The High Cost of Lavender (and Other Ingredients)
The price of Lavender Essential Oil has gone up again this month – another 12% on average. This huge jump follows similar increases in price each of the last three months. Our suppliers tell us to not expect to see price, or availability, relief until next summer when the new crop is out. This means that not only is Lavender more expensive, it is also harder to get and lead times are longer.
The Not-So-Secret Truth about Commodities and Skincare
When we develop products with natural and organic ingredients, we are tied to the economic reality of commodities. Crop yields are unpredictable, with wide swings between good and bad years. Demand and availability will drive prices up and down just like they do at the gas pump and at the grocery store.
This means your cost today may or may not be the same in 90 days. As you plan your pricing strategy and lock in sales contracts, you’ll need to be aware of negative events, such as these drastic jumps in lavender pricing.
A few years ago, the manufacturing facility for one of the largest processors of Jojoba Oil physically exploded. Who could have predicted that kind of an accident? Jojoba prices skyrocketed until production could come back online.
This fluctuation in pricing is part of the reality of natural and organic skincare.
What’s Going on with Lavender, Specifically
Currently, the price of lavender is being driven so high because of three primary factors:
- Poor crop yield in 2017 and 2018
- Large Multi-Level Marketing companies are buying huge fields to capture the lavender EO they need to support their channel.
- Lavender is in huge demand generally in the natural and organic market and this is adding pressure on the commodity we love.
Alternatives to Lavender are to be found in other floral EOs — think Geranium, Ylang Ylang, Chamomile — but nothing smells quite like lavender. Lavandin (Lavandula hybrida) is a hybrid of Lavender and Spike Lavender and has a more herbaceous and woody scent than Lavender. Think about why you chose Lavender and find a substitute that also meets that need. Calming, soothing, and so forth.
You can also think about working with Lavender Distillate in formulas that require water. Simply replace the water with the Lavender Distillate and you may be able to reduce the amount of Lavender EO in your formula.
Do Your Homework
Cheap Lavender is always available and now, it’s even more present in the market. Cheap Lavender often means the product is adulterated or diluted. If you want to buy unadulterated, quality essential oils, you’ll want to confirm with your supplier the source and quality. You can do that by requesting a Certificate of Analysis (CoA) before you purchase.
Also, we are noticing that some Lavender EOs on the market are blending expensive lavender, including Bulgarian, with cheaper varieties, including some from Australia. That’s not a bad or dishonest thing – it’s just not the same as 100% Bulgarian; be sure to check the ingredient deck and ask questions if something doesn’t add up.
Managing your Margins in a Commodity Economy
We know prices for commodities fluctuate, sometimes without a lot of warning. Not only do you have to worry about the cost of the ingredients, but in a tight labor market wages increase, too. And when political events overtake a region or a trading partnership, those increases will impact your bottom line, too. Ultimately, your customer will end up paying more for your product to absorb price increases in your supply chain.
Take as an example, a 1 oz bottle of organic Bulgarian lavender. Last July you purchased 32 oz of Organic Lavender for $300. You made 32 bottles for $9.375 + the cost of the bottle and the label. Today you go back to reorder and your 32 oz now costs you $416. You can now make 32 bottles for $13 + the cost of your bottle and labels. You have to now raise your prices in order to make the same margins. But if you’ve locked yourself into a wholesale contract with only, say, 20 % over cost, then you are now losing money with every sale to that wholesale customer.
So what to do:
- You can either, well, suck it up, or you can try to renegotiate. Some contracts allow for price changes based on an increase of X% of an ingredient. Double check the fine print and try to negotiate for this option as commodities can be very unpredictable. You’ll probably need to prove the price increase.
- You can also ramp up your direct-to-consumer business where you make higher margins and ride out the price increases if you can.
- You can work with your supplier to get volume discounting by buying a higher quantity of product at a better price. Beware of shelf-life, though, and make sure you can sell through what you buy before it expires.
- You can talk with your supplier about what they are hearing about the ingredients in your product. Some suppliers will share, some won’t, but you can always try.
- You can come out with complimentary products with different, lower cost ingredients that still meet your quality criteria and heavily promote them.
- You can reformulate to use less of the high-cost ingredient – for instance, come out with a seasonal Lavender-Mint version.
No matter what you choose to do to manage your margins, being transparent with all parties can be a good strategy for getting cooperation and buy-in.
What Does EWL Do?
While we buy smart, working with trusted vendors and sustainable growers, we can’t control the market. We are at the mercy of weather, insects, political climate, and the overall demand. Our strong supply relationships do help us, though, with an advance warning when they have it. Our suppliers work with us to secure larger quantities than we typically order so as to be able to leverage a cheaper cost.
Specifically with Lavender, though, we:
- Found alternative sources, including some Oregon and Washington Lavender, but the crops are not big enough yet to offset losses in Europe, so this is only a partial solution.
- Secured larger volumes than usual to try to capture inventory at a lower price point. Some companies are willing to purchase significantly more inventory than they expect to use as a precaution. While we do secure larger quantities than current demand would dictate, we work to buy only as much as we reasonably think we can use before the Lavender expires. When demand is running higher than usual — as it is now — the larger buy won’t necessarily protect us for as long as we had intended, and therefore we have to raise prices sooner than we like.
- Passed the volume cost savings on to our customers. The price will still go up, just not as high.
- We work to absorb some of the cost where we can, or if the shortage is expected to be short-lived.
- Reformulate on request for contract manufacturing clients
- We communicate with you
What Other Ingredients are Getting More Expensive
We’ll do more communication like this in the near future, but right now we can share that Vanilla is increasing in price and is hard to source right now. Rose, Jasmine, Helichrysum are always expensive, but Sulfate-free surfactants are on the rise, too, as is sustainable-sourced Argan Oil. Additionally, Bergamot has recently been confirmed to be scarce this year. We have found that the organic and unalduterated Bergamot is particularly expensive–we have had available organic Bergamot tested for 260 perticides and only one that we tested was genuinely organic, so do be aware that quite frequently you get what you paid for.
Additionally, oil prices and tariffs will affect both packaging costs and shipping costs.
Unfortunately you can also see this with vitamins, many of which are produced in China and are subject to recent tariffs. This includes things like Hyaluronic Acid, DL Panthenol, Niacinamide, Vitamin A Palmitate, Vitamin C Ascorbic Acid, Vitamin C Ascorbyl Palmitate, DMAE Bitartrate, Beta Carotene, and CoQ10. Oils including evening primrose and borage will also be affected. Clearly this is a wide ranging and changeable issue!
The Bottom Line
Your cost to produce skincare products will vary from production run to production run. Sometimes you can lock in a price for more than three months, but it’s not always possible. And, too, it’s unrealistic to expect your suppliers to absorb extraordinary costs so that you can keep your margins. I know this sounds harsh; yet the only good partnerships are those with a win-win approach. As with all relationships in life, business partnerships rely on good communication and adaptability, and we’ll do our best to meet those expectations.
What other information can we provide about ingredients to help you manage and grow your business?