the industry topped out at just over $2 billion in sales at the manufacturers’ level, up nearly 19% from 2007. Consumers’ desire for safer products and concern for the environment have combined with more mainstream availability of natural products to drive growth in the market.

Will Consumers Choose Price Over Purity?
These forces have also given rise to growth in pseudo-natural or natural-inspired products that contain natural extracts, but rely on synthetics for their functional and performance ingredients. The availability of more affordable products with a natural positioning in mass retail channels has made natural personal care more accessible to the average consumer.

Given the current economic climate, the question is whether consumers will be willing to pay a premium for natural and organic products. Do they really understand—or even care about—the differences between truly natural and natural-inspired products? And do they care enough to justify a premium cost?

Kline & Company’s newly-released Natural Personal Care 2008: U.S. Competitive Brand Assessment and Ingredient Analysis examined 27 so-called natural cosmetic and toiletry brands in the U.S. market and rated each on a scale of 1 (highly synthetic) to 10 (completely natural/organic). Despite the proliferation of natural claims, the analysis revealed that truly natural products actually account for just over 40% of the market. The majority are natural-inspired, with ingredients that range from completely un-natural to those that are natural wherever chemistry allows, but also include silicones, polysorbates, ethoxylates, or chemical derivatives.

Ironically, Bare Escentuals, the leading naturals brand with $270 million in sales for 2008, proved to be on the lower end of Kline’s naturalness rating scale. The company does use mainly naturally occurring minerals and pigments in its color cosmetics; this focus on makeup and its positioning in specialty and department stores, along with some direct sales, has helped it to build a loyal following. However, many of the ingredients used to formulate the brand’s products, such as silicones and oxykerite, do not fit within Kline’s definition of what is truly natural.

At the other end of the naturalness spectrum, Burt’s Bees earned a 10 in Kline’s rating system for its use of botanical ingredients from organically farmed sources. Now a wholly-owned subsidiary of Clorox, many credit Burt’s Bees for leading the natural personal care movement.
The brand holds the number one spot in what Kline calls the “truly natural” segment of the naturals market. The marketer spends a substantial amount on consumer advertising designed to help clear up confusion over what makes a product natural.

The support of a branding and manufacturing giant, along with Burt’s Bees strong distribution through mass channels, has no doubt helped maintain affordability of the products and boost the company’s sales. This stellar growth underscores the fact that consumers’ interest in natural products may be only as strong as their spending power. They will buy natural if it remains affordable to do so, as evidenced by the strong double-digit growth in mass channel sales in 2008.

Major Players Ride the Coattails of Niche Brands
The strength of Burt’s Bees illustrates a key point for naturals marketers in the new economy: the major players are in an excellent position to leverage the naturals proposition that began with the smaller niche players. Manufacturing economies of scale, a stronger position for negotiating supplier agreements, and well-developed distribution channels will allow the master brands, such as Dove, Softsoap, and others, to ride the naturals wave even during lean times.

Mimicking consumer behavior, many marketers may likely forgo the extra cost for certified organic raw materials ingredients in lieu of more natural-inspired products that allow them to hold down the cost of finished goods, yet maintain a naturals slant. Likewise, efforts toward a naturals certification, such as the Organic and Sustainable Industry Standards launched in 2008, may also take a backseat as manufacturers weigh the value of investing in certification against the potential return on that investment.

Despite the possibility of some tough months ahead, the naturals industry remains a bright spot in the cosmetics and toiletries market. Natural or natural-inspired products account for some 6%of the general market for cosmetics and toiletries, and the segment continues to outpace growth in the overall market by a landslide. More widespread availability, greater consumer awareness, and an ongoing desire for more environmentally friendly products across all classes of consumable goods will ensure the continued vitality of this highly salient market.

For more information about Kline’s Natural Personal Care 2008: U.S. Competitive Brand Assessment and Ingredient Analysis visit www.klinegroup.com/reports/y632series.asp.

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