It may not seem a big deal to those who don’t follow the beauty salon industry, but we think Tesco’s recent decision to trial its own in-house hairdressing salons in two major centers in the UK is indeed a potentially big deal. In the world of European hairdressing, there is still very little consolidation. Yes, there are a few salon chains in the UK, Germany and France, but the one major global consolidator, Regis Corporation from Minneapolis, is still feeling its way here in Europe. Consequently, there aren’t any U.S. style, no-appointment, walk-in Supercuts or Promenades to be found in European strip malls—called shopping centers here—and of course, with no Walmarts, there are no SmartStyles in them either. Walmart’s UK subsidiary, Asda, hasn’t gone down that road, yet.
So Tesco’s decision to try out its own version of value-for-money beauty salons looks like having little competition for the time being. The chain apparently plans to open 70 such in-store salons by the end of 2011, offering a variety of services, including hairdressing and nail treatments.
We think that if—and it’s a big if—Tesco gets its salon formula right, it could be on to a winner. Strategically, the size of the prize is considerable. The beauty salon market in the UK alone is estimated to be worth in the region of $7.5 billion a year, but more importantly, perhaps, is the global opportunity afforded by getting an in-store salon formula right. You only have to look at some of the very revealing statistics on Regis’ corporate website to see why this is the case. Foremost among the data on what Regis calls its “mature salon economics” is average salon cash flow of 27%, and a ratio of cash flow to average capital investment of a staggering 87%.
But getting its salon formula right will not be easy for Tesco. Successful beauty salons, or hairdressing salons as they tend to be called in Europe, are based on a very personal relationship between stylists and their customers. Get that right and customers will keep coming back; get it wrong, and the salon willinevitably end up with a row of empty chairs. Cynics are already saying that Tesco will never get the relationship right. But we don’t agree; after all, if SmartStyle can work in Walmart, then why not something similar in Tesco?
P&G Bets on Salon
Meanwhile, in supplier terms, P&G is getting ready to unleash Wella Professional onto North American salons. P&G’s thinking is that launching a complete assortment of products is the first step in becoming No. 1 in the professional market. Establishing flag ship salons, nurturing relationships with stylists and rolling out a consumer ad campaign is all part of the plan to create the House of Wella.
P&G acquired the German hair care company, Wella, some seven years ago for nearly $7 billion, but as Robert Jongstra, president of P&G’s global salon business, admits, “the first couple of years after the acquisition, not a lot happened, because six months later the company acquired Gillette, and the choice was made to prioritize the integration of Gillette. And rightly so, because of the size of that business.” But now it seems that the giant is awaking in U.S. professional.
The strategic point to note is that this push by the mighty P&G for the top spot in professional hair care will inevitably put more pressure on existing players in the U.S., notably Kao’s KPSS (Goldwell and KMS). It now looks, for example, as if Henkel’s Schwarzkopf may have missed the boat in the States, despite its strength in salons in Europe. And the chances of private equity firm, CVC, being able to exit its investment in Colomer have probably just taken another step backwards.
Estimates of market share within global professional hair care are always a bit of a gamble, firstly because the relatively few players keep the numbers very close to their chests, and secondly, definitions vary a lot by region, but for what it’s worth, our estimate is as follows.
Global ProfessionalHair Care Share Estimates
Retail & Back-Bar, End 2010
JP Mitchell 4%
Source: Colin Hession Consulting
Beiersdorf Clears the Decks
It seems that Beiersdorf has been clearing the decks in order to concentrate on core brands, Nivea and Eucerin. The Hamburg-based company recently sold two of its three prestige brands, namely skin care brand Juvena, as well aspremium hair care brand, Marlies Moller. These two “orphan” brands have been sold to privately-owned Troll Cosmetics of Austria—we may be pessimists but we assume that they will now disappear without a trace.
This is of little consequence as regards Juvena, which is a rather me-too line of ordinary skin care, but we think it’s a missed opportunity for Marlies Moller. This line of premium- priced retail hair care was developed by German hairdresser Marlies Moller, who originally sold to Wella’s Cosmopolitan division; they couldn’t make it work in prestige stores and so, in turn, sold it on to Beiersdorf, which evidently didn’t do much better. Strategically, no one has really got prestige hair care to work yet, but in our view, Marlies Moller’s line has probably come the nearest in terms of design and presentation. The trouble is that such products really need demonstration, and getting basins and running water into department stores is a nightmare for premium hair care suppliers…but someone will crack it, someday.
Meanwhile, how long will Beiersdorf be able to keep its one remaining prestige brand, La Prairie, in the air?
Everything ComesTo He Who Waits
So Calvin Klein has finally realized that Markwins was probably not the right partner for its color cosmetics, and has given the license to Coty from 2012, the original holders of the famous CkOne fragrance license. We nearly said “given back” since the decision not to award Coty the color cosmetics license in the first instance has always puzzled us…still, everything comes to he who waits.
Straws in the wind—Carrefour is trialing the use of beauty consultants in some of its French stores, a new move for the mass retail giant. If successful, no prizes for guessing who’s going to be paying for that one?
Unilever Links With BioLeap
Unilever has partnered with BioLeap, a New Jersey-based company that undertakes molecular design for productdevelopment, to work on products related to “the core biology of aging.”
Sounds spot on for facial skin care, among other categories. Strategic point, wonder which facial skin care brand is in view? Bit late for Pond’s?
M&A on the Rise
M&A is on the rise again, with transactions by trade buyers (large manufacturers), outnumbering those by private equity investors by a 3-to-1 ratio last year. It seems that while the days of private equity paying over the odds for personal care brands and businesses have probably come to an end, there is still good money to be made by owners if they have the right assets to sell. By this, we mean focus on the things which potential acquirers are looking for and you can reasonably expect a happy retirement on that luxury yacht. But spend your time concentrating on things which don’t excite acquirers and disappointment looms—see box below.
Colin Hession is Managing Director of Colin Hession Consulting, a specialist consultancy that focuses exclusively onPersonal Care in Europe, in terms of commercial & marketing development.
Tel: +44-1202-710377•Fax: +44-1202-710399
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