Per GlobeNewswire, in 2020, the global nail polish market surged to $18 billion from an early estimate of $10.5 billion, outpacing sales for the lipstick category of cosmetics, the economic activity indicator. As a result, the number of nail polish brands launched during the past two years has increased to seize their share of the market opportunity. In this article, I will describe the where and how of nail polish production, what factors might influence the manufacturing decision of brand owners and the possible impact of that decision.
Log in to view the full article
Per GlobeNewswire, in 2020, the global nail polish market surged to $18 billion from an early estimate of $10.5 billion, outpacing sales for the lipstick category of cosmetics, the economic activity indicator. As a result, the number of nail polish brands launched during the past two years has increased to seize their share of the market opportunity. In this article, I will describe the where and how of nail polish production, what factors might influence the manufacturing decision of brand owners and the possible impact of that decision.
Types of Manufacturers
- When a manufacturer processes the individual raw materials to produce the bulk product and packages it into small bottles for its brand, it is a vertically integrated manufacturing and marketing company.
- A turnkey supplier is a contract manufacturer that produces the bulk product and packages it into small bottles to provide the finished goods of the brand name company. This production is outsourcing, and the brand name owner essentially functions as a marketing company.
- Compounders purchase intermediate mixtures and blend them into the bulk polishes. They can employ a co-packer or package the bulk products into finished goods.
- Contract manufacturers produce the brand owner’s bulk polishes and intermediates (polish bases and color dispersions).
- A co-packer accepts bulk products in large containers and transfers them into smaller bottles to provide the finished goods for the brand name company.
Outsourcing is available and utilized by small, medium and large corporations alike. It is especially advantageous to independent brand names of traditional nail polishes. Because these consist of flammable solvents and nitrocellulose, manufacturers must handle them in facilities built to comply with fire codes to prevent catastrophic incidents. The construction of such buildings is a huge investment.
I know of only two manufacturing companies located in the northeastern United States serving as contract manufacturers and compounders of traditional nail polishes. They also produce polish bases and color dispersions in bulk. Their customers send their products to co-packers for packaging into the finished goods. Most medium-sized companies are compounders purchasing the bulk intermediates producing custom colors by blending the color concentrates into the base and adding special-effect pigments. These companies act as co-packers for their brand name or as turnkey suppliers to small independent brands.
Outsourcing vs. Vertical Integration Of Manufacturing
Accountability
It is more difficult to assign accountability when outsourcing production.
When a product defect or contamination issue arises, the root cause of the problem is difficult to assess unless there is excellent documentation of quality measures throughout the entire supply chain process. The more significant number of manufacturers involved in the process, the more complex the assignment of liability becomes. A turnkey supplier is best for the marketing company (brand name owner) outsourcing production because only one manufacturer is involved. The marketing company that owns the brand name is responsible to the FDA for compliance with its product to the FDA cosmetics regulations. The company that owns the formulation is liable if the product is unsafe for its intended use. Nothing beats purchasing products from a vertically integrated manufacturing and marketing company in the assignment of accountability for a defective product.
Cost of Product
Product cost includes raw materials, packaging, labor, shipping, waste disposal, overhead (clerical pay, various insurance, rent, several taxes, marketing expenses, legal fees, employee benefits, etc.) and some profit if all goes well.
The marketing company outsourcing its production to a turnkey manufacturer benefits from a fixed cost for its goods. In contrast, a vertically integrated manufacturing and marketing company shoulders the cost of scrapped failed batches or remediated lots that failed initially because of minor errors in production.
There are savings in production costs in manufacturing due to the economy of scale. Everything being equal, the cost of producing a small batch is higher than when making the same polish on a larger scale. This cost difference is due to the impact of labor. The labor cost does not scale up at the same rate as the batch size. For example, a 10,000-kilogram batch will not require 10 times the number of hours needed to produce a 1,000-kilogram lot that requires five hours. The scaled-up lot would need the same number of workers and probably will take no more than 10 hours versus 50 if labor costs increased at the same rate as the batch size.
Because the large manufacturers purchase larger quantities of raw materials and ship more products, this situation enables them to negotiate lower prices from their suppliers. Small companies do not have the same privilege and pay more for raw materials and shipping. Thus, the polish produced by a large manufacturer for many customers will cost less than the product from a smaller company.
Quality
The size or type of manufacturer does not dictate product quality. But, the specific organization’s mission and culture define the quality of its products. If an organization values its level of sales and profit over pride in its product quality, customers should beware. The responsible manufacturing organization will have checks and balances and ranks quality above all else. Quality control tests and processes must be robust to catch errant raw materials and any missteps during production. Compromises in quality and ingredients for higher profit are a disservice to the customer and degrade the industry.
Product Differentiation
Traditional nail polishes on the market are solvent-based and share a standard material set, therefore delivering the same overall message. These products contain nitrocellulose, ethyl acetate, butyl acetate and isopropyl alcohol. They are differentiated by their brands’ color collections and by each brand’s package design and creative messaging. Some have botanical extracts at low concentrations resulting in dubious benefits, except to serve as a marketing message.
So, when considering how and which brands will best represent you to your increasingly discerning clientele, identify the level of quality that speaks to your business culture and creative essence. My advice is to do your research, do not compromise performance and never judge a polish only by its color!
About the Author
Vivian Valenty, Ph.D., is the founder and president of VB Cosmetics, the creator and manufacturer of Dazzle Dry. She is also a member of Nailpro’s 2022 advisory board. She obtained her doctorate in chemistry from Penn State University and, for the past 33 years, has been creating products for the professional nail industry.
