Natura: the cosmetics company from the Amazon rainforest that sets the example
Natura is an example of achieving operating alignment with a triple bottom line business model
Who is Natura?
Natura is Brazil’s #1 cosmetics manufacturer with a 23% market share and the leader in the direct sales sector. It has a strong economic performance with a 24% EBITDA margin, a 13% CAGR in revenues and a consistent dividend payout.
How Natura creates value?
Natura creates innovative products that promote well-being by building a network of relationships, with a corporate behavior guided by sustainable development.
Its commercial strategy is a direct sales model with more than 1.7 million “consultoras”. Natura also has unique suppliers: 33 communities (3,100 families) that ensure the sustainable supply of biodeversity ingredients from the Amazonas flora that form the technological base for its products such as pitanga, brazilian nut and palm oil.
Operating model
Natura’s operating model aligns and makes the triple bottom line business model feasible.
The company adopts an approach to the product of Life Cycle Assessment that goes from raw material extraction to logistics, processing, manufacturing and packaging.
Regarding raw materials, ingredients from synthetic origin are replaced by plant origin: the company only uses organic alcohol extracted from sugar cane. Palm oil is obtained through sustainable farming by local communities in the state of Para. In this sense, the business model drives product differentiation for the company.
In its manufacturing process, the company has obtained carbon neutral and ISO 14001 certifications. It constantly strives to reduce the consumption of water, energy and raw materials, raising profitability in operations. Its pollution prevention approach generates savings by waste reduction and a more efficient resource allocation that drives down costs, sustaining a competitive advantage. For example, measuring the carbon emissions generated by transport led to an optimization of the logistic routes for distribution.
On the other side of the supply chain, the direct sales network is a key source of competitive advantage because it makes distribution robust and flexible. In a volatile Latin American environment with limited transport infrastructure this is a unique asset. With 8 distribution centers and its consultants network Natura delivers to 100% of the cities in Brazil. The network allows an astonishing market penetration of 60% of Brazilian homes, reaching places its competitors cannot reach. The direct sales network creates a model of high responsiveness and customer service levels: in 2014, the company had 18 million orders with 96% on time delivery and 55% delivered in less than 48 hours.
Additionally, the direct sales network is a source of market intelligence and demand visibility. There is complete transparency with the sales force about promotional plans, sales forecasts and new product design. Incentives along the supply chain are also aligned with the business model as “consultoras” are not only evaluated on sales targets but also on encouraging sustainable consumption. They are a key source of feedback from customers about new launches and act as a network of collective learning that reduces the risk of bullwhip effect. Actually, the company has a co-creating program with them that has generated 884 contributions of product ideas in 2014. The sales network therefore acts as a source of continuous operational improvement, sustaining the company’s competitive advantage.
Innovation process
Innovation is at the heart of developing sustainable products: the business model drives research in product formulas and packaging. 30% of the product portfolio is renewed every year. In 2014 the company spent 3% of its revenues on R&D and launched more than one product every two days. Its innovation index (% of revenue from products launched in the last two years) is 68%.
One of the most interesting innovations occurs in packaging. Aligned to its value proposition, the company uses 50% recycled PET and 100% eco-friendly bio plastic made from sugar cane for its bottles. But the strategic innovation is refill packaging. These have on average 54% less material and generate 97% less residue than conventional packaging. More interestingly, they are on average 20% cheaper, resulting in higher margins and allowing Natura to offer competitive prices. This increases volume sold and promotes repurchases in poorer regions.
The operating model is also consistent with the value proposition in terms of product breadth. Despite the extensive hair care line the company stays away from dying products because they are intrinsically contaminating. In the same way, the company had an enormous challenge entering the aerosols deodorant segment.
The company transformed this environmental challenge into a business opportunity with the launch of the Ecocompacto aerosol deodorant. Developed in partnership with its suppliers, the product has 15% less aluminum and generates 48% fewer greenhouse emissions with the same yield.
The business model differentiates the cosmetic company from its national and international competitors such as Avon. The sourcing from local communities and the direct sales network has driven brand leadership and loyalty: Natura has 74% positive assessment in brand image and 64% consumer loyalty.
The business model based on sustainability has leveraged unique capabilities in the operating model: it has been an opportunity for product and process innovation and improvement, becoming the driving force behind Natura’s growth.
(1) Natura Annual report 2014 and 2013
(2) Company Website: www.natura.net
Great post! A few questions:
1. Innovation is key for beauty companies, but I was wondering what is the rationale behind such a frequent portfolio update? Do competitors do the same thing, i.e. is this really expected in the local market? How does such product breadth impact their supply chain/operations?
2. I’m not clear on how the consultoras promote/encourage sustainable consumption? You mentioned this as part of the evaluation/incentive structure.
3. How big is the average territory of the consultoras? I’m sure it depends on whether they serve a rural or urban base, but I wonder if any of them could be stretched thin. Is there a risk of them being poached by companies like Avon, or does Natura do the poaching?
Super interesting. It seems that Natura could even scale up and grow outside of Latin America if they wanted to! Or am I wrong?
Fascinating to see that you can align not just operating and business models, but also sustainability with innovation and performance!
Love the post!
Great post!
I really like this Brazilian company. Two additional information related to what you wrote:
1. Because of their sustainable approach, Natura also don’t produce/sell nail polish.
2. Natura recently became a certified B corporation (https://www.bcorporation.net/community/natura)
Interesting post Mapu. Same question as Michael above – can it expand to outside LatAm and can it be replicated by other cos? That’d be interesting given the booming market (globally)!