NEW YORK, United States — Shiseido Co. is buying "clean beauty" brand Drunk Elephant, in an effort to both lure younger customers and stake its claim in a fast-growing category.
The Japanese beauty conglomerate inked a deal to acquire the skincare line for $845 million, to be financed in cash and credit and expected to close by the end of the year. Shiseido is rumoured to have beaten out The Estée Lauder Companies in the final round of bidding in an acquisition that marks one of the largest skin-care deals of the year, next to L’Occitane’s $900 million purchase of Elemis in January.
Drunk Elephant, founded by Tiffany Masterson in 2012, was among the earliest “clean” brands on the scene. Years before the term became an industry buzzword, Masterson advocated for more ingredient transparency in beauty. All formulations are free of what she labelled the “suspicious six”: essential oils, drying alcohols, silicones, chemical sunscreens and fragrances, dyes and sodium lauryl sulfates. Today, the clean beauty trend is an industry staple, from the “Clean at Sephora” program to clean beauty-only retailers like Credo Beauty and Follain which have created ingredient standards brands must adhere to in order to be sold on their shelves.
“Drunk Elephant’s approach to ‘clean’ beauty was an important consideration for us at Shiseido,” said Marc Rey, chief executive of Shiseido Americas and chief growth officer, Shiseido Group. ”As a global company, we are missing this very key market which we know is growing extremely rapidly and is not going to stop anytime soon.”
Drunk Elephant’s approach to ‘clean’ beauty was an important consideration for us at Shiseido.
In January, Masterson told BoF that she was exploring a sale, which industry experts predicted could fetch up to $1 billion. Despite a slowdown this year in beauty deals, interest in Drunk Elephant was strong thanks to its connection with young consumers and the booming skin-care market. According to NPD, prestige skincare sales in the US were up 7 percent year over year in the second quarter, compared with a 4 percent decline for makeup over the same period. In 2018, the skin-care category increased by 13 percent.
Drunk Elephant quadrupled its sales between 2016 and 2018, according to Chief Executive Tim Warner, who said in an interview last year that the label was on track to do "well in excess of $100 million" in net sales for the year.
In the US and Canada, Drunk Elephant is sold exclusively at Sephora and has become one of the fastest-growing skincare lines in the retailer’s history, according to Priya Venkatesh, senior vice president of merchandising, skincare and hair at Sephora. Last fall, the label entered the UK and Singapore, and in September expanded to Hong Kong and mainland China through Tmall’s cross-border platform. In 2016, the brand launched in Mecca Cosmetica in Australia.
Leading players in the beauty industry like Shiseido, Lauder, Unilever and Coty are scrambling to align with buzzier indie labels to attract younger customers, a group that heritage brands have found difficult to engage with in recent years. Lauder acquired Too Faced for $1.45 billion in 2017. Unilever, once considered a potential buyer of Drunk Elephant, acquired Tatcha, another skin-care darling and Sephora favourite, for $500 million in June.
Lauder reportedly tried to buy Drunk Elephant at the end of 2016, when the retail sales were only about $25 million. In March 2017, the brand took on investment from private equity firm VMG, which acquired a minority stake, as well as Leandra Medine of Man Repeller. With capital also came a team of seasoned beauty executives, including Warner, who came from Urban Decay, and Chief Marketing Officer Lucia Perdomo-Ruehlemann, who came from LVMH-owned Fresh.
“[Drunk Elephant] were one of the first clean brands that had a point of view of resonance with a customer who was not educated on clean skincare yet,” Medine said. “There was so much conversation around the efficacy of the other clean brands, and that was never even a question with Drunk Elephant.”
In an interview Tuesday, Masterson said her first priority post-acquisition is packaging. The team started to develop more sustainable options six months ago, but she still has yet to find fully recyclable airless pumps, which a handful of the brand’s serums are packaged in.
“We just have to strike a balance between innovation and being recyclable, and it’s hard to do,” she said. “We’ve had a lot of headway but that’s how long it takes…for custom packaging. Our goal is to have something by January 2021.”
Masterson will take on the role of president, in addition to chief creative officer. She will report to Rey, and the brand will operate within the Shiseido Americas division.
As a potential buyer, Shiseido was originally thought to be a wild card. The corporation, although it established a global M&A unit last year, has focused on acquiring tech start-ups like MatchCo, which has customisable foundation capabilities now being applied to in-house brands such as bareMinerals.
The decision to link up with Shiseido could prove fruitful for Drunk Elephant, which can benefit from the conglomerate's deep pockets. In April, the firm opened a Global Innovation Center in Japan, a nearly half-billion-dollar investment spanning over 600,000 square feet. As for Shiseido, Drunk Elephant fills a hole in the form of a prestige skincare label for the corporation. Some of the other lines that round out Shiseido’s higher-priced offerings (in addition to its namesake brand) are Laura Mercier, acquired in 2016; Nars, arguably the most “cool;” and Clé de Peau Beauté, a luxury line that sells $128 foundation and $65 lipstick.
Drunk Elephant also gives Shiseido credibility with the clean beauty scene. Being “clean,” coupled with authenticity and sustainability, are paramount to customers deciding among many similar-looking serums.
“The beauty industry in general is trying very hard to shift a lot of their product development to better meet the changing needs of the consumer,” said Laura Gurski, senior managing director and global lead for Accenture’s Consumer Goods & Services practice. “A lot of the traditional companies have come at it from a research angle – but to mass-produce, it has potentially more chemicals involved.”
In other words, achieving clean status remains a challenge for legacy beauty brands owned by conglomerates. To upend decades-old operations and processes to reformulate to meet clean standards on a global scale could be a multi-billion-dollar project. It could turn out to be easier to just buy a clean label and scale it.