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Hair Care Growth Thinning for the Near Term

By: Carrie Lennard, Euromonitor International
Posted: April 30, 2009, from the May 2009 issue of GCI Magazine.

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Naturally positioned hair care products represent a tiny but growing niche within the wider hair care industry, and are featured most in affluent key markets—notably the U.S., Germany and the U.K. Although value sales of natural products are negligible compared to global heavyweight brands such as Pantene, early indications are that they are proving to be better placed to weather the storm of recession than standard premium-priced hair care products. This is because consumers who buy natural products generally want to avoid the use of certain commonly used hair care ingredients such as sodium laureth sulphate or parabens. Because they perceive a tangible benefit in buying these products, they are less likely to trade down to less expensive brands or private label products.

Impact of Economic Climate

The effect of the economic downturn on hair care differs according to the product type. Consumers in most countries consider shampoo to be an essential purchase, but it has still been hit by the recession. Manufacturers have already begun to discount regularly to try to maintain pre-recession sales levels. This is resulting in consumers developing a habit of only purchasing shampoo when there is an attractive offer. Furthermore, many consumers, who purchased salon shampoo brands in positive economic times, have traded down to less expensive brands and private label products. Conditioners, on the other hand, still have a relatively low penetration rate in some key emerging markets, such as China, and are not considered a necessity. This means that as the recession deepens, the relatively low penetration rate conditioners already experience, could mean they’ll be dropped altogether from the shopping list in many households.

Home colorants is one of the few areas in the hair care industry, and indeed in the entire cosmetics industry, to receive a boost from the recession in some regions—particularly in Western countries such as the U.S. and the U.K. In these regions, many women previously thought nothing of paying £100 to have their hair colored at a salon. But as consumers are re-evaluating their spending habits, supermarkets in the U.K. have reported a rise in the number of home colorant products being sold. This, in turn, has sparked a wealth of new product developments—including Clairol’s Nice ‘n Easy Root Touch-Up, which is marketed for touching up roots between salon visits to help reduce the number of visits required to maintain the color.

Although the segmentation trend has been driving value sales, the recession is already leading to a reversal of that trend in many markets, and this has caused growth rates to slow—with consumers trading back down to less expensive brands and private label products. Private label still only accounted for less than 2% of total global hair care sales in 2008, but as consumers in key Western markets continue to firmly shift away from spending in premium channels such as department stores and head toward discounters such as Aldi or Lidl, which stock mostly a limited range of private label hair care items, the share of private label will increase.

Established Markets Continue to be Lucrative

Despite the strongest growth being achieved by emerging markets, the biggest region for hair care will continue to be Western Europe, which accounted for more than a quarter of total global sales in 2008, according to Euromonitor International. This is because it is one of the most mature markets for hair care products, and has a very high penetration of certain products—such as conditioners, which has yet to reach its full potential in other regions. For example, with value sales just shy of $3 billion in 2008, Germany alone accounts for higher hair care value sales than the Middle East and Africa combined (at $2.7 billion). Sales of salon hair care products have been particularly strong in key markets such as the U.S. and the U.K.