Sustainable tailwinds are driving growth in the hair care segment, with many attractive M&A opportunities being created by innovations in the space. It’s a market undergoing explosive growth, with strong similarities to how the skin care segment has evolved in recent years. U.S. prestige hair care expanded by 47% in 2021 to $2.6 billion,i while the global market, including mass retail and professional channels, grew to nearly $80 billion.ii This backdrop is attracting both strategic and financial buyers to the category.
In this article, we share four key trends providing strong tailwinds for the hair care segment, and what those trends signal for M&A opportunities going forward.
Accelerating Commitment to Hair Health
The growing consumer commitment to self-care is expanding to hair care. Consumers are increasingly focused on the products, services, and hair routines that they can use to maintain healthy hair, just as they are with skin care.
“A broad swath of consumers is starting to understand the broader health benefits of hair care products, and we believe that's a lasting movement,” says Kelly McPhilliamy, a managing director in the Harris Williams Consumer Group. “Rising consumer interest in skin health is now expanding to hair health, so much so that some are referring to it as the ‘skinification’ of hair care. Consumers are spending the time to research and find brands that will provide better solutions, beyond traditional daily care. They are increasingly using products that make the scalp, hair follicles, and hair strands healthier.”
Case in point? Dermatologist-recommended products are an expanding category. Consumers now, more than ever, are using hair treatments, serums, and masks for better results. This has led to explosive growth in scalp care (+49%), clinical hair care (+34%), and brands offering both skin and hair products (+32%). iii
“With health and well-being at the forefront, people continue to seek clean products that perform and are eco-friendly,” adds William McBride, a director in the Harris Williams Consumer Group. “As a result, we've seen a lot of innovative brands emerge in this space, such as Hairstory, dpHUE, and Crown Affair, as well as skin care and wellness brands launching hair products.”
Growing Interest in Hair Loss and Enhancement Solutions
Hair loss and thinning hair are now two of the top-searched hair needs online. Increased focus on these issues is particularly high among women in life stages during which hair growth can be impacted, such as post-pregnancy. A new generation of hair-growth brands is emerging, with products and marketing designed to appeal to the women who are now more aware of these solutions. There is also rising usage of hair extensions to address these concerns as well as to achieve thicker-looking hair. In fact, the professionally installed hair extensions category is experiencing tremendous growth, projected at 14% CAGR in the U.S. through 2025. iv
McPhilliamy highlights several innovative brands that epitomize the hair enhancement solution trends. “Bellami, for example, is spurring significant overall category growth and consumer adoption by using its resources to train stylists on how to install extensions,” she says. “This initiative drives growth for Bellami and also significantly enhances the business proposition for the stylist relative to other services."
Rising Value in Scientific Proof
Similar to what’s occurred in other beauty categories, hair care consumers have never been smarter, more interested, and more educated about the products they are using, which includes understanding the key ingredients that drive the best results. Consumers want to know what is exclusive and proprietary in a brand.
“They have come to realize that science and technology drive efficacy,” notes Ed Arkus, a managing director in the Harris Williams Consumer Group. “However, most beauty brands have proprietary formulations that utilize ingredients that are already known to be effective for particular uses. It is rare that a brand has patents or proprietary technology, so, when it does, there is a lot of investor interest.”
“Think about what a brand like Virtue Labs is doing with its line of hair care products centered around its proprietary human keratin protein, or K18, with its peptide-powered hair mask,” says McPhilliamy. “Olaplex is another great example,” she adds. “Its products have a patented ingredient that protects and repairs hair from damage on a molecular level. The company’s recent IPO valued it at a $13 billion market cap. These levels of technology and innovation are not as prevalent yet in hair care as they are in skin care, but we expect to see more and more of it going forward.”
Addressing All Need States
As the health and beauty space continues to become more inclusive, the range of hair care offerings is exploding with significant growth occurring for brands and products focused on previously underserved textured or curly hair needs. This is an enormous market, with over one billion consumers globally, who spend 78% more than those with straight hair. v
“Companies are bringing more sophistication to meet specific consumer needs,” says McBride. “Textured hair has attributes such as extreme dryness, requiring unique solutions, while chemical-free and natural looks become the new norm, in part, due to more states passing the CROWN Act, a law that prohibits race-based hair discrimination.”
“We expect this trend to do nothing but grow in the future,” adds Arkus. “The U.S., in particular, is increasingly diverse, with Gen Z the most diverse generation yet, with a 48% non-white population (Figure 1).” vi
The trend toward zoning in on specific customer needs is also driving significant growth for minority-owned businesses, which are becoming more prevalent in the segment. McPhilliamy notes that “founder stories resonate well with consumers. We see more and more retailers featuring minority-owned brands and highlighting their stories as part of that presentation.”
The M&A Opportunity
Hair care is an attractive investment area given the growth and tailwinds the segment is experiencing. Relatively speaking, there are fewer brands in hair care than in skin care, signaling a less-developed market.
“We've seen a robust M&A market across prestige, mass, and professional or salon-distributed brands,” says McBride. “Recent development and growth in prestige hair care are creating a great opportunity to gain share of shelf with large retailers. There’s also investment activity in hair care contract manufacturers and in the formation of hair care and broader brand platforms as buyers look to take advantage of the growth in the segment (Figure 2).”
McPhilliamy sums it up well: “There are many ways to take advantage of the tailwinds in the hair care segment. At the end of the day, what buyers are looking for are brands that resonate with consumers, and drive growth and profitability.”
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i The NPD Group, https://www.gcimagazine.com/brands-products/hair-care/news/22131925/the-npd-group-2022-prestige-hair-care-sales-will-grow-15-npd-forecast
ii Compiled from McKinsey research plus additional sources, https://www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2022/the-state-of-fashion-2022.pdf (p.127)
iii The NPD Group, Total Measured Market, Annual 2021
iv STAX (2021 privately commissioned study), https://www.stax.com/
v Solvay, https://www.solvay.com/en/solutions-market/consumer-goods/personal-care/hair-care-solutions/future-of-textured-hair-care-products
vi Pew Research Center, https://www.pewresearch.org/social-trends/2020/05/14/on-the-cusp-of-adulthood-and-facing-an-uncertain-future-what-we-know-about-gen-z-so-far-2/