Back in June 2004, it seemed like an innocuous announcement: The Hain Celestial Group was acquiring yet another natural products company. But this company was different. Jason Natural Products was Hain's first nonfood acquisition.
Speculation inside and outside the natural personal care industry was intense. Prior to the Jason acquisition, the only other natural personal care company that had drawn the interest of a multimillionaire buyer was Burt's Bees, which was acquired by AEA Investors in November 2003 for $155 million. Hain followed up the Jason purchase with the acquisition of Zia Natural Skincare last April and is most likely out shopping again. "You can draw your own conclusions about Hain's acquisition strategy, based on historical evidence," says Andrew Jacobson, president of Hain Celestial Personal Care.
So what does all this wheeling and dealing mean for retailers? A lot more new product in the personal care aisle. Not only is Melville, N.Y.-based Hain planning the launch of three new Jason and Zia lines in March, but analysts believe conventional manufacturers are soon going to start making and marketing more natural personal care products.
"It's the same progress we saw in natural foods—the success of the naturals companies attracted the mainstream brands," says Scott Van Winkle, managing partner with Boston-based investment firm Adams Harkness. So how soon might we see L'Oreal lavender essential oil shampoo or Suave 70 percent organic lotion? One to three years, Van Winkle predicts. "The natural personal care market's growing like a weed. The market's probably bigger than we think."
Hain is leading the way not with its multimillion-dollar research and development budget, but rather with its distribution contacts, Van Winkle says. "Hain will absolutely take natural personal care further into the mass market, giving it much greater availability and more mainstream sales," making the category attractive to conventional personal care manufacturers. "Hain's not going to be the one that dominates natural personal care in the mass market," Van Winkle adds.
But what about in the naturals retail market? Will Hain companies dominate the personal care aisle? Jacobson hopes so. "We didn't buy [Jason and Zia] to be No. 2," he says. "Product innovation is extremely important to our success. We're putting a tremendous amount of R&D into [personal care]." Jacobson wouldn't disclose Hain's personal care research and development budget, but according to Hain's last annual report, the company spent a total of $2.6 million on R&D in 2005 for all its divisions.
Jacobson says the R&D focus at Hain's personal care headquarters in Culver City, Calif., is on functional products. "How many vitamin E shampoos do you need in a store? How many lavender products?
"We figure, 'Why have an ingredient if it's not doing anything?' We're approaching formulations from a minimalist standard."
Jacobson says in its first year, Hain's personal care division debuted 45 new items. Last year, Hain launched Earth's Best Baby Body Care, a Zia men's skin care line and a Jason skin care line containing antioxidant-rich red tea.
Hain has also been ruthless in evaluating existing Jason products. President Irwin Simon told NFM that Hain cut 400 Jason SKUs, some of which were making as little as $20 a year for the company. Jacobson wouldn't elaborate on which SKUs were cut. "There were some massage oils, some hand and body lotions, some shampoos," he says. "It really doesn't matter because they don't exist anymore."
Jacobson prefers to talk about the innovations at Zia. "That's really where we're going to be putting a huge effort." At Natural Products Expo West, Hain plans to debut a Zia natural microdermabrasion line and Brilliance, an essential oil-based skin care system for women over age 50.
Also debuting will be a Jason salon hair care line designed to compete with Giovanni.
All of this innovation has made other companies in the natural personal care industry attentive rather than nervous, at least publicly. "I don't know if [Hain's R&D efforts] are changing our industry. We've always had a whole lot of innovation," says Heberto Calves, director of marketing for Gardiner, N.Y.-based Kiss My Face.
However, Calves acknowledges, "We've been putting pressure on ourselves to innovate more with existing line extensions and new lines," not necessarily because of competition from Hain, but because the "overall industry is just maturing. More retailers want to carry our things, and there are more tip-of-the-iceberg products—peptides, green tea, white tea—and we have to stay on top of it." Calves believes Hain's large personal care R&D budget may help the company by creating consumer trust in the efficacy of its products, but that can also aid smaller companies like Kiss My Face. "Having a publicly traded company in our industry kind of takes that [consumer trust] game and brings it to us."
In 2005, Kiss My Face removed parabens from its products. This year it will launch two new lines and relaunch its Sudz soap line, focusing on the four best-selling fragrances. "Our standards are getting higher; we're evaluating velocities and not just leaving product on the shelf and waiting for it to sell," Calves says.
Kiss My Face has been a longtime conventional store staple, but Calves expects that to increase, partially thanks to Hain. "Buyers who want to introduce natural personal care into their store are not going to bring in just one line—they're going to bring in the top five." As mainstream stores compete more with naturals in the personal care aisle, "natural foods retailers are going to have to build on their reputation of being the police of the industry," Calves believes.
Jacobson says Hain "definitely plans to step up consumer marketing activity in the next 12 months," including more mailings, sampling events in stores and product tie-ins at events hosted by the Environmental Media Association. Hain also plans more gift-with-purchase promotions.
At Corte Madera, Calif.-based EO Products, Hain's beefed-up personal care marketing and R&D budget has had more of a psychological than a business impact, says Co-Chief Executive Susan Griffin-Black. "Our question is, 'How do you stay independent, healthy and strong,' rather than 'How do you push up your valuation?' It's a tyranny of scale issue. The passion and motivation is different in a smaller company versus a larger company. The demands are different in a publicly held company—the bottom line is performance. That's not the same for us. We have the luxury of keeping SKUs we like, even if they're slow performers."
However, she notes, "There's a certain shift that you feel when a [competing] company gets sold. The overall feeling in our industry is definitely consolidation and maturing, and it kind of makes us feel nervous—we don't want to be the last company standing."
Griffin-Black says EO has always emphasized innovation, but since Hain got into personal care, "there's more pressure to create brand awareness and differentiation. Last year we spent a few months with a very good branding person, and the result is we're going to slightly modify our packaging." The company is also removing parabens from its products and "revisiting all our formulations to upgrade," Griffin-Black says.
Jacobson credits Jason with being a leader in pushing formula upgrades throughout the natural personal care industry. "Jason has been paraben-free for two-and-a-half to three years," he says, except for the Ester-C line, which went paraben-free last year. But although Hain is committed to "natural and clean" formulations, Jacobson says the company has no current plans to expand its organic offerings beyond Jason's Shaman Earthly Organics line.
The problem, he says, is that the lack of national standards for organic personal care makes it difficult to create and launch new products. "I think the personal care business, like the food side of the industry, needs to grow up and look at a standard for the category rather than standards for individual brands."
Vicky Uhland is a freelance writer and editor in Lafayette, Colo.
Natural Foods Merchandiser volume XXVII/number 2/p. 14, 22