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Demand for Unilever’s high-end cosmetic brands has surged despite the cost of living crisis in contrast to its mass market businesses in food, soap and detergent, says the head of the group’s premium beauty arm.
The company aims to overturn years of disappointing performance by focusing on top brands and offloading lower-margin divisions such as ice cream and unloved personal care products.
“Beauty is recession proof,” said Vasiliki Petrou, chief executive of Unilever Prestige, who has led the business since its launch 10 years ago.
Prestige has 10 brands including skincare products Tatcha and Dermalogica, Hourglass make-up and Living Proof haircare.
“If there is a downturn, people will always sacrifice an expensive bag or dress for a skincare item or a lipstick because it links back to their confidence . . . it’s part of self esteem,” she added.
The Prestige division has delivered 13 consecutive quarters of double-digit sales growth up to the first quarter of this year, and turnover for 2023 was €1.4bn compared with €700mn in 2020.
Sales across the company as a whole grew 4.4 per cent in the first three months of the year and 7 per cent in 2023, while turnover fell 0.8 per cent to €59.6bn in 2023 compared with the year before.
The company’s premium brands make up 30 per cent of its products, with more than half in the mass market bucket while the rest are classed as value goods.
The Prestige division was established in 2014 after the company had fallen behind competitors in premium categories, which have driven much of the sector’s growth in the past decade.
Petrou was given the task of acquiring a portfolio of luxury brands that Unilever could then grow.
Two of the division’s 10 brands, Dermalogica and Paula’s Choice, are now among Unilever’s so-called power brands — the 30 that make up 70 per cent of group sales.
The business model of the Prestige division has a different approach to other parts of the business, Petrou said, as she outlined its strategy.
Acquisitions, for example, are left to function independently rather than merged into the group. Most recent acquisitions were haircare brand K18, which has a strong presence on TikTok, and Paula’s Choice, founded as one of the first online beauty brands in 1995.
“With mass market, you have to have widespread distribution, but in the luxury market you go for the selective beauty business model, which is all about quality of education, content and advice. Scarcity, sometimes, is key to desirability.”
The decentralised model at Prestige means the soul of the new brands are not lost, Petrou said.
“Unilever has a reputation for a mixed M&A record at best,” wrote Barclays analysts in a recent note. “However, when it comes to building out its Prestige and wellness business, it has made very few mistakes.”
Barclays estimates that together, Prestige beauty and its other fast-growing division, Health and Wellbeing, could reach as much as €10bn in annual revenues by 2030. Profits margins for the two divisions are close to 60 per cent, compared with 30 per cent in ice cream.
Petrou said the US was its largest market, making up 60 per cent of sales, and she was also focused on “winning” in the UK and China, its second-largest market, where consumer demand has been sluggish.
In terms of beauty trends, Petrou said younger people were increasingly interested in skin health, “much more than we have seen before”, adding that there was also a big opportunity in the market for men’s products.
“That’s the next explosive wave. And the good thing about men is that they are much more loyal. When they discover something they stick with it.”
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