It has been reported that Henkel intends to prioritise hair care in its beauty portfolio. This is hardly unexpected, since hair care is the company’s largest beauty category and is expected to be the second biggest growth driver for global beauty and personal care from 2013 and 2018. However, what does “prioritising hair care” actually entail and what must Henkel do to achieve this goal? An answer to these questions can be broken into three parts:
- Henkel first needs to determine which markets to prioritise in its home turf of Western Europe.
- Then it needs to identify prospective markets outside Western Europe to either enter or increase its presence
- Thirdly, assessing if an acquisition would help Henkel reach its goal of developing a greater presence in hair care. If so, who would make a good strategic fit?
This article focuses on the first part – exploring market opportunities for Henkel in Western Europe.
Henkel faces biggest competitive challenges from L’Oréal in Western Europe
In determining market potential for Henkel it is important to take into consideration key competitors. This helps to determine:
- The level of potential competitive barriers in under-resourced markets and whether or not additional investment would be worthwhile;
- If there are looming competitive threats in markets from which resources are being redirected.
L’Oréal is Henkel’s biggest overall beauty competitor in Western Europe and thus L’Oréal is a company Henkel needs to consider very closely before determining its own future actions as it prioritises hair care specifically. The visuals below – from Euromonitor International’s Competitor Analytics tool - depict market weight and sales growth for Henkel and L’Oréal in each Western European hair care market in which they have a presence between 2011 and 2013. Reviewing both visual in tandem helps to shed light on the competitive dynamics between the two in the region.
Figure 1: Henkel Sales Growth in Western Europe Hair Care: 2011-2013
Figure 2: L’Oréal Sales Growth in Western Europe Hair Care: 2011-2013
- No immediate competitive threat in Germany: Henkel is winning in hair care in Germany, which is by far its leading hair care market. L’Oréal too has also been growing in Germany but Henkel leads by a wide margin, controlling over 30% of retail value compared to 19% for L’Oréal. The wide margin by which Henkel leads in Germany’s hair care market and the country’s relatively lesser weight in L’Oréal’s Western European hair care portfolio mean that the immediate threat to Henkel is low and the company can afford to redirect resources to other potential growth opportunities.
- On track in Turkey: In Turkey, one of the fastest growing markets in the region, Henkel is on the right track. It recorded robust growth from 2011 to 2013 (53%), surpassing L’Oréal’s gain of (34%), thanks to a number of different launches including Gliss Marrakesh Oil & Coconut shampoo and conditioner and Gliss Ultimate Repair series. Both have targeted benefits and incorporate sophisticated product formulations. These launches have been well received. Given Turkey is a generally lucrative market and is expected to make the highest contribution to regional category growth, Henkel stands to gain by prioritising it.
- Italy stagnant but Henkel gains shares: Both L’Oréal and Henkel are losing sales in Italy, but this is more due to the fact that overall hair care sales in the country suffered on account of poor economic conditions. Despite absolute sales declines, both Henkel and L’Oréal recorded shares growth, indicating that they are outperforming the wider market. As Italy is projected to remain stagnant, Henkel is better off investing in Western European hair care markets with more potential.
- Lower growth prospects in Belgium and Finland: Henkel has lost sales in some smaller markets including Belgium and Finland, but their relatively lesser weight in the company’s portfolio - as well as their relative prospects in terms of absolute growth in comparison to other markets - make them a lesser priority.
- Henkel’s sales declining in France: The more worrying factor is that Henkel is losing in France, its second leading market, while L’Oréal is winning. Henkel’s losses primarily stem from shampoo, which plunged between 2011 and 2013, contrary to the positive market growth. Henkel needs to restore shampoo sales growth given the relative weight of the market to its overall portfolio, but in the long run it could benefit from redirecting its focus to other markets since hair care in France as a whole is projected to decline and the competitive barrier from L’Oréal is high.
- Unexplored potential for Henkel in the UK: Henkel is not taking full advantage of the UK given its relatively small importance to the company’s footprint in Western European hair care. The UK is the region’s third largest hair care market in the region, and is forecast to grow between 2013 and 2018, even as France and Germany shrink in retail value terms. To this end, Henkel would benefit from redirecting resources to the UK.
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