Beauty is a much-loved sector for investors and corporates alike due to its proven resilience in tough economic times and attractive margins, making the race to purchase the most lucrative beauty brands that much more competitive. In addition for conglomerates, acquiring disruptor brands can inject often-needed relevance into their pipelines. For these reasons, many conglomerates have established their own early-stage investment arms, such as The Estée Lauder Companies’ New Incubation Ventures and L’Oréal’s Circular Innovation Fund. In return, conglomerates can supercharge the growth of their acquisitions by offering scale, partnerships and access to new markets. 

Nothing illustrates the power of acquisition to conglomerates and the potential benefits to their acquisition brands better than the biggest beauty deal of this year: L’Oréal’s purchase of the luxury cosmetic brand Aēsop from Natura & Co for $2.5 billion. Although this deal is still pending approval, the purchase is set to be L’Oréal’s biggest acquisition ever and is expected to be completed in the third quarter of 2023. 

Who are Aēsop ?

Founded in Melbourne in 1987, Aēsop has garnered a cult-like following with its luxury vegan beauty products – such as its Resurrection Aromatique Hand Wash (costing £31!). The brand has become famous for its understated, apothecary style bottles, which are an emblem of coolness for restaurants, hotels and anyone looking to showcase their taste. The company now has a far-reaching presence across the Americas, Europe, Australia, New Zealand and most recently Asia. 

What does the purchase of Aēsop tell us about L’Oréal’s acquisition strategy?

 In a press release following the acquisition, Nicolas Hieronimus, CEO of L’Oréal Groupe said:

“Aēsop is the epitome of avant-garde beauty, whose products are not only made with great care and exceptional attention to detail; they are a superb combination of urbanity, hedonism and undeniable luxury. Aēsop  taps into all of today’s ascending currents and L’Oréal will contribute to unleash its massive growth potential, notably in China and Travel retail.”(L’Oréal, 2020).

This statement reveals several hints about the future of L’Oréal’s acquisition strategy:

L’Oréal’s strategic move into luxury with Aēsop

Since Aēsop exists in the premium beauty space, L’Oréal can more accurately rely on its revenue potential as its consumer base will likely be less affected by the economic downturn compared to other beauty segments. The brand has even been projected to join its infamous ‘L’Oréal Luxe Billionaire Brands Club’ by its President, Cyril Chapuy.

A global market appeal, with an eye on expansion into China 

Aēsop has more than 400 stores worldwide, and, with its cross-market appeal, the brand represents a significant growth opportunity for L’Oréal, especially in China where Aēsop successfully launched two new retail stores in 2022. With the Chinese market being one of the fastest growing for cosmetics, Aēsop has been forecast to have a huge potential for L’Oréal; projected by certain analysts to be worth $250 million for the business within 5 years.

A chance to double down on its sustainable credentials

Aēsop offers fully recycled packaging, an additional bonus to its renowned and aesthetically pleasing brand. So far, L’Oréal has invested €1 billion into its sustainability roadmap, and its continued acquisition of sustainable brands supports the legitimacy of its pledge to become completely sustainable by 2023.

Our view of why Aēsop  is such a good purchase

At a brand level, L’Oréal benefits from Aēsop’s existing cult-like following which under Natura’s ownership has been nurtured to deliver strong economic returns (Aēsop’s revenue grew from $28 million in 2012 to $537 million in 2022, and last year, contributed 25% to Natura & Co’s EBITDA alone). Aēsop has also been adept at creating an impressive D2C proposition, not only through their experiential retail footprint of more than 400 stores but also online, which accounts for 30% of their sales, with features such as the ‘cabinet’ that allows the brand to gather valuable consumer data to help deliver more tailored experiences. 

Beyond a brand, L’Oréal now has the opportunity to leverage Aēsop’s powerful consumer relationships and data points at an enterprise level to benefit the wider business – such as through delivering seamless cross-brand experiences and cross-portfolio marketing – and in so doing, move from a brand portfolio to a brand network. If this approach is adopted, our experience in the CPG industry indicates that an enterprise-level strategy can deliver up to 6x the consumer value.  However, L’Oréal will need to be mindful that the Aēsop acquisition complements rather than competes with their existing portfolio, and they protect the key attributes of what makes Aēsop, Aēsop.