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Hair Care on the Verge of a New World Order

A Potential Power Change in Latin America

The rising importance of the emerging markets to the industry’s profitability has compelled the world’s leading hair care manufacturers to rethink their global strategies. It is not as simple as ramping up investment in the BRICs, however. The cooling of the Brazilian economy is a warning that operating conditions in linchpin markets can change quickly.
It is an ominous sign that consumer confidence in Brazil has been falling steadily since the beginning of 2013, fueled by concerns about rising inflation. Brazil has been the hair care category’s fastest growing market over the past five years, in absolute terms, with sales increasing by US$3.4 billion compared with US$1.8 billion in China and US$1.1 billion in India.
L’Oréal, Unilever and Procter & Gamble have become increasingly reliant on Brazil to shore up their global growth. Over the past five years, 29% of L’Oréal’s absolute growth in hair care has come from Brazil, according to retail data from Euromonitor International. For Procter & Gamble and Unilever, the corresponding contributions were 19% and 22%, respectively. A year ago, Unilever looked to be in the strongest position of the leading multinational players due to its growing power in Brazil and its comparatively low level of exposure to developed markets. However, as the Brazilian economy slows down, Unilever’s global growth capacity could start to tighten. Last year, almost half (47%) of Unilever’s hair care growth was sourced from Brazil.
Procter & Gamble and L’Oréal have an opportunity to steal a march on Unilever due to their comparatively stronger positions in Mexico. Having been outshone by Brazil for most of the past decade, Mexico is now faring much better economically, and its middle class is brimming with confidence. In the next 10 years, Mexico could even overtake Brazil as the biggest economy in Latin America, fueled by resurgent foreign direct investment and game-changing structural reforms to the energy industry. Total hair care sales in Mexico summed US$2.3 billion last year, making it the seventh biggest market in the world (up from ninth in 2011).