L’Oréal is introducing a new brand — one that it built, rather than bought.
Sustainable beauty brand Seed Phytonutrients, which officially launched today, was incubated start-up style by a team of L’Oréal employees led by one of the company’s general managers. The group is fully funded by L’Oréal, but sits separately from the larger organization, splitting time between a co-working space in Manhattan’s Chelsea and a storefront office in Doylestown, Pa.
It is the second brand this year that the world’s largest beauty company has incubated from scratch. L’Oréal in January launched House 99 by David Beckham, a men’s grooming line, in partnership with the soccer star.
L’Oréal is not the only acquisitive company to build a new brand recently — Unilever created two small teams of employees to launch two brands in the U.S. in under one year, ApotheCare Essentials and Love Beauty and Planet, which launched in November and December 2017, respectively.
Start-up-style incubation isn’t necessarily a sign that big beauty companies are moving away from acquiring brands — rather, such initiatives are designed to serve as experiments from which to learn how to innovate faster and move more nimbly within the larger organizations, experts say.
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“Big companies are starting to see that they can offer back-end elements that are less connected to a brand and consumer experience — access to capital, distribution platforms, technology and human resources — without disrupting the brand development process and letting it be organic in nature, almost like a true start-up,” said Jefferies analyst Stephanie Wissink. “That’s the new logic.”
With market valuations for beauty brands at a premium, building one can also be a way to fill a white space in a group’s portfolio without shelling out hundreds of millions of dollars for an acquisition. In the case of Seed as well as ApotheCare and Love Beauty and Planet, that white space was brands that harness sustainable technology and natural ingredients.
“It’s getting expensive to buy these brands,” said BMO Capital analyst Shannon Coyne. “But it’s also about moving faster in general.”
Within L’Oréal, Seed is serving as an example in fostering “more creativity, innovation and opportunities for in-house entrepreneurship,” said president and chief executive officer for the U.S., Frédéric Rozé. “This organizational intelligence will have a cascading effect over time.”
He added that L’Oréal will continue to experiment with building brands within the larger organization. “Sometimes we find great ideas outside our organization and we bring those ideas in through acquisition,” Rozé said. “We are lucky as well to have so many entrepreneurial-minded employees who are incubating great ideas in-house. Seed is one example — you can expect to see more from us in the future.”
Seed is the brainchild of founder Shane Wolf, L’Oréal’s global manager for Redken, Pureology and Mizani in the professional hair division. Wolf owns a farm in Bucks County, Pa., and pitched to global chairman and ceo Jean-Paul Agon the idea to create a sustainable beauty brand utilizing recyclable packaging and ingredients from local organic farmers.
The brand’s 16 stockkeeping units span hair, skin and body care, and are packaged in either glass or bottles made of recycled paper. The recycled paper bottles, said Wolf, contain 60 percent less plastic than the average shampoo bottle, and are made from recycled waste sourced from a L’Oréal manufacturing facility in California.
Wolf’s Seed operation has 12 employees — half work full time on Seed and the rest are tapped part time from his other brands — and they spend much of their time in the Doylestown office, near where the brand sources ingredients from local farms. Doylestown is also where the brand and product development happen, Wolf said.
The team is fully immersed in Millennial-style start-up culture — when Wolf met with WWD, he and Brad Farrell, vice president of global brand marketing at L’Oréal, were dressed for the occasion in casual plaid shirts. They had driven the products up from Doylestown in the back of Wolf’s truck.
“We’ve gone very fast and work independently from the rest of L’Oréal,” Wolf said. “The suppliers we work with, from raw materials to packaging to formulation, are all independent and outside….We’re not going through the L’Oréal processes at all.”
Seed is intent on establishing its reputation as an independent brand, separate from the larger organization. In February, it was the first in L’Oréal’s portfolio to attend Natural Products Expo West, an annual industry conclave for natural and organic brands. “Going to Expo…was about being present in the community,” Wolf said.
He is also eschewing the L’Oréal approach to segmented retail distribution, opting instead for a channel-agnostic strategy.
Seed launched Thursday on Amazon via its Marketplace platform, as well as in Brooklyn’s Shen Beauty boutique. The plan is to eventually roll out to e-commerce and brick-and-mortar retailers that focus on natural and organic products, in both the mass and prestige channels. The price points are higher than a personal-care brand’s, but not quite luxury — they range from $14 for an exfoliating bar soap to $55 for a serum.
“I’m interested in being where the consumer of natural and sustainable products is, and being in an environment where the retailer is motivated to grow their own business in the natural and sustainable categories,” Wolf said.
That strategy mimics Unilever’s in its rollout of ApotheCare Essentials to e-tailers such as Birchbox and Jet.com, rather than standard outlets for Unilever personal-care brands like Walmart. “Millennials aren’t buying beauty products [in mass brick-and-mortar],” said Paco Underhill, founder of research and consulting firm Envirosell.
Wolf declined to discuss sales projections for Seed. “We have an ambition for what we want the team to do, but we’re not on the hook for turnover,” he said.
This, analysts say, is because the value of incubated brands for big-beauty and personal-care companies is as much about the learnings gleaned from start-up style incubation — flexibility, agility and being nimble — as their potential revenue.
“The experiment could absolutely fail,” said Wissink, speaking in terms of incubated brands in general. “The question is, ‘What do you learn in the failure and does it change your governing model of how you go to market and create a brand?’”