Hair Care: A Push/Pull Market

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Hair care is succumbing to the challenges of market maturity, including discounting and private label competition. At $57 billion, it remains the personal care industry’s second largest market, but with global growth under 5% a year, at a fixed USD exchange rate 2002–2007, its performance is below the industry average of 5.2%—and is a long way behind skin care’s 7% growth rate. Manufacturers still see potential in the market, however, and launch activity remains as high as ever as they tailor products to increasingly specific needs.

For major players—particularly Unilever, L’Oréal and P&G—the strategy of micro-segmentation is paying off. All five of the leading global hair care brands—Sunsilk, Garnier Fructis, Head & Shoulders, Elsève/Elvive and Dove—saw share gains 2001–2007 due to new product introductions.

L’Oréal’s Vive Pro elevates the specialization model to the extreme, offering four formulas—Color Vive, Style and Body Infusing, Smooth Intense and Vive Pro for Men—targeted at specific hair concerns and further broken down into hair type. For example, in the Color Vive line there are three formulas for color-treated hair: regular color-treated hair, highlighted hair, and dry and damaged hair.
Meanwhile, P&G is waging war on dandruff with Head & Shoulders’ Intensive Solutions, available in four targeted formulas. Each is designed to treat itching, flaking, dryness, irritation and redness in a medicated formula. The line also offers conditioner technology that helps protect hair against damage.

After the international success of its Sunsilk brand, Unilever launched the line in the U.S. in June 2006. Unilever touts Sunsilk as a serious problem-solving hair care brand. Consumers may choose from eight customized collections specially formulated to resolve the most common hair issues. And with two of the eight collections specifically designed for Hispanic hair, Sunsilk is the first major U.S. brand to include Hispanic-specific formulas at launch.

Ethnic Segment Puts Shine in Sales
Ethnic hair care has become an important new catalyst of innovation, enabling manufacturers to tap into under served consumer segments within the more mature markets, while also giving them leverage in emerging markets. L’Oréal established an ethnic hair and skin research center in 2003 to develop ethnic brands such as SoftSheen and Carson, creating new relevant products for the global market.

South Africa, as the second largest ethnic hair care market after the U.S., has become a particular target for such innovations. L’Oréal’s Dark & Lovely is the number one hair care brand in South Africa, holding a 9% market share. Unilever is also working to increase its presence in the country by extending its Sunsilk brand with ethnic variants, while P&G and Kao Brands are pushing into the premium segment with salon brand Wella Professional and prestige label John Frieda’s Frizz-Ease, respectively.

At $1.1 billion, India is a far smaller prospect than the developed Western markets, and comes in behind the other BRIC markets of Brazil, Russia and China. However, with India’s enormous population, it is little wonder that P&G has turned its attention to this challenging market. The Pantene, Head & Shoulders, and Rejoice brands form the cornerstone of P&G’s expansion plans, although reaching India’s rural areas that account for nearly 70% of the population and encouraging a higher hair wash frequency than the twice a week that is the current norm will be the real keys to unlocking success in this market.

The ethnic hair care market does not just open up opportunities for new brand extensions, it also drives growth in smaller or less buoyant sectors, particularly conditioners and relaxants. In South Africa, conditioners make up the largest hair care sector, not shampoo as in most other markets, and in 2006, Unilever saw the potential of the perms/relaxants market with the launch of the Sunsilk Relaxer line, offering products based on hair type. In the U.S., the conditioners sector was the fastest growing sector 2001–2006 and one of two to achieve real growth during that period.

Gender Gap
Men’s hair care is a segment that has, as of yet, been under-explored despite the expectations that it becomes better established in the longer term. Male-specific hair care sales accounted for less than 5% of the global hair care market in 2007, and it is also slower growing than other men’s grooming categories—including skin care and deodorants. The majority of men’s hair care products consist of male-focused colorants to hide gray hair. However, the men’s colorants segment is nearing maturity, and the real potential in this segment is in shampoo, conditioners and styling products.

Male-specific shampoo and conditioners have, for the most part, yet to meet with great success in markets outside of Japan. There is a needs-based question here. Unlike deodorants, where manufacturers have convinced men and women that they need separate products, a division has not been established in relation to shampoos and conditioners. Were manufacturers to push the notion that unisex shampoos are not appropriate for male hair, there could be scope for developing what could be a lucrative market niche.

Emerging Markets Drive Growth
Western Europe remains the largest hair care market globally, worth more than $14 billion in 2007 according to newly published Euromonitor International research. However, in terms of per capita spend, the region lags behind North America, and the key difference between the regions is spending on salon hair care. In North America, consumers buy almost four times more hair care products through salons as a result of efforts from major salon operators in the U.S. challenging the emergence of professional and pseudo professional brands in mass retail channels. However, the hair care market remains sluggish, growing below 2% annually on both sides of the Atlantic.

Asia Pacific shows much stronger growth, driven by a double-digit expansion in India and healthy growth in China, Indonesia and Vietnam. Japan, however, the biggest market for hair care in the region, had disappointing results—growing by a fraction of a percent in 2007.

Shampoo is the fastest-growing sector in the overall region, driven by strong penetration rates in emerging markets. The market has been expanding by 10% in dollar terms at a fixed exchange rate historically, and is set to remain the main force behind sector growth in the next five years, according to Euromonitor’s forecast.

However, it is Latin America, Eastern Europe and Africa/the Middle East—the three regions consisting predominately of emerging economies—that are the real growth engine of the global hair care market. Together, they contributed more than 60%, or more than $7 billion, of absolute market growth 2002–2007. Both Latin America and Eastern Europe’s double-digit annual growth rates and strong forecast are still optimistic, especially in Latin America. In both regions, shampoos and colorants are the two big sub-sectors contributing strongly to total growth.

While conditioners demonstrated double-digit growth in both regions, they are still underdeveloped in Eastern Europe, where they account for only 8% of the total hair care market, compared to Latin America, where the figure is 30%. In the next few years, conditioners will remain one the fastest-growing segments in both regions and in the global market overall, outperformed only by salon hair care in Eastern Europe.

Hair Treatments Exhibit Strong Growth in BRIC
Shampoos represent the largest portion of the global hair care market at $17 billion in 2007, according to Euromonitor’s research. The sub-sector demonstrated greater than 7% annual growth at a fixed USD exchange rate 2002–2007, driven by fast penetration rates in emerging markets and a high level of segmentation in developed countries. The segment is highly concentrated and dominated by P&G, Unilever and L’Oréal, which accounted for more than a half of the market in 2007.

Conditioners have been the most dynamic sector of the global hair care market in recent years, growing at almost 9% a year. Half of the growth is from the BRIC countries. Brazil provided more than 40% of the growth in absolute terms, driven by high demand for hair treatments. Brazilian women are willing to pay for combing creams, masks and other treatment products that offer features such as smoothness, shine, protection for colored hair and anti-frizz action. Manufacturers have responded to this consumer demand by offering deep-conditioning treatments.

Perms and relaxants is the second-fastest growth area in the global hair care market as a result of the strong manufacturer focus on ethnic products, which accounts for the majority of the sales. The bulk of the increase in absolute terms comes from Brazil and South Africa. Notably, 2-in-1 products continued to decline in 2007 across almost all markets. Globally, the sector dropped by nearly 6% in real terms. In many markets, consumers are more aware of conditioners, and increasingly mistrusted the ability of 2-in-1 products to care for their hair.
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