Organic growth

Analysis |

Increasingly health-conscious consumers are purchasing natural personal-care products, and investors are eager to buy into the trend. Despite a softer U.S. economy, the Natural Products Association estimates the industry is growing five times faster than the conventional personal-care-product sector.

Last year, U.S. sales of organic personal-care items rose 12.5 percent, when adjusted for inflation, to $465 million, according to Mintel International. The research firm estimates the inflation-adjusted figure will rise to $513 million this year, even with the tough U.S. economy.

Analysts have seized on the trend. Stifel Nicolaus's David A. Schick credits the sheer size of the aging baby-boomer population for boosting demand. "Whether we're in a recession or not, baby boomers are turning 60," he says.

Target (TGT) expanded its beauty aisles this year to include nine natural and organic product lines. Wal-Mart (WMT) sells Noah's Naturals and Tom's of Maine, among other brands. Whole Foods (WFMI), Walgreen (WAG), and CVS Caremark (CVS) also sell organic natural-care products.

Even in a slow economy, consumers need soap and shampoo. But they're also looking for cheap indulgences. Natural items fit the bill and are the "poster child for consumers trading up," says Scott Potter, managing partner of private-equity firm San Francisco Equity Partners, which led a $14 million investment in the Yes To Carrots brand, which makes natural hair and skin products that contain beta-carotene.

The Israel-based brand has more than doubled its sales since debuting in the U.S. last year. It will use the capital to boost distribution in North America and launch more natural products, including Yes To Cucumbers, which contain aloe, green tea and minerals.

"It's no secret that the organic, natural space is becoming huge and raising awareness with consumers," Potter says. "Consumers can't afford the vacation or BMW," Potter says, "but can spend a couple more bucks to buy something to make them feel good."