Consumer goods businesses have a penchant for buying more businesses rather than beefing up their traditional brands. The latest craze is for household goods producers such as Proctor & Gamble, Colgate-Palmolive, and Unilever, when faced with slumping sales of their staples – such as detergent – is to buy up skin care start-ups. In the past two years, consumer products companies have acquired about a dozen skin-care brands which is far more than in previous years (ref WSJ).
The current strategy is to acquire brands that have pricey products – such as Filgora, acquired by Colgate for $1.7 billion, and First Aid Beauty and Snowberry purchased last year by P&G for several hundred million – and then let the places that sell those products – such as on Instagram and in the store outlets at Sephora, a U.S. beauty chain – drive up the sales. The traditional sellers of beauty products – drugstores and shopping malls – are not being relied on for the new sales approaches. Analysts tell us that the household goods companies are being squeezed by demographic and competitive pressures – Americans are having fewer children and households are shrinking, thus reducing the demand for the customary staples. As well, consumers are turning to niche brands that are stealing share from the big names like Gillette razors and Colgate toothpaste. Thus, it’s believed that the skin-care product market represents a good chance at selling far more to far more people, globally, including millennials and men as well as baby boomers. Sales are growing in overseas markets, including Asia, where the expanding middle classes are spending greater amounts on skin care. In addition, the skin-care line has expanded – the usual mainstream offerings of face cream, cleansers, etc now also includes a range of serums and other products from facial oils to charcoal acne treatments. Skin care is a $135 billion global industry, more than cosmetics and fragrances combined. However, as everyone gets into the game, there is a race to acquire the brands and, then, a race against competitors to sell the products. It seems that the same thing happens over and over with the consumer goods companies – buying companies to buoy sales – but, there’s always the possibility that this time will be different.