PE targets sensual wellness: Good vibrations

When Mattias Hulting and Peder Wikström pitched their consumer-friendly range of vibrators to leading beauty retailers in 2012, they were asked if they’d mistakenly called the wrong number. Eight years on, their Smile Makers brand is sold by the likes of Cult Beauty in the UK and Adore Beauty in Australia. Hulting and Wikström, both Proctor & Gamble (P&G) alumni, entered the business to normalize sexual wellness as a category. By most measures, they appear to have succeeded.

“From the outset, we said that beauty care and sexuality are so interlinked. If you look at the advertisements for Jean Paul Gaultier or Tom Ford, they are very sexual. And then you have Nars, a popular blush range sold at places like Sephora, with an orgasm collection – named because it is meant to mimic the natural rush of blood you get after an orgasm. To claim you’re not selling sex, that’s just wrong,” Hulting explains. “But in the last few years, it has really changed.”

The arrival of vibrators and other intimate pleasure products in the mainstream is evident in sales figures, availability in stores such as Boots, Watsons and Walmart, and a sprinkling of M&A. Singapore-based Ramblin’ Brands, the parent of Smile Makers, received funding from DSG Consumer Partners in 2016. Since then, CITIC Capital Partners has acquired LifeStyles Healthcare from Ansell and sought to diversify a condom business into areas like vibrators, while in Europe, adult retailers Lovehoney and Amorelie have won backing from Telemos Capital and General Atlantic, respectively.

The latest transaction involves CDH Investments teaming up with management to assume control of Germany’s Wow Tech Group, the number one player in the premium vibrator space globally. The deal – to which CDH is said to have committed over $100 million, partially taking out European GP Rigeto in the process – has a clear Asia Pacific expansion angle. The region’s share of overall sales is expected to rise from 15% to 30% during the holding period. Combined with supply chain integration and a shift from B2B to B2C sales, this is projected to drive incremental EBITDA of around 50%.

“We’ve been doing a lot of work in consumer health, pursuing projects in nutritional supplements, family planning, and natural cosmetics. We noticed intimate health and sexual wellness products were taking up more space on our retailers’ shelves,” says Thomas Lanyi, a managing director at CDH. “And when we connected with the buying teams of cross-border e-commerce platforms in China, they would ask straight out why we weren’t looking at health and sensual wellness products.”

Consumer zeitgeist

CDH dug deeper and identified a plethora of contributing factors. People are getting married later and divorce rates are going up; inhibitions about discussing sexual wellbeing are receding; retailers are becoming more open-minded; and the media no longer skirts around the issue. Even the popularity of erotic novel series Fifty Shades of Grey was credited with accelerating a societal shift.

It is difficult to pinpoint what came first: mainstream retail acceptance or media tolerance. However, there is general agreement that Goop, a wellness and lifestyle brand established by Oscar-winning actress Gwyneth Paltrow, has played a significant role. “She listed Smile Makers, but she was also on countless TV shows talking about the importance of sexual health as a 40-something mother of two. That gave a legitimacy to beauty, fashion and wellness to cover it,” says Hulting.

He plays up the contribution of opinion leaders – Cult Beauty and Adore Beauty are also led by respected women who have advocated for the products – and plays down the Fifty Shades of Grey effect. A consistent finding in consumer surveys conducted by Ramblin’ is that women feel more empowered by an article in Elle about the emotional and physical benefits of the orgasm than by TV dramas that pull back the veil on perceived social taboos.

The industry is peppered with anecdotal data points: in the UK, more women own vibrators than own dishwashers; in the US, vibrator revenues are twice the size of condom revenues (condom usage drops off dramatically after men hit 30, while a higher percentage of women in their 30s and 40s own vibrators than those in their 20s).

According to research gathered by CDH, the global sensual wellness market – including condoms and lubes – is worth $28 billion a year, and compound annual growth will reach 6% between 2015 and 2023. Asia Pacific and China are expanding at 8% and 13%, respectively. China accounts for $8.5 billion out of a regional total of $11.5 billion. Exclude condoms and China is worth $5 billion. Vibrators make up 20% of the global sensual wellness market and are the fastest-growing segment.

Last year, Smile Makers ran a survey in conjunction with Taiwan lifestyle portal FashionGuide of 1,200 women, three-quarters of whom were aged 26-40. The sample set was skewed towards young urbanites, but the results showed a high awareness of sexual wellbeing. Approximately 60% of respondents had used a vibrator, 56% said they would recommend it to others, and over half identified pharmacies and cosmetics stores as the preferred venue of purchase.

Hulting and Wikström’s P&G pedigree helped them gain traction with retailers, but in Asia they were pushing at a relatively open door. Smile Makers first launched in Belgium in early 2014. An Asian debut at Watsons in Taiwan came shortly thereafter and subsequent expansion in the region – which now accounts for 35% of sales – has been easier than in Europe. For example, the first Smile Maker sold in Malaysia was the first vibrator sold anywhere in the country through legal channels. Several years passed before a mainstream retailer stocked the same product in Sweden.

Hulting, therefore, contests the notion that Asia is more conservative than the West. In his experience, resistance is defined by religion rather than geography. Of the minority that professed themselves unhappy at Watsons selling vibrators in Singapore, many were Christians who argued that the retailer shouldn’t stock condoms either because they promote promiscuity. Indeed, in the early years, Ramblin’ found that retailers in Asia looked at vibrators more objectively than their European peers, as evidenced by a greater willingness to examine products in pitch meetings.

Brand awareness

Almost regardless of local nuance, both Wow Tech and Ramblin’ see removing the stigma from sensual wellness as an opportunity for brand building in an industry where no one has a double-digit market share. “What really excites us is the ability to scale,” says Lanyi. “The market is evolving from one that is highly fragmented into one that is increasingly concentrated around companies with credible brands, quality products, and good management teams.”

So far, they have pursued this broad strategy in different ways. Wow Tech is a large-scale player seeking to establish itself across multiple verticals through an emphasis on premium products and technology. It is best known for the Womanizer line of vibrators, which sell for as much as $190. Two years ago, it assumed ownership of the We-Vibe brand through the acquisition of Standard Innovation. This added couples vibrators, vibrating rings, anal plugs, kegel exercise devices, and body massagers to the portfolio. A dedicated male brand called Arcwave is set to launch this year.

Wow Tech is committed to technological innovation: the latest industry research trend is synchronizing devices with content, which would appear to lead to virtual reality and augmented reality applications. However, the introduction of Romp, an entry-level brand with products starting at $30, is an acknowledgment that success in mainstream retail partly involves price points that appeal to the mass market.

This has always been part of the Ramblin’ approach. While the company has launched premium products in the past six months, these are largely targeted at existing customers. Meeting the needs of women who are “vi-curious” – interested in trying out vibrators but uncomfortable buying them from sex shops – is the ultimate ethos. To this end, innovative energies have been directed towards design and branding. Ramblin’ works with manufacturers that supply the likes of Bang & Olufsen, so thought also went into cost management to ensure affordability for end-users.

Having deliberately eschewed selling through traditional adult channels – which meant spending longer in bootstrapped mode because there were no other established routes to market at the time – the company believes the tide has now turned. Yet there are still few start-ups getting traction in the space and no diversification success stories among large, condom-led brands.

Deepak Shahdadpuri, founder of DSG, notes that large exits have been scarce, while the wellness-driven narrative hasn’t drowned out adult stores and social taboos. “In the medium term, when millennials and generation Z become the main category of consumers and if we see the current brands successfully educate and grow the category, we can expect more companies in this space,” he says.

This adds credence to CDH’s assertion that it is moving ahead of the pack and that once multinationals such as Reckitt Benckiser Group and Church & Dwight buy or build their way into the segment, but the timeframe is unclear. “We are in 60 countries today but there is a huge amount of white space,” says Lanyi. “The sales channel is still geared somewhat towards specialty B2B. The opportunities in terms of general retail are huge, let alone the opportunity in B2C channels.”

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• Topics
• Greater China
• Southeast Asia
• Consumer
• Buyouts
• Expansion
• Asia
• CDH Investments Management
• DSG Partners Asia
• CITIC Capital