Mass gives lift to flat hair care with ‘more for less’ offerings

The fizzling of game-changing product launches compared with prior years, coupled with shrinking disposable incomes, has led to dull hair care sales, but a continued focus on value and salon quality at a mass price will continue to be a focus for the mass market going forward.

“What we are seeing in the economy today and how it pertains to hair care is that the consumers are buying at retail at the higher price index, which is where we are at. She has traded down a lot of professional brands,” said Tom Redmond, president of Renpure.

A recent research report by Euromonitor International stated that U.S. salon hair care has been the hardest hit subsector during the U.S. economic recession. In fact, even prior to the economic downfall, sales had been struggling, due in part to product diversion to mass retail.

“Walmart, which has traditionally avoided the gray market for salon quality products, has launched a section for salon quality products at its more upscale locations,” stated Euromonitor in its 2009 U.S. Hair Care report. “In addition to product diversion, which is showing little sign of slowing down, salon products are also the most vulnerable to challenging economic conditions, with visits to salons dropping significantly in 2008, dragging down retail sales.”

In March 2009, the Professional Beauty Association, which is comprised of salons, spas, distributors and manufacturers, acknowledged the downward pressures facing hair salons. Trends identified by the PBA included longer periods between haircuts and coloring appointments, consumers coloring their own hair and more consumers turning to beauty schools to have their hair cut.

Value, or “getting more for less,” will continue to be a driving force in hair care—that’s good news for the mass market. For example, the Redmond family, who is the original founder of Aussie brand hair products, is pleased with the results of its recent Renpure Organics launch. There currently are seven items in the collection, priced at $6.99 and $7.99.

The manufacturer was promoting the new line at the ECRM Skin/Hair EPPS event in August, and expected it to be in as many as 35,000 doors by the end of February 2010. A national advertising campaign will kick off Feb. 1.

“One of the things we bring to the party is our past history.… We are looking at a tremendous turnover going on at retail. What has been advantageous for us is that retailers know our reputation, and when they are looking at what we are doing and the uniqueness of our product, it warrants taking a chance on,” Redmond said.

At the end of the first quarter, the company will introduce seven “fixatives”—three aerosols, three nonaerosols and a styling gel.

“The recent trend of promoting mass brands through offering ‘more for less’ is a direct threat to the rebound in salon hair care products, as manufacturers convince consumers that mass products can offer similar benefits at a fraction of the price,” Euromonitor stated. “A company like Alberto Culver, which has minimal exposure to the salon channel, can freely promote its brand as a cost-effective alternative to salon hair care. Meanwhile, companies like Procter & Gamble, which is taking a similar approach with its Pantene brand, and L’Oréal should tread carefully.”

In late October, P&G SVP and treasurer Teri List told analysts during the company’s first-quarter conference call that the retail hair care business saw global unit volume increase in the low single digits, led by Pantene and Head & Shoulders.

“We have had a very strong innovation program in beauty. You saw that in the results of the hair care segment,” noted Robert McDonald, P&G’s president and CEO, when asked about the quarter’s 2% organic sales growth in beauty.

Also in late October, Alberto Culver, whose brands include Nexxus and TRESemmé, posted fourth-quarter sales that essentially were flat compared with the prior year and earnings per share relatively in line with expectations—results that at least one industry observer viewed as “solid” in light of a tough comparison and heightened competitive activity.

According to Morgan Stanley analyst Dara Mohsenian, earnings per share of 33 cents were a penny above consensus but in line with Mohsenian’s estimate, with reinvestment of gross-profit upside on higher-than-expected gross margins back into marketing.

“While near-term fundamentals have lowed with tough comparisons and a heightened promotional environment, we expect improving results in 2010 as Alberto Culver benefits from easier comparisons (post-first quarter), lower commodity costs and a margin benefit from its new Jonesboro [Ark.,] facility,” Mohsenian stated in a research note.

Mohsenian also stated that Alberto has “significant international expansion opportunity from both a geographic and a brand standpoint in its hair care business,” and estimated that expansion into new international markets could drive 250 to 300 basis points of long-term revenue growth contribution.

Alberto competes in seven of the top 20 global hair care markets, which represent 30% of the roughly $64 billion global hair care market, or 16% of the international market, excluding the United States.

“Fiscal year 2009 was another successful year for Alberto Culver. We generated strong organic sales and earnings growth in a very difficult environment, continued to strengthen our hair care market shares and we’re exiting fiscal year 2009 in a very strong financial position,” stated V. James Marino, president and CEO, when announcing fourth-quarter results.