Due to a widespread lifestyle shift, caused by a multitude of factors including environmental awareness, Millennial trends, and an improving health and wellness education, many of today’s consumers are demanding greater transparency in their purchases. They seek to know where their products come from and what exactly they are made of. While this lifestyle shift is clear regarding its impact on the food industry, as market leaders scramble to offer GMO- and additive-free offerings, other high-growth natural consumer product categories such as baby, personal care, household and cosmetics may be overlooked.
Natural Vs. Traditional Products
A recent study by Kline Research suggests a growing number of consumers are choosing to pay a premium for products that are natural or that they “perceive to be natural.” The report indicated that in 2016, the personal care market reached 9% growth in the U.S. and 8% in the U.K. The trend-driven natural and organic personal care industry is on track to be worth $25.1 million by 2025, according to Grand View Research. Kline found that in the “truly natural category,” of products, tripled growth rates were secured from niche players such as Honest Beauty, Farmacy and SheaMoisture.
The success of these natural categories has come at the expense of traditional big players who are slow to transition. For example, in the first quarter of 2016, Johnson & Johnson (JNJ) reported a 14% decline in its trademark baby product brand, as the firm’s chief financial officer announced “very robust plans to relaunch [our] baby [category]” as “it looks like Millennial moms are trying a lot of new organic natural … premium-type brands.”
One of those larger, successful eco-brands to steal away market share from the legacy leaders is actress Jessica Alba’s privately owned Honest Co. With a mission to “redefine the family brand,” Honest Co. offers a wide range of safe, eco-friendly, convenient and affordable baby and household products. The company, valued at $1.7 billion, had announced plans to go public last year, while news later released in September indicated the firm was in acquisition talks with larger, more traditional consumer packaged goods companies. Recode reports Honest Co. churned out $300 million in eco-friendly revenue in 2015, a majority generated via online sales.
Natural Product Craze Drives Industry M&A
Noting the booming demand for natural products and the rapid growth of new startups, traditional large-cap consumer goods companies have looked to evolve by building out their own natural divisions or acquiring smaller rivals.
The natural trend explains Unilever’s (UL) strategic acquisition of Vermont-based green household product maker Seventh Generation in a deal estimated to be worth between $600 million and $700 million. Unilever further demonstrated its commitment to sustainable business with its new “nature inspired” Dove brand for men, Dove Men + Care Elements, announced earlier this month. “We’re really trying to leverage the ‘I’m getting in touch with nature’ attitude and bring it to life for the consumer,” said Dove VP of Marketing Nick Soukas.
Essentially all other major consumer brands have found success with natural products. Clorox Co. (CLX) said its earth-friendly personal care line Burt’s Bees grew in mid-single-digits in the most recent quarter, on top of double-digit growth last year. Colgate-Palmolive Co. (CL) highlighted “strong volume growth” of its sustainable Tom’s of Maine body care products in its most recent quarterly earnings call.
Procter & Gamble Co. (PG) recently debuted its first bio-based detergent, Tide Purclean, which the firm’s CFO says already “holds a 7% share of the pure and naturals segment and is driving over 150% of the natural segment growth.”
The Bottom Line
Ultimately, we can expect the trend to continue for large traditional players and new niche competitors alike to provide a growing conscious consumer base with products containing a short list of ingredients and a greater transparency about their origins. On the M&A landscape, it’s now rare to find a natural products company with annual revenue of more than $200 million that hasn’t already been acquired or isn’t already in the process of considering strategic alternatives.
While conscious consumers have inspired lackluster greenwashing campaigns by big players in the past, large-cap companies are coming to find they must truly evolve as the new Millennial cohort demands transparency and business integrity. (See also: How Conscious Consumers Are Changing Business.)