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Natural Organic Health Product Demand Is Growing

|Includes: CL, CLX, EL, JNJ, LRLCY, The Procter & Gamble Company (PG), SSDOY, UL
New Green Consumer

The Natural Food Craze Is Now Sweeping Into Personal Care Products By The Street

"Demand for 'green' consumer products is rising and giants like Procter & Gamble are noticing.

Consumer appetite for natural and organic products has stretched past the grocery store to the beauty and personal care industry, prompting consumer products giants such as Procter & Gamble (NYSE:PG) and Clorox (NYSE:CLX) to step up their offerings.

The health and wellness movement, which has been around at least since the turn of the last century when the Kellogg brothers began selling their corn flakes, gained momentum in the 1960s as foods such as tofu and brown rice gained popularity. By 1990 there were 10,000 independent natural food stores in the U.S., said Darrin Duber-Smith, marketing professor at the Metropolitan State University of Denver, and a 30-year natural and organic industry veteran, in an interview.

"Attitudes went from hippies to the mainstream, which took several decades," he said.

The movement was fueled by consumers having access to more information due to the Internet and organic and supplement nutrition laws that were passed in the early '90s. "Fast forward to 2017 and natural and organic are found in just about every store format you can think of," Duber-Smith said.

People these days are concerned not only about their food but also about what they put on their bodies and what they spray into their household atmosphere, he said.

"Consumers are looking for better-for-you products because they're concerned about their health," said Jessica Iclisoy, founder and CEO of natural skincare brand California Baby.

Iclisoy said that while large companies such as Johnson & Johnson (NYSE:JNJ) thought natural and organic products were a "fad" and would go away, they now see it's a trend and reality. "I do believe they're taking it seriously," she said. For example, J&J has a namesake natural baby line, including lotions and body washes with 98% naturally-derived ingredients.

J&J was not available to comment in time for publication.

The natural personal care market in the U.S. is highly fragmented, with the leading 10 companies accounting for about 40% of the total market and dozens of other brands making up the rest, according to market research firm Kline. The top five companies are J&J, Clorox, Estee Lauder (NYSE:EL) , Shiseido (OTCPK:SSDOY) and L'Oreal (OTCPK:LRLCY) .

Sales of natural personal care products in the U.S. are expected to grow at a compound annual growth rate of more than 8% by 2021, Kline said. North America is the biggest organic skincare products market and is expected to generate more than 34% of the market's revenue by 2020, Technavio analysts said in a report.

All-natural beauty products are also becoming more important.

A recent survey conducted by Harris Poll found that 55% of women read beauty product labels prior to purchase in order to avoid certain ingredients, such as chemicals. Seventy-three percent of Millennial women, ages 18 to 34, feel green beauty products are important compared to 59% of women ages 35 to 44.

Consumer goods giants are responding with products that have been selling well, according to recent quarterly reports.

Clorox said last week sales of its Burt's Bees natural skin care products grew by mid-single digits during the most recent quarter on top of a double-digit increase a year ago. Burt's Bees' market share in the quarter also reached an all-time high, supported by innovation across its lip and face products.

Similarly, Colgate-Palmolive (NYSE:CL) highlighted "strong volume growth" for its Tom's of Maine business on its most recent earnings call. Tom's products include natural deodorant, lip gloss, body lotion, soap and toothpaste.

Unilever (NYSE:UL) entered the natural consumer products market last year when it bought Seventh Generation, which makes environmentally-safe household products including paper towels and laundry detergent. The company's Dove Men+Care brand also launched a new "nature inspired" grooming line on Feb. 1.

Meanwhile, P&G introduced its first bio-based detergent "Tide purclean" last year. It is 65% USDA certified and free of dyes, chlorine, phosphates and optical brighteners. The detergent is also produced with 100% renewable wind power electricity at a special site.

While the product is still in its early days, Tide "purclean holds a 7% share of the pure and naturals segment and is driving over 150% of the naturals segment growth," P&G CFO Jon Moeller said on the company's earnings call last month.

"We are exploring using more natural ingredients not only because of the positive impacts an increased use of renewable materials will have on the environment and the sustainability of our business, long-term, but also because more and more consumers are seeking out natural ingredients in their products," a P&G spokeswoman told TheStreet.

Tide purclean was also voted number one in the laundry category in the 2017 Product of the Year awards on Thursday. It is the world's largest consumer-voted award for product innovation.

Mike Nolan, CEO of Product of the Year USA, said global consumer goods companies are delivering more environmentally-friendly products. "That's what their shoppers want. People don't settle anymore," he said in an interview.

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