NONFOODS: Private Label HBC: Culture stock

The complexion of the ethnic-specific aisle is about to change. CPG companies are developing new formulations and packaging at a faster rate than ever, resulting in varying product assortments with premium-to-prestige extensions, or altogether new brands.

Retailers, too, are instituting changes in the segment. Better category management is focusing on many ethnic-specific departments, and moving them closer to the fronts of stores. Some are stocking more SKUs for Hispanics. Others have even introduced ethnic-specific skin care lines that keep pace with mainstream trends while at the same time being affordable.

These are some of the trends revealed in New York-based market research firm Packaged Facts' latest study, "Ethnic Health, Beauty, and Cosmetic Products in the U.S.," released last month.

The overall ethnic-specific health and beauty care market, which constitutes hair care, makeup, and skin care products, is estimated by Packaged Facts to be reaching nearly $1.9 billion at retail in 2006, the result of a 6 percent increase (See the chart on page 49).

It wasn't always this way. The beginning of the period 2001-2006 saw slow progress, even a retreat of almost 2 percent in 2002. However, the market then woke up to post 5 percent-to-7 percent increases during 2004-2006, resulting in the overall ethnic-specific HBC market's total gain for the years 2001-2006 of almost 19 percent, or $294 million.

Packaged Facts forecasts that retail sales of ethnic-specific HBC products will surpass $2.5 billion by about 2012. Progress is anticipated to continue strong, with annual increases in the mid-single digits. The total increase for the six years 2006-2012 is predicted to be a hefty 37 percent, or $692 million.

After being drawn to high-end, prestige-style HBC products early this decade, the ethnic consumer has "returned" to ethnic-specific HBC, according to the study. Along with mainstream America, ethnic consumers particularly gravitated to what Packaged Facts deems "pop prestige," open-sell formats such as Sephora and The Body Shop that stock expensive, elegantly packaged hair care, makeup, and skin care products positioned on specific conditions or concerns -- such as dryness or wrinkle reduction -- rather than on race, or even age or gender.

But the fading novelty factor, plus a national economy pinched by high oil prices, natural disasters, and the protracted conflict in Iraq -- not to mention product performance and ethnics' special grooming needs, have caused the ethnic sector, again like the mainstream, to settle into a more reasonable pattern of interspersing use of traditional ethnic-specific products with non-ethnic-specific splurge items.

The industry adapts

Marketers and retailers have anticipated this situation, and have adapted to accommodate ethnics with lots of ethnic-specific product introductions. Indeed, major HBC marketers have even started extending major general-market brands with ethnic-specific collections: Procter & Gamble, for example, extended the Pantene Pro-V hair care brand with collections for Hispanics and African-Americans, and Johnson & Johnson extended Neutrogena skin care products with SKUs for blacks.

Yet America's experimentation with prestige and pop prestige has left its mark -- a positive one. Walgreens, for example, has introduced a sophisticated private label called Dr. Jan Adams Women of Color Total Skin Care, which even counts a home microdermabrasion kit within its lineup, priced at just $15.

Ethnic consumers have similarly sought HBC alternatives at natural food/HBC and specialty outlets, which are also influencing the core mass channels; the latter are increasingly stocking natural/organic products, although most of the SKUs must be classed as general-use. All of these aspects of the market environment have strongly driven the ethnic-specific makeup and skin care categories.

Though the ethnic hair care category's rate of progress during 2001-2006 indicates stagnation, Packaged Facts notes that the segment has done well to hold its own in the face of the pop prestige trend and negative economic conditions. The category's maintaining the same dollar level over this time period may also prove the importance of certain core products such as relaxers, heavy pomades, and scalp treatments.

Packaged Facts estimates that the ethnic-specific hair care category will reach nearly $1.1 billion at retail by year's end. During the period 2001-2006, the category struggled, posting 4 percent and 4.5 percent declines, respectively, in 2003 and 2002, and slight advances in 2001 and 2004-2006. The projected 2 percent improvement in 2006 arises from the same positives that have been driving the ethnic-specific makeup and skin care categories at stronger rates. The ethnic-specific hair care category will actually post a net decline of almost 4 percent, or $44 million, for the five years 2001-2006.

By 2012, however, the ethnic-specific hair care category is forecast to be valued at close to $1.3 billion at retail, bringing the total incremental gains over 2006-2012 to $197 million, a healthy 18 percent.

Ethnic-specific makeup is on target to finish 2006 with a retail value of $621 million, for a fourth consecutive year of double-digit growth, according to the study, and should hit the $1 billion mark as of 2012. The makeup category's total increase for 2006-2012 is estimated at a whopping 66 percent, or $411 million, the strongest forecast for any of the three ethnic HBC categories.

Sales of ethnic-specific skin care products, the smallest ethnic HBC category, will reach $154 million by the close of 2006, driven by a particularly strong year of 12 percent growth—the largest advance of the entire five-year period.

The category will reach $238 million at retail by 2012, from strong single-digit advances during the period beginning with 2006, according to the report.

Ethnic consumers aren't just buying ethnic HBC products, however, and stand to spend more than $6.5 billion on general-market, or nonethnic, HBC in 2006, a 3 percent hike over last year. The total growth for the years 2002-2006 is therefore 10 percent, or $612.5 million.

Natural choices

Ethnics' general-market HBC buys during 2006 are expected to break out as 76 percent transacted in mass retail channels (supermarkets, chain drug stores, and mass merchandisers) and 24 percent in all other retail channels -- good news for supermarket operators. In mass, spending grew $289.9 million during 2002-2006, or 6 percent, to reach almost $5 billion. In all other channels, spending leapt by 26 percent, or $322.6 million, during the same period, to close at $1.6 billion.

Taken with the ethnic-specific data, the grand total ethnic spend (by Hispanics, African-Americans, and Asians) for both general-market and ethnic-specific HBC products will amount to just over $8.4 billion for 2006, representing a 12 percent increase -- to $906.5 million -- over the $7.5 billion for 2002.

One slice of the ethnic HBC market retailers should pay particular attention to is botanicals and naturals. While some ethnic-specific HBC marketers hang on to the notion that old-fashioned product efficacy is all that matters, the Packaged Facts study shows that in the current climate, consumers tend to be far more sophisticated: If they choose purely chemical formulations, it's often because they feel that they have no choice. For example, it's often reported that as many as 80 percent of African-American women buy harsh chemical hair relaxers because these are the relaxers that work most dependably.

Accordingly, most ethnic-specific HBC marketers do at least offer gentler chemical recipes and/or position on some botanical content. And there's increasing participation in the natural/organic segment that will drive more consumers to this segment.

What makes the above figures especially important is the fact that not only are ethnic consumers spending more on ethnic-specific HBC, but their population also continues to show strong growth, and their spending power is on the rise.

The University of Georgia's Selig Center at the Terry College of Business specializes in estimating U.S. ethnics' spending. The center's latest report, "Multicultural Economy 2005: Minority Buying Power in the New Century," estimates Hispanic spending power at $736 billion in 2005, compared with $212 billion in 1990, and an expected $1.1 trillion in 2010. In the center's home state of Georgia alone, Hispanic dollar power was some $10.1 billion in 2005.

African-American spending power edges out that of Hispanics -- for now. Compared with 1990's level of $318 billion, blacks had the power to spend $761 billion in 2005, and stand to wield $1 trillion in 2010.

Finally, the center estimates that Asian spending power, at just $117 billion in 1990, stood at $397 billion in 2005; in 2010 this sector could enjoy the power of $579 billion.

Savvy marketers will approach these three largest ethnic minorities with the same creativity, respect, and assumption of consumer sophistication that are used to target mainstreamers. The result will be a greatly expanded market for ethnic-specific hair care, makeup, and skin care products.
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