The organic cosmetics market - United States

1.2 The Global Outlook

The cosmetics market as a whole

The global cosmetics market can be defined a supply-led market mainly driven by innovation and in which new ideas are rewarded by customers.

The global cosmetics market was worth over €*** billion in **** as presented in the L'Oréal annual report. As it is visible from the graph below, this market has shown an important degree of resilience over the years, only experiencing a significant degrowth (***) due to the COVID-** crisis as it will further explored later on in this study.

Annual growth of the global cosmetics market ****-****, in % Source: ****

The market can be segmented by geographic zone or by product category.

The regions of Asia-Pacific and North America dominate the market making up, together, the **% of the total, followed by Western Europe and Latin America.

Breakdown of the global cosmetics market, by geographic zone World, ****, in % Source: ****

  For what concerns the product categories which compose this market, they are mainly summarized in * types of items of which skincare is the dominant one.  Breakdown of the global cosmetics market, by product category World, ****, in % Source: ****

The organic cosmetic industry: a global rise

The organic cosmetic industry is a sub-segment of the cosmetics industry, and ...

1.3 The US Market

From a value of USD **.* billions in ****, the revenues of the cosmetic and beauty industry in the USA reached a value of USD **.* billions in **** peaking in **** (***). The market thus grew at a CAGR of *.**% in the past ten years. 

Revenues of the cosmetic and beauty industry US, ****-**** in billion USD Source: ****

If we considerate the organic market as a whole, the US is the leading country (***). [***]

1.4 International Trade

UN Comtrade provides data on production outcomes. For the category “cosmetics, beauty, make up, skin care preparation, manicure or pedicure preparation ****” in **** exports in the United States amounted to approximately USD *.* billions while imports totaled USD *.* billions.

Imports, Exports and Coverage Rate for cosmetic and toilet preparations US, ****-****, in billion USD Source: ****

Exports have grown more, in comparison with imports, between **** and ****. This becomes even clearer when looking at the coverage rates which have always remained above ***% with an increasing trend. The only year of downturn in terms of both exports and imports can be considered as a consequence of the Covid-**.

Moreover, by breaking down the trade partners geographically, we observe that the top five countries where the US exports to are Canada, China, UK, Hong Kong and Australia. Together they account for approximately **.*% of the total export value in the sector.

Breakdown of exports of cosmetic and toilet preparations, by consumer countries US, ****, in % Source: ****

Similarly, the top five importing countries - France, Canada, Republic of Korea, China and Italy account for  **.*% of all imports.

Breakdown of imports of cosmetic and toilet preparations, by supplier countries US, ****, in % Source: ****

In international trade as a whole, we notice a ...

1.5 COVID-19 Impact

The measures of social distancing and lockdowns imposed in the US and in other countries have severely impacted the cosmetics market. Besides the shock in supply, the virus has also possibly impacted demand. This is because shopping for cosmetics may not be considered first priority in the middle of a pandemic. Thus, during lockdown, not only several individuals were unable to go shopping, but, in the short run, many clients might choose to postpone their trip to a shop, given the circumstances.

Moreover, it is expected that the slowdown of the economic activity and the rise in unemployment rates (***) will weaken spending power [***], probably resulting in a downgrading from premium to lower price products, affecting the demand for certain segments such as organics, which have an above average price. However, it is also probable that the clean/conscious movement will be reinforced, as safety, provenance and sustainability of ingredients will be even more sought after. It is a matter to wait which effect will prevail. 

It is also important to note that, spending more time in their homes, beauty products consumers shifted their consumption habits towards skin and personal care products away from make-up and cosmetics. This has been noted by ...

2.1 Demand Drivers

The American woman spends on average US$ *** thousand on makeup during her lifetime [***]. Moreover, in ****, **% of women in the US claimed to purchase makeup products once every month, and **% more than once every month. Although it is a consolidated market, it is not immune to transformations, such as the growing demand for greener products.

Personal understanding

The market for natural and organic cosmetics in the US is highly influenced by consumers’ perception and awareness. Consequently, the product demand is subjective, being strictly interconnected to the end consumer.

Moreover, in recent times, a trend has been developing among the beauty blogs and social media accounts in favor of natural and cruelty-free products. Those channels, which started as niche, are committed to the benefits of going chemical-free, and are becoming more popular thus enhancing consumers´ information [***].

We can notice the development of this awareness in the consumption by observing changes in purchasing patterns. For instance, **% of women, in the US, claimed to have read the ingredient labeled on beauty products prior to purchasing it in ****,while this percentage was lower than **% in ****. Moreover, in ****, **% of the American women claimed that they intended to purchase more green beauty products over the next two years ...

2.2 Product Demand by Category

Biological or organic products are more expensive than traditional products, since they are associated with a perception of higher quality, given the higher cost of natural ingredients which changes year-on-year, the uncontrollable environmental factors, and the manufacturing process that is more labor-intensive if compared to its generic counterparts. 

Given the pre tendency of environmentally conscious consumers of being willing to pay more, the higher price is not dampening demand. In fact, many consumers look for higher prices as a proxy for more quality standards. In the haircare market, for example, products containing coconut, marula, argan, and almond oils are gaining traction over products containing harsh chemicals which are now known to damage hair. Although consumers are happy to spend more money on natural products, they also ask for more information in return. There is a rising demand for labels with more detailed information that can increased understanding of the way ingredients work on the body and each of their benefits [***].

As mentioned before, cosmetic products can be segmented by type of product. Dividing the analysis of the demand by product, we notice how important skin care and hair care are for consumers, in comparison with the rest of the market. Together, ...

2.3 Geographic Distribution of Demand

To better understand the geographic distribution of demand for organic cosmetics products, in the absence of exhaustive statistics on the precise market, it is still useful to look at the expenditures of US citizens of different regions on personal care products and services. Doing so, we will be able to assess which regions are more likely to present a demand for cosmetics products more significant than others. 

The picture that appears, as it can be seen in the map below, shows the superiority of western regions in terms of average annual expenditures on personal care products. This area, however, presents expenditures on these products not higher than **% with respect to the other regions, meaning that personal care products and services expenditures are not uniform but not too fragmented and do not vary too much across different regions.

Geographic Distribution of Average Annual Expenditures on Personal Care Products and Services

US, ****, in dollars

Source: ****

2.4 Demand Gap

Although most women seem to be satisfied by the selection of natural beauty products available at the retailers shelves or in their online sites, it seems like the supply has not yet met the demand when it comes to variety and selection range.

In fact, in ****, **% of American women claimed to be unsatisfied by the all-natural beauty selection available at specialty drugstores and grocery stores. When it comes to drugstores and grocery stores, and specialty cosmetic stores, the discontentment seems to persist: **% and **% respectively. [***].

This mismatch has proven to be one of the obstacles for the market to increase even further. In light of wider societal and technological shifts, the beauty market is adjusting accordingly. Yet, as it often happens, industry players are adapting at different rates and with varying levels of success causing a gap between demand and offer for the customers. 

The companies that are, on the other hand, succeeding to adapt to the changing demands and desires of customers are the ones that are most likely to survive in the coming years. The demand trends which no beauty company should fail to meet if it wants to stay competitive, at least for the portion of millennials and gen ...

2.5 A greater Overlap between the Beauty and the Wellness Industry is demanded

According to the already mentioned survey conducted by the Global Web Index, a relevant trend in demand for organic cosmetics products can be found in an increasing desire of consumers for a greater overlap between the beauty and the wellness industry. 

The respondents to the survey, namely, beauty buyers in the US and the UK, were asked to name the attributes that they would like to see more from beauty brands in the coming years. The following graph shows how relevant different wellness and green attributes are to these consumers, further strengthening the importance these issues have in their minds. 

Attributes that consumers want to see more from beauty brands in the coming years US, ****, in % Source: ****

It is important to note that, even if environmental and sustainability concerns are always more important for consumers of cosmetics, good quality and affordability are still the main attributes researched in these products. Companies active in this sector should thus avoid increasing prices too much while introducing greener products. 

3.1 Organization and dynamics of the market

The global biological sector has been developing at a fast pace. In fact, in ****, the world had *.* million organic producers, a growth of *,***% since **** [***].

The Organic Trade Association represents more than *,*** organic business in ** States. Although the country is the biggest market of organic consumption, it isn’t even in the top ** countries with the largest numbers of organic producers, which shows a potential breach in this market for new players to enter.

Top ten countries with the largest number of organic producers World, ****, in thousands of number of producers Source: ****

Total Certified Organic Acres Operated US, ****-****, in millions of acres Source: ****

One could think that the market is probably reaching a standstill, given that the increase of organic farm area had basically stopped between **** and **** to start growing again only in ****.

However, regarding national cosmetics, we undoubtedly have a highly competitive market. There are several well-established players, with the majority of them among the top consumer goods companies and a large consumer base. The impact of major players on the market is quite high as majority of them have a global presence.

Those well-established players have strong and vast distribution networks and face not only a fiercely run in ...

3.2 Transformation of the distribution channels

Considering the whole distribution of cosmetics in the US, we can highlight that store-based retailing (***), while only *% are beauty speciality stores. Normal retailers, which include supermarkets and mass merchandisers, hold, together, ** % of the market. Finally, e-commerce hold ** % of the market as distribution channels, highlighting the importance of the online channels for the US beauty customers [***].

Most popular distribution channels of cosmetics products, by channel US, ****, in % Source: ****

However, when it comes to the framework behind “natural” products, there has been an authentic transformation. For years, indeed, organic cosmetics were sold exclusively through bio stores, serving as a reference channel for organic cosmetics.

Nowadays, traditional grocers are experiencing a process of pulling shares of organic profits from smaller natural food stores and speciality grocers. This is a process that started since natural grocers stopped serving as the only gatekeepers for the health-centric products they sell, and with organic products having left the niche segment to achieve the mainstream one. A consequence of this process is the bankruptcy of some traditional small organic shops such as Lucky's Market and Earth Fare.

About **% of the **** sales of organic products occurred at conventional retailers, while **% took place in the natural products channel. Although there are ...

3.3 E commerce: a double digit yearly growth

The online retail segment has shown an outstanding performance  globally within the personal and beauty care market. Indeed, although ecommerce penetration has only increased slightly in recent years, the beauty and personal care online share is predicted to surge to **% in the United States by **** [***].

Purchasing habits are drastically adapting to the new era. In fact, in ****, **% of total retail sales for the year were spent on e-commerce, in comparison with *% of ****, and **% of the purchases from consumers aged between ** and ** were made online. Additionally, online shopping also accounted for more than half (***) of all the retail market gains in **** [***].

Furthermore, e-commerce offers something legacy retailers do not, it gives consumers the opportunity to gain access to products that would otherwise not be available in their local stores and malls. Beauty buyers who have quality as their ultimate value were more likely to shop directly from a cosmetics brand’s site (***) [***].

Finally, looking at the graph below, we can observe that the health and beauty sector, in which cosmetics are included, is the second leading product in terms of frequency of sales among internet users.

Leading product categories bought online, by product and gender US, ****, in % Source: ****

3.4 Competitive Environment and Main Players

As mentioned before, the cosmetics market in general is indeed highly competitive, and this can be seen when analyzing the revenues of the ** leading cosmetics brands worldwide, none of which makes up more than **% of the global market for cosmetics which in **** was equal to USD***.* billion.

Sales of the main worldwide players World, ****, in billion USD Source: ****

For what concerns the United States, the picture is not much different. L'Oréal sales in the US represent **.*% of its total sales and the US market has always been dominated by legacy conglomerates such as Unilever, P&G, The Estee Lauder Companies, Coty and so on. 

However, in recent years independent "challenger" brands such as IPSY, Glossier, Fenty Beauty and Kylie Cosmetics (***) are becoming increasingly significant players of the market focusing on innovation, inclusivity and sustainability to meet the needs of the new millennials and gen Z customers [***].

For what concerns organic cosmetics, most of the legacy conglomerates mentioned are acquiring natural cosmetics companies to diversify their portfolio and remain competitive. On the other side of the market, are instead the  pure players or organic beauty products such as Weleda, L'Erbolario, Lush and so on.

3.5 Mergers and Acquisitions

Between **** and **** L'Oréal acquired * pure players of the natural cosmetics market thus making a clear move towards making its offer portfolio more and more organic [***]. 

On * August **** L'Oréal announced the signing of an agreement to acquire the German company Logocos Naturkosmetik AG, a pioneer in natural cosmetics with brands such as Logona and Sante. All this company’s brands are vegan and certified organic with a product range made from plant extracts and natural ingredients derived from organic farming; On ** June ****, L’Oréal announced the acquisition of US skincare brand Thayers Natural Remedies. The brand will be integrated into L’Oréal’s Consumer Products Division. The distribution strategy, initially focused on a network of natural products stores, has evolved into a multi-channel approach that today includes mass-market retailers, specialized retailers, drug stores and online distribution.

4.1 Ingredients

According to COSMOS - the international non-profit bio standards organization - organic cosmetics contain five categories of ingredients:

Water Mineral ingredients Agro-ingredients physically transformed Agro-ingredients chemically transformed Other ingredients

Agro-ingredient: “any substance of plant, animal or microbial origin derived from agriculture, aquaculture or harvesting”. [***]

Every category of ingredient has to respect specific requirements and follow different regulations. Additionally, it is necessary to identify the bio percentage in each category. Cosmetics are eligible to receive the United States Department of Agriculture (***). The rules are further discussed in the Regulation section, along with other details about different kinds of labels.

4.2 Pricing Composition

Organic cosmetics are known to be considered a premium product with respect to regular cosmetics, and this is certainly true in terms of their prices. However, the latter can be justified by looking at the costs which must be incurred in when producing these products [***]:

Shelf Life: Organic products generally have shorter shelf life (***) because of the pure ingredients used versus the chemicals used by traditional cosmetics brands; Formulation: Traditional cosmetics are usually filled with emulsifiers, preservatives, fragrance, texture/feel improving chemicals which leave very little space for the actual natural oils which are supposed to be the main source of nutrition for the skin. Moreover, traditional cosmetics are often composed of as much as **% water, making them less expensive to produce. Ingredients: According to Sarah Villafranco, MD, of Osmia Organics, organic ingredients are one-and-a-half to two times more expensive (***) Manufacturing: Most pure players of the organic cosmetics market are small companies which are forced to produce in small batches, driving up cost for the consumer. On the other hand, companies that have the capability to produce on a mass scale can keep costs down by buying ingredients in larger amounts.

4.3 Supply Trends

Anti-aging

There is an increasing demand for multi-functional cosmetic products such as anti-wrinkle creams. Mature women represent the greatest portion of this trend, as they are waiting for the encounter between technological advances and natural remedies to give its favorable outcomes. [***]

Mono portions

A unique packaging that enables the product to be more versatile and multifunctional. It allows the consumer to have more than one customer experience. Mono portions are becoming increasingly more available on the market and are chosen by customers, as able to satisfy their specific needs.  

Virtual customer experience and social media promotion

As E-Commerce is becoming increasingly relevant in all product categories as a non-traditional distribution channel, different additions to the effectiveness of the channel are becoming available. Major producers of natural personal care products already have a strong web presence. Strategically designed websites of companies have encouraged visitors to purchase their products directly from company websites. In the cosmetics market in particular it is worth mentioning the possibility of an online customized experience : virtually applying and testing cosmetics.

Moreover, most of these companies are also promoting their products throughout social media platforms, either by their own page or through influencers and famous figures. Advertisements displayed on ...

5.1 Ongoing regulation

There is big confusion over the definition and identification of “organic” or “biological” cosmetics.

Natural cosmetics: contain natural derived extracts and/or natural derived ingredients (***) Organic/Biological cosmetics: contain raw natural ingredients (***) derived from organic farming : they must therefore have a valid certificate attesting their organic nature.

At a global level the distinction tends to be blurry, whereas in mature markets, such as Italy, Germany, France and US, it has a dominant role. Therefore, to establish the authenticity of the product, it is necessary to read the label (***) and make sure a certified institution has attested it conforms to the requirements. In western European countries the certification plays a big role against “greenwashing” [***].

Moreover, some certifications can be issued by private organizations such as NaTrue  (***), who identifies * levels of certification:

Natural cosmetics; Natural cosmetics with bio ingredients (***); Organic cosmetics (***).

5.1 American Regulation

In the US, cosmetics are regulated by the Food and Drug Administration (***). Nevertheless, neither of those acts give a definition for the term “organic”.

Moreover, the Agricultural Marketing Service of the U.S. Department of Agriculture (***), which sets the definition for the term organic and provides the certification for agricultural ingredients produced under conditions that would meet that definition. It also produces labeling standards based on the percentage of organic ingredients in a product. 

The USDA requirements for the use of the term organic are separate from the laws and regulations that FDA enforces for cosmetics. Cosmetic products labeled with organic claims must comply with both USDA regulations for the organic claim and FDA regulations for labeling and safety requirements for cosmetics.

The American regulations allow for different kinds of labels in the “green market” for different level of requirements that the product needs to have:

USDA Organic Certification: must have an ingredients list and the contents should be **% or more certified organic (***), meaning free of synthetic additives like pesticides, chemical fertilizers and dyes, and must not be processed using industrial solvents, irradiation, or genetic engineering. It must fully comply with the National Organic Program standards for organic production, including handling, ...

6.1 Market segmentation

• Estée Lauder
• Unilever Groupe
• Johnson & Johnson
• L’Erbolario
• Davines
• Aveda (Groupe Estée Lauder)
• Lush
• Burt's Bees
• Juice beauty
• Dr. Bronner's
• Herbivore Botanicals
• Well People
• 100% Pure