This week, we look at the Shiseido-Drunk Elephant acquisition news.
After months of rumors that floated Estée Lauder Companies and Unilever as prospective buyers, it was underdog Shiseido that inked the Drunk Elephant acquisition deal on Tuesday for $845 million.
The Japanese company has been slower to the M&A winner-takes-all beauty battle, compared to competitors — its latest investments have been in technology companies MatchCo, Giaran and Olivo Laboratories between 2017 and 2018. It last purchased a beauty brand, Laura Mercier in 2016, along with Revive; however, Shiseido sold the latter to Tengram Capital Partners a year later. Shiseido’s last unfortunate attempt to make a major M&A push in the U.S. was in 2010.
But, Shiseido’s core competency is skin care, making it the most natural and best partner for Drunk Elephant.
For its part, prior to acquiring Tatcha in June for a reported $500 million, Unilever reportedly spent nearly $2.3 billion to build out its prestige beauty portfolio with six acquisitions, including Dermalogica, Kate Somerville, Living Proof and Hourglass, according to Coresight Research. Unlike Unilever’s high-low positioning across mass and prestige beauty, Shiseido has always been a prestige player.
Drunk Elephant, which was once valued at $1 billion, is on track to do $100 million in net sales for 2019. Despite its massive growth since its debut in 2013, the beauty brand has had little presence in Asia, where Shiseido has a home court advantage. Beyond the U.S., the conglomerate’s two largest markets are Japan and China. Drunk Elephant’s first entrance in the region was via a Singapore pop-up in November 2018.
According to Euromonitor market data, Shiseido generated 52% of its beauty and personal care sales outside of Japan in 2013, compared to 56% in 2018. With that number increasing, bringing U.S.-based Drunk Elephant into the fold is sound business. “With Asia-Pacific expected to be the fastest growing skin-care region globally, at 4% CAGR [expected between] 2019 to 2023, Drunk Elephant has the opportunity to blossom as Asian consumers continue to develop a greater appetite for clean beauty,” said Gabriella Beckwith, beauty analyst at Euromonitor International.
“Asia is a crucial market, where skin-care products reign supreme,” said Kayla Marci, Edited market analyst. “The expansion of Drunk Elephant to Hong Kong and China alone are expected to account for around 10% of the brand’s global income.”
Shiseido recently entered a new beauty licensing agreement with Tory Burch (following the brand’s short-lived fragrance deal with ELC) that will begin in January 2020. At the time, Marc Rey, CEO of Shiseido Americas and Shiseido’s chief growth officer, said, “We have never worked with a female designer, and we think Tory’s values of modernity and empowerment translate across beauty, especially in makeup and skin care.” In a way, the deal with Drunk Elephant and founder Tiffany Masterson follows a similar model.
Masterson is known to be extremely hands-on with her company’s product formulations and its social media marketing and messaging. She will stay on with Drunk Elephant as chief creative officer and assume the additional title of president. “I wanted to partner with a company that would give me autonomy, let the brand continue to be what it is and honor my vision,” she told Glossy exclusively. “Shiseido will provide us with unbelievable innovation resources that we can apply to packaging and formulation going forward. The culture is impressive and I’m proud to be part of such a global powerhouse who will help guide Drunk Elephant through its next phase of growth.”
Masterson’s no-no ingredient ethos cleverly dubbed the “Suspicious Six” has had a serious impact on customers and the larger clean beauty movement that has stretched to include color cosmetics and fragrance today. NPD Group stated in its recent Women’s Facial Skincare Report, “Consumers rank Drunk Elephant among the top brands that they consider to be socially responsible, trustworthy, clean and free of ‘bad for you’ ingredients. These are all key attributes that are driving growth for many successful brands on the market today.”
Shiseido-owned brands Nars and Laura Mercier were very much founder-led brands at one time. While François Nars and Mercier are not attached to their companies’ day-to-day currently, the Nars brand has been able to resurface in the beauty zeitgeist and latch onto millennial consumers via large-scale influencer trips and launches, as well as through buzzy pop-ups in rotating markets. Namesake brand Shiseido has also utilized these tactics for reaching younger customers, but with a focus on color cosmetics and, most recently, foundation.
“Shiseido is a legacy brand with great global reach. Compared to other established beauty companies, they have stayed relevant in a saturated market by innovating and investing in technologies,” said Marci.
Drunk Elephant already has millennials’ attention with its Instagram-worthy packaging and compelling founder-led origin story. Keeping that will be key, as will its core and singular focus on skin care. Coupled with Shiseido’s Asian dominance and recent technology investments, the immediate growth opportunities are hard to beat. — Priya Rao
3 Questions with Eric Buterbaugh
Following his entrance into the fragrance market in 2014, florist-turned-perfumer Eric Buterbaugh relaunched his artisanal brand, EB Florals, earlier this month. It has a new name (Eric Buterbaugh Los Angeles), new scents and a digital-centric strategy. Buterbaugh discussed the approach.
What was the rationale for the recent revamp?
You have to be fluid with things. We looked at areas we launched with and wanted to improve them. When we launched, I wanted to have all the bottles be crystal, and they were custom with crystal toppers. But as much as they were beautiful, they were very expensive. Five years ago, I launched with black boxes, and I thought, “This is so chic,” but in a store environment, they sat there flat, and there wasn’t a lot of reason to pick them up and find out what was inside. There needed to be more curiosity for the customer to want to buy something.
What other changes were made, and how were you able to implement them without interrupting your young business?
Well, it has a lot to do with my partnership with Puig. [In 2018, the fragrance company increased its stake in Buterbaugh’s business to a majority share.] I’m not a two-person startup anymore, and I have this machine behind me to make change, whether it’s in art or digital. In the next few weeks, we are going to show off our new sampling program online where customers can try four samples before buying.
Selling fragrance online is especially difficult; what makes you confident in turning to digital versus only wholesale partners?
You have to be able to fasten your seat beats and say, “I want to get this into people’s hands,” which is what we are doing. Our prices are expensive [from $175 for a 65-milliliter bottle to $595 for a 250-ML bottle], but most customers buy three or four bottles at one time because they can’t decide on a scent. We know there is loyalty. When I started seeing that happening, I thought, “Well, you don’t wear the same shirt everyday.” We see the sampling as playing to people’s moods more and our strengths. Since we launched the three new [scents] last week, they have sold out in every market. I’m not trying to be a brand for everybody. If I can satisfy the shopper who loves me, then we’re doing our work. — Priya Rao
Inside our coverage
Bobbi Brown discusses what prompted her to leave her namesake brand in favor of wellness on The Glossy Beauty Podcast.
Mass beauty remains soft, but E.l.f. continues to best competitors.
The Nue Co. redirects digital advertising efforts to out-of-home.
Morphe creates in-store content studios to drive foot-traffic.
On our reading list
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Grove Collaborative launches clean beauty subbrand Roven.
Are beauty dupe companies remotely legal or ethical?
