THE CHANGING HAIR-COLOR PALETTE

MARTY SONNENFELD / Additional reporting by Joel Elson

Despite impressive sales figures, the $1.2 billion hair-color category remains a particular challenge for supermarkets.

According to data provided to SN by Information Resources Inc., Chicago, for the 12 months ending March 28, 1999, supermarkets posted a 14.3% increase in hair-color sales -- higher than drug stores, at 10.1%, and even mass retailers, which posted a 14.2% gain.

But supermarkets still trail way behind in total sales. IRI data indicates that grocery outlets accounted for about 20% of the retail hair-color market, or $242 million. Drug stores led the way with hair-color sales of $521 million (43%), while mass retailers generated $448 million (37%).

The overall jump in sales of the category is widely attributed to an onslaught of women and men in their teens and twenties dabbling with color, as well as the huge baby-boomer population wanting to hide graying hair.

Kim Burns, health and beauty care category manager for Farm Fresh, a Norfolk, Va.-based supermarket, said, "Manufacturers are trying to catch the teen-agers who are experimenting."

L'Oreal's Preference line is the industry leader, producing total sales of $158 million. Carol J. Hamilton, senior vice president of marketing for L'Oreal Retail, New York, observed, "The majority of growth in the hair-color market is coming from young people who are entering the category for the first time." She added that this new segment of the customer base is "coming in with new attitudes, viewing hair color as a fashion accessory."

Clairol, whose Nice 'n Easy is the runner-up, with $125 million in sales, recently reported that the strongest growth in the category is from users between the ages of 13 and 24, which New York-based Clairol said represents an increase of 33%.

Men are also experimenting with coloring their hair. Prominent celebrities, including basketball's Dennis Rodman, comedian Drew Carey and others may be signaling authorization for men to go ahead and try some color. According to Hamilton, "Men's home-hair-color sales have grown more than 50% in the last five years." She suggested that "L'Oreal's recent launch of four Feria shades with men on the boxes has helped broaden this customer base even further."

Adult women, however, still are the heart of the hair-color category. According to Clairol, 52% of women now color their hair, which the company said was up from 42% in 1990. A 1997 study by L'Oreal anticipated the rate would climb to 59% by the beginning of the new millennium.

Also helping to fuel the year's across-the-board increases were several new product releases and re-releases. In 1998, L'Oreal launched Feria and also upgraded its Preference and Casting, now called Casting Color Spa. In the first few months of 1999, Revlon introduced Super Lustrous, which the New York manufacturer said enhances shine and also conditions. Clairol reintroduced its popular Ultress as Ultress Custom Color. The new product is said to allow users to both customize the color and adjust the intensity of the shade.

Last month, Revlon began shipping its ColorStay Hair Color and ColorStay Contrasts. Maybelline (a L'Oreal company) launched its Nutrisse from Laboratories Garnier this month.

L'Oreal has also announced plans to market Superior Preference Continual Color and Conditioning System this fall. Priced at $9.49 for one application, the hair color will be packaged with a 1.8-ounce resealable tube of Care Supreme conditioner -- enough for six applications. The company said that it will "harmonize the fragrances" of the hair color, originally launched in 1995, and the conditioner, first released in 1993. Salon-style gloves will also be provided.

Some describe hair color as something of a self-moving category. Steve Dubin, category manager for beauty products at Imperial Distributors, Auburn, Mass., explained, "Women are in the store 2 to 3 times a week, and the food store is a natural base to buy these products." Instead of also going to the drug store, Dubin said, "it saves them an extra trip."

Still, Dubin thinks the category should offer greater attraction to supermarket managers and that they stand to benefit from the category, saying, "Hair colorings are a strong pull to the HBC department." An advantage of the category is that it represents "both a planned and impulse purchase decision," he pointed out.

Roy White, vice president of education for the Colorado Springs, Colo.-based General Merchandise Distributors Council, commented, "Hair color derives strong reinforcement in drug stores because of its adjacency to cosmetics. Supermarkets may not be strong in cosmetics," he said, "but they do have a strong franchise for health and beauty care."

Depending upon the market segment, some grocery retailers point to price resistance for some of the new premium products and are cautious about stocking these items. Darlene Uselton, health and beauty care buyer at Affiliated Foods, Amarillo, Texas, observed, "Lower-priced items do better than higher-priced products. Clairol's Nice 'n Easy, selling for $5.99 to $6.99, is a real established brand in our stores. Higher-end products don't do as well in our stores in lower-income areas or farming communities."

Burns of Farm Fresh noted that L'Oreal sales have been up, because they have done "a lot of promoting with temporary price reductions or in-ad coupons." Otherwise, the category has been flat, she said, "because we haven't done a lot of promoting on those products."

Although White placed the typical margin at 24% to 25%, Burns pointed out, "Sometimes you have to kind of slash margins to stay competitive, since in some cases it can be price-sensitive. Hair-coloring margins today are in the 15% to 20% range."

As the hair-color category has proven its viability at grocery outlets, what factors keep supermarkets from taking giant steps to try to gain a larger piece of the lucrative market?

For one, space. Supermarkets typically allocate display space of just a few feet for hair-color items. White flatly said, "Supermarkets need to provide more space for the category." He noted that, on average, mass retailers display 163 items, drug stores about 80 items and supermarkets just 43.

Based on overall supermarket merchandising data, White insists, "Supermarkets can experience about 40% to 50% increases through improved merchandising." He said that because of the category's "high sales rate, large market and good profit margin, there is an incentive to allot more space. But you have to weigh all that against other categories."

Limited shelf space means that even a small sales lag can lead to a relatively quick pull-back of product. When sales of Casting didn't have as big an impact as Affiliated Foods had hoped, Uselton said, "We cut a lot of stockkeeping units. Now we're down to 4 or 5." She added, "We give a product six months in the warehouse. After that, if a review shows it's not cutting the mustard, it's gone."

"To give hair coloring greater viability in supermarkets, since it is a category with so many different options for the consumer today," White advised, "retailers that can put more options out will have a competitive advantage."

The situation may become further complicated when manufacturers switch to new product lines. For example, Imperial Distributors' Dubin noted that just this spring, L'Oreal stopped shipping the old Preference more than two months before the new Preference was made available.

He believes better communication is needed between retailers and manufacturers.

White sees great potential for the hair-color category at supermarkets. He said that hair color could even be tied into creative whole-health marketing plans, "because looking good helps you feel good."

Colorful Stats

The hair-color category is one of the most robust categories in the health and beauty care departments of mass-market channels today. Growth is being driven by new users and technologically advanced formulations. Although supermarkets are posting good increases, they can do a better job in bridging the outlet market-share gap.

Hair-Color Sales Performance at Mass-Retail Outlets

$ Sales %Change % Outlet Share Avg. Price Per Unit

Food $241.6 14.3% 20% $6.30

Drug $521.4 10.1% 43% $6.25

Mass $447.6 14.2% 37% $5.65

Total $1,210.7 12.4%

Source: General Merchandise Distributors Council Benchmark Statistics and Information Resources Inc., Chicago, for 52-week period ending March 28, 1999.