Estee Lauder & L’Oreal: How to Invest Start-up Brands for Cosmetic Giant?

Estée Lauder Group is more accustomed to a minority investment strategy when it comes to investing in the acquisition of startup brands. In contrast, L’Oréal Group prefers wholesale acquisitions when faced with an investment target that is also a startup brand.

The beauty industry is changing rapidly, and major international beauty groups are adopting the strategy of aggressive investment and acquisition to acquire “niche” start-up brands that are sought after by younger consumers. They are committed to expanding and renewing their brand portfolios, and quickly entering innovative sectors such as natural, vegan and sustainable.

In February, Estée Lauder Group invested in Haeckels, a British natural beauty brand, which is another notable minority investment strategy.

In contrast, L’Oréal Group prefers wholesale acquisitions when faced with investment targets that are also startup brands, such as the acquisition of the U.S. vegan skincare brand Youth to the People in December 2021.

Looking back at the Estée Lauder Group’s investments in startup brands in recent years, it is easy to find that the Estée Lauder Group has adopted the practice: first making minority investments in brands – gradually increasing its shareholding – and eventually acquiring them in several cases.

In 2017, Estée Lauder Group first acquired 29% of Deciem, an innovative Canadian multi-brand beauty company. In 2021, Estée Lauder Group increased its stake to 76% and committed to acquiring the remaining shares of Deciem three years later.

In 2015, Estée Lauder Group made a minority investment in Have & Be, the Korean skincare company that is the parent company of Dr. Jart+ (Tigeting); in 2019, Estée Lauder Group announced the acquisition of the remaining two-thirds of Have & Be for cash.

Fabrizio Freda, CEO of Estée Lauder Group, has his usual investment strategy for brands: he gradually knows the target and understand its products and corporate culture through an upfront minority investment. Forbes has compared Estee Lauder’s approach to the “engagement phase” before people get married, a period that tests the character and compatibility of both parties.

Commenting on the path from minority investment to the acquisition, Shana Randhava, Vice President of New Incubation at Estée Lauder, said, “Being involved earlier in a brand’s life cycle will provide the foundation for us to develop an acquisition strategy from start to finish.”

Needless to say, such an investment strategy allows Estée Lauder Group to target potential acquisition targets at a smaller cost and leaves room for maneuvering. At the same time, investee brands gain more autonomy allowing them to follow the startup’s own business logic and development rhythm over a longer period of time in the future.

In contrast, L’Oréal Group prefers to acquire innovative brands in their entirety once they are found to have investment value.

In December 2021, L’Oréal Group acquired Youth to the People, a California-based vegan skincare brand that was founded in 2015, was only six years old at the time of the acquisition. It was still in its early stages of development with projected sales of over $50 million in 2021.

Analysts from a number of research firms, including Mintel, believe that this case is one of the most representative of large beauty groups embracing up-and-coming startup brands, and is particularly notable for Youth to the People’s positioning as a brand highlighting vegan and sustainable concepts.

The L’Oréal Group now prefers smaller, but promising, early-stage startup brands to the billion-dollar-plus acquisitions of previous years. Another similar case is Takami, a Japanese dermatologist skincare brand acquired by L’Oréal Group in January 2021, which generated sales of approximately $55.175 million in the year prior to its acquisition (2019). Relying on its deep presence in the multi-channel retail network, Takami grew in 2020 despite the impact of the pandemic and made its China market debut after joining the L’Oréal Group at China International Import Expo in 2021.

During the FY 2021 analyst call, Cyril Chapuy, President of L’Oréal Group’s Premium Cosmetics Division, commented: “Our division has both globally renowned high-fashion beauty brands and skincare specialties with a strong contemporary sense, such as Takami from Japan, Youth to the People from California, and a great ability to expand geographically. There is great potential for geographic market expansion.” It is easy to see that the “geographic” factor is also taken into account when L’Oréal Group selects investment targets, and the differentiated competitive advantages of the acquired brands in different regional markets, especially their appeal to local young consumers, are of great value to L’Oréal Group’s globalization.




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