After years of major players making big bets on beauty and personal-care acquisitions and product launches, they're more recently getting better growth from the far-less-glamorous home-care business. In the first quarter, beauty players or beauty units posted often-disappointing results, while home-care players prospered.
L'Oréal posted its worst top line in three years, with organic sales growth of only 5.1%. Procter & Gamble Co. also posted 5% organic sales growth, but figuring into that was beauty, posting its worst showing since early in the decade, up only 3%.
Unilever did better than either of its big rivals, with organic sales growth of 7.2%. But its personal-care business, in a turnabout from years past, was the laggard, with sales up only 5.8% compared with 7.8% for its once-lagging home-care business and 7.7% for its once-struggling food business.
Other players both at the top and bottom of the beauty industry's socioeconomic pecking order also turned in top-line growth much softer than in quarters and years past, including Alberto-Culver Co. and Estée Lauder.
The star of the global industry turned out to be Reckitt Benckiser, which has added such businesses as Clearasil, Veet and Mucinex in recent years but remains primarily a marketer of cleaning products. Its organic sales rose 11% last quarter, the latest of several in which it's led all industry players in organic sales growth. Clorox Co., primarily a marketer of U.S. household-cleaning products, also beat analyst expectations on the top line with organic growth of 5%.
One problem is that the beauty and personal-care business, long prized because it had faster growth, higher margins and less capital intensity than other segments such as home care and food, may have become too attractive. Analysts note that more big players have placed bigger bets on it, and as a result they're fighting harder for share, driving down prices and operating margins as marketing costs rise.
"Many of these companies saw beauty as the main opportunity for margin expansion. ... Other manufacturers picked up on that," said Sanford C. Bernstein analyst Ali Dibadj.
P&G Chairman-CEO A.G. Lafley seemed to support that thesis last month when, as the leader of the largest marketing spender in the world, he sounded like some of his smaller rivals several years ago in complaining about how merciless the beauty business has become.
"When we have competitors out there basically giving away buy-one-and-get-one-free for months, that obviously reduces the value of the consumption that's going on in the market," he said. "And then when we feel we have to selectively match, that sort of compounds issue. ... There is a country in the world right now where there is a major launch by our competitor going on, and they're spending five times what we're spending in that market."
Mr. Dibadj said factors beyond competition may be at play too. Household products (and food) are getting a boost now because they have a much larger commodity component in their cost structure, so their prices are going up faster than those of beauty products in many cases. Retailers, too, are mixing into the competition as some, such as CVS, get more active in private-label beauty products, he said.
Deutsche Bank, in a detailed report on the beauty industry last month, also highlighted the growing competitiveness of the business and made a rather grim forecast for North America, where it projected beauty sales will actually shrink by a compound annual rate of 0.2% through 2012. Overall, Deutsche Bank projected beauty will grow 3% a year, though that's still down from prior projections by analysts of 4%-plus growth.
Slowing growth in North American beauty would be particularly tough on P&G, since its beauty and personal-care brands are disproportionately strong here, and Mr. Lafley has spent more than $70 billion since 2001 mainly to acquire such brands as Clairol, Wella and Gillette.
"While recent performance of the beauty business has been below our expectations, the category continues to grow, and we are confident that we will win in these faster, higher-margin categories over the long term," a P&G spokesman said in a statement.
But clearly, in an industry that's supposed to be largely recession-proof, not all segments appear equally resistant. Andraea Dawson-Shepherd, global director-corporate communications for Reckitt Benckiser, had a theory about that in a recent interview.
"I suppose it comes down to what is discretionary expenditure," she said. "If you get a bonus, you might go get your girlfriend or boyfriend a lovely scent or particularly nice beauty product. ... You wouldn't buy an extra household-cleaning product."