Montreal cosmetics company Groupe Marcelle manages to hold its own against larger rivals

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Funny thing about the Canadian marketplace: You can be a big fish in your pond and still have to deal with killer whales. That’s certainly true in the $4.8-billion Canadian cosmetics and beauty industry. Here, the country’s biggest player is Montreal-based Groupe Marcelle, whose 2024 revenue, at $145 million, is dwarfed by Estée Lauder’s $908 million and L’Oréal Canada’s $1.3 billion. If that worries president David Cape, he’s not letting on. But then, why would it? The family company has managed to thrive, in some form or other, since his pharmacist grandfather, Victor Cape, started it in 1949. It even survived the COVID-19 pandemic that upended the industry. Now, with a fourth generation getting involved, Cape needs to position the company to hold its own among the whales for the long term.

You’re talking to an aging male who knows nothing about cosmetics. But I’m here to learn. What sets the Canadian market apart from the United States or other parts of the world?

Are there tremendous differences between Canada and the U.S.? Probably not. Our ethnicities are slightly different, the makeup of our population is slightly different. We’re a colder climate, a drier climate. Winter is much worse here. So, in the southern U.S., sunscreens are going to sell all year round. In Canada, if you go into the pharmacy, the sun section is there for a limited period of time. There are general differences.

You’re a private company, so there’s little information available about how your products perform. What’s your main revenue generator?

We’re very strong in skin care, in colour cosmetics and in perfumes. Our Annabelle brand, which is focused on a younger consumer, let’s say 18 to 30, is strong in eye makeup, and we have the No. 1 Kohl pencil eyeliner. Our Marcelle brand has both colour and skin care, and it’s really all about caring cosmetics—they’re hypoallergenic and fragrance-free. We’re really strong in skin care, but also in tinted moisturizers. There’s a whole area called alphabet creams. We have a BB and a CC cream, where we’re top sellers. Our Watier brand is more of a prestige brand. Again, strong in skin care, but a real leader in lipsticks and correctors, and some speciality products. Our Neiges perfume, which is part of the Watier brand, is the No. 1 fragrance in Quebec. So, we have different areas of strength across our brands. We certainly own segments of the market.

What’s a segment that you own?

Eye-makeup removers. Those types of cleansers. We’re a real leader in that area.

Is there a market segment where you’ve been knocking on the door but haven’t been able to break through?

The men’s market is more challenging. We have a men’s brand of skin care products called CW Beggs and Sons. It’s always seemed like the men’s market should be great and robust, but men, we find, sometimes just use their partner’s products. Getting people to change habits, and to become comfortable with doing things differently, is always challenging.

What’s the biggest manufacturing trend in the industry right now?

I would say vegan ingredients, ingredient origin. There’s an ongoing effort to make sure that our products are using the best ingredients available and modernizing that. There’s a focus on individual ingredients like vitamin C or hyaluronic acid. Consumers know that those particular ingredients have a use, and they want to get at those.

On the subject of ingredients, Groupe Marcelle was recently fined $500,000 by the Court of Quebec for violating the Canada Environmental Protection Act. Some of your products were found to contain a chemical I can’t pronounce. Can you explain what happened?

We had not filed the right sort of paperwork for using this ingredient, and we immediately stopped the sale of all these products and withdrew them from the market. We worked with the supplier—it was not a product that we were manufacturing—to introduce a different formulation into the Canadian market. We’re very vigilant about the types of ingredients we have and all of the regulation, which is constantly evolving, to make sure that we’re in compliance.

So, an outside manufacturer was using an ingredient you weren’t aware of?

We were not aware of the restriction on that and that we had to apply for a special notice of use.

Let’s talk about how the economy affects cosmetics sales. Are you buffeted by the winds of inflation or recession?

I would say that the buffeting is less extreme in our industry. There’s something called the lipstick effect—cosmetics are not the kind of thing people stop using. But there are times when people are more concerned about getting the best value for their dollar, so consumers move between price levels when they have to make difficult choices. That’s something we’ve seen more recently.

Did you see a shift during the pandemic from cosmetics to skin care?

Oh, yes. There was a huge shift. And the impact on our industry was tremendous. When people weren’t going out and socializing and going to gyms and restaurants, people changed their routines tremendously and stopped buying. And in fact, in certain areas of the country where restrictions were placed on what were considered to be essential goods, cosmetics were deemed not essential. It was very, very impactful. But I would say the industry has completely rebounded.

How are you adjusting to the rise of gender fluidity?

We have been very aware of changes taking place in the market. From a marketing perspective, in our Annabelle brand, we’ve worked very hard to be much more inclusive and thoughtful about allowing people to express themselves in any way they want using makeup, and certainly not being judgmental. This has been a trend that’s happened over a number of years but has accelerated, certainly, in the past few years. And we continue to monitor those trends to see how we can fit within them, but in a way that’s—I’m missing the word—authentic. You know, we’ve been in business for 75 years, and so one of the things we think about is having a very long view on things, not trying to twist ourselves into a pretzel to try to accommodate a very narrow or short-term trend.

The Canadian market is dominated by multinationals—companies like L’Oréal, Estée Lauder and others. How do you compete against those major players?

Over 75 years, we’ve built exceptional relationships with consumers and our retail partners, and we go head to head. We want to have products that are as good as or better than our competitors’. We make sure that we’re addressing customer needs and meeting them where they want to be. As Canadian brands, we’re really thinking of Canada first. We focus on innovating with Canadian ingredients and adding our special touch to differentiate us.

But what’s the mechanism—do you advertise more? How do you fight against big multinationals?

As a smaller Canadian company, we have some restrictions on what we can do. We spend a lot of time on the ground. Our sales team is in stores across Canada, working with the pharmacies, making sure they understand what our products do, so that when consumers come in, they can explain the products to them. Those partnerships with Canadian retailers are really, really critical. And we do direct advertising in the local markets to connect more closely with our consumers.

You’ve referenced your 75th anniversary a couple of times. The company that is now Groupe Marcelle actually started in Chicago in the 1870s, right?

So, my grandfather, in 1949, started a company in Canada and became the distributor for Marcelle, which was based in Chicago, and he began selling Marcelle cosmetics in Canada. And my father, Michael, joined the company in 1961. He was a chemical engineer, and so he set up a manufacturing facility, and we began manufacturing the product. Eventually, my father bought the worldwide rights to Marcelle from the American company, and we became the owners of the Marcelle brand. And then over the years, we acquired other brands like Annabelle and Watier, and grew into the company we are today.

You use the name CW Beggs and Sons for your men’s products. Wasn’t that the name of the company started in 1871?

CW Beggs was, I guess, a pharmacist in 1871, like an apothecary. We were exploring the heritage of the brand when we came up with the name.

What drew you into the business?

You know, when you grow up in a family business, it very much feels part of your DNA. My father certainly exposed me to it as I was growing up. I would say it got me interested in business in general. The notion of how you could create and grow an enterprise, that was attractive to me. After college, I got a degree in operations research. I worked in the U.S. for a few years. And then I think I felt a call to come back and work with my dad. That’s now going back 30 years. And it ended up being the right decision.

You were in the software industry for a while. Did you think that would be your career?

No, I think family businesses have their own dynamic, and it’s really important to get experience outside of it and to see how other businesses operate. So I wanted to do that for a few years, in my youth.

So that was your decision, for you to experience the world before getting involved, not your father’s?

I think history belongs to those who write it. So, I could tell you that it was my idea, and he might tell you it was his. Perhaps it was my idea, perhaps it was encouraged, but it all worked out for the best.

With your grandfather starting the business and your father continuing it, did you feel a lot of responsibility to take it on?

I don’t think I felt pressure in the way you suggest. But from my vantage point today, it’s a tremendous opportunity. But it’s also a tremendous legacy and history that I am stewarding. And having two sons in the business certainly gives me that perspective of the long term and how to sustain a business over multiple generations.

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When did you become president?

I don’t know that there was a magic moment. It was around when my father was 65. He actually still comes to work. He’s 85. We still have a great partnership. I can go chat with him and get his opinion, which he gives freely. He understands that it may or may not be listened to, but he participates.

The Watier acquisition that doubled the company’s size about eight years ago was obviously your decision. Did you consult with your father about that?

A hundred percent. He was incredibly supportive and understood this was something I was passionate about.

Do you have another acquisition on your radar?

We’re very thoughtful about how we approach acquisitions, but we’re absolutely looking for opportunities to expand our business. Because that scale, with the right opportunity, can bring greater synergies to our business—product synergies and financial synergies. And when you have a different group of people or a different brand in the room, it broadens your thinking.

In your industry, within the context of Canada, how important is scale?

It’s important because it allows us to have access to greater expertise in all areas. Right now, we’re in the process of doing a multimillion-dollar investment in our equipment, for filling and packaging. The more products we’re producing, and the more market we have, the more we’re able to invest in these types of technologies that help us to become more competitive.

What about going public? When might that make sense to you?

Going public certainly has its benefits. But we haven’t needed that from a financial perspective. When we did those acquisitions, we were able to get great financial partners. If there came a time or a need for it, it’s something we would consider.

Are there any advantages to being based in Montreal?

Montreal’s a great city. It has a vibrant life. But there’s also a lot of raw material for the cosmetics industry. A lot of people coming out of the universities want to work in this industry, and we offer a unique end-to-end opportunity. We innovate products from idea to shipping a product and putting it in the hands of consumers. Fashion has always sort of been based here, so there’s a natural fit for us.