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The double-digit annual growth the ethical personal care product market witnessed during the past five years is just the tip of the iceberg. If the market size and penetration of organic foods and beverages are any indication, sales of these products -- also known as natural HBC -- have the potential to skyrocket as they achieve more mass market distribution. Those retailers that catch the wave early have the opportunity to reap the rewards of higher sales and profits in the personal care category.
Moving natural HBC more fully into to the mainstream won't be easy, though, according to New York-based market research firm Packaged Facts. In its latest study, Ethical Consumers and Corporate Responsibility, published in January, Packaged Facts says the total number of ethical personal care product marketers in the United States -- including both well-established corporations and mom-and-pop basement operations -- comes to several hundred, and just 12 marketers currently cross over into the mass retail channels -- which include supermarkets -- with sales that are significant enough to register in Information Resources, Inc.'s checkout scanner data.
But among those tracked by IRI, sales are growing by leaps and bounds. According to the market research firm's data, sales of ethical personal care products through mass retail channels (supermarkets, drug stores, and mass merchandisers, excluding Wal-Mart) totaled $92 million for the 52 weeks ending Oct. 8, 2006, a 29 percent gain over the prior year. Full-year data for 2001 through 2005 shows that mass retail sales of such products doubled during the past five years, to $76.2 million.
Tom's of Maine, one of the first natural HBC marketers to cross over from the natural food channel to mass retail, is the leading mass market brand of ethical personal care products, with $29.7 million in retail sales for the year ending Oct. 8, 2006, a 16.2 percent gain over the prior year.
In second place is Burt's Bees, which boosted its mass retail sales 44 percent in 2006, to $14.8 million. Pleasanton, Calif.-based Safeway is one retailer that has helped contribute to this growth, by including a Burt's Bees display in the natural and organic sections of its Lifestyle stores.
But this is just a drop in the bucket: The $92 million in sales accounts for a mere 3 percent of the $5.2 billion natural HBC market, compared with other channels. Packaged Facts estimates that the natural food channel, including retailers such as Whole Foods and Earth Fare, dominates retail sales of ethical personal care products, accounting for two-thirds (67 percent) of total retail dollar sales in 2006. (See the pie chart.)
In second place with a 26 percent market share is the prestige and pop-prestige channel, which comprises HBC specialty stores (including single-brand retail chains such as The Body Shop and Aveda, and cosmetics chains such as Sephora), department stores, and beauty salons and spas.
Mainstream buys natural
Traditional personal care marketers are actively helping to speed up this distribution at mass retail by purchasing the more well-known natural personal care brands. In 2006 France-based L'Oreal SA bought The Body Shop, Inc., the international HBC chain headquartered in the United Kingdom. Also in 2006, the Colgate-Palmolive Co. purchased an 84 percent stake in Tom's of Maine. The Hain Celestial Group bought Jason Natural Cosmetics in 2004, and Zia natural Skincare in 2005 -- both well-known brands to the natural and organic food retailers' market. Jason had previously bought two organic HBC marketers, Orjene and Shaman.
The pivotal point for the success of natural HBC products in the mass market will be whether the mainstream consumer can equate organic formulation and ethical corporate values with product quality and real benefits.
Some natural HBC companies have made some concessions to traditional consumers as they pursue the mass retail market, using non-natural ingredients to improve product performance and to find wider audiences.
Tom's of Maine uses fluoride in some of its toothpastes to target those consumers who want a fluoride toothpaste, as well as to win the American Dental Association's Seal of Acceptance, and also added sodium laurel sulfate in both its toothpastes and shampoo, to make them foam. In addition, Seventh Generation's baby diapers, while containing chlorine-free wood pulp, are made with an absorbent polymer gel and a poly outer cover because, according to the company's Web site, "it's the best method we have found for keeping babies dry and reducing diaper rash."
According to Packaged Facts, mass retailers that successfully incorporate natural HBC products into their personal care assortment will benefit from consumers' acceptance of the higher prices of these products, and that as the line between natural food channels and mass channels becomes increasingly blurred, natural HBC prices may remain at high levels. Additionally, these products' high margins compared with mainstream brands will continue to induce mass retailers to make more shelving available in more stores.
This in turn will help lower the prices to a level where more mainstream consumers can be converted faster, resulting in entire new sectors of less affluent Americans purchasing these products.