This week’s briefing looks at what’s been going on with Unilever after its failed bid for GlaxoSmithKline’s consumer health unit. Plus:
- Kosterina food brand’s expansion into olive oil-based beauty products
- Executive arrivals and departures over the past week
A look inside Unilever’s recent troubles and why beauty is a safe bet
Unilever has had it rough lately.
In January, the company was caught up in the headlines after it tried and failed to purchase the consumer healthcare arm of GlaxoSmithKline, which houses brand names like Sensodyne toothpaste, Advil and Centrum vitamins. The rejected bid of $68 billion triggered a very public soap opera, including a share-price collapse, the attention of activist investor Nelson Peltz and plans to cut 1,500 management jobs as part of an overhaul. Institutional investors lambasted the company for making the outrageously sized bid and said Unilever should focus on its core businesses. Even credit rating agency Fitch said a debt-fueled purchase of the GSK consumer healthcare division could trigger a “multi-notch downgrade.” Though I’m no short-seller, I could not help but keep my eyes peeled to the ticker tape of a declining stock price.
Though the company’s troubles have come to a head, its challenges with acquisitions extend many years back. Unilever notoriously paid $1 billion for Dollar Shave Club in 2016, which failed to grow sales in any substantial way, and acted as a harbinger of the decline of the direct-to-consumer sales model. Alan Jope, CEO of Unilever, acknowledged such a situation on the company’s fourth-quarter earnings call on February 10. DTC economics have changed over the years, including the rising cost-per-click associated with digital ad spending and, more recently, the Apple iOS updates that make it harder to target ads and gather customer data. Unilever declined to comment for this story.
“Obviously, Dollar Shave Club didn’t scale, but we should be thankful it didn’t scale. You don’t want to scale a loss-making business that much, and obviously they had limited expertise in that area,” said Bruno Monteyne, a senior analyst at Bernstein.
Yet despite DSC’s underperformance, Jope is still looking to beauty as a source of underlying growth as he faces mounting pressures to deliver a new strategy for shareholders and boost the share price. Unilever has been clear about where it wants to invest. Its five priorities include plant-based foods, skin care, hygiene, prestige cosmetics and functional nutrition. Since the Dollar Shave Club acquisition, Unilever has gone on to acquire Living Proof, also in 2016, Hourglass Cosmetics in 2017, Walker & Co (which owns men’s grooming brand Bevel) in 2018, Tatcha and clinical skin-care brand Garancia in 2019, and Paula’s Choice in 2021. Per Digiday reporting, 13 of the 25 companies Unilever acquired between 2015 and 2018 were in the beauty and personal-care space. In 2019, six of these brands — Dermalogica, Kate Somerville, Living Proof, Hourglass, Ren, Murad and Garancia — were grouped by Unilever into a division called the Prestige Group.
“My gut feeling is that prestige brands are very expensive to scale. [A customer] needs to see a lot of advertising — megastars [all] convincing them that it is the right product. And for years, you invest in brand equity and never discount the product, and after four or five years, you start making money,” said Monteyne. “Unilever [is] never willing to invest in five years of brand equity building to scale these prestige beauty brands in other countries. That bodes badly for their new deal-making plans.”
Outside of prestige beauty acquisition, Unilever has focused on incubating its own. In 2018, Unilever introduced Love Beauty and Planet and ApotheCare, both of which extended their product portfolios in 2019. Also in 2019, mass-market hair-care brand The Good Stuff debuted, as well as a socially-conscious body care line called The Right to Shower and a wellness-inspired skin-care line called Skinsei. And in March 2022, Unilever co-created a Gen-Z hair-care brand called BHS with Walmart for exclusive distribution.
“After months of careful review, the board concluded that accelerating our shift into consumer health and wellbeing and beauty as two very attractive adjacencies would position Unilever for faster growth for the decades to come,” said Alan Jope, CEO of Unilever, during the earnings call. “We are absolutely resolved on moving the portfolio toward these attractive spaces of beauty and consumer health and wellbeing, but we are more patient [now] with how we get there.”
But despite all the bad press, we would be remiss not to point out a few key wins for the company. For the whole of 2021, its underlying sales growth was 4.5%, its strongest in nine years, according to its fourth-quarter and year-end earnings report. Beauty and personal care was the largest division in the full year, notching $23.8 billion in sales, up 3.8% on the previous year. Prestige beauty, which includes Tatcha, Hourglass Cosmetics and Paula’s Choice, increased sales by double digits. And though Unilever has received criticism for focusing on sustainability efforts more than financial performance, it can be good to put the planet (and a long-term interest in preserving it) ahead of short-term financial gain for Wall Street. Shortly after taking over as CEO in 2019, Jope said, “Brands without a purpose will have no long-term future with Unilever.” Unilever has not spelled out the costs or the returns on investment of its environmental sustainability efforts.
“It is true that some deals haven’t worked out as planned [like Dollar Shave Club], but overall, year-to-date, Unilever’s prestige cosmetics unit and functional nutrition businesses have added 60-70 basis points to group organic growth. This is impressive and not properly recognized by the market,” said Warren Ackerman, an analyst at Barclay’s.
Kosterina aims to bring a farm-to-face concept alive with olive oil beauty products
As a former Walmart and Elizabeth Arden executive, Katina Mountanos, founder and CEO of Kosterina, knew from the start there was long-term potential to bring her olive oil-focused brand into the beauty aisle.
Kosterina is based on the concept of blue zones, which are areas around the world where there is a higher population of people who live longer than average. One of these places is Icaria, Greece, and Mediterranean diets have long been praised for their health benefits. Kosterina has fashioned itself in this vein, offering organic olive oils, balsamic vinegar, dark chocolate, olive oil cake and now olive oil-based beauty. Kosterina launched with an olive-oil face oil in Nov. 2021, followed by an olive-oil face stick and deodorant in February.
High-end olive oils in attractive packaging have been gaining favor, with brands like Brightland, Kyoord and Flamingo Estate coming to mind. There is a long history of beauty brands using food and cuisine as part of their ingredient stories, like Glow Recipe’s fruit-based products or La Prairie’s focus on caviar. Kosterina will launch a face moisturizer, a cleanser and a body cream in 2022.
Since Nov. 2021, 24% of all purchases from Kosterina.com include a beauty product, and Mountanos said the initial goal was to reach 10% in the first six months. For now, Kosterina is only marketing its products to existing customers, but it began testing with influencer marketing in January. So far, beauty products are only available on its e-commerce site. Its food products are sold through Whole Foods and HSN. Mountanos said she is in discussions with QVC for beauty retail and also hopes to add Sephora in the future. Kosterina customers are 65% women and 25- to 65-years-old.
“The way that we think about competing in the beauty space, which is so fragmented, is that we’re bringing people into the franchise through food and our extra virgin olive oil, and then showing them we have other products,” said Mountanos.
- Francois Bonin was named the new CEO of Naturium.
- Dollar Shave Club’s CFO Jose Zuniga joined Madison Reed.
- Amazon Fashion CMO Kara Trousdale joined Beautycounter as chief commercial officer.
- Myles McCormick left his role as CEO of Forma Brands and was replaced with Too Faced president Eric Hohl.
What we’re reading
Lavender essential oil triggers rare illness: In March 2021, a woman’s death baffled doctors who couldn’t pinpoint how she contracted septic shock, which killed her. It would lead to a federal investigation that connected her death to medical mysteries in three other states. After months of research, scientists discovered what killed two people and left two more critically ill: an aromatherapy spray sold at Walmart. Such a story involving a popular ingredient, a common wellness trend and the country’s largest retailer shows the gaps in quality control and safety in the beauty and wellness industries.
“You go girl!” and the cult of women’s confidence: Since the early 2000s, when Dove famously turned the tables on beauty marketing by trying to prop up women’s self-esteem, a cult of confidence has developed within women, with various industries and their remora shifting their marketing tactics toward superficial women’s empowerment. This iteration of self-care has encouraged us to lean in, clap back at the haters and show that confidence is the new sexy, while diminishing the impact of genuine issues like income inequality. A new book called “Confidence Culture” by Shani Orgad and Rosalind Gill examines the cult of confidence and its ramifications.
Byredo builds itself out as the next beauty juggernaut: Niche and luxury fragrances are enjoying the shine of rebounding beauty sales, and Byredo in particular seeks to benefit. Over the past two years, Byredo’s sales increased significantly, it launched into the cosmetics space, and it appointed a former LVMH executive as its first CEO. Next, it plans to launch a skin-care line.
Inside our coverage
Influencers see their own NFT opportunity: Mega celebrities like Paris Hilton and Snoop Dogg have been seen shilling NFTs lately, and social media influencers are keen to not be left out. Huda Kattan recently publicly declared her excitement over NFTs, even posting NFTs from the World of Women collective as her profile pictures on Twitter and Instagram. Meanwhile, critics of NFTs say influencers and celebs alike are using their platforms for self-enrichment.
Alicia Keys on changing the beauty industry: When Alicia Keys launched Keys Soulcare in Dec. 2020, it was to address a new dimension of wellness and self-care that creates products that nourish not only one’s physical wellbeing, but also one’s soul. Keys spoke with Glossy about her long-term goal for changing the beauty industry, the personal rituals she practices, and the meaning of her last album.
Scarlett Johansson’s beauty brand finally debuted: Rumors and rumblings about Scarlett Johansson’s beauty line have been stirring for months, and on March 1, it finally arrived. Called The Outset, the skin-care brand focuses on minimalist packaging and a pared-back beauty routine.