Johnson & Johnson, a quiet giant of beauty, is raising its voice. J.&J.’s beauty business was realigned in April, with all the skin care brands and the huge Johnson’s baby care franchise put under one roof and a new generation of leadership set in place. Stefano Curti, president of global skin care at Johnson & Johnson Consumer Companies Inc., sets global, long-range strategy in R&D, product development and marketing. Jeff B. Smith, president of U.S. skin care, is charged with devel- oping the domestic business, which is more than half the global total. Constantly collaborating in a two-tier reporting structure, the executives are pursuing growth avenues within categories of J.&J.’s dominant base in mass skin care, where the company claims a 26 percent market share in the U.S.
Meanwhile, the company is knocking on the door of the U.S. prestige market, as it readies a push behind the recently acquired American business of Korres Natural Products, which is sold mainly through Sephora and the Home Shopping Network.
J.&J. has clearly come to win.
Because of the company’s huge clout in scientific innovation, partly thanks to the lab credibility of the pharmaceutical side of the $61.6 billion business, the beauty division is on the fast track to the future.
“Beauty [stands] at the intersection of fashion, lifestyle and science,” says Curti. “To get it right, you have to understand these three worlds. We have the ability to access a vast amount of R&D resources and at the same time we are obsessed with consumer intimacy. Through the combination of these two things, we believe that we can drive innovation and invent the future of skin care.”
And that’s his personal goal. When asked what impact he intends to make, Curti replies, “One is inventing the future of skin care and delivering never-thought-of-before innovations. The second is about leadership and a pipeline of leaders who dream of making a difference in people’s lives.”
Audacious to be sure, but not unrealistic. Industry analyst Wendy Liebmann, chief executive officer and chief shopper of WSL Strategic Retail, observes, “[J.&J.] has a much bigger role than most people realize; very quiet and substantial. It’s sort of a sleeping giant.” Referring to consumer surveys, she adds, “We see a great relevance between health care and beauty. They have a credibility and an opportunity to be an even bigger player in beauty because as a health care company they already have credibility. It gives them a unique point of view.”
J.&J.’s global beauty care business includes 25 brands; its size was estimated at $5.7 billion for 2010, according to WWD Beauty Inc’s list of the top 100 companies in the world. That figure has since increased to an estimated $6 billion. The 26 percent market share of U.S. mass skin care is driven by a fistful of four flagship global brands: Neutrogena, the largest, which claims to be the brand most often recommended by dermatologists in the U.S.; Aveeno, RoC and Clean & Clear. That is not counting Johnson’s, the number-one baby care brand, which commands market shares ranging from 40-plus to 85 percent depending on the country.
This core is surrounded by a phalanx of regional and local brands, which J.&J. execs call their “portfolio of equities.” These include Lubriderm; Les Petit Marseil- lais, billed as the market leader in personal care, cleansing and hair care in France; Dabao, which was acquired in 2008 and claims the number-one skin care ranking in China; Sundown, the number-one sun care brand in Brazil; Piz Buin, the French sun care line; North America’s Ambi for skin of color and Purpose.
J.&J. has been able to amass dominance in mass skin through its R&D credibility — the company was the first to stabilize pure vitamin A—but also thanks to its methodical series of blue-chip acquisitions every two or three years over the last two decades and its far-flung network of consumer listening outposts. Called GSI, for Global Strate- gic Insight centers, they are located in Canada, the U.K., France, Brazil, India and Korea. “They research local consumers and unveil local insights and they bring it up the line to inspire and guide R&D developments,” Curti says. “We believe we have to be close to the local consumers — but at the same time leverage a global scale.”
One example of a product that came out of the GSI network was Neutrogena’s Wet Skin sunscreen products.
Curti says the trick is to turn a good local idea into a much bigger winner. For example, “If Latin America comes up with an idea, they bring it up the line. The first screening is for relevance and size of the idea, just for Latin America,” he says. “The second screening is [whether] this idea has the ability to be rolled out in multiple countries or regions. We want to win locally, but when we source an idea from our regional centers, we always look for the opportunity to globalize or make the idea bigger.”
The possibilities for global growth are vast; Curti estimates the worldwide skin care market at nearly $300 billion and growing at 6 percent a year. The emerging markets are gaining at 9 percent to 10 percent annually. “Certain portions of the market are growing even faster,” he adds, noting that as cultures grow more affluent, the more people can afford to take care of themselves.
Pricewise, J.&J.’s four flagship brands tend to be in the upper reaches of the mass market, with prices reaching $30. Neutrogena, with its dermatologist-oriented positioning, also markets hair care and color cosmetics. According to the company, in the U.S., Neutrogena ranks number one in facial cleansing and sun care and third in facial moisturizing and vies with Clean & Clear for the top spot in acne. Aveeno is positioned around the concept of active natural ingredients; according to Curti, it boasts the biggest-selling body moisturizer in the U.S., called Daily Moisturizing Lotion. RoC, invented by a French pharmacist, is the fastest-growing antiaging brand in the U.S. mass market, according to J.&J.
The affable Smith sees room for improvement, despite J.&J.’s dominant ranking. While mentioning categories like medicated acne treatment and cleansing, where J.&J. is number one, Smith quickly points out that in sun protection, “We’ve grown from number five to number two, but still have a long way to go and we still have less than 20 percent of the market.
“As you move into facial moisture treatment, which is really antiwrinkle brands, we’re number three and growing,” he continues, “very closely taking over the number-two position, but we’ve got a couple big competitors in Proctor & Gamble and L’Oréal. There’s lots of room as the Baby Boomers continue to get older — that’s a huge segment for us.”
He adds that Aveeno recently entered hair care and is now moving into body washes, noting, “We’re a long way from being a market leader there.” He reflects for a moment, then says, “There are categories that either we’re not strong or big in, that have tremendous dollar sales that we’ve still got market share positions to close down on. Collectively, our portfolio adds up to number one, but if you look at them individually in some of the categories — we’re number 11 or number 19 in hair care depending on the brand, number 11 in body wash — those are both big, big categries that we think we can be a top-five player in the next five years.”
Judging from retailer support, Smith’s suppositions aren’t misguided. “I love, love, love Aveeno brands and Stefano Curti — one of the best big-brand vendor partners I’ve ever worked with,” declares Kathy Steirly, industry consultant and former top retail executive. A midsize drugstore retailer, speaking not for attribution, says, “We devoted more space to Aveeno last year and saw an 11 percent increase in dollar volume and 7 percent unit increase in hand and body. In facial moisturizers, we had almost 9 percent increases. Neutrogena in facial had a 9 percent climb, so the two of those together are bigger than Olay.”
Buyers at CVS say J.&J.’s patented version of the bioelectricity technology, called Cytomimic, brings in new customers — particularly department store shoppers — rather
than cannibalizing from existing items.
However, amid the praise, there also is some off-the-record grumbling. In particular, a few retailers wonder about the prospects of Neutrogena color, since they say the brand has been quiet on the new product front. Smith replies that the Neutrogena color line has been pruned from a high of 240 stockkeeping units to about half that, and has come back stronger than ever. “It’s the number-one dermatologist recommended color cosmetics line but heavily focused on face,” Smith says. “Our winning proposition is closely tied to our skin care business. Over the last three years, we have focused on getting the right portfolio into the marketplace. We got caught in a trap of launching a lot of new innova- tion every season, and it got to the point where our portfolio was too large, relative to the productivity we were bringing to our retailer. We worked closely with them to revamp that portfolio to the right amount.” As a result, “now we’re the second-fastest growing — if not the fastest — brand in our key retailers.”
As for the market jitters, he replies: “Our facial cosmetics products are at the cornerstone of our brand. We have no intention of discontinuing this piece of our equity. As the number-five facial cosmetics line, we are pleased with our growth based on our product performance and year-long advertising support on top-selling sku’s. While we recently optimized our portfolio to have a stronger focus on our core facial products, we are committed to all aspects and have plans to bring innovation to all of our segments in face, lip and eye.”
He adds that the brand is now generating the same amount of dollar volume — “turning much faster, much more productive for our retailers” — with fewer sku’s.
J.&J. executives do not discuss sales figures and SymphonyIRI sales tracking figures do not include results from Wal-Mart, the key player in mass. According to IRI, J.&J. showed a 4 percent gain in traditional skin care for the U.S. in 2010, double the market growth of 2 percent. J.&J. was flat in acne skin care and up 9 percent in hair care as a total company. “I see a lot of upside, but they have to put a lot of effort behind it,” says Victoria Gustafson, principal with the SymphonyIRI Group. However, she adds that the parent corporation needs to focus more on beauty.
Curti points out that J.&J.’s vaunted position in mass skin care began with a miniscule $13 million business in 1991, the Purpose brand of cleansers that complemented Renova’s retin-A cream. And so it goes now that J.&J. finds itself on the doorstep of the prestige market, thanks to the licensing deal it signed with the Greek-based Korres in September 2009, which covers Latin America as well as North America.
“Korres fulfills our ambition to do what we’ve done in mass skin care,” Smith says, counting off the march of brand acquisitions during the last 20 years. “I’ve got a wonderful portfolio of brands to be able to continue to gain market share and grow in that channel,” he says. “But there’s another part of the entire skin care market that we’re not participating in. The next 20 years means that we’ve got to find ways to grow our current base business in the high single digits, but we’ve got to find other interesting channels. Korres fulfills what I’ll call an early ambition.”
“We will be activating the brand at a higher level than it was activated in the past,” Curti declares, citing advertising as an example. J.&J. is currently conducting regional tests with what Curti calls long-form advertising, or a half-hour commercial, like an infomercial. The brand also is being repackaged to accommodate French as well as English so it can be marketed in Canada, principally through Shoppers Drug Mart and Sephora. Korres is unusual for a natural-based brand, considering that half its U.S. business is driven by skin care and the other half is color cosmetics. “I want it to become the number-one natural equity at Sephora, Curti says.
While the executive rules out department stores, for now, he and Smith seem determined to build on Korres’ foothold with Sephora, HSN and, to a lesser extent, Ulta. Although the company would not break out sales figures, industry sources estimate that the brand’s wholesale shipments in North America range from $25 million to $30 million annually. Curti and Smith did indicate that they expect to triple or quadruple the business in 10 years, as J.&J. has done with other acquisitions.
Korres has been trying out different kits on HSN and the infomercial is in test. “Our plans are to go heavy in it for 2012,” Smith says, adding, “I wouldn’t say we have our foot on the gas pedal yet, but we’ve got one on the gas pedal and one on the brake.”
“We love the brand,” says Sephora’s Priya Venkatesh, vice president of merchandising for skin care. “The Greek apothecary story is a strong one.” J.&J.’s consumer insights and R&D muscle combined with the heritage created by founders Giorgos and Lena Korres make “a strong package,” she notes. “The success depends on how they can execute; that’s an unknown at this point. They need to be nimble and quick — it’s a mind shift.” The key is building consumer awareness and Venkatesh questions whether the “long form” advertising will do it, since the infomercial market for beauty is saturated right now.
Korres has scored “moderate success” with print advertising and “there’s an opportunity to do better.”
Betsy Olum, general manager of beauty and merchandising strategy at HSN, agrees that building consumer awareness is key for Korres, which is growing at a double-digit rate from an admittedly small base. The infomercial is synergistic, Olum says, adding that the bath and body products form a strong point, too. “My hope is to build Korres into a lifestyle brand,” she says.
Johnson & Johnson: The Drive for Global Growth
Win the Market Share Wars: J.&J.’s four flagship brands power its combined 26 percent market share in mass skin care but Curti and Smith see room for growth, particularly in individual categories such as sun care.
Leverage Innovation: While products are developed locally on a global scale, J.&J. focuses on how locally developed products can be rolled out worldwide.
Eye on the Aspirationals: Emerging markets that have a growing middle class, where skin care is expected to grow at 10 percent or more, are a major target.
Focus, Focus, Focus: By paring back Neutrogena’s makeup line to emphasize core products, the brand is generating the same volume with fewer sku’s.
The Prestige Push: Using the Greek brand Korres as its beachhead, J.&J. aims to build a dominant position in the prestige market in the years to come.