Natural and Organic Cosmetics Industry
can be described as products that contain natural ingredients without chemical
modification. NOC (Natural and Organic Cosmetics) is standing in the edge of
two industries: cosmetics/personal care and bio/organic market. As terms
“natural” and “organic” are defined differently
by governments, NGOs, retailers, cosmetic producers and consumers, there are
challenges with not only with market regulations but also with definition of
the industry. Economists define industry as a group of firms producing the same
principal product or service that are perceived by customers as meeting the
same needs (Johnson,
G., Scholes, K., Whittington, R., 2008). Therefore, it is
important to mention that the global market of cosmetic industry, including
natural and organic segment remains controversial and diverse in areas of
customer expectations and requirements. These specifics and challenges would be
discussed in the following industry analysis, same as growth opportunities,
attractiveness of the industry for new entrants, competitiveness within
existing players and other details.
Aim of this work is to gather and analyse open
source information and by using systematic approach to present the document,
which may be useful for all participants of the industry environment, including
manufactures, companies, customers, investors and media. From economic
and market view analyzing this industry may be interesting due to its’ dynamic
development and influence on scientific innovations, consumers’ minds shift and
changes of planet resources and environment consumption. Within the
natural and organic cosmetics market there are many subcategories, divided by
type of ingredients and production process, as it is shown in the Table 1.
While customers have barriers differentiating “green” product lines, most of
this divisions are acknowledged only in the B2B area. The categories may be
cosmetics represent the majority of the market share and can be classified as
all products, that are not related to the segment of natural cosmetics.
cover large market share, because such products can still be associated with
health, while are not supposed to meet certifications, guidance and standards. Mostly
it can be marketing differentiation from classic cosmetics by presence of
minimal organic or herbal ingredients.
organic cosmetics segment include wild range of white label products with “Free
from…” mark, production of those was changed from chemicals use to eco-friendly
conditions, but still don’t answer the criteria of certified natural cosmetics.
In addition, the brand distributed exclusively in health food and organic
products stores, are also included in this category.
natural and organic cosmetics includes all products that meet the standards
criteria and requirements. These products can not contain in ingredients list
any synthetic chemicals such as aluminum salts, phthalates, petrochemical and
cosmetics include dominantly young or local brands, concentrated on design,
marketing and quality of the product. Having in-house reviews or private
labels, most of the brands bear different quality seals and control marks,
which however are not meeting general certification standards.
cosmetics category reflects brands, that are concerned about materials used and
sustainability aspects, but are not able to provide the transparency of their
processes or ingredients.
From the customers
prospective there are three main groups existing: classic cosmetics, natural
and organic cosmetics and nature-inspired. Current industry analysis is based
on the customer approach to market segmentation.
The natural and
organic cosmetics and care products can also be segmented by product
categories, which include: skin care products, hair care products, sun care
products, oral care products, natural color cosmetics, baby care products, male
grooming products, fragrances, professional products, feminine hygiene
products, nutri-cosmetics, deodorants and other natural cosmetic products.
Global natural and organic
personal care products market.
The global market value shows significant growth in the last
10 years, that not only proves the significance of the industry, but also
reflects changing consumers awareness and conscious. Due to the absence of
standardized governmental market definition, numbers in different sources may
vary, but all confirm positive tendencies. In accordance to the article Global
Regulations: Natural And Organic Cosmetics, the global market share of NOC
industry is estimated at between 1%-2.5% (Smith, 2016). The data from Persistence Market Research survey reflects that in 2016 the natural beauty market was valued at
approximately 11.06 billion U.S. dollars worldwide, with forecast of 21.78
billion U.S. dollars by 2024 (Graphic 1 in Appendix) (Persistence
Market Research, 2016). Meanwhile, according to “Global Organic Cosmetics Market By Product Type, By Point
of Sale, By Region, Competition Forecast and Opportunities, 2011 – 2021”,
the global market for organic cosmetics across the globe is projected to grow
at a CAGR of over 13% during 2016-2021 (TechSci Research, 2017).
In the same time Grand View Research, Inc. expects the
global organic personal care market to reach USD 25.11 billion
by 2025 (Grand View Research, 2016).
Currently, North America takes the largest share in the NOC
market, followed by Europe and Asia-Pacific region. Major global brands are: Estee
Lauder Companies Inc., L’Oréal SA, Weleda AG, Burt’s Bees, Arbonne
International, LLC, KORRES S.A., Avon Products, Inc., Bare Escentuals Beauty,
Inc., Coty Inc., and Aveeno (J) (Persistence Market Research
analysis is based on Five Competitive Forces That Shape Strategy method by
Michael Porter (Porter, 2008). This method may help
a company to create and sustain long-term profitably by building the strategy
as a defense against described forces, or establishing positioning where forces
are week, or acting a step forward to the competitors and to reshape
the forces in own favor or to exploit the changes in it.
In the following
Table 2. below key factors of five forces influencing natural and organic care
products industry are described: Industry rivalry, Threat of substitutes,
Threat of new entrants, Bargaining power of buyers and suppliers.
Table 2. Industry
analysis plan based on M.Porter’s Five Forces method (Own illustration)
Intensity estimation of the industry rivalry and
competition is critical due to it’s possible destructive influence on the profitability.
NOC industry is estimated to be highly competitive and highly attractive.
Demand for green products is growing respectively, rising the supply by
numerous new entrants and existing brands developing new categories. The
noticeable increase in popularity of natural products and growing availability
led to greater number of new players enter the market. In accordance to the Graphics 2 and 3 in
Appendix, provided by the industry expert Elfriede Dambacher1, Natural and Organic
cosmetics in Germany have reached over 1 million euro and took 16,5% of whole
Cosmetic Market in 2016, while market volume has grown almost 2 times in last
10 years (Elfriede Dambacher, 2018).
E. Dambacher declared on the
Natural & Organic Cosmetics Conference 2017 in Berlin and
confirmed recently in the interview (Appendix 4.): “The natural and organic
cosmetics market in Germany has become the strongest market in Europe. Approx.
9 million consumers today purchase natural and organic cosmetics several times
a year. And the demand has not ceased: In the first six months of 2017, the
industry again reported a growth of approx. 2 %.” (naturkosmetik verlag lüdge GmbH & Co. KG, 2017).
Market drivers would be such factors as: growing
consumer ecological consciousness, healthy lifestyle and increasing
accessibility of eco products. Market restraints would be: short shelf life, limited
and expensive raw material supply, lack of unified regulations policy.
The competitors landscape is divided by categories:
Established global classic cosmetic brands with natural division, natural and
nature-inspired global brands, strong local players, pharmacy brands, retailers
with own certified natural cosmetic labels and niche companies with unique
products. In order to overcome the increasing competition on the crowded
market, players should adjust strategies aimed on market differentiation,
unique proposition, product quality, innovative processes and alternative
distribution channels. The industry had faced few years ago the distribution
gap, when customers were not able to purchase natural products in the
traditional locations. On the Graphic 5 in Appendix, the current spread of distribution
channels is reflected. The most populars in 2017 are drug stores, online and
supermarkets, but with the demand growth more new locations such as concept
stores and manufactures boutiques are appearing.
Germany is one of the biggest and
mature markets around the world with own original brands, such as Dr. Hauschka,
Lavera and Weleda. The Graphic
6 from Statista shows the most purchasable brands in Germany in 2017,
where the leader is Weleda with over 40% of answers, the next ones are Alverde
with 34%, Rossman retail brand Alterra with 23%, Lavera 19% and Dr. Hauschka
Threat of substitutes
In accordance to Harvard Business Review Article, published in 2008, a substitute performs the same or a similar function
as an industry’s product by a different means and can bring industry
profitability down (Porter, 2008) . The threat of substitutes in the NOC category can be considered very low. From customers prospective there
are only few options exist. First option means purchase of classic
cosmetics and personal care products, facing potential psychological barriers
in customers minds. Based on the Kline Group Study “Natural Personal Care: Market
Analysis and Opportunities”, 67% of customers who bought natural and organic personal care products are
trying to pursuit a
healthier lifestyle and 49% of people who buy NOC consider them safer and of higher quality than
conventional products (Kline Group,
2017). This data proves the assumption, that
once customer made the decision to switch to green in his goods purchase
routines, he may not want to come back to traditional solutions. Second option
is so called Do-It-Yourself cosmetics and is connected to the third one- bio
food products, which can be used as personal care supplements. Due to
complicated and rather expensive purchase of raw materials in small amounts and
short product lifecycle, these options are rarely chosen by the customers. And
forth option can be total reject of cosmetic products usage, the percentage of
which is not significant for market shifts.
Bargaining power of buyers
Powerful buying force is
able to force down prices range, demand higher product quality or more
services, drive the costs for producers up and change industry profitability.
As assumed, bargaining power of the NOC industry buyers has a tendency to move
from low to high.
In the last few years the
market has recognized several consumer trends, which have strong economic
impact and drive the industry growth. Demand for natural cosmetics moved from
neighbor segments, people start changing their lifestyle, priorities and buying
rituals, same as care about ecology, rising awareness of health and safety
risks. One of the main global trends nowadays is called “ethical consumerism”2,
which can also be recognized as “premiumisation”3.
However, the industry’s
products are not standardized or undifferentiated, chances to find equivalent
product by changing brands are low, because of ingredients quality and
certifications. Switching of brands cost
is low and customers are recognized to be not price sensitive. Based on the research of Euromonitor
International, Graphic 7,
importance of green attributes in the products is high for German customers,
along with sustainability (Euromonitor International/Marco
Colombini. Kosmetica World, 2016). In the same time
willingness to pay more for green products is growing globally along different
Based on the Nielsen’s
Global Corporate Sustainably Report in 2015, 66% of global respondents are
ready to choose green products even for higher price, while half of them also
confirm that sustainability factors play dominant role, 69% pay attention to
organic, natural and fresh ingredients, and almost 60% share such brands values
as eco and environmental friendly approach, Graphic 8, (The Nielsen Company, 2015).
Meanwhile GFK survey
shows, that the top five criteria for buying NOC products in Europe are
different and are: not tested on animals, don’t harm animals, don’t contain chemical
ingredients, don’t contain ingredients of animal origin, respect the nature, Graphic 9 (GFK, 2016) . To meet
consumer expectations and target wider audiences, manufacturers started
switching towards the green formulas, refreshing existing products or launching
new lines. Customers became more sophisticated and don’t agree on the “one fits
all” approach anymore, level of customization is moving from “suitable for me”
to “made for me”.
Kecskes, an expert from the Society for Consumer Research, which is
headquartered in Nuremberg, during Natural Cosmetics Conference in Berlin 2015
gave interview in which he advised manufacturer to make “products that suit the
lifestyles of millennials, who want ethically correct and transparent products,
yet convenient and effective at the same time” (Karin Heinze. Organic-Market.info, 2017).
1.3. Bargaining power of suppliers
The suppliers of raw materials for the natural and organic personal care product and cosmetics market provide
plants oils, vitamins, a range of
herbs and many other products, cost for which takes almost half from the end
product price. For example, one of the biggest organic brands Dr. Hauschka is using only organic mango butter
for its products. As said on the official brand website “sourcing this
valuable raw material in organic quality comes at a price: Dr. Hauschka pays 10
times the world market price for conventional mango butter, i.e. between €120
and €150 per kilogram” (Dr.Hauschka
Skin Care products, 2017).
remains important for the marketers, while manufacturers capitalize on the
natural products trend. Consumers believe that “green” products have higher
standards of quality, what enables cosmetics manufacturers to claim high prices
for natural materials, thereby injecting value into the market.
A supplier group is
assumed to be very powerful for following reasons. Raw materials producers do
not depend heavily on care products industry due to also food industry
existence, moreover in accordance to Euromonitor International, Germany is Europe’s
largest market for organic packaged foods and beverages (Euromonitor International,
Switching cost of raw material vendors is high because
of the strict regulatory compliance required while sourcing raw materials. As
stated in Harvard Business Review article, “when switching costs are high, industry
participants find it hard to play suppliers off against one another” (Porter, 2008). Suppliers offer
products, that are differentiated by quality. There is no substitute existing
on the market for NOC brands, because their ideology is strongly connected to ingredients. In the Graphic 10 in Appendix the value chain of natural ingredients for cosmetics
industry is described, information is collected from CBI The
Ministry of Foreign Affairs report 2017 (CBI Ministry of
Foreign Affairs, 2017).
providers of the organic ingredients to the factories and manufacturers are BASF, Dow Chemicals and Arch Chemicals. There is a significant threat
that suppliers may turn their business into full cycle and launch producing of own
brands targeted on the end customers. Positive effect of organic raw materials purchases
by natural cosmetic companies is the help
to agriculture and economy of developing countries. Some German cosmetic
companies work on their sustainability and corporate social responsibility,
develop manufacture processes with care of environment, development assistance organizations or support political parties. According
to Research Institute of Organic
Agriculture FiBL report, the top three countries with largest numbers of
organic producers in 2015 were: India, Ethiopia and Mexico (Willer & Lernoud, 2017).
Barriers to entry
Powerful new entrants or big amount of them may bring
profit potential of the industry down, for example to decrease the prices or to
increase the quality and product differentiation. “Entry barriers are
advantages that incumbents have relative to new entrants” (Porter, 2008).
New entrants to the NOC industry can be not only freshly
emerged cosmetic start-ups, but also strong players of neighbor categories. As
far as industry is recognized as profitability attractive, big classic cosmetic
brands may allocate budgets and resources into natural line development, same
as organic food brands and manufactories, that have advantaged access to
High brand identity and economics of scale of existing
players is the first barrier of the industry. That means that firms that are
already established on the market have lower supply and production costs per
one unit, which they can spread over more units being produced and sold. Due to
big marketing budgets and time advantage, existing brands occupy targeted
niches and market segments.
of centralized universal regulations is second challenge of the industry.
Legitimate natural and organic companies are forced to fight for customer with
many pseudo-natural products. Moreover, whole reputation of the NOC products
quality may suffer from not honest strategies of competitors. This barrier is
strongly connected to the next one, which determines lack of product
understanding by customers. Huge variety of “green” labels and absence of a
single European association for organic cosmetics is confusing for the target
audience. “There are more than 50 labels with regards to product quality in
this segment, but there is no leading label, and this makes natural cosmetics a
bit weak. Consumers are sometimes confused about what is natural and what is
organic, and there are translation mistakes too. In German speaking countries,
natural products are defined by being organic, but in the UK, natural means
nature-inspired”, said E. Dambacher in the interview to Jo Allen for the
article Germany: Inspired Leaders (Allan, 2017). The lack of regulation, and the fact that
there is no leading label, means that it is even more important for brands in
this market to have a very clear positioning. “This is now the leading point
for consumers when they are deciding if a brand is authentic and reliable. They
look at the brand image before looking at the ingredients”, continues the
expert in the interview for the magazine (Allan, 2017). The progress and standards developments by European-wide organizations,
such as NaTrue and Cosmos would help to take this defect under control.
to distribution channels was also one of the problems for developing firms a few
years earlier, while not only pharmacies and bio markets were holding the dominant
shares, but also retailers started bringing out their natural labels. „The
natural & organic cosmetics market is far from saturated. Demand and
fulfillment of demand are increasing, but rarely do consumers find attractive
shopping locations that meet their expectations”, claims E.Dambacher during her
speech on the Natural & Organic Cosmetics Conference 2016 in Berlin (Naturkosmetik
Branchenkongress, 2016). Nowadays small niche brands migrate to
online trade, following audience shopping preferences and avoiding distribution
Costs and prices are
also significant from market restraints analysis. Supply cost and switching
cost of materials provider is high for firms and short shelf life of the
product reflects on the final price.
Dambacher has been active in the NOC cosmetics market for most of her
professional career. In 1984, the business economist and chemist founded the
first specialty store for natural cosmetics in Berlin. She has profound
managerial experience in the distribution of natural cosmetics and established
several trade concepts. In 2003, she launched the consulting company
naturkosmetik konzepte, working as an independent consultant. From 2009 until
late 2016, she was managing director of her publishing company naturkosmetik verlag.
In 2006, in cooperation with leading market research companies, she developed a
market research tool for the NOC industry that today is considered standard.
Elfriede Dambacher publishes market research studies, e.g. the Naturkosmetik
Branchenmonitor and the Naturkosmetik Jahresreport. Also she is program
chairwoman of the Natural Cosmetics Conference in Berlin. In 2015, her natural
cosmetics guide „Ratgeber NATURKOSMETIK” was published by the Herbig Verlag.
2 The Quardian: Being an ethical consumer means buying products which were
ethically produced and/or which are not harmful to the environment and society.
3 Oxford Dictionary: The action or process of attempting to make a brand
or product appeal to consumers by emphasizing its superior quality and exclusivity.