How the beauty and personal care industry works
The categories, the four price tiers, the chain from ingredient makers to shoppers, the rules products must meet, and the measures brands watch.
Industry brief, with a one-minute summary: Beauty and personal careKey takeaways
- A jar of face cream costs little to make. What the shopper pays for is mostly the brand: the promise that it works, the feel of the product, and the trust built by years of advertising.
- European Union: Regulation 1223/2009 requires a named responsible person for each product, a safety assessment before sale, and lists of banned and restricted ingredients.
- A product that claims to treat or prevent a disease is regulated as a medicine in many countries, not as a cosmetic.
- Like-for-like growth: sales growth without the effect of buying or selling brands and of exchange rates, so you see how the existing business grew.
- Gross margin: sales minus the cost of making the products, as a share of sales.
Key idea
A jar of face cream costs little to make. What the shopper pays for is mostly the brand: the promise that it works, the feel of the product, and the trust built by years of advertising. So beauty companies have very high gross margins (L'Oréal kept 74.3 percent of its 2025 sales after the cost of making the products) and then spend a large part of that on winning shoppers: L'Oréal spent 32.2 percent of sales on advertising and promotion. Profit depends on brands that people buy again and again, sold in the right places.
The industry has five main categories. Skincare (cleansers, moisturisers, serums, sunscreen) is the largest. Makeup, also called colour cosmetics, covers foundation, lipstick and mascara. Haircare covers shampoo, conditioner, colour and styling. Fragrance covers perfume and body sprays. Personal care covers daily basics such as soap, deodorant and oral care, which sell at low prices in very large volumes. The same company often sells in several categories and at several price levels.
| Tier | Where it is sold | Example brands | What the shopper pays for |
|---|---|---|---|
| Mass (consumer) beauty | Supermarkets, drugstores, general online stores | Maybelline, Garnier, Nivea, Dove, Lakmé, Wardah | A low price, a trusted name, easy to find |
| Prestige (luxury) beauty | Department stores, specialty beauty stores, airports, brand shops | Lancôme, Estée Lauder, Dior, Chanel, YSL Beauty | The brand's image, the experience, gifting |
| Dermatological beauty (dermocosmetics) | Pharmacies and online, often recommended by skin doctors | La Roche-Posay, CeraVe, Vichy, Avène | Proof that it works on skin problems |
| Professional beauty | Hair salons, which also resell to clients | Kérastase, L'Oréal Professionnel, Redken | The stylist's advice and salon results |
So-what
The tier decides the channel, the price and how much must be spent on marketing. A case about growth usually turns on which tier and which channel the brand is in.
- From ingredient to shopper
- Ingredients and packagingChemicals, oils, fragrance oils from fragrance houses such as Givaudan and dsm-firmenich, bottles and jars
- Research and formulationBrand labs design formulas and test safety; some brands buy ready formulas
- ManufacturingOwn factories or contract manufacturers such as Kolmar Korea and Cosmax, which make products for many brands
- Key: Brand ownerOwns the name, sets the price, pays for advertising, influencers and shop displays
- ChannelsDrugstores and supermarkets, specialty beauty stores (Sephora, Ulta), department stores, airports, online platforms, salons, brand websites, direct sellers
- ShopperBuys, uses up the product, and buys again if it works
Ingredients are a small part of the price. Most of the value is added by the brand owner (research, design, marketing) and taken by the channel that sells to the shopper.
Bar chart: L'Oréal sales by division, 2025 (EUR billion). Values in EUR billion. Consumer Products (mass): 16.1; L'Oréal Luxe (prestige): 15.6; Dermatological Beauty: 7.2; Professional Products: 5.2.
So-what
The world's largest beauty company sells in all four tiers. Mass and prestige are about the same size, but the smaller divisions grew faster in 2025: professional products 7.5 percent like-for-like and dermatological beauty 5.5 percent, against 3.5 percent for mass and 2.8 percent for prestige.
The rules products must meet
- European Union: Regulation 1223/2009 requires a named responsible person for each product, a safety assessment before sale, and lists of banned and restricted ingredients. Selling cosmetics tested on animals has been banned since 2009 for most tests and fully since 11 March 2013.
- United States: the Modernization of Cosmetics Regulation Act of 2022 (MoCRA) made companies register their factories with the Food and Drug Administration, list every product and its ingredients, report serious reactions within 15 business days, and keep proof that products are safe. The regulator can now order a recall.
- A product that claims to treat or prevent a disease is regulated as a medicine in many countries, not as a cosmetic. In the United States, sunscreen is sold as an over-the-counter drug. This changes testing, cost and what the label may say.
- This module explains how the business works. It is general information, not medical or skin care advice.
Key measures, in plain words
- Like-for-like growth: sales growth without the effect of buying or selling brands and of exchange rates, so you see how the existing business grew. L'Oréal grew 4.0 percent like-for-like in 2025.
- Gross margin: sales minus the cost of making the products, as a share of sales. Beauty brands often keep 70 percent or more.
- Advertising and promotion (A&P) as a share of sales: what the brand spends to create demand, including media, influencers, samples and shop displays.
- Sell-in and sell-out: sell-in is what the brand sells to retailers; sell-out is what retailers sell to shoppers. If sell-in runs ahead of sell-out, stock is piling up in shops and future orders will fall.
- Repeat purchase rate: the share of buyers who buy again. A cream that is used up and rebought every two months is worth far more than a one-off purchase.
- Shelf share and online search share: how much space or attention a brand wins at the point of sale, in a store aisle or on a platform's results page.
- For retailers: comparable (like-for-like) store sales, sales per square metre, average basket, loyalty members and stock turns.
L'Oréal had sales of about EUR 44.05 billion in 2025 and a gross margin of 74.3 percent. About how much did the products cost to make, in EUR billion? (Round to two decimals.)
Why do beauty companies spend so much on advertising and promotion?
A brand's sales to retailers (sell-in) rose 12 percent, but retailers' sales to shoppers (sell-out) rose only 3 percent. What should you expect next?
Sources for this lesson (5)
- Recognized public explanations of case-interview concepts and terms
- L'Oréal, 2025 annual results press release, 12 February 2026
- EUR-Lex, Regulation (EC) No 1223/2009 on cosmetic products
- European Commission, "Ban on animal testing" for cosmetics
- US Food and Drug Administration, Modernization of Cosmetics Regulation Act of 2022 (MoCRA)
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