From Personal Care to Pet Care to Energy Drinks, the Fringe of Staples Category Heats Up

Tucked in beside the likes of Walmart, Procter & Gamble, Colgate-Palmolive and a host of other consumer staples companies that provide the food, toilet paper and toothpaste-type essentials of daily living, a sub-sector of incredible proportion — and most recently outperformance — are riding a wave of demand for personal care products.

As much as you cannot live without food, the largely female and highly loyal legion of consumers who regularly buy cosmetics, hair care and skin products are showing an unwavering commitment to beauty essentials, as well as an unwillingness to compromise.

“We have an increasingly strong and loyal following in our provider community, and the reception to our trade-up promotions exceeded our expectations,” Liyuan Woo, chief financial officer (CFO) of The Beauty Health Company, a 25-year-old Los Angeles-based maker of facial mask, peel and cleansing products, told investors on the company’s first-quarter earnings call May 14.

While Beauty Health’s stock is still down almost 40% year to date due to concerns about supply and demand being impacted by prolonged pandemic lockdowns in China, its shares have enjoyed a 50% rebound in the past few weeks as investors take a fresh look at a niche company and category.

At the other end of the spectrum, sector giant L’Oreal — with a $190 billion market value — had followed a similar trend line with a 30% year-to-date decline followed by a near-term, double-digit bounce in its shares from an 18-month low.

“So far, we see no impact of inflation and price impacts on consumers’ beauty consumption,” L’Oreal CEO Nicolas Hieronimus told Reuters on the sidelines of the World Economic Forum in Davos, Switzerland last week.

While there has been no shortage of bad news and economic anxiety over the past two months, with studies from PYMNTS as well as retailer anecdotes underscoring the many ways that consumers are tightening up their belts and budgets, numerous players within the cosmetics category have doubled down on efforts to retain their best customers.

“Beauty services deepen engagement and loyalty through human connection,” Dave Kimbell, CEO of Ulta Beauty, which runs a chain of 1,300 retail locations and an eCommerce site.

“Consumers are resuming their beauty service routines as they participate in more in-person activities,” Kimball assured investors last week, as the retailer posted first-quarter results and guidance that comforted investors and saw its stock jump 25%.

The defensive nature of the personal care category saw 25 of 30 companies rising last week, amid multiple reports of resilient consumers and renewed efforts to help customers navigate these challenging times.

Read more: Widespread Reports of ‘Resilience’ Lift Hopes in Battered Retail Industry

Opportunity on the Fringe

At the same time, other fringe consumer staples names such as Freshpet, which makes refrigerated dog and cat food, has bounced about 40% from its recent low three weeks ago.

“Overall, we have our best retail conditions in almost two years, and they keep getting better,” Freshpet CEO Billy Cyr said on the company’s first-quarter earnings call in early May. Despite supply chain constraints, labor shortages, rising construction and equipment costs for its in-store refrigerators, and what Cyr called an “18-month inventory hole,” the specialty pet food provider is enjoying some near-term momentum.

“We’ve been experimenting with a variety of new production technologies over the past year, some that support existing products and some that enable new innovations, and we are ready to scale up those technologies,” Cyr said.

“The emergence of a growing segment of very high-end fresh and frozen pet foods has reinforced the strategic importance of ensuring that Freshpet always has the best products in the market,” Cyr added, as well as the need to convey value to new and existing customers.

Celsius Starts to Bubble

Other recent movers on the edge of the broad and burgeoning consumer staples sector include oat milk maker Oatly, as well as Florida-based energy drink company Celsius, whose shares have risen 30% in three weeks after outpacing larger rivals, including Rock Star, Red Bull and Monster Energy.

That’s thanks to new distribution deals with Walmart, Sam’s Club and 14,000 Circle-K and 7-Eleven convenience stores, Celsius CEO John Fieldly told investors, pointing to a 214% increase in domestic sales last quarter.

While Celsius is feeling margin pressures due to rising costs as it struggles to keep up with demand, the company is actively investing in new products and markets, such as health drinks and vitamins via a deal with GNC, as well as more traditional retail and vending rollout and a new Direct Store Delivery program.

“We continue to target new and existing consumers where they live, work and play, building meaningful and emotional connections through robust integrated marketing programs,” Fieldly said, pointing to ventures with Shaquille O’Neal and Shaun White as well as other sponsored events.

“We continue to activate and connect with consumers in a meaningful way and bring in new consumers to the Celsius portfolio and energy category,” he added, pointing to the company’s segment leading growth as proof of underlying demand with a challenging environment.