Changes afoot for Coty and P&G but will it work, asks Euromonitor
The proposed deal, which is thought to be completed next week, sees the Wella and Clairol hair care brands, in addition to P&G’s colour cosmetics and fragrances brands, transfer to Coty, as the consumer goods giant looks to restructure and streamline its focus to become more competitive.
“As a result of this move P&G will lose its global leading position in beauty, with L’Oréal taking over this mantle,” says Oru Mohiuddin, Senior Analyst at Euromonitor.
“If they keep hold of the Olay skin care brand they will remain the number 2, with either Coty or Unilever placing third,” she tells CosmeticsDesign-Europe.com.
Part of the plan
The divestment of its colour cosmetics and fragrance portfolio has long been planned as the Ohio-based firm looks to free up resources for its core brands which have been suffering in the face of strong competitive pressure.
The truth is, according to Mohiuddin, that P&G have been falling behind dedicated beauty rivals, such as L’Oréal, for a little while now; so the hope is that the refocus will help bring success, in a similar fashion to Unilever’s model which has helped it refocus over the last few years.
Oru adds that P&G needed to streamline its portfolio to become more nimble and expand in the future, adding that there is scope for it to expand in premium skin care and even explore potential in beauty appliances.
“It is yet to be seen where it expands in the future, but for now Procter & Gamble is expected to make a comeback that is both stronger and healthier,” she says.
Coty deal
As part of the deal with Coty it is expected that P&G will move on its Wella and Clairol styling brands as it looks to focus more on the shampoo and conditioners segment of Hair, with its Pantene and Head & Shoulders brands.
The Wella and Clairol brands were gathering interest from German manufacturer Henkel, as it is a market that it already has a strong presence; but if P&G wanted to divest these brands along with the colour cosmetics and fragrance business in one transaction, this may well have put Henkel off as it has no presence in the latter markets.
The same could be said vice-versa for Coty, as it has no hair care presence, but the lure of boosting two markets in which it is already strong, fragrance and colour cosmetics, may have been the primary motive for its bid.
“It remains to be seen whether Coty will take on and develop the Hair brands or whether it will look to divest them itself,” says Oru.
“The worry for Coty is that it has taken on too much, and there are doubts over whether it can sustain the initial growth that it will inevitable see at the start. For Coty to take on colour cosmetics and fragrance makes sense, hair not so much.”
According to Euromonitor figures, 50% of Coty’s revenue in 2014 was generated from its fragrance business, and it is hoped the Hugo Boss and Gucci brands, among others, will help boost this and see the company rise to the leading global position in fragrances.
The purchase of Max Factor and Cover Girl will also double the company's global value share of colour cosmetics, and Mohiuddin tells us that this is a good move as it will increase the company’s exposure in the Middle East and US markets respectively.
