McKinsey Declares Price-Fueled Growth Is Over In Beauty. How Should Brands Respond?

In a recent report on the business of beauty, McKinsey & Co. forecast that the global beauty industry will proceed at an annual growth rate of 6% to reach $590 billion by 2028, up from $446 billion in 2023, which saw a 10% increase from 2022. While the industry’s growth potential remains meaningful, the management consultancy projected it with a warning that the “era of de facto price-fueled growth is over.”

Based on McKinsey’s warning, for the latest edition of our ongoing series posing questions relevant to indie beauty, we asked 12 beauty investors and investment bankers the following: Do you believe McKinsey’s characterization of the next era of the beauty industry is correct? What front-facing and behind-the-scenes strategies will be crucial for beauty brands as they seek to drive sales in an industry in which price-fueled growth will be over? How does price stabilization with the cooling of inflation affect beauty investment philosophies?

Ari Cohen Senior Associate, AF Ventures

Consumers take a different approach to choosing beauty and wellness products than they do with consumables such as food and beverage. Beauty and wellness companies win in two ways: strong brand equity and product efficacy.

Absent the ability to take price, as the elasticity of the beauty consumer has peaked, beauty brands will need to rely more heavily on selling more units. In doing so, they will need to lean into their value proposition, which includes their brand positioning, how they communicate with their consumers, and the quality of the ingredient inputs and effectiveness of their product.

From a communication standpoint, companies must be able to create an ethos that resonates with the values of their consumers and demonstrate the inputs and purpose of their product in a simple, concise fashion. The companies that are able to do this effectively will get superior consumer engagement, more habitual consumption and higher average order values. When we think about the brands in our portfolio and also outside of it who excel in consumer activation, their brand ambassadors become invaluable marketing engines.

Our outlook is that companies should not rely on price increases for revenue growth and margin expansion. Building authentic brands, with differentiated marketing and activations, and delivering a high-quality offering will determine category winners despite ebbs and flows in the economy.

TINA BOU-SABA Investor

I think that McKinsey's characterization of the next era of the beauty industry (in aggregate) is reasonable. But I believe that this is much more relevant to large legacy brands than it is to emerging growth ones. In my opinion, social media has been the biggest driver of emerging brands' growth over the past decade-plus. These brands grow by gaining market share, not by taking price.

We need to keep in mind that McKinsey is looking at the beauty industry from 30,000 feet in this piece. The consultants are describing high-level macro trends, including big CPG companies using regular price increases to boost their sales in a market with little or no unit growth. Growth will be much harder to come by for the remainder of the decade, and legacy brand managers will need to be much more creative and innovative.

However, the McKinsey lens is not the right one through which to evaluate the challenges and opportunities facing emerging beauty brands. Nothing against McKinsey! It's simply a different world. In fact, whether Congress bans TikTok is far more important to emerging brands than what McKinsey thinks about unit growth in 2025.

Where do these two worlds collide? In M&A, of course. To the extent that price stabilization leads to low/no growth at legacy brands, strategics may be more likely to buy growth by acquiring hot emerging brands, as long as their balance sheets remain strong. The bar will be high, of course, with respect to both growth and profitability. But as McKinsey advises, a key item on the agenda for CPGs going forward will be “portfolio reshaping,” that is, mergers, acquisitions and divestitures.

Anna Whiteman Partner, Coefficient Capital

Beauty as a category tends to fare consistently well through all forms of economic turbulence (what many call the lipstick effect), with strong rates of loyalty and consistency from this consumer. While price increases did certainly pinch the consumer through this most recent inflationary period, Harris Williams recently found that 94% of consumers expect to spend the same or more on beauty in 2025, while correspondingly 60% of these consumers say their economic situation is the same or worse in 2024 than it was in 2023.

Consumers seem to be saying in this data that brand loyalty matters to them, and beauty is a category within which they’re willing flex their spending power to adapt to new pricing realities.

Specifically for gen Z and millennials, the same report found that younger consumers (18-44) show a strong preference for experimentation and routine stacking in beauty, implying that these consumers are looking at their beauty purchases as a source of novelty and entertainment beyond pure play value. As long as beauty brands continue to deliver on this experiential level for their consumers, consumers in turn will likely continue to give brands’ some grace on structural price pressures they may be facing.

Behind the scenes, we see a values shift from the consumer in terms of what they are hoping to gain from their beauty purchases, with efficacy and functionality pushing to the forefront over and on top of sustainability or clean formulation claims. Brands that can demonstrate specific, tangible value will be able to more effectively justify their purchase price to consumers for the near term.

As inflation does cool and price structures stabilize into the new year, stronger consumer sentiment and buoyed spending power should provide the beauty consumer with a healthy degree of confidence to spend into the category, on both trial and routine, which bodes well for investment into the overall sector.

Sarah Woelfel Co-Founder and Partner, Cult Capital

McKinsey’s forecast that the beauty industry will increasingly rely on unit growth and basket expansion rather than price-fueled gains rings true. As inflation cools and price sensitivity stabilizes, brands will need to focus on building relationships with consumers that go beyond one-time purchases.

I agree that hero products will continue to serve as powerful entry points for brands, capturing new customers and attracting attention through viral social media campaigns. However, to sustain and build on this initial interest, brands will need to develop strategies that convert single-product consumers into loyal, multi-product customers.

This is consistent with our investment thesis at Cult Capital. We invest in high-growth brands with fanatical followers that we can catapult out to the mass consumer. These cult followers are critical to the brand’s success and it’s these consumers that drive higher multiples at exit. We agree with this framework as we enter an era of growth driven by unit volume:

Hero products as gateways, not endpoints

Many beauty brands have successfully propelled their hero products to mainstream status, leveraging social media to build brand awareness, but the real opportunity lies in converting these buyers into brand enthusiasts. To do this, brands can:

Expand hero products into collections: By developing complementary products around hero SKUs, brands can create cohesive collections that encourage consumers to explore additional items within the same line. For example, a popular skincare serum could be complemented with a moisturizer, mask or SPF, allowing customers to deepen their routine within one brand.
Personalized product recommendations: Leveraging data from initial purchases, brands can recommend related products to returning consumers. McKinsey’s research underscores the value of personalized shopping experiences, which increase basket size by tailoring recommendations to individual needs.

Building loyalty and engagement through data

Sustained growth requires brands to capture consumers’ attention and nurture ongoing engagement. This means focusing on behind-the-scenes strategies to understand and respond to customer needs:

Loyalty programs and community engagement: Loyalty programs can drive repeat purchases by offering benefits that encourage customers to shop across a brand’s range of products. These programs are particularly effective in beauty, where consumers are open to experimenting with various products if they feel they’re part of an engaged community.
Customer data and personalization: By gathering data from customer interactions, brands can understand purchase patterns and preferences. Advanced data analytics, as noted in McKinsey’s report, allow brands to segment their audiences and offer personalized recommendations, targeted promotions or early access to new launches.

Value-driven and volume-based growth

The cooling of inflation and the end of price-driven growth will likely shift investor focus toward brands that demonstrate volume-based growth and unit expansion. Investors may prioritize brands that show efficiency in scaling and have robust customer retention strategies, as McKinsey’s insights suggest that price stability means brands will need to work harder to expand the average consumer’s basket size.

Brands with efficient marketing and strong DTC strategies will be particularly valuable as they can control customer engagement and drive higher lifetime value without needing to rely solely on external retail channels.

McKinsey’s warning about the “end of price-fueled growth” underscores the need for brands to build long-term consumer relationships through compelling products, personalized experiences and effective data use. By creating strong ecosystems around hero products and fostering brand loyalty, beauty brands can thrive in this new era.

Cristina Nuñez Co-Founder and Managing Partner, True Beauty Ventures

While I agree that cooling inflation and price stabilization removes pricing as an easy growth lever, not all beauty segments relied solely on price-fueled growth. Prestige beauty has experienced both price and actual volume gains in historical periods and has inherent strategies and characteristics to fuel long-term growth even while entering a new beauty era without significant price increases.

Some of these front-facing and crucial strategies include:

Value-driven innovation: Brands need to focus on creating products that offer unique benefits, strong efficacy and superior quality to justify their prices.
Omnichannel presence: With 75% of U.S. consumers researching and purchasing both in-store and online, brands must solidify their presence across multiple channels.
Social media engagement: As 45% of consumers say social media influences their purchases, brands should continue to invest in digital marketing and influencer partnerships with an emphasis on striking the right mix between organic and paid growth.
Transparency: Communicate openly about pricing and value propositions to build trust with increasingly discerning consumers.
Personalization: Offer customized products and experiences to differentiate from competitors and justify premium pricing.

For the back of the house, some critical strategies to ensure growth is coupled with profitability in this environment include:

Product margin prioritization: Develop and adhere to product margin targets for NPD, particularly when formulating for new and disruptive innovation. Ensure margins can support wholesale expansion without changes to MSRP.
Supply chain optimization: Streamline operations to manage costs without sacrificing quality or raising prices.
Data-driven decision making: Utilize consumer insights, market data and increasingly AI to inform product development and pricing strategies.
Inventory management: Maintain lean inventory positions to avoid markdowns and protect margins.
Diversified sourcing: Reduce reliance on single suppliers or regions to mitigate supply chain risks and cost fluctuations.

From an investment philosophy perspective, while inflation is cooling, beauty investment is heating up. I think investors have learned over the past few years boosted by price-enabled growth that a successful investment in beauty and wellness is predicated on levers that go way beyond the top line. Increasingly, investors are prioritizing brands with a focus on operational efficiency and strong cost management.

In addition, innovation-driven, organic growth is piquing more interest alongside specialized product offerings that address a specific consumer need or underserved market, which help brands command premium pricing. Discerning investors and a challenging economic environment also mean a stabilization of valuations that are more attractive for investors and in line with realistic growth expectations for the industry.

In conclusion, as the beauty industry moves beyond price-fueled growth, success will depend on a brand's ability to innovate, provide clear value propositions and operate efficiently. Investors are likely to favor beauty brands that can demonstrate these capabilities while also showing resilience in the face of economic uncertainties.

Andrew Ross Senior Advisor and Venture Partner, XRC Ventures

McKinsey’s research is a good reminder that, despite beauty remaining an amazingly attractive category overall (you can’t find even 5% growth anywhere else!), it is still ultimately affected by the same “laws of Newtonian physics” as the rest of the CPG industry. The big takeaway for everyone is to start paying attention to units as well as dollars as consumer demand is not infinite and nor is her price elasticity.

Velocity and repeat/loyalty become even more important in terms of defining assortment architecture and new product launch. Pricing and promotion optimization, especially around key events and holidays, matter even more to ensure you win share of wallet on the most important occasions without undermining equity or value perception.

Supply chain skills and especially product cost optimization and logistics efficiencies gain importance to scaling brands as levers to improve EBITDA. None of these capabilities or skills are new. They just matter more than ever when you can’t count on 1% to 2% like-for-like growth coming from pricing every year.

Michele Miyakawa

Co-Founder and Managing Director, Moelis

In the context of broad inflation, it’s tempting to think of the beauty industry’s historical price growth as simply a pass-through for higher costs but, in reality, product mix has been the driving force as brands expand in luxury, prestige and masstige categories. Hence, the question is whether consumers will start to trade down, particularly if we reach a recessionary environment.

We believe the answer depends on the value proposition of the product. In consumer surveys we have seen and conducted, it’s not typically prices themselves that rank high on consumer purchase decision priorities, but rather value to price. Given how innovative brands are in creating products that are more effective or emotionally resonant with consumers’ concerns, we believe that price-fueled growth will continue.

In skincare specifically, we are bullish on the intersection of science and beauty where new molecular technologies and innovation will create even more effective solutions for skin pathologies. In health and wellness in general, there is real price inelasticity when it comes to addressing a consumer’s emotional or physical needs and concerns. Brands with products that work for consumers—however they define that—will find that their pricing power is resilient.

Madeline Kaplan Partner, Selva Ventures

While there may be less growth tied to price increases over the coming years, there are still many growth opportunities within beauty that continue to make it an exciting category for early-stage investors.

Although it has become more expensive to acquire a customer online, beauty businesses generally have strong gross margin profiles and are better able to weather these swings in customer acquisition costs. Looking at each subcategory of beauty, there are exciting trends that will continue to drive innovation in the years to come.

Fragrance has become a form of self-expression, broadening into new customer segments and continuing to establish itself as a category where people are willing to make a real investment in finding their unique scent. The rise in research linking fragrance to emotions and the brain will also be an interesting segment to track as consumers prioritize wellness across categories.

The hair category will continue to see strong momentum next year as the rise of the “skinification of haircare” becomes more widespread. We are seeing more of an emphasis on both hair and scalp heath and consumers are expanding their at-home hair routines into treatments and serums.

As shown with the power of lip products over the past year, color cosmetics are on the rise. With everyone back to in person and the younger generations playing with color in new and expressive ways, it will be exciting to see the category continue to grow.

Lastly, in skincare, we are seeing the entrance of gen alpha and gen Z who are taking their skincare more seriously at an earlier age than any generation before. Additionally, as older consumers are become more wellness focused, including men, they are more willing to pay for products that work and show results.

Jon Tenan Managing Director, Global Consumer Investment Banking Group, Baird

I agree that cooling inflation has diminished the ability to fuel growth via price take. However, that is driving a return to fundamentals, growth via innovation and optimized go-to-market strategies. Brands are increasingly focused on expanding product, channel and market presence.

This seems obvious. However, we have seen many companies focus exclusively on a single channel (e.g. DTC or retail) and/or product and ride that singular focus to success at scale. In today's market, especially without the ability to take price in the same way, that is increasingly difficult. It means looking towards Amazon, traditional retail as well as a brand's website and thinking about ways to increase customer AOV and LTV via innovation.

Claire Chang Founder and Managing Director, IgniteXL Ventures

As the beauty industry evolves beyond price-fueled growth, three key trends are shaping its future:

Value-driven efficacy: Thanks to the K-Beauty revolution, U.S. consumers now expect highly effective products with innovative ingredients at affordable prices. This shift is creating unprecedented demand for value-driven solutions across the market.
Derm-oriented anti-aging: With an aging population, there's a growing appetite for anti-aging and longevity-focused skincare. Products backed by dermatological science are poised to see significant growth.
Personalized beauty: Advancements in science and technology coupled with improved data collection on skin types and environmental impacts are making truly personalized beauty solutions more feasible than ever before.

To thrive in this new landscape, beauty brands must adapt both their front-end and back-end strategies:

Front-end strategies:

Clear communication: Brands need to articulate their unique value proposition and product efficacy in an increasingly crowded market.
Channel optimization: Selecting the right mix of distribution channels to reach target audiences remains crucial.

Back-end strategies:

Supply chain efficiency: Streamlining operations to manage costs without compromising quality.
Data-driven Forecasting: Leveraging technology for more accurate demand prediction and inventory management.

Competitive advantage through community:

In a tighter economic environment with cooling inflation, brands that employ cost-effective community-building and data acquisition methods will gain a significant edge. Understanding core consumers through these channels will be key to success in the evolving beauty landscape.

As the industry moves beyond price increases as a growth driver, those who can deliver on efficacy, value and personalization while optimizing their operations will be best positioned to capture market share in this exciting new era of beauty.

ODILE ROUJOL Founder, Fab Co-Creation Studio Ventures

For emerging brands, this means being more than ever obsessed with the repurchase rate and having loyal customers.

Strategies can work from affordable to premium positioning:

A Fab portfolio company, Bubble has built a gen Z community, then secured retail partnerships with Walmart, CVS, Ulta and Boots. The founder has a consistent retail strategy with her core target and affordable price positioning.

Novos Labs, another Fab portfolio company, sells upscale supplements with a subscription model. It’s now available at Equinox and iconic grocery store Erewhon in LA. It disrupts the costly “biohacking’ brands, enabling more people to stay younger for longer.

Each of the founders are consistent with his/her vision, core target and the community that loves the brand.

Josie Buck Principal and Investment Director, Venrex

I agree that the opportunity for price-fueled growth is waning as inflationary pressures ease and customers max out on budgets for discretionary purchases. It’s never been sustainable to ask customers to pay more year after year for the same product.

However, there is still scope for beauty brands to use price as a growth lever when it’s attached to breakthrough product innovation. We’ve repeatedly seen that beauty consumers are willing to pay for innovation and quality as with Charlotte Tilbury’s Magic Cream or Olapex’s No.3 Hair Perfector.

But as much as we would like it to, breakthrough innovation doesn’t happen every day, and beauty brands will have to leverage other additional strategies for growth. These could include:

Increasing brand penetration by reaching and converting more consumers through marketing initiatives, incremental distribution channels across online and instore. improved customer experience, or new product ranges catering to different needs.
Increasing units purchased via cross-selling or frequency by driving the volume per consumer through add-on purchases, improved CRM or loyalty programs.

In comparison to price-fueled growth, these strategies are likely to be more expensive, and beauty brands will need to explore operational efficiencies simultaneously to maintain margin.

Despite the shift in growth forecast and drivers, I expect investors will continue to be highly engaged in beauty, particularly as the industry continues to outperform many others within the consumer sector. At Venrex, an early-stage VC fund, we will continue our search to find incredibly ambitious founders who are challenging the status quo within beauty and wellness.

If you have a question you’d like Beauty Independent to ask investors and investment bankers, please send it to editor@beautyindependent.com.