Notes from China

Growth Opportunities In Prestige Hair Care

Ally Dai

Happi China

Since the incredible growth began in early 1990s, the Chinese hair care market has become one of the largest in the world, ranking only behind the U.S. and Brazil, according to sources. Datamonitor estimated the Chinese market at $2.14 billion in 2009. Of that total, shampoo accounted for 78.9% of sales, conditioners represented 11.6% and all other hair care products combined to account for the remaining 9.5%. In terms of growth opportunities, hair colorants exhibited high growth with a CAGR of 9.4% during the 2004–09 period.

Similar to skin care, the hair care market in China has been dominated by familiar international big names, with Procter & Gamble leading the way, followed by Unilever, Beiersdorf, Kao and L’Oréal, according to Euromonitor. Despite this multinational monopoly, domestic players still manage to make it onto the leader board. Those local names joining Euromonitor’s 2009 top 10 list are Bawang (Guangzhou) Co. Ltd., Guangzhou Panda Cosmetics Co. Ltd., Guangzhou Decolor Co. Ltd. and Younggrace Cosmetic Group International Ltd.

The future holds great promise, too. A recent report by China Daily points out that approximately 20% of Chinese people wash their hair every day while 75% of them do so every three days.

On a per capita basis, the Chinese spent just $1.79 a year on hair care products in 2009, according to Datamonitor. Therefore, analysts estimate that by the end of 2014, this market will be worth $2.7 billion, with an expected CAGR of 4.9% between 2009 and 2014.

Demanding Consumers

While engaged in price competition in the low-end segment of the hair care market for the past few years, both international and domestic manufacturers are now competing ferociously in middle to high-end segments with products claiming to contain breakthrough ingredients for more specific functions. As Chinese consumers’ major requirements for hair care are getting more specific, specialized products for moisturizing, repairing, dandruff treatment or straightening effects have been widely adopted, creating competition within the market.

Anti-dandruff formulas are of great importance in China’s hair care market, with anti-dandruff products accounting for nearly one-third of total shampoo value sales in China, according to Euromonitor. In fact, Head & Shoulders and Clear (another antidandruff brand), ranked No. 1 and No. 3 respectively by retail value.

Repairing is another popular claim among hair care products in the market. According to research conducted by Peking University First Hospital and P&G’s Pantene involving 600 consumers in Beijing, Shanghai and Guangzhou in 2009,88% of respondents in Shanghai, 70% in Beijing and 58% in Guangzhou said that their hair had been badly damaged. Their attitudes may explain the fact that products focusing on repairing hair damage caused by styling and color processing are on the rise.

After seeing the great success of early entrants, the vast majority of whom are multinationals, many local manufacturers, especially those with pharmaceutical backgrounds, also launched products with similar function claims, but with emphasis on medicated formulas that are typically based on Traditional Chinese Medicine (TCM). However, the success of these local brands has been limited, with the exception of Bawang, which is the only domestic brand ranked in Euromonitor’s Top 10 hair care brands for 2009.

Overall growth of medicated shampoos was slower than that for standard products, at just 5.3% compared to more than 12% for the latter in 2009, according to Euromonitor. In contrast to standard products, retail distribution of medicated shampoos tends to be rather limited, with products sold primarily through chemists/pharmacies and parapharmacies/drugstores.

Prestige’s Bright Future

Like the medicated product sector, sales of premium hair care products lagged, and its sales only accounted for a small percentage of total hair care sales in China. Satinique from Amway, Tsubaki from Shiseido and Asience from Kao ranked as the top three brands in premium hair care in 2009, according to Euromonitor.

However, as China’s economy continues to boom, premium products are expected to outperform cheaper rivals in the future, thanks to its current low penetration and growing Chinese middle class, which has more disposable income. The high-end sector is now regarded as the next battleground for hair care manufacturers in China, due to the fact that an increasing number of brands are now entering this sector.

While international brands such as L’Oréal, P&G and Shiseido have beeninvesting heavily in premium products to strengthen their presence in the high-end sector in recent years, local players are eyeing expansion into this sector.

The newest high profile newcomer is Yunnan Baiyao Group, one of most recognized TCM manufacturers. Known for its trauma panacea Baiyao Powder in China, the Group launched its first high-end anti-dandruff hair care series YangYuanQin this January. With such claim as “expert in scalp care” via its patented TCM-based ingredients, this series intends to differentiate itself in the high-end sector.

Troubled by Safety Scandals

The Chinese hair care market has never shown more promise, but it is affected by a series of safety scandals in recent years. The recent scandals claimed two victims, Bawang (Guangzhou) and Zhangguang 101 Co Ltd. Famous for shampoosclaiming to prevent hair loss, both saw their shares dive on the reports that they were investigated by China food and drug watchdog for products allegedly containing banned chemicals last year.

In a statement issued by the State Food and Drug Administration (SFDA) this January, Zhangguang 101 has been fined for using minoxidil, an anti-hypertension drug banned in cosmetic products, in its products bound for the Singapore and Hong Kong markets.

Baiwang, which markets the best-selling anti-hair loss brand in China, reportedly made false claims about two shampoo products last year. However, the company was cleared on charges that its products contain potentially cancerous toxic dioxane by SFDA, which noted the products were “safe to use.”

As the hair care market becomes more crowded and consumers’ safety concerns increase, pressure is growing on manufacturers to find new lucrative sectors as well as take more stringent safety measures. What will be the next big trends? Luxury professional hair care and male hair care categories seem promising.

Ally Dai is senior editor of Happi China. She has more than 10 years of experience in the cosmetic and food industries. Happi China is a leading media for the China household & personal care industry. Published by Ringier Trade Media in strategic editorial partnership with Happi, it helps local manufacturers update their knowledge on formulating, testing and packaging, as well as providing market insight. Website: www. industrysourcing.com