Beauty School With COTY, A Diversified Beauty Powerhouse
Insight by Oliver Chen
In this episode of the Retail Visionaries Podcast Series, Stefano Curti, Chief Brands Officer for Consumer Beauty and Oliver Chen, Retail & Luxury Analyst highlight some key takeaways from our Glowing Ahead Beauty & Wellness Summit. They also discuss opportunities that leverage fragrance, distribution, and innovation expertise and COTY’s global journey of premiumization and category expansion.
Transcript
Speaker 1:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Oliver Chen:
Fearless. Forward. You. It’s the new Coty, reinventing and adding relevance to brands. Welcome to the Retail Visionary Podcast Series, a podcast about visionary ideas and people. My name is Oliver Chen. I’m TD Cowen’s Retail and Luxury Analyst. In this episode, we’re excited to highlight some of our key takeaways from our Glowing Ahead: Beauty and Wellness Summit in February, and explore Coty’s abundant growth opportunities, which leverages fragrance, distribution, and innovation expertise.
Today we’re hosting our keynote, Stefano Curti, the Chief Brands Officer for Consumer Beauty at Coty. He was our keynote speaker here at the summit. A quick intro on Stefano. He leads Coty’s consumer brands beauty business worldwide, with a strong focus on strengthening brand equity, global positioning, and innovation. He’s a beauty and skincare expert, having spent almost 30 years working in the industry in the US, Europe, and Latin America. And from his time at Markwins Beauty Brands and Johnson & Johnson, Stefano has built a deep expertise in brand building and channel expansion. Stefano, it’s great to be here with you.
Stefano Curti:
Great to be with you, Oliver. Thank you so much for having me today. And thank you also for having me during the beauty summit in February.
Oliver Chen:
What are some key themes or beauty industry trends that resonated to you from our summit?
Stefano Curti:
I think the beauty summit was extremely insightful, and I saw many angles of beauty, and also many sizes of beauty. There were big companies, or companies backed by venture capital and private equity at their start, lots of insights.
For me, beauty market has never been as buoyant as it is today, and I do believe it will become more and more buoyant. I think consumers continue to get closer to beauty as a way to reward themselves well with their wellness, even mental wellness. I also think the market is becoming more fragmented than ever. There is more brand discovery, there are more incipient brand, insurgent brands. I see a constant blurring of mass and prestige. That’s another insight. It used to be very channel-based and today a lot helped by digitalization of the consumer engagement model, these lines are blurring. So today a consumer that is exposed to influencers is exposed at the same time to mass and prestige brands.
I think the ISCD online continue to grow very strongly, whether it’s pure players or they are the brick and click. Today, consumers are choosing a world that is omnichannel. They might discover a product in store and they go and get information online. They go back in stores sometimes for the final purchase. So there is this omnichannel of distribution, purchasing, but also information gathering. And I also see less brand loyalty, together with more brand discovery and broad brand experimentation comes less brand loyalty. And finally, the last thing I would say, I said before, fragmentation. Fragmentation also means that these categories, the ones we used to call ancillaries, like setting spray, body mist, highlighters, primers, well they’re not ancillaries anymore. Now they’re business in their own right and actually they’re growing faster than the historical traditional beauty categories like foundations and mascara because people, again, are experimenting more categories, segments, brands, and therefore they are fragmenting their purchasing habits.
Oliver Chen:
You brought up a lot of great points. From our perspective at TD Cowan regarding the importance of education and efficacy and a combination of this to drive trust and product, especially there’s more brands founded by different kinds of founders and professionals.
Second point we saw was the convergence of healthcare, beauty, and wellness. We think science and clinical tests will be important factors for innovation and regenerative aesthetics, plant-based ingredients, exosomes are something we’re watching. And then you also brought up virality and Gen Z. We do see a value conscious customer who does trade up and down, the blurring of different lines between categories and channels, duplicate products and widening price gaps and a do-it-yourself generation. That dovetails nicely, Stefano, into another question, how do you generate virality and beauty and what are you doing to maximize that potential? Can you do that?
Stefano Curti:
Yeah, it’s a very good point. I think I made the point at the summit that, really, the consumer engagement model over the years has changed. When I started working in the beauty industry, I remember as a young marketer, I used to develop a 15-second TV commercial, 37 single page and double page print, and that was it. And with, I’m exaggerating a bit, but not much… And with those suits of assets, you would hit 300 million people just in the United States. Today is much different. It is not more a conversation, one-to-many, but it’s about how well you manage, you lead the billions of one-to-one conversations and how you do it, the scaling in a way that is efficient, but at the same time, genuine. In terms of our marketing approach, advocacy has become more important than ever. We keep spending approximately 26% of our net revenue in what we call advertising and consumer promotion.
But the composition of the 26% has changed dramatically just in the last five years. We now spend more on digital in the digital world than in the traditional world. And we as Coty, we have a lot of legacy brands still require traditional channels like TV, but still we are moving most of our investments to the digital world. Within the digital, what we call advocacy or influencer marketing is continuing to increase, and went from probably zero a few years ago or close to zero now to 15% of our total budget.
That’s how we are moving to this billions of management of billions of one-to-one conversations. Because in the end, my biggest objective in life is to continue to inject the cool factor in big brands like CoverGirl and Rimmel and Bourjois, and Selly Hansen, they’ve been around sometimes for decades if not centuries.
Word of mouth today is the number one purchase driver. We know that. Other ones are online reviews. And then finally, influencers and content creators are at the heart all piece advocacy model. And the last thing I would say, advocacy doesn’t start with communication plan. It actually starts with the product. So at Coty already over a year ago, we have created a list, a guideline, a list of guidelines that need to be built at the beginning of a product development in order to maximize chances to become viral with that product. The time of putting a white dupe in a jar with just one claim, is over. Today we have to be socially relevant and much more visible. So, things that are important is about a romantic storytelling. It’s about striking claims, striking package transformation. So you want to see a product that almost transforms in your hands because that enriches the storytelling, or before and after visual effects or visual results. These are guidelines that we are building at the very beginning of a product development in order to get maximized chances of becoming a viral product and being picked up by influencers.
Oliver Chen:
Stefano, we’re also excited about fragrance trends. Many of our panelists highlighted ongoing attractive momentum here. Do you expect that to continue? What’s driving that and how do you intersect innovation with fragrances?
Stefano Curti:
Very, very good point and it’s very relevant for Coty. We are the market leader in acting [inaudible 00:09:07] so we work across prestige and mass market.
Covid has brought an existential difference to the fragrance market. During the time of Covid, in fact, we have seen the consumption of fragrance continue to stay strong. Today, after Covid, the market continues to grow low double-digit, high single-digit, it depends on the categories.
The approach or the reason for using a fragrance continues to evolve. The use of fragrance, the increased penetration, today is driven by self reward. You reward yourself. It’s somewhat linked to functionality of the fragrance. So, the impact that you fragrance can make to your brain and to your mood. Today, for instance, we are able to scientifically demonstrate the impact that a fragrance has on people’s mood.
It’s also about making you feel part of the world. I remember when I was a kid, I could not afford a big Gucci bag, but I would buy a Gucci belt to be part of the Gucci or the Gucci world. Well, today Gucci belt is $700. So even the Gucci belt has become a very expensive way to feel part of the Gucci world. But a Gucci lipstick or a Gucci fragrance, a hundred dollars can make you feel part of that world. So make you feel part of a world, a way of reward yourself and in the end impacts mental health. So these are the new dynamics I believe, that are continue to propel fragrance. Also in particular fragrance… The fragrance market is developing very much in the ultra premium fragrance space. This is a space that was not even present 10 years ago, was very niche. It’s particularly developed especially in the US and in China. And we are also seeing the artisanal fragrances or niche fragrance developing.
So again, even in fragrance, like in the rest of the beauty market, I continue to see fragmentation and growth driven by the factors that we’ve just discussed.
Oliver Chen:
And Stefano perfume talk is a billion used hashtag on TikTok. What about younger customers and fragrances and how do you see the intersection of social media and community and fragrances?
Stefano Curti:
Social media has become already essential for beauty and is becoming essential for fragrance. Past are the times where we thought we would sell a fragrance only through a tester. Today, social media can make you fall in love but can sell you a fragrance just describing the olfactory notes or the world that it represents. And that’s why the e-commerce part of frequency is actually a book. However, I do believe the fragrance in social is still behind some of the other beauty categories like makeup and skincare, that are much more developed. So I think for companies like Coty, I think there is still the opportunity to establish new way of engaging consumers on fragrances, which today, online is primarily about unboxing and smelling. I think really we need to use creativity to develop new ways to showcase a fragrance in olfactory territory online.
Oliver Chen:
Yeah, lots of opportunity and runway and change ahead. The consumer beauty portfolio at Coty has a lot of iconic brands with really distinguished heritage. At the same time, you’re interjecting lots of newness and innovation. What are the key brands under your portfolio and competitive strengths that you see happening within these brands?
Stefano Curti:
So as you know, Coty is approximately $6 billion company with two large divisions, more or less, equally size, slightly bigger, the prestige division with brands like Gucci, Calvin Klein, Burberry, Chloe or Veda, Tiffany and several others. I lead the consumer, what we call the consumer beauty technician, which is a division primarily of Mass-tige and mass market drug stores. We compete mainly in three segments, color cosmetics. In fact, we are one of the top players in mass color cosmetics in the world with brands like CoverGirl, very big in North America, US and Canada and Australia. Sally Hansen, that is a market leader in nail with open 45% market share in the United States alone. Remote market leader in color cosmetics in the UK and across many countries in Europe. Max Factor, the makeup of makeup artists very big across Europe and in China. Manhattan in Germany, and the Miss Sport in some other countries.
So it’s really a portfolio of color cosmetic brands that goes from accessible into mass-tige. So color cosmetic is a big portion. The second big portion is fragrances. We have a large portfolio of what we call mass scenting or mass fragrances. We start competing at $10 up to the 70, $80. And we bring the insights that we have developed in the prestige fragrance market to mass market, but at affordable price, almost affordable luxury, surprisingly affordable. And those brands include Vera Wang, the fashion designer, David Beckham, the ex-football player, Bruno Banani, not well known in the United States, but he’s actually the market leader in the mass fragrances in Germany. Mix is another big brand in Germany. Adidas is our largest fragrance brand. We have a stronger partnership with the sports brand and Jovan another brand that is more an opening price point. So this is the second world of consumer beauty at Coty. And the last I would say is body and personal care. Our largest brand is Adidas, Adidas, deodorant, shower gel, body moisture, but also brands like Bozzano, Paixao and Monange. These are Latin America, specifically Brazilian brands that have given to Coty the number one penetration company in Brazil, for instance. So these are our three legs, again, color cosmetics, fragrance and body and personal care.
Oliver Chen:
Stefano, what do you see happening in color cosmetics? CoverGirl has had some really interesting innovation in this category as well. How do these brands stay relevant in this dynamic environment?
Stefano Curti:
These has been, the last decade has been a decade of indiebrands, certain brands, celebrity brands and these brands, these indie brand, have really challenged the legacy brands and at Coty we have a lot of legacy brands, Bourjois is over a hundred years old, CoverGirl has been around for decades. And so as brands like Selly Hansen or Rimmel. The biggest challenge and opportunity for us, is to build on the trust that the consumers has developed for years and years on these brands. At the same time making it relevant and cooler for the new generation. That’s really the balance that we need to walk, continue to recruit Gen Z eventually even Gen Alpha very soon, while at the same time cater to a slightly older consumer. And that takes a balancing act in terms of media, in terms of distribution channel, in terms of advocacy model, and in terms of innovation.
We have to continue to bring innovation to foundations for instance, that cater to a slightly older target. This is what we have just done with the new CoverGirl essence, a visually different product that transforms in your hands. And at the same time we have to bring coolness and ease of use and excitement and color and taste and flavor like we’ve done with CoverGirl, yummy gloss that has helped us improve the penetration among Gen Z and Hispanic in the United States. So it’s a balancing act for legacy brands like ours. Keeping the traditional, building on the trust that has become even more important during covid time. At the same time bringing newness and excitement.
Oliver Chen:
There’s a few things that we follow in terms of less can be more, in retail and brands. What are your thoughts on SKU productivity? Another related topic is agility and speed. Where do you see opportunities there as the market’s moving so quickly and demand shifts rapidly and trends and innovation changes quickly too?
Stefano Curti:
The name of the game we must market is productivity. Our retailers judge the brands based on the productivity, so the dollars per linear foot, and they rank brands based on the productivity and they make also assortment decisions based on productivity. So we live and die by productivity. We have groups, departments that literally scrutinize every single SKU at the wall on a quarterly basis to grow productivity where it’s needed or to kill SKUs with lower productivity. Often by the way, the wall is not extensible, so you have to compete within your four feet or eight feet of space. So, productivity is the name of the game.
To your second part of the question, agility, nimbleness. Speed today is a very important factor, not the only factor, but a very important factor in product development and innovation. So, we have to be able to have the pulse on culture and with the pulse on culture, we have developed the ability of spotting short-term trend and medium term trend or long-term trend. In short-term trend that you have to respond in couple ways, at least.
One within a month, you have to activate your base to respond to that short-term trend. Obviously you cannot launch a new product within a month, but you can use your existing portfolio to respond and to engage in this short-term trend. And then the short-term trends also should impact or should inform your product development within six months. We have to be able to work with our laboratories, our manufacturing plants, and also external partners, external third party manufacturers to develop to respond to those short term trends with the novelty that is brought to market more or less in six months.
Often the way to do that is to launch first on e-commerce. It can be your own DTC site, it can be on Amazon. Test and learn on new ideas and then bring it to the world in the next world reset. But nimbleness is a lot. It’s not everything, but it’s a lot because in the end you have also to carry on those longer term big technology platform that takes 18, 24, 36 months to see the light of day. So we have to balance this short-term quick reaction to short-term trends, but as well as go steady on big technology innovation programs that might take multi years.
Oliver Chen:
Yeah, that leads into another question, research and development in R and D. Where should be the focus areas in R and D? What do you think will be needle movers as that’s an important aspect of thinking about innovation as well?
Stefano Curti:
I think in R and D you have to pick your battle. I think you have to be good at everything, but excellent in few areas. We are picking our battles at Coty. So skincare, biotech, mascaras, foundations, sun protection. These are areas where we know we have the technologies, the ideas, the insights to pick the best in class.
Obviously fragrance. Fragrance is not just about smelling good. There are technology about the trail of fragrance, the blooming of a fragrance. We have just launched a new technology that is completely upcycled, Eternal. So we take CO2 emission, we transforming upcycle, Eternal. So there are some areas where we need to win battle and being the best in the world. In the other areas we have to be good. So R and D has to master few areas excellently and also being able to work on bringing the latest trend in terms of tone and texture, in terms of colors, pigments, et cetera, in a very agile way, as well as being able to co-develop with external third party manufacturer.
Oliver Chen:
Brazil and China are really important growth drivers. You have an outstanding business in Brazil. What opportunities do you see in those regions? How might your penetration evolve and what are some key dynamics we should know about as they’re different but important markets for different reasons?
Stefano Curti:
Yes. So Brazil, let me start with Brazil. In Brazil we have a very strong business, but it’s a business that was built through body first. So, we are very strong in body lotions, in body oils, in deodorants, and these are typically categories with lower margins and people would say they tend to be closer to commodity categories. So our focus in Brazil has been the premiumization and the codification of our Brazilian portfolio. We’ve been entering progressingly in higher order benefits, in body, higher order benefits in deals, in fish of skincare recently with Monange. So we are premiumizing our portfolio. So that’s been one major things that we’re doing. Another one is Brazil is the largest fragrance market in the world. Brazilians are the most involved in fragrance in the world. However, most of the consumption goes through door to door. So for a fragrance company like ours, we took it on us to start the business of fragrance in mass markets, in drug stores.
So we want to democratize beauty, we want to democratize fragrance in Brazil. So, we have been launching a portfolio of fragrances last year. We continue to expand it and we really want to impact the consumer behavior. Today, you can buy your fragrance as you shop in your prep stores or your supermarket. So Brazil, we are on this journey of premiumization and category expansion. In China, Coty is still small and growing fast. Actually being small in China for us has been blessing in disguise because when China was closed for Covid and after Covid, our business has been affected the least, much less than other or some of my big competitors. They’re very exposed to the China business. So we are growing very fast in China. We are putting more priority in China on our prestige brands, Gucci, Burberry, Chloe.
We have just launched Aveda that is our super premium, super efficacious skincare line based on French biotech. And we are about to launch the new ultra premium fragrance line Infiniment Coty Paris.
In consumer beauty, we are betting, we are betting on two brands, Adidas. Adidas is a major brand equity in China. It’s a super cool penetrated with Gen Z brand. And we continue to expand. We already become number one in men’s grooming and we’re expanding progressively to the women target through a combination of fragrance, deodorants, shower gel and more. And the second brand is Max Factor. Max factor is the American brand of makeup, of the makeup artists that really resonate in any aspirational in China, provides prestige, quality and affordable prices.
So this is our portfolio approach. We see a lot of opportunity in China for us. China is full of opportunity and Brazil is full of opportunity, but also the springboard for the rest of Latin America and possibly emerging markets. We have developed capabilities there in two areas. One is low cost manufacturing that will help us in our expansion across Latin America and eventually Africa and India. And second, the population of Brazil is the most diverse in the world. And we have created the research and development center for melanin rich skin, that is giving us a lot of insights to be able to cater to the world in the end. Because remember in a few decades there will be more dark skin individual in the world than Caucasians.
Oliver Chen:
Stefano, there’s clearly abundant opportunity across products, categories, and brands. How do you manage this complexity and, or prioritization? And second, which part of your job is the most fun?
Stefano Curti:
Prioritization is a never ending story as you can imagine. One of my roles, in fact is to break the ties and in the end having to decide which priority we’re going to push forward.
In consumer beauty, we are clear on our focus on these three categories, color cosmetics, fragrance, and selectively in our body. And we will not go out of these categories for the very foreseeable future as we want to continue to increase productivity in these categories.
I’m having a lot of fun. And the fun comes primarily from innovation, just the idea of the task of bringing those guidelines for product development to make a product more socially relevant to life. Very exciting, trying to disrupt yourself, coming up with new product forms. Today there is no packaging a juice, it’s all part of the same product in applicators. An application system is as important as the juice inside. So this is where my passion lies because that’s where the passion of consumers lies. Innovation is very important from a net revenue perspective and even more important to signal to enrich the brand equity and to signal newness, excitement, cool factor with our consumers.
Oliver Chen:
Stefano, as we close out, what’s next for consumer beauty brands? What do you think is most underappreciated by investors or the audience here?
Stefano Curti:
Yeah, good question because I get asked all the time about color cosmetics and CoverGirl, and the two most unappreciated category where we compete in projects that we have, are nail and fragrances. Nail first, we have at Coty CB, consumer beauty, is market leader in the nail market with over 20% market share. We have a portfolio of five and six brands that compete in nail, including Selly Hansen, Rimmel, Max Factor, Bourjois, Miss Sporty, and others. And we compete in bottle and brush, so in nail polish. We compete in nail treatments, we compete in artificial and influence. Risk is another major brand that we have is a market leader in Brazil.
So I do believe that today nail is the new face. People are fragmenting their approaches to beautifying your nail. The routines are becoming more fragmented, more complex, and that’s the way we’re thinking. Bringing the same degree of technology disruption and sophistication to nail. And that’s where Coty has the right way.
The second category is fragrance. We are the market leader in Fragrance in prestige, and we have the right to win and bring the insights, the understanding what the olfactory territory is down to the mass market consumer democratizing fragrance and bring everyday luxury at an affordable price. And this is where I feel these two categories fragrance, so mass scenting, and nail will drive will continue to accelerate Coty’s specifically quality consumer beauty in the coming couple of years.
Oliver Chen:
Well, Stefano, it’s been a pleasure. We’ve covered so many interesting topics from new generations of consumer rethinking marketing, how to keep brands very relevant and many things on the horizon across categories. It was a pleasure to be here with you. Thanks for your time.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowan Insights.