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In the Eye of the Storm: Predictions for 2009



By Colin Hession, Consultant



Published January 7, 2009
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In most of those TV programs where earnest interviewers ask politicians what's going to happen in the next 12 months, the politicians usually get around to admitting, after much umming and erring, that actually, they don't really know what’s going to happen…but you can trust them (to guess) because they are decent, sincere, nice people, after all.
   
Thus for the purposes of this article, I would like temporarily to emulate such politicians, assuring our readers that I, too, am a decent, sincere, nice consultant. Last January in Happi, I stuck my neck out and made a number of predictions for 2008. So this year I felt I ought to produce some sort of scorecard, if only to try and add some vestige of credibility to what I am forecasting for 2009.
   
Clearly, there is a whole raft of significant, major issues to consider at the macro economic level, which will impact our industry. But given the amount of TV airtime which has already been devoted to far wiser economists than ourselves, I thought I’d stick to specifics, on the basis that I might as well be hung for a sheep, as for a lamb, etc.

Mergers & Acquisitions


2008: I said there would be no mega deals, but that some smaller-sized companies, highly geared by private equity, would go on the block for more reasonable numbers and get snapped up by trade buyers with funds.
It may be a stormy, turbulent year for the global personal care industry.
Scorecard: Broadly correct. Notable smaller strategic deals included P&G's acquisition of professional hair care company, Nioxin and Alberto Culver's purchase of venerable skin care brand Noxzema from P&G.

2009 prediction: More of the same. Several of our larger clients report being almost spoilt for choice, in that they are now faced with a whole lot of smaller, niche targets to consider for acquisition by way of portfolio in-fill, etc., as these smaller companies’ owners feel the need for cash. So, that’s good for large, publicly traded companies with plenty of cash. Not so good for owners looking to pay off their borrowings, etc. Specifics, well, that would be telling, but...look for more U.S. hair care business to fall into European hands.

Regions


2008: I said to expect a lot of exciting stuff happening in developing and emerging markets.

Scorecard: Well, some quite exciting moves did happen in terms of acquisitions by Western companies in China, India and Latin America. But as far as I can tell, sales volumes there have not exactly been gladdening the hearts of CFOs back at corporate headquarters.

2009 prediction: Steady as she goes; i.e., more investment in D&E markets, especially China, as that sleeping giant awakens and reaches for the toothpaste, soap, shampoo and makeup.

Channels


2008: I argued the case for Chinese beauty retailer Watsons  to make its first move in the U.S. I also pointed out that the current prohibition on chain pharmacy in continental Europe was starting to crumble, and wondered whether the likes of CVS and Walgreens would decide to participate. And I asked how long it would be before one of the major international brand manufacturers finally grasped the nettle and invested in QVC?
   
Scorecard: Watsons did not make a move in the U.S., but I think I was probably just premature in terms of timing, rather than plain wrong (see 2009 prediction). As a European, I did, however, fail to foresee the highly significant move of North American drug chains into prestige, whether it was CVS with Beauty 360 or Walgreens’ Beauty or Shoppers Drug Mart’s Murale. Clearly, these represented a more logical, domestic option, first, before plunging into Europe. In terms of QVC, Estée Lauder stepped up with Clinique & Bobbi Brown, as did L’Oréal with YSL. Clarins opted for HSN  along with P&G’s Prestige Boss & Hugo Boss.
   
CVS Beauty 360 is changing the pace of prestige marketing.
2009 prediction: I still believe Watsons has its eye on the U.S., and is likely to make a move in 2009. I think that the news about CVS and Walgreens testing what we Europeans might call perfumery is very strategic and should only spur Watsons to greater urgency. Indeed, it has the potential to change the whole pace of prestige marketing in the U.S. I further believe that with chain pharmacy about to be permitted in Europe, the combination of a major U.S. drug chain offering a prestige format as well, could potentially be a very potent combination in Europe at some time in the future. Meanwhile in the short term, with the economic storm raging, retailers on both sides of the Atlantic will continue to get nastier with their suppliers, extending payment terms and reducing shelf tenure for Division No. 2 brands in favor of private label.

Skin Care


2008: I said to watch for one of the big players doing a major number in spa. I speculated about P&G’s Olay as well as J&J’s post-Pfizer portfolio of skin care brands.
   
Scorecard: Wrong! Although rumors abounded of large manufacturers investigating the spa scene all around the world, nothing major happened—at least, above the surface, anyway. Instead, Olay started testing a new $40 a pop, “professional” line in bright red packaging. Nothing big surfaced from J&J's now widespread skincare portfolio.
   
2009 prediction: Mass skin care will become more technical, with some new players e.g. Coty’s new Home Skin Lab start-up. Tight consumer purse strings will inhibit major growth in the spa sector, although Unilever will probably expand their test of Dove Day Spas. Look out for further testing of home electrical devices which are designed to work with skincare products, e.g. Philips recent JV with Reliant Technologies, developer of the Fraxel laser systems.

Hair Care


2008: I thought P&G would come out of their professional tent and take the fight to world leader L'Oreal in the salon market. Unilever would remain under pressure in retail hair care Western markets, not least because of its decision not to compete in the profitable professional channel, from whence competitors had been deriving their war chests. And specifically, Unilever's Axe was failing to get into the growing male hair care sector.
   
Is Axe hair care going to be a winner?
Scorecard: Still no major initiative from P&G in the professional channel, above the surface anyway, which is some thing that has surprised us. But Unilever has indeed remained under pressure in Western hair markets, Sunsilk having had to paddle very hard to stand still in the U.S. and elsewhere. Axe did finally announce the launch of some trendy new hair SKUs for launch in 2009…better late than never. Meanwhile Gillette launched its own new male hair care range.
   
2009 prediction: Something major to come from P&G in the professional arena – surely? Unilever to continue to struggle in hair care— maybe even a dalliance with professional at last? But Axe’s new hair offering in the U.S. will be a winner, and pave the way for a rollout in Europe and elsewhere. Beiersdorf will rollout its new, revamped Nivea For Men Recharge hair range across Europe, and may well take a special interest in the U.S.
   
But like the politicians say—of course we don't really know what's going to happen, but trust us, we’re decent, sincere, nice people, after all…
About the Author
Colin Hession is managing director of Colin Hession Consulting, a specialist consultancy that focuses exclusively on personal care in Europe, in terms of marketing and commercial development.
Tel: 44-1202-710377. Fax: 44-1202-710399. E-mail: ch@hessioncosmetics.com. Website:
www.hessioncosmetics.com
 


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