Coresight Research expects wellness to remain the pre-eminent multiyear trend driving consumer spending shifts, only amplified by the pandemic prompting consumers to focus more on mental and physical wellness. Here, we discuss three notable trends in drug-store-relevant consumer packaged goods categories: demand for clean beauty, a drive toward personalized nutrition and acquisitions of startups.
- Demand for clean beauty and increased transparency — Shoppers are increasingly conscious of the ingredients in their beauty products, with the growing focus on health and wellness translating to amplified demand for natural beauty products, often referred to as “clean” beauty. We have seen increased vigilance about ingredient safety in makeup and skin care products amid the pandemic. Coresight Research estimates that U.S. sales of natural cosmetics and skin care products, deemed to be clean beauty, reached $3.2 billion in 2020, up 3% year over year. This compared to a 3% decline in the overall U.S. cosmetics and skin care market, based on Euromonitor International data.
The rise in clean beauty in the U.S. has also been fueled by growing awareness of the stricter regulations that govern beauty industries in other parts of the world. The European Union, for example, has banned approximately 1,300 chemicals in cosmetics, a category that covers makeup, lotions, hair dyes, deodorant, nail polish, shaving cream and other beauty products. In contrast, the U.S. is lagging behind in enacting measures on ingredient safety in beauty and personal care products. The Food and Drug Administration currently bans only 11 ingredients from beauty products for safety reasons.
- Beautycounter, a leading American clean beauty brand, currently has a ban on more than 1,800 ingredients (up from 1,500 in February 2020) from its formulations, which it refers to as its “Never List.” In April 2021, U.S. capital investment group Carlyle acquired a majority stake of Beautycounter for $1 billion — showing the growing attractiveness of clean beauty in the eyes of investors.
- In July 2021, Coty relaunched its Kylie Cosmetics brand with cleaner formulas. The updated formulas avoid animal oils, parabens or gluten — along with a long list of over 1,600 other potentially harmful and irritating ingredients.
- In February 2021, Estée Lauder announced plans to increase its investment in Canada-based clean skin care company Deciem Beauty Group from 29% to 76%. Estée Lauder closed the transaction in May 2021.
Companies such as Sephora are moving a step further by offering vegan-friendly (products that do not contain any animal-derived ingredients) and cruelty-free products (products that have not been tested on animals) with sustainable packaging to differentiate themselves from the competition. Technological advances have allowed large and small beauty brands alike to sustainably create and ethically test products.
While the most common clean beauty products are currently skin care and cosmetics, we expect to see beauty brands and retailers continue to branch out into categories such as fragrance, hair care and nail polish, choosing to eliminate controversial ingredients from their product formulas. Within the beauty industry, wellness-related CBD beauty products are also poised to grow exponentially, with consumers interested in CBD for its attributed calming and anti-inflammatory properties. Coresight Research estimates that the U.S. market for CBD health and wellness products — including skin care, sleep care and cosmetics — will grow from $350 million in 2020 to $1.0 billion in 2025, at a CAGR (compound annual growth rate) of 24.0%, propelled by consumers’ interest in CBD’s functional properties.
- Retail customization to drive personalized nutrition — We expect personalized nutrition offerings to piggyback on broader demand for customized experiences in the current retail environment.
Personalized nutrition is defined as developing customized nutrition guidelines based on an individual’s unique microbiome and genetic profiles. The concept aims to replace the one-size-fits-all approach to nutrition, providing consumers with tailored products to suit their specific needs. Companies that offer personalized nutrition services provide recommendations (such as meal plans, grocery lists, recipes and exercises) that meet consumers’ personal nutritional and health needs and help prevent nutrition-related chronic diseases.
Personalization is an emerging trend across consumer industries, such as personalized shopping experiences and made-to-order fashion items or tailored holidays. This emerging trend creates an opportunity for the food industry too, which has lagged behind in offering a customized experience. The ability to customize diets and exercise plans based on an individual’s microbiome and genetics may be the next frontier in nutrition counseling. A personalized nutrition plan may help increase compliance and help consumers target dietary goals that align with what works with their bodies.
Personalized nutrition spans multiple industries, from medical diagnosis firms to extract and interpret microbiome/genetic test results, to wearable tech companies that offer ongoing interactive feedback to users and food product suppliers to meet nutritional product requirements.
Most of the current personalized nutrition market participants are startups. That said, the growing role of personalization within the food industry has been acknowledged by larger CPG companies, including Nestlé, Danone and Unilever.
- Startup acquisitions outside of traditional health-focused products — CPG companies are expanding their health and wellness scope by acquiring startup brands, with many going beyond just buying out vitamin and supplement startups.
The acquired companies range across several CPG categories, including snacks and water supplements, focusing on new and innovative products compared to the more traditional health and wellness offerings.
- In May 2021, Nestlé Health Sciences acquired functional hydration tablet maker Nuun for an undisclosed amount. The move followed the company’s $5.7 billion acquisition of several core brands from nutrition and supplements maker the Bountiful Co. in April 2021.
- In April 2021, Unilever acquired Onnit, a Texas-based nutrition supplements brands for an undisclosed sum. The purchase follows the company’s acquisition of electrolyte drink mix brand Liquid IV in November 2020.
- Mondelez acquired keto-friendly chocolate brand Hu for $340 million in January 2021.
- Confectionery, food and pet product manufacturer Mars acquired healthy snacks and bars company Kind North America in November 2020.
CPG companies have previously focused on the health and wellness space by either targeting traditional health-focused products such as vitamins or acquiring startups related to organic products. However, this category focus has shifted toward functional beverages and healthy snacks and bars, which claim to be wellness-orientated by having healthier and simpler ingredients than rival products. This indicates that health and wellness trends are expanding into more food categories.
CPG brands face substantial costs to incubate new health-focused brands from the ground up, including diverting resources from their larger, profitable businesses. Rather than building the brand themselves, more companies are turning to acquisitions to take a ready-made wellness brand with a compelling story to the next level. Furthermore, these startups often succeed in the areas that large companies typically don’t perform as well in, namely niche categories, targeted distribution and social media prowess.
A multiyear, multibillion-dollar opportunity
Consumers’ increased interest in wellness is a multiyear trend that is impacting the flow of billions of dollars of retail spending across categories. On top of the secular shift toward a greater well-being focus, the pandemic has seen consumers place a heightened emphasis on preventative health and wellness, including healthier eating habits, using products without toxic ingredients and exercising more to maintain a healthier lifestyle. We see sustained opportunities for drug store retailers to incorporate more wellness-focused options into their product ranges to drive sales, including through quality private labels with convincing product promises and USPs (unique selling points) that resonate with the well-being demands of consumers.
Deborah Weinswig is founder and chief executive officer of Coresight Research.