Finding a Path to Beauty
At Pathfinder, we recently held our third ‘Path to’ event dedicated to beauty, and part of a series of talks on how the future is being shaped in several industries, with handpicked players from the corporate and startup worlds. During this third talk, which took place on February 11th, we decrypted sectorial trends and invited our audience to then identify existing problems and pitch innovative business solutions. The next installment, dedicated to the Circular Economy will take place on April 10. Stay tuned !
On stage, Pathfinder’s Thomas Meyer led a panel with Vincent Nida, Deputy CEO of Groupe Rocher (Yves Rocher, Sabon, Dr Pierre Ricaud etc.) Isabelle Rabier co-founder and CEO of Jolimoi (personalized beauty shopping services for end-users and augmented beauty advisors), Maxime Garcia-Janin from Sillages Paris (online personalized fragrance) and Julien Chiavassa (beauty tech advisor, former Head of Digital & E-Commerce at Kiko Milano). Here are the main talking points from our talk on the transformation of the beauty value chain.
Leveling the beauty playing field
The majority of the top beauty brands are controlled by a select group of international conglomerates, in fact 182 top brands are owned by 7 leading megacompanies including Estée Lauder or L’Oréal, most of them regularly posting eye-bending financial results boosted by the Asian market and legacy brands. However, the foundations of this robust value chain have started to tremble, under the attack of several intrants, new consumer habits and expectations (we’re looking at you millenials), new technologies, many exogenous perturbations that make way for new opportunities for new players to enter the industry.
2019 is already providing a case in point of such disruption. In February, Beiersdorf, the world’s 7th biggest beauty conglomerate with brands such as Nivea or La Prairie saw its shares drop by more than 10% after it announced its margins would fall as it will invest more to keep up with new indie brands disrupting the industry. The new CEO declared that the industry was in turmoil as such niche brands have already taken 40% of the skincare market in Europe. That same week, model/socialite turned entrepreneur Kylie Jenner toppled Mark Zuckerberg as the youngest self-made billionaire. She owes this record to her beauty brand Kylie Cosmetics founded in 2015 which she entirely self-funded and which is already valued at $900M with a profitable business. Her company consists of seven full-time employees with all of the manufacturing and packaging outsourced to a private-label producer. In comparison, Beiersdorf’s overhead is close to 20.000 employees. Kylie Cosmetics is expecting to hit $1 billion in sales by 2022, solely relying on its founder’s access to a community of 175 online million followers.
At the event, we had the chance to get first-hand insights from entrepreneurs seeking to enter and eventually dominate the beauty value chain. The common trait between those new entrants is that they each address a specific problem, whether focusing on an underserved demographics or providing a new level of service unheard of until then.
Among our speakers was Maxime Garcia-Janin, CEO & co-founder of Sillages Paris, a customized fragrance startup offering a full digital experience. He explained how he founded his company with the goal of reinventing the whole fragrance shopping experience by addressing concrete problems he had spotted. Spending some time talking with customers right outside Sephora he identified three key problems, especially among millenials, that the current players were not addressing: fragrances are too expensive, too standardized and not distinctive enough / produced for a mass market. Tellingly, in France more than 3.5 millions of consumers have stopped buying their fragrance in beauty retailers such as Sephora or Marionnaud, increasingly favoring an online shopping experience and peer recommendations. Maxime added a personalization twist to this online experience, today it only has a 3% return rate.
Jolimoi entrepreneur Isabelle Rabier provided another example of how technology can help build a new beauty experience. In a plethoric market where both consumers and sellers feel lost among the +10.000 brands, she saw a huge opportunity in building the right beauty matching platform to help every individual find the right product for them. As a rising share of consumers buy through peer-to-peer recommendations (friends, family or influencers), Jolimoi sees the trove of direct social selling players (influencers, beauty advisors) as the new “Avon Ladies” who can be empowered with the data the matching engine gathers.
Community first, product second
In 2008, 10.000 subscribers received a newsletter featuring recipes for yummy Turkey ragu and banana-nut muffins, the newsletter beared the unassuming name ‘Goop’ and was sent out from Gwyneth Paltrow’s kitchen. Ten years later, Goop is a full blown wellness & beauty empire with a valuation close to $250 million and still nurtures this initial community through personalized content. The most successful beauty launches of the past 10 years all followed the same community-first development pattern, from Glossier which started out as a blog scrutinizing celebrities’ beauty routines to Huda Beauty with its Facebook Live show Huda Boss. One could argue that beauty brands always had tight-knit community of clients. The twist here is that these new brands focused on building a community first and then proceeded to use the insights collected organically to launch their products. Glossier developed its star product, the Milky Jelly Cleanser, by simply asking on Instagram what would be the ideal cleanser, the brand computed the thousands of comments and fine-tuned the product development through Instagram lives to validate the final prototype. This cleanser is now the brand’s best selling product.
Maxime Garcia-Janin provided an interesting counterpoint to this tactic as he tried to keep a fine balance between collecting user insights and maintaining a sense of exclusivity, organising a secret pre-launch. After a first round of interviews directly carried out on the street to identify the main pain points, rather than creating an open table community on Instagram or a newsletter, he put together a select gang of 20 happy-fews on Whatsapp and Facebook who actively provided feedback during the product development phase. This under-the-radar development made it easier to lure top influencers in and get them talking about Sillages Paris as a fresh & exclusive product. This strategy paid off as Sillages tapped into +100 influencers giving the startup a global reach from day one and surpassing the yearly objectives in just a few weeks!
Established brands haven’t waited for newcomers to build and nurture a community of consumers. Vincent Nida recalled how Yves Rocher historically maintained relationship with thousands of women across France with their monthly Lettre Yves Rocher which nurtured a sense of loyalty across generations. The real challenge according Nida is to capitalize on this one-way interaction and scale it in the digital age. One practical answer is to transition from paper to digital and leverage the power of social networks. For instance the brand Pierre Ricaud launched its own online community where more than 25.000 women can have open discussions about beauty, health, well-being and so on. Nida noted that this required some continuous investment by the brand to build an outstanding experience by providing feedback by in-house community managers, dermatologists and beauty advisors.
Big brands can also use tech to better engage with influencers and end-users. Julien Chiavassa noted that what is really key for big brands is to create a strong engagement rate with users across all platforms and to create an effective loop between user analytics and marketing & retail teams. During his tenure at Kiko, he focused especially on building enhanced partnerships with influencers especially on Youtube to optimize the virality around new product launches, a much more effective strategy than creating branded content. In his view, the next frontier sits in precisely analyzing user behavior & reactions to content and use this trove of data to finetune communication strategies and product development.
Set the record straight with education & transparency
Beauty consumers are becoming more educated and follow a similar spending patterns to the one which has now already become mainstream in the food industry, namely the quest for transparency and quality is becoming a key criteria influencing their shopping habits.
The main challenge is that neither the indie brands nor the incumbents own this conversation around quality in the beauty space. The go-to prescribers are screening apps such as ThinkDirty in the US which allow consumers to scan their products and get an overview of the toxicity level of the formulation. In France, already 30% of women use those screening apps regularly, Clean Beauty accounts for 500.000 active users and Yuka released a beauty feature in 2018 pushed to its 7 million active users. All panelists agreed that those apps, overall, were a good signs that consumers are becoming more aware of what goes into their cosmetics and care more about the sheer quality of the products rather than the marketing buzz around it. Yet, because ratings for the same product can vary greatly from one app to the other, these apps can create confusion. Vincent Nida called for a more active rule of big beauty players to educate their consumers and put their internal assets in the spotlight. At Yves Rocher, for instance, one third of the research team works on toxicology and ensures that compliance with European standards is achieved before any product launch . Beyond the quality of the products’ formulation, Nida predicted that traceability will likely become a key criteria for consumers as they seek to consume better-sourced ingredients. This represents a great opportunity for conglomerates with integrated and ultra-audited operations to better communicate on the quality of their supply chain.
Big players have already jumped on this bandwagon. Procter & Gamble is now sharing all fragrance ingredients down to 0.01 percent precision across all its personal care portfolio. Unilever has followed suit with its app SmartLabel, allowing consumers to check the full formulation of more than 3,000 products of home care, beauty and personal care.
GAFAs are entering the game and they mean business
The second part of Path to Beauty was dedicated to inviting participants to reflect how the Beauty industry could be entirely disrupted by the likes of Amazon, Google or Facebook, leveraging their unique digital assets and execution acumen. This exercise essentially illustrated how the digital transition creates opportunities for new players to enter the beauty industry with a very different angle from the main incumbents. One team imagined Facebook launching a full-stack beauty startup studio, leveraging on the company’s data from its core social media platform and Instagram.
Some tech giants, it seems, have already started to make moves into the beauty field, which is usually the tip of a much more ambitious undercover masterplan, following the same strategy that they’ve used to enter other industries. One very telling example is -yet again- Amazon. The e-commerce behemoth has progressively become a key player in the beauty space in the span of just a few years. Similarly to what it achieved in the retail space, Amazon started by opening up its market place to both established legacy brands like L’Oréal or Coty before proceeding to open a dedicated shop for indie brands, outsourcing their fulfillment centers and tracking, returns and customer inquiries to the platform. In the US, Amazon has become the top online destination for beauty products purchase, toppling Sephora. com or Walmart.com. Based on user preference knowledge gathered through its marketplace, Amazon is now moving one step further in this beauty value chain integration by launching its own private beauty label, Find a makeup budget line. Incumbents should closely consider this move as the e-commerce behemoth could eventually control both the supply of new products and the distribution platform, getting rid of legacy brands altogether.
And how do we help do all that at Pathfinder?
Throughout this masterclass and workshop, we brought forward one of our big convictions at Pathfinder, which is that all players, and incumbents in particular, should broaden their views and embrace the digital transition by looking at other value chains and learning from the disruptive practices of other corporate players and startups.
Our motto at Pathfinder is to realign the interests of entrepreneurs and big corps. Our clients? Big corps. Our mission? Create their new businesses to rule the digital transition of their value chain. In startup mode. With entrepreneurs.
Stay tuned for our fourth installment on April 10th at 6pm at The Family Paris, where we will discuss n the future of the circular economy with industry leaders and startups from various industries, breaking down the circular economy value chain and high-lighting the different trends affecting and shaping its future.
