Latin America hair care: economic turmoil hinders growth

After a somewhat erratic performance in previous years, due to low consumer confidence following Brazil’s economic crash, and then recovery in 2000, sector value dipped again in 2001, a trend that was mainly attributable to the continued weakness of local currencies against the US dollar.

This can be ascribed in large part to the dominant Brazilian market where sales in dollar terms appeared to fall by 5.7% year-on-year – masking the region’s strongest growth in local currency terms (+12%). In local currency terms, Argentina was the only country to put in a decline between 2000 and 2001, albeit only slight. Dynamic growth in this country was restricted to colorants alone and was overshadowed somewhat by the maturity of the hair care sector as a whole.

Hair care proved to be the most valuable sector of all cosmetic and toiletry products in all six major national markets within Latin America last year. Such products have a long-established presence, where core items such as shampoos are widely regarded as essential and staple purchases. Hair care’s importance is inflated by the popularity of higher-margin products and growth in areas such as colorants and styling agents, particularly in more developed markets such as Mexico and Brazil. Sales of premium alternatives such as stylist-endorsed brands, however, tended to be constrained by economic decline throughout the region in 2001.

Specific-care products shore up overall value

In spite of a volatile economic environment, the Latin American hair care sector has without doubt become increasingly sophisticated, with the emergence of segmented sub-brands addressing different hair requirements boosting market value.

As a sizeable proportion of Latin American consumers already wash their hair once or more a day, value growth in the sector is highly dependent upon improvements to product quality. In Argentina, growth in hair care sales was fuelled by the growing popularity of hair colorants, following the increased availability of innovative, technically-advanced product formulations within the retail sector, which encouraged consumers to undertake hair coloring at home.

In Brazil meanwhile, perms and relaxants constituted the best-performing product last year, as manufacturers concentrated their efforts on targeting the previously neglected ethnic consumer groups. Relaxant products account for the lion’s share of sales within the subsector, due to their rapid increase in popularity among Brazil’s large population of black consumers.

P&G raises the stakes

The Latin American hair care sector is highly competitive, with the top nine positions taken by major multinational players. Overall, the market shares of most of these companies remained fairly static year-on-year, with the top two manufacturers consolidating their leading positions through their strong presence across the sector. Unilever and L’Oréal even managed to hold their own against Procter & Gamble which leapfrogged Wella to become third in the market when it scooped Clairol’s brands last November. This gave Procter & Gamble a foothold in the all important Latin American colorants market.

Unilever is the undisputed leader of the Latin America hair care market, holding 16.4% of total sales in 2001. The company owes much of its success to its Sedal brand, which has a strong presence in shampoos and conditioners, particularly in Argentina, where it held over 15% of hair care value sales last year. Like other brands in the Unilever stable, Sedal has benefited from strong promotional support in recent years.

In an increasingly close second place is L’Oréal, its share expanding thanks to the continued success of its broad portfolio of brands, which operate across a variety of subsectors and price segments. The French manufacturer’s colorants brands (Imédia, Casting and Préférence) are particularly strong, whilst its Elsève/Elvive care brand ranks fourth in the region’s brand rankings. Fourth-placed Wella, which retained a particularly strong presence in Argentina through its subsidiary Ondabel, saw a slight increase in its market share last year, having continued to develop high-quality shampoos and conditioners to complement its successful range of colorants.

The leading domestic manufacturer in the hair care sector is Indústria Cosmética Coper, whose Neutrox brand ceded its number two position to Unilever’s Seda in the Brazilian market, having fallen victim to the latter’s sizeable investment in marketing and advertising, as well as the stimulus of launches of its various sub-brands.

Whilst the outlook for this most valuable sector of the Latin American cosmetics and toiletries market is far from glossy in the immediate term, given the prevailing economic situation, recovery come 2006 is certainly possible if conditions stabilise. Mexico and Chile are likely to the be the strongest performers through 2006, as both countries are at present relatively stable, hair care sales in these two markets this year should even make positive gains on 2001. Argentina will bear for longer term the effects of devaluation coupled with continued political instability and rising unemployment, and although hair care will remain one of the strongest sectors in this market, an overall sales decline of the sector and market is inevitable.

The region’s most valuable hair care market, Brazil, looks set to be dogged by further economic instability, following the Real’s devaluation in the last month. As in Argentina, the outlook for consumer goods performance in the short term is weak here, as consumers trade down to more affordable products. Venezuela and Colombia also face difficult times ahead.

Prices are increasing in Venezuela following the devaluation of the Bolivar last February, forcing consumers to trade down across most consumer goods markets. The Colombian market is currently volatile, as the installation of President Alvaro Uribe is expected to usher in a period of increased political and economic unrest. High unemployment and a weak peso are likely to translate into a contraction of consumer goods sales, especially products that are considered dispensable, like cosmetics and toiletries.

Nevertheless, despite the immediate economic turmoil in this region, heightened consumer expectations and new technology and ingredients should eventually provide a respectable pace of growth across the Latin America, ensuring that hair care continues to constitute a very major component of the region’s overall cosmetics and toiletries sales.