Ten years ago, Unilever announced that it was getting back into the prestige beauty business, appointing Vasiliki Petrou, an executive from its biggest rival — P&G — to oversee the division.
The company’s opening gambit was a strong one: It snapped up Dermalogica, a highly sought-after professional skin care brand that had shunned acquisition advances for years. The purchase price? An estimated $1 billion.
To say that industry insiders were skeptical is an understatement. What could the world’s largest manufacturer of ice cream know about luxury products?
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The CPG giant had already tried — and failed — to penetrate prestige beauty in the late 1980s, buying Calvin Klein and Elizabeth Arden before retreating and selling both companies in the early 2000s.
Fast-forward a decade and the naysayers have been proven wrong.
Under the leadership of Petrou, now chief executive officer of Unilever Prestige, Unilever has become a force in the specialty beauty sector, with 10 brands and net sales of 1.4 billion euros. It’s CAGR for 2019-2023 is 12 percent, and it has posted 12 consecutive quarters of growth. It has forged one of the most successful models for integrating founder-led brands seamlessly into a huge conglomerate, and has become the acquirer of choice for many of today’s buzziest brands — not only because of its deep pockets, but because of an ethos that prioritizes purpose as well as profits.
Timing, it turns out, is everything.
“We are a challenger and we like to think differently. We are able to get to the future faster, because we don’t have a lot of baggage,” said Petrou. “We haven’t been in travel retail. We didn’t start in department stores. We want to play in the channels of the future, which is why 50 percent of the business is e-commerce. We have the luxury of playing to the future rather than reinventing the future.”
While the size of the prestige business is relatively small in the overall scope of Unilever, where the Personal Care division has sales of 14 billion euros and Beauty and Wellbeing, including Prestige, reached 12 billion euros in revenue, its strategic importance looms large under CEO Hein Schumacher’s strategy of making the portfolio premium and focusing on billion-euro power brands.
“Our focus in Beauty & Wellbeing is to consistently deliver growth in line with our Growth Action Plan, stepping up our competitiveness and accelerating our premiumization through multiyear innovation across the portfolio,” said Priya Nair, who was appointed president of the division in January. “Prestige plays a pivotal role in achieving this.”
The success of the prestige division comes at a time of great turmoil for the company. Ironically, in March Unilever announced it intends to spin off its ice cream business and amplify its focus on beauty, home and well-being. The move is part of a wider productivity program that will see Unilever make 7,500 office-based layoffs globally and achieve total cost savings of around 800 million euros over the next three years.
“We’re a growth play,” said Petrou. “We fulfill a key white space for Unilever, because we’re a key player in the premium sector and, as importantly, we inspire the rest of the company.”
The prestige portfolio has two brands knocking on the door of billion-euro status: Dermalogica and Paula’s Choice. Five brands exceed $100 million in turnover — Murad, Living Proof, Tatcha, Hourglass and K-18, while Ren, Kate Somerville and Garancia, a French skin care brand Unilever acquired in 2019, are thought to be less than $50 million in revenue. While Unilever overall is focused on making big bigger, Petrou said for now, she has no plans to sell off the smaller players. “Whether we choose to divest is always an option, but I’m not thinking about a divestment right now.”
Instead, Petrou is always on the hunt for brands to add to the portfolio.
“I always go with a brand-first approach, not size,” she said. “In general and as a philosophy of leadership, I don’t like one-size-fits-all. No cookie-cutter.”
There is nothing cookie-cutter about Petrou, who eschews the traditional corporate uniform in favor of electric kool-aid-acid-colored suits in tangerine, lime and hot pink and boldly patterned Pucci print shirts. Raised in Volos, Greece (not far from where “Mamma Mia” was shot she likes to say), Petrou earned a master’s degree in American literature at the University of Texas. A post-graduation job in crisis management at Burson Marsteller spurred a desire to work in business, and Petrou headed to Columbia University, where she earned her MBA.
Those who have worked closely with her say that she brings a right-brain, left-brain approach to running the business. “She is a very visual person and that gives her a strategic advantage, especially when it comes to laying out connected beauty opportunities,” said Suveen Sahib, CEO and cofounder of K-18 Biomimetic Hair Science, the biotech hair care player which Unilever acquired earlier this year after a heated — and competitive — process.
“Vasiliki sees patterns in seemingly disconnected fields and how they can converge,” he continued. “She is a big believer in that we shouldn’t always be asking the consumer what they want, because sometimes they don’t know. If we’re truly good at what we do, we should be anticipating people’s needs and innovating for that.”
Petrou, who is based in London but travels quarterly to Los Angeles, where most of her brands are based, has an insatiable curiosity for what’s happening in popular culture, be it social media or a social movement. When she was choosing an office location for the Prestige division, she chose the trendy Farringdon neighborhood, for example, rather than Unilever’s stately headquarters in central London. “I always say the biggest risk is to be irrelevant. We want to have our pulse on culture,” she said. “Culture is evolving quite fast right now. What is the conversation that’s happening and how are we, the brands, part of it? It’s a journey to make sure our people have this same obsession, to create this multidimensional world that is not just a beauty conversation.”
Petrou is equally as focused on the internal culture of the brands she acquires, which she believes is key to successfully integrating them. “This is where most companies get it wrong. Culture is not a quantitative thing. It’s qualitative,” she said. “When you buy a company — you can’t just turn on the tap, and say, ‘OK, now you’re Unilever.’ It’s like a human brain — you have to understand the cultural pathways.”
This holds equally as true when it comes to the operational evolution of an acquired brand. “You have to choose what is of the most value and how you are going to do it. You can’t just switch it on or people get afraid,” said Petrou. “This is what you bought,” she continued. “You bought the plant, the culture, the values. The secret sauce is identifying what is the value you want to bring and focusing only on that value, versus ticking the box of lists you need to cross off.”
She is fanatical about the role of a founder in the brand. While some strategics phase out founders after a few years, Petrou prefers to incentivize hers to stay. Currently, eight of the 10 founders are still active participants in the brands.
“Founders are part of the soul and DNA of a brand. People ask if we have the same recipe for how we deal with them, and the answer is absolutely not,” Petrou said. “Every founder has different ideas of how they want to be involved in the business. We play to their skills and their long-term vision, and we have learned a lot about how you focus the business for the long-term.”
The vision has always been to capitalize on the agility of independence with the expertise and operational scale of Unilever. “The company has enormous muscle and power, and yet have left us intact as an entrepreneurially minded brand,” said Wurwand.
“Vasiliki provides trust and autonomy to founders, allowing us to continue doing what we do best,” said Hourglass founder Carisa Janes. “That trust has enabled us to forge its own path, while tapping into Unilever’s capabilities when needed.”
For example, when Hourglass decided to become 100 percent vegan, it needed to find an alternative to carmine, the industry standard red pigment for lipsticks that is derived from the shell of beetles. Janes and her team worked with Unilever researchers over the course of three years, 175 color experiments, 36 pigment combinations and 19 formulations to find a viable alternative.
The light-touch approach dates to the beginnings of the division, under former Unilever CEO Paul Polman. Dermalogica founder Jane Wurwand recalls an early conversation with Polman where she likened their relationship to that of a speed boat in a world of big ships.
“Unilever is like a big oil tanker — it travels slowly and in one direction, purposefully. We’re a speed boat — we need fuel and supplies,” Wurwand recalled telling him. “You need from us the ability to see what’s coming and see what you haven’t seen yet and to move quickly. If you try to put us on top of you, we’ll move at your pace and if you get on top of us, we’ll sink.”
Petrou still uses the analogy to describe the relationship, noting that the exchange of information works both ways.
“We can experiment more quickly than the mother company and share our view — ‘there’s a lot of potential here,’ or ‘this is too risky — don’t go,’” she said. “We’ve also inspired Unilever with regard to the organizational business model — a lot of the compass principles were inspired by the decentralized business model of prestige and how do you have more end-to-end businesses where people can decide faster and with speed.”
While analysts seem content with the overall direction of the prestige division, the question looms as to whether Unilever is doing enough to really drive the business. “The brands seem to be a good set of brands and we think prestige is the right thing to be doing. They seem to be performing reasonably well,” said Henry Dennis, a senior associate analyst at Bernstein Autonomous in London. “The growth has been double digit, which is what you want to see. But because they acquire brands thru M&A, the challenge is how do you create value over and above — if you’re buying a high-growth asset, you’re paying full price for that growth,” he pointed out.
“What needs to happen for them to make an attractive return on investment,” Dennis continued, “is to scale up a brand significantly — launching in other geographies, launching into adjacent categories and increasing market spend.”
Petrou refutes the criticism, noting she prefers a more measured approach, using Tatcha’s 2022 launch in the U.K. as an example. “I like to bring brands when there is a lot of demand versus starting from scratch and building awareness,” she said, noting Tatcha immediately became the top-ranked brand in its distribution channels at launch. “We believe in the power of digital communities and advocacy teams. It’s important that people are searching for the brands, because it’s so much more beneficial to answer a need versus just to create that need from scratch.”
Overall, the U.S. is the strongest market for the entire portfolio, and the U.K. is a fast-growing one. Paula’s Choice and Dermalogica have considerable businesses in Europe, and China is becoming increasingly important for many of Unilever’s prestige brands since it lifted restrictions around animal testing.
As for India, a market that many prestige rivals have become increasingly focused on, Petrou is measured in her assessment of its development. “I’m very optimistic about India, but my opinion is you have to pace it,” said Petrou, who recently returned from her first post-pandemic trip to the country. “Prestige is not there yet, meaning products in the $80 to $100 range. For products between $10 and $40, there is definitely a market that’s growing fast. What’s encouraging is the middle class is premiumizing and it’s a big, big country.”
Another key tenet of the strategy has been a focus on the core business of each brand, rather than a relentless cycle of new products. “Especially in North America, a lot of retailers are very innovation-hungry, but one of the things we’ve focused on is to consistently continue to promote the core,” Petrou said.
“We recognize that to get the activations and those extra displays you need to have innovations that may not be around for the next 10 years,” she continued, noting that the ideal balance for the business is 10 to 15 percent of sales coming from innovation and the remainder from the core. “The differentiation and strategic focus between the role of the core and the role of innovation is something we have finessed over the last 10 years.”
As for the next 10 years? The world is changing way too fast for Petrou to speculate on what the long-term holds. “There are seismic shifts happening. We talk in terms of a three-year view, because anything longer I think you get into more theoretical paradigms that are completely irrelevant.”
Currently on her radar screen — the evolution of wellness into what Petrou calls well-becoming, the continued unification of beauty, health and technology, and the rise of technologies like exosomes and neurocosmetics.
“The future of beauty is beauty that makes you feel good, but also delivers functional wellness — stress less, sleep better, beauty that fixes your mood,” Petrou said. “Beauty is so linked to purpose in terms of bringing self-esteem.”
She recalled the gratitude of a friend whom she gifted with a Tatcha skin care regimen during a particularly tough time, sharing with her founder Vicky Tsai’s rituals for self-care.
“Activating social impact and seeing how meaningful self-esteem can be for people is what gets me out of bed,” Petrou said. “Of course, profit comes from quality growth. But if you just focus on profits, you miss the whole game of what the beauty industry is about.”