Beauty Pt 3: Sustainability and Zero Waste Businesses
In part 1 of this series, we dug into 8 macro trends affecting the beauty space- including Sustainability. This is powered largely by another trend: Gen Zpend (the increasing consumer power of a far more socially and climate-conscious Generation Z.) This growing generation are holding companies to higher account when it comes to their impact, especially on the environment.
The beauty industry is responsible for 120 billion tonnes of waste each year. On top of problematic plastic production, like most industries, they have a heavy carbon footprint, huge water use, and high responsibility for deforestation and toxic waste.
Regulations are also setting in. From Zero Carbon emissions targets to taxation. For instance, from February 2022 the UK will levy a £200 per tonne tax rate for packaging with less than 30% recycled plastic.
In response to consumer and regulatory pressures, Corporates are making big commitments. Back in October 2019, Unilever pledged to halve use of virgin plastic by 2025 and to collect and process more plastic packaging than it sells. They’ve also made their whole supply chain public as part of a promise to source Palm Oil more sustainably. Meanwhile, L’Oreal actually achieved carbon neutrality in 35 of their industrial sites, including 14 factories and have pledged to be de-forestation free by the end of 2020.
So how are startups responding to the same trends, and which business models have emerged to benefit from the opportunity to deliver more sustainable solutions?
In this post we’ll first explore how startups are approaching sustainability as a value proposition, including which plays are and aren’t working. We’ll then dig into the circular economy at both a product and packaging level, before looking at innovations across the supply chain.
Eco as the Value Prop
We’ll dig more into the direct to consumer model in the next blog, but it’s been a great medium for startups to launch new products, with environmental and sustainable value propositions. Numerous beauty brands are cutting out the middle men in this model. Not only does it increase margins, but it cuts carbon in the supply chain process, only furthering the sustainability proposition.
Wild ideas- direct to consumer.
Take Wild for example. They sell 100% natural and vegan deodorants. Offering a replenishment subscription (checkout our last post for more on this model), the refills are free from plastic and aluminium and the refill packaging is compostable. Meanwhile, the deodorant itself is made of bamboo pulp, with all natural oils, butters and waxes.
They raised €2.2m in October 2020 (including investment from Jam Jar Ventures) having only just launched in July 2019. They pull on several of our Macro trends, including diversity, as they offer gender-neutral products with 5 scents to choose from. Since April this 2020 they’ve served 100k customers and sold 300k deodorants.
Both founders were inspired by their previous startup experiences: Charlie Bowes-Lyon had formerly started a reusable water bottle and drinking cup company; while the Freddy Ward learned a key lesson as Marketing Director at Hello Fresh:
“Firstly, there was this sudden change in consumer perception about the wastage and packaging of everyday products they’re using in the home, and the impact that’s having on the environment. It went from being not even noticeable or mentioned — to being a massive issue. In fact, one of the largest we faced as an organisation within six months. What I saw is that with even a five year old company, it’s really hard to adapt and change your model to fit this sudden change in how people think. I fundamentally believe that start-ups are a better place to solve these problems.” Freddy Ward, Wild Co-Founder
Being more eco does come with a cost though. Another eco startup Meow Meow Tweet (offering small batch deodorant, soaps, shampoo and washes), shared that cardboard tubes for their deodorant cost 60x more than standard, mass-produced plastic options.
The direct to consumer model is incredibly helpful when it comes to recapturing some of the margins lost making the product and packaging more environmentally friendly.
The problem with Discovery Subscription
We dug into the discovery subscription play in our last post — highlighting how numerous businesses sprung up to offer customers an exciting monthly experience of new beauty products to sample. Players include Birchbox, Glossybox and Ipsy.
To me at least, the eco value prop works much better with a replenishment proposition (like Wild’s) than trying to make a ‘discovery’ proposition/beauty box full of eco-products. However, that’s not stopped numerous startups trying. Maybe it makes sense for those searching for new clean beauty or vegan beauty products; but when the focus is on sustainability, how are consumers justifying the inevitable waste from these boxes. First, you have the products you rarely use. Second, you have an emphasis on consumption. “Discover new things to buy” which seems fundamentally in opposition to authentic environmentalism.
Sustainability can’t just be a one-off
Businesses like Last Object try to cut our consumption by introducing reusable products in place of disposable, single use ones. Think qtips, tissues and cotton pads. The question is how secure is the business model? If your product can be used thousands of times, and you only have a few products, how big is the customer lifetime value? And there’s certainly no virality built-in. The mechanics of the business haven’t been set up so each customer brings at least one new customer.
To me, this explains why businesses like this have so far been backed by crowdfunding rather than VC capital. The products are awesome, the business model… questionable.
Differentiator or Hygiene Factor?
We also have to ask ourselves, how long will startups be able to trade off sustainability as a truly unique selling point? It’s not yet mainstream, but it appears to be moving that way. Will players like Wild be able to continue to win against the Unilever and L’Oreals of the world, once they reach environmental parity in the products and user experience? Or is the hope simply for a Dollar Shave Club style acquisition?
Closing the Loop: The Circular Economy
Another business model to watch in the sustainability space is a circular one. These companies try to eliminate waste entirely. Both in packaging and product production.
Reduce, Reuse, Refill
The refillable beauty product is not a new concept. L’Occitane has been offering it since 2008, and companies like Lush and Kiehls have long been collecting packaging for reuse and rewarding their sustainably-minded customers.
There is a challenge with Covid. Now, consumers can’t use in-store refill options, like those offered at Lush, Mac, or L’Occitane, brands may have to take on the cost of the return packaging/shipping. As we know, consumers no longer expect to pay for P&P or returns. Meanwhile, refillable pouches work for some products (like shampoo, soaps, and washes) but not so well for beauty products with an expiry date. Washing old containers at home can come with real hygiene risks if not done correctly.
One potential solution is Loop: which offers refillable packaging as a service. Launched in 2019, Loop was created by Terracyle a global recycling company, working to convert waste into packaging and increase the amount that can be successfully recycled. Unlike its corporate parent though, Loop isn’t about recycling, it’s about circular re-use. With metal and glass packaging designed to be returned, washed, and reused, Loop offers companies a totally different packaging option.
According to the LCA Centre, using a shampoo refill instead of buying a new bottle saves 70% on CO2, 65% on energy and 45% on water.
It’s still in trial mode with Tesco, currently for a range of food brands (including Haagen Daas and Danone) and also for beauty companies like Ren, Beauty Kitchen, Molton Brown, and Nivea. Shoppers pay a fully refundable deposit to cover the risk that they don’t return the packaging for reuse, and then empties are collected from your door for free.
3 Circular Companies to be inspired by
The circular economy is also making an appearance in the products themselves. Some startups are reusing materials that would otherwise be wasted from other industries to create a more sustainable business.
1 Le Prunier: Launched in 2018, they sell just one product: plum oil. The founders turned the waste product from their family farm into a new, premium beauty solution. With incredible press coverage and celebrity endorsements from the likes of Chrissy Teigen, this brand is gaining traction.
2 Upcircle: Launched in 2016, they started by repurposing coffee grounds which coffee shops normally pay to dispose of, into beauty products. In 2018, they completed a crowdfunding round that raised £217,500 from 377 investors and they’ve also seen success in the Dragons Den, and with Virgin Startup. Their latest range was upcycled powdered fruit stones, and now they’re turning their attention to surplus fruit waters in the juicing industry, and unused flower petals from local florists.
3 Caudalie: Not a startup anymore, Caudalie was founded in 1995. They use waste products from wine, which offer natural antioxidants, to make skincare. Despite their maturity, they can still serve as an inspiration to today’s new wave of circular economy startups.
Innovating across the Supply Chain
To truly offer the sustainability value proposition, it’s not just the product that has to be eco- it’s the whole supply chain.
From the sustainability of ingredients used, to the carbon cost of transport, to the water, waste, and energy of manufacture, to packaging, to returns.
That’s a lot to cover… but luckily there are lots of innovations underway! Here are just a few to inspire you.
5 Supply chain innovations to watch!
1Loreal’s Carbon Capture Bottle: Through a partnership with Total (a global Energy company) and LanzaTech (a carbon recycling company), L’Oreal have created a new bottle, made from captured and recycled carbon emissions. There are still challenges with this kind of packaging: it is still plastic, even if “bioplastic”, with carbon capture roots. Typically, products like these still need industrial recycling to breakdown - so you if improperly disposed of they will continue to perpetuate landfill and microplastics in the sea. However, it is a huge stride forward, we just need the infrastructure with enough recycling facilities in place to make sure they’re properly disposed of.
2 Conscious Beauty Co: started as a vegan lipstick on Natwest’s Accelerator, this startup have now pivoted to a sustainable beauty company. Using flexible aluminium packaging, which takes 50% less energy to produce; the company even have a full recycling service so they can sanitise and reuse packaging .
3 Beer fertiliser for Walker’s Crisps: ok not beauty- but is this an example the beauty industry could learn from for crop production? Walker’s have found a way to cut C02 emissions 70% in manufacturing. They take C02, captured from beer fermentation, mix it with their potato waste, and turn it into crop fertiliser for their potato farms. It’s a double win, as it captures what would typically be emitted in beer production, and saves on the C02 normally generated in fertiliser manufacture.
4 DePoly’s new recycling techniques: winner of L’Oreal’s “Beauty Tech for Good Challenge”. This Swiss startup has created new technology to recycle PET plastic at room temperature. Currently, mixed coloured plastic or plastic containing polyester fibres can’t be recycled. With this chemical process, the resulting raw material can be turned into new PET plastic.
5 Cradle to cradle certification: a new measure of safer, more sustainable products made for the circular economy. There are 5 certification levels: Material Health, Material Reutilization, Renewable Energy and Carbon Management, Water Stewardship, and Social Fairness. So far, they have partnerships with Amazon, Rabobank, Walgreens, Walmart, Google, The Home Depot, the US Environmental Protection Agency and more… This could become the B Corp certification equivalent for sustainability. It may seem like a PR stunt for companies, but if they can unlock real incentives through their partnerships, it could add to the business case for sustainability.
Time to Sustain
There’s still a lot of work to be done in beauty, right across the supply chain. Startups that authentically offer Sustainability and No Waste Business Value propositions that they can really deliver on, are still gaining traction today, especially powered by the direct to consumer model. But, the time when this is a differentiator in the market will run out.
The question, is who will capture this growing market before it does. And what new business models will be driven and enabled by the technology innovations we’re already seeing.
Who do you think will win and why? And which innovations are you watching closely? Let us know in the comments below!
Still to Come
Next in this Beauty series, we’ll explore diversity focussed startups, and the direct to consumer Model. Part 5 will dig into the beauty buyer club model; and Part 6 will ask when we’ll be ready for beauty Resale.
In the meantime, if you’re curious to see what other trends and business models we uncover, you can join our studio newsletter to stay in the loop with new venture opportunities and market trends on Substack.
