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Hair Care on the Verge of a New World Order

By: Rob Walker, Euromonitor International
Posted: July 10, 2013, from the July 2013 issue of GCI Magazine.

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There are a number of second-tier emerging markets that also have potential to fuel a sizeable share of industry growth over the next five years, as well. Turkey, Indonesia, Nigeria and Iran each generated double-digit growth in hair care sales last year, for example. Iran and Nigeria present comparatively high levels of risk for new investment, but both markets could yield strong returns into the long term. And the same applies to a cluster of untapped markets in sub-Saharan Africa, reflecting a combination of youthful demographics and burgeoning economic confidence.

The Innovation Battleground

The lack of growth in the developed markets has brought innovation to the frontline of the hair care battleground. Developed markets, after all, continue to fuel a huge slice of global hair care spending (the U.S. is still the only $10 billion market, for example). The key opportunity for hair care manufacturers is rooted in a marked slowdown in salon spending, which is freeing up cash for value-added products in the home and, increasingly, DIY salon-style treatments.

Cue a portfolio shift toward products offering more intensive and tailored treatments. Indeed, the portfolio mix of hair care is looking more like skin care every month, with a growing focus on multi-step routines and anti-aging products, such as thickening treatments for specific areas of the scalp. Hair care strategy has been inspired by the skin care category, but the shift toward greater segmentation is also indicative of a new DIY pampering culture in Western markets coupled with demand for more personalized branding. Both are offshoots of the recessionary climate.

Oils, moisturizers and leave-in conditioning products have become increasingly visible. We are also seeing more shine boosters as well as pre-treatment masks, serums and products geared toward scalp health. With growth getting ever tighter in developed markets, corporate spending behind innovation will ramp up over the second half of this year as brands seek to establish new competitive points of differentiation.

Trading down activity is visible in developed markets, but middle-aged consumers in particular will continue to throw money at products that make them look or feel younger. Middle-aged, middle-class consumers in Western Europe and North America are also the least affected by the poor economic climate as many benefited financially from the pre-2007 boom periods (through real estate equity and attractive pension pots, for example).

If there is a tightening of Brazilian demand—and it is important to remember that Brazil is the second-biggest hair care market in the world—the search for green shoots of growth in developed markets will become more critical. There will also be mounting pressure to build a wider spread of positions across first- and second-tier emerging markets. These are among the biggest strategic challenges facing the hair care category over the next five years.

In short, the category has put in its best global performance in a decade, but the operating environment is getting tougher rather than easier. At the same time, the stakes for getting global investment strategy right have probably never been higher.

Rob Walker, senior fast-moving consumer goods analyst, Euromonitor International, can be contacted at rob.walker@research7.euromonitor.com.