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The Parallel Worlds of Hair Care

By: Rob Walker, Euromonitor International
Posted: July 9, 2012, from the August 2012 issue of GCI Magazine.
  • The global hair care market is following two paths—the trading down and discounting often seen in more developed regions and the aspirational purchasing and trading up of emerging regions.
  • A key feature of the hair care category in emerging markets is that manufacturers are developing a more sophisticated middle ground.
  • Brands are looking more closely at niche categories, where market maturity is not a barrier to growth. This will encourage further boutique M&A deals.

Global retail sales of hair care products increased by 5% in 2011 to reach $73.7 billion, according to the latest data from Euromonitor International. Overall, lackluster growth rates in the U.S., Japan and most of Western Europe were offset by more enthusiastic spending in the emerging markets—notably China, India, Brazil, Russia and Mexico.

This trend has been the marked pattern of the past five years, with the emerging markets, in effect, propping up the global hair care industry. North America, Japan and Western Europe (excluding Turkey) showed collectively flat growth (-0.1%) between 2007 and 2011, and an increase of only 0.3% last year (all growth rates are based on U.S. dollars at fixed 2011 exchange rates).

Notably, the U.S. economy is gradually picking up momentum, which is buoying consumer confidence; however, austerity measures are set to deepen in much of Western Europe, with global implications radiating from this slowdown. The net result is hair care is unlikely to see any significant return to growth in developed markets during the next five years.

What seems increasingly clear is that hair care brands and manufacturers are faced with the strategic challenge of two parallel but fundamentally different global playing fields. On one, the beauty industry is witnessing widespread trading down and discounting, which is squeezing industry margins. On the other, there is increased trading up and aspiration-fueled purchasing patterns.

The hair care brands of leading Western-based brand owners—in particular Procter & Gamble, L’Oréal and Unilever—are becoming ever more dependent on emerging market consumers to beef up revenues and bottom lines, and the stakes have never been higher. At the core of the market share battleground is the quest for broader and more sophisticated segmentation.

Tapping Into Status Consumption

In 2011, for the third year in a row, Brazil was the strongest growth market in the world for hair care, based on incremental retail value. Between 2008 and 2011, Brazilian expenditure on hair care products rose by $2.3 billion, according to Euromonitor International. That was equivalent to more than a quarter of the industry’s global incremental growth.

The fact that Brazil has become such a powerhouse for the hair care category is indicative of a strong away-from-home beauty culture there. There are around 1.5 million beauty salons dotted around Brazil, for example, and Brazilian women typically get their hair done once a week.

What is most striking about Brazil is the democratization of beauty culture. Women from all socioeconomic backgrounds tend to spend a big chunk of their discretionary income on looking good. You are just as likely to come across a beauty salon in a low-income neighborhood as in a middle-class one.

The popularity of beauty salons has given Brazil’s hair care category a natural platform to build growth. Consequently, there is more and more retail penetration of so-called “salon-in-the-supermarket” brands. Unilever’s TRESemmé brand rolled out in Brazil last year, for example (following the integration of the Alberto-Culver brands into Unilever’s portfolio), and it will help Unilever’s position more effectively against P&G’s Pantene Pro V brand, which, together with L’Oréal’s Elsève brand, has been performing well in Brazil.