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How P&G Transformed the Fine Fragrance Industry

P&G’s sale of 43 of its brands to Coty has stunned the beauty industry.

In a stroke, Coty has doubled its size, making it the global leader in fragrance and a major player in make-up.

Did anyone see it coming?

Back in 2003, when P&G acquired the Gucci license as part of its takeover of Wella, I remember thinking it was a strange move for a company so entrenched in developing multi-million dollar grocery brands.

I even went as far as to write a column in Esprit magazine stating that I didn’t think it would work.

Marketing fine fragrance required a different set of rules to washing powder.

It was all about creating aspiration and a feeling of exclusivity. Not about creating a product that could be found on all supermarket shelves on price promotion.

I was proved wrong, of course.

P&G went on to build a huge fragrance portfolio and massive franchises for Dolce & Gabbana, Hugo Boss and Gucci. They became experts in the marketing of fine fragrance and the envy of the industry.

They did it by using the very methods I believed couldn’t work. At the time, they were the only fragrance company to invest multi-million pound advertising budgets into fragrance. They expanded distribution of their brands, which became best-sellers in department stores, Boots, discounters and perfume specialists. They made fragrance accessible to all.

P&G were game-changers in fine fragrances and paved a different way to market high-end products. Fine fragrance was no longer hidden away behind the counter or locked in glass cabinets in the rarified atmosphere of a department store. Designer brands could be bought on the high street and at prices anyone could afford.

P&G Returns to Its Core Mass Business

But now, after all they’ve achieved, they appear to have left premium behind. Maybe I hadn’t been entirely wrong in my assessment of the company. Alan G. Lafley, the out-going P&G chief, made this statement in a recent conference call to analysts:

“We were clearly over-extended in several categories. The most obvious one was beauty where we got into service businesses and more fashion and trend oriented businesses.

“That didn’t turn out to be a good fit for us.”

P&G has divested itself of almost all of its high-end and niche brands, with the exception of luxury skincare brand SKII – which is an anomaly. I wouldn’t be surprised if P&G simply haven’t found the right buyer yet.

In beauty, it’s also hung onto its flagships, Olay, Pantene and Head & Shoulders and Gillette, all solid mass-market brands that remain at the top of their game in P&G’s home territory, the supermarkets.

So, for now, P&G has reverted to type, but I wouldn’t rule out the company making future acquisitions in beauty.

That’s what tends to happen with multinationals.

A good example is Unilever, which has become the go-to company for successful skincare brands searching for investment.

Back in 1989, Unilever bought Calvin Klein and Elizabeth Arden, securing a leading position in premium beauty. Thirteen years later it sold Elizabeth Arden, followed by Calvin Klein (which went to Coty). We all thought that was the end of Unilever’s attempts to tackle the premium beauty markets.

How wrong could we be! All this year, Unilever has been adding premium skincare brands to its portfolio, starting with REN in March, Kate Somerville in May, Dermalogica in June and Murad in July.

I’m no longer surprised when news of this nature breaks. It shows how hard it is to predict the future for premium beauty brands. But one thing is certain, and that is there are investment opportunities galore for up and coming brands – sometimes from the least expected sources.

I’d be very interested to hear your views and experiences of dealing with multinationals.

Please leave your comments below.

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One Comment

  1. What goes around, comes around!
    I was the Head of Beauty at Boots when P&G started to buy up fine fragrance brands, and like you Imogen, was pretty sceptical about them.
    They then delivered one marketing text book launch after another which helped to boost the whole market. Impressive!
    For the big corporates whose home territory is the supermarkets, they find profit margins shaved to the bone in mature and often saturated markets, competing not only with other brands but strong own label offers. They are always looking for opportunities to be successful in higher margin markets.
    In terms of the ratio of direct product cost to retail selling price, beauty markets can look very attractive – until you realise that they need a different sort of investment. Less investment in promotions but a lot in brand building and image creation – and that you don’t just do this for 1 or 2 years and then sit back and enjoy the profit, you need to do it year in and year out just as you do discounting through supermarkets.
    The other catch for those used to grocery volume sales, is how low the unit sale of a good brand in beauty can be, so its hard to realise any benefits through economies of scale.
    For brands, then whilst there are lots of opportunities, there are also a lot of brands out there for investors to choose from.
    The winners are those brands with a realistic, comprehensive business plan, sound financials and willing to learn how to get to the next level.
    It all makes for interesting times!

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