The face of retail has changed a great deal over the past decade. Online sellers and the QVCs and Wal-Marts of the world have altered the way consumers across segments shop. Euromonitor International reports that convenience and low prices are key drivers of change, and retailers built to deliver both attract market share from other channels. However, other retail formats—specialty shops and department stores, for example—have been able to leverage their ability to engage consumers shopping for beauty products to maintain an edge in the category. Nicola Kinaird, founder of the highly successful Space NK stores in the U.K. and the U.S., said, “Consumers in this category are increasingly knowledgeable about products and look to retailers not only to purchase, but also as a source for information. In today’s marketplace, it is essential that retailers have foresight and insight into products and trends that appeal to consumers.”
As these factors evolve, other trends impact what consumers shop for, notably natural and organic products. The natural personal care market, already worth nearly $7 billion, is growing at approximately five times the rate of the personal care market as a whole, according to Green Marketing, Inc. Mintel’s Global New Products Database recorded 624 new natural or organic cosmetics and toiletries launches in 2002, and 2,900 in 2004—illustrating the increasing amount of shelf space dedicated to these products.
Natural and organic products—regardless of real and perceived benefits or deficiencies—engage consumers, and the “mainstreaming” of natural and organic products, according to Organic Monitor, is a major driver of market growth. Kline & Company’s “Natural Personal Care 2007: Competitive Brand Assessment and Ingredient Analysis” report (released in October 2007) cites consumer demand for natural personal care products as driving a significant shift from niche distribution channels to more mainstream mass retail outlets. Wal-Mart, for example, introduced Natural & Organic Bodycare Oasis in nearly 400 superstores, which, according to Euromonitor (“State of the Industry: Eco-values Escalate,” GCI magazine, June 2007), helped lift the profile of natural and organic products.
The product category itself engages consumers, and mass retailers leverage this appeal to neutralize, to an extent, the competitive “engagement” edge of niche and specialty retailers. To navigate these continually changing currents, manufacturers and marketers must be willing to consider multiple distribution channels to maximize growth and achieve a cross-sectional consumer base. Greater market segmentation has also led to dedicated brands being developed for specific channels and the emergence of private label natural and organic products. The latter adds another level of complexity to the retail decision making process—manufacturers and marketers must compete with the retailers they are selling through.
Increasingly, mass merchandisers are introducing natural and organic personal care products. Boots launched an organic cosmetics line in October. The pharmaceutical, health and beauty retailer’s Botanics Organic line ranges from 90% to 100% certified organic content, and all contain a 100% organic essential oil blend authenticated by the U.K.-based Royal Botanic Gardens. According to Organic Monitor, the move follows the launch of ErbaOrganics organic skin care products by Target stores earlier in 2007. Natural cosmetics are also becoming more visible in drugstores; Be Fine Food Skin Care was launched in CVS drugstores, for example.
Mass Not A Given
Not all natural and organic brands are including mass retailers as a significant portion of their distribution plan.
As explored in “Sustaining Natural Growth,” in GCI magazine’s April 2006 issue, the distribution strategy of Hain Celestial brands Zia and JASON Natural Products focuses primarily on the natural channel, given the “tremendous opportunity to continue to improve depth of distribution in these outlets.” The company continuously evaluates opportunities to grow its brand through this channel. Weleda, too, has been committed to natural retailers as its primary distribution channel, and based its decision to commit to the channel on what it sees as these retailers’ development potential.
It is interesting to note that the concept and lifestyle implications of natural and organic products in general have allowed niche retailers in the segment to expand. Whole Foods Market, a retailer of natural and organic foods, added Save Your World’s Save Your Skin brand exfoliating soaps, body lotions and shower gels to its Midwest store shelves. Founded in 2006, Save Your World markets all natural, handcrafted personal care product lines that feature biodegradable raw materials and recycled or recyclable packaging. “A company that shares our values, like Save Your World, fits in perfectly in the Whole Foods Market culture,” said Noelle Wagner, midwest regional Whole Body coordinator, Whole Foods, in a press release announcing the addition.
For retailers across the board, however, the sales growth and potential from the success of natural and organic products across channels has not completely offset economic concerns negatively impacting retail sales. The National Retail Federation forecast that 2007 holiday season sales would only rise 4.0% to $474.5 billion, below the 10-year average of 4.8%, to be the slowest holiday sales growth since 2002, when sales rose 1.3%. The concerns that affect retail sales are also particularly felt by low to middle income consumers, the primary target for many mass retailers and discounters, and the channels cited by market data firms as significant players in the sales growth of natural and organic products.
In addition to documented sales gains, the addition of natural and organic personal care products on mass retailers’ shelves has also influenced the acquisition game. The gains have made natural brands ideal additions to brand arsenals, according to Kline & Company, which cites Clorox’s acquisition interest in Burt’s Bees (an already well-established mass-channel brand) and other acquisition activity over the past two years—L’Oréal’s acquisition of The Body Shop, Colgate-Palmolive’s purchase of Tom’s of Maine, and Hain Celestial’s acquisition of JASON Natural Products. These moves are indicators that larger manufacturers are searching for footholds in segments with growth potential prior to the recent gains in mass distribution channels.
It is clear that the impact of naturals and organics goes beyond the products themselves. Trends cast spheres of influence, and retail is spinning upward and onward on the sphere of the naturals and organics trend.
For more on engaging and understanding consumer segments and trends, read Understanding the Trend Landscape, with insight from LPK’s Valerie Kremer.