By and  on March 18, 1994

DARMSTADT, Germany -- The Wella Group, a powerhouse in professional hair care products, is now striving to become a major global player in retail products.

Bolstered by recent strategic acquisitions, the company is attempting to build on its image of salon expertise to expand abroad.

"From our figures, we believe we are in the number one position worldwide in the salon business, but the professional market is limited and doesn't show real growth," said Andreas Riecke, vice president in charge of Wella's retail hair care and color brands.

"We have the clear target of improving our position in retail," he continued during an interview at Wella's headquarters here.

Riecke noted that even in the salon business, Wella is in a horse race with the Paris-based L'Oreal. There are also formidable rivals in the retail business -- Procter & Gamble and Helene Curtis in the U.S., the Anglo-Dutch Unilever and L'Oreal. But Wella has some advantages too, Riecke asserted.

"Wella is widely recognized as a hair specialist," he said. "No other brand worldwide has the same potential in hair care or is as focused on hair care."

Riecke noted that Wella pursues a "mega-brand strategy" by marketing all its products under the Wella name. Other companies, such as L'Oreal, use a variety of brand names, some of which are applied to disparate categories of products.

Although year-end results will not be announced until May, Wella has indicated it will show sales growth of between 5 and 6 percent.

The company has reported that 1993 group sales through the third quarter, ended Sept. 30, were up 3.2 percent, to $1.19 billion (2.03 billion marks) at current exchange rates over the same period in 1992.

Pretax profits were up 5.3 percent, to $57.8 million (99 million marks).

As Wella plots its expansion in the nearly $22 billion worldwide hair care market, these are the key components of its strategy:

  • Innovative products. In 1990, for example, Wella recruited newer, younger customers to color with the introduction of Wella Color Intensive Coloring Mousse. The foam, whose color vanishes after six to nine washes, allows consumers to change hues with their mood.Two years later, it launched its Wella Color Soft Color line, making it the first company to introduce ammonia-free tints to reduce odors during application.

  • A unified worldwide marketing strategy. In the past, Wella's ad campaigns were managed by dozens of local agencies around the world, but in 1992 the group consolidated and handed its worldwide account to BBDO. The same year, the group updated its logo and adopted the English tag line "Wella. Perfectly You" in all its advertising, regardless of country.

  • Reinforcement of its image as a salon expert. Wella plans to renovate the training center for hair stylists at its Darmstadt headquarters this year. There are four other large centers around Europe and 78 smaller studios around the globe. A total of 850,000 professionals took courses last year.

  • Designating priority markets, and tailoring a strategy for each.

    For example, Wella is concentrating on building its salon business in the U.S., where competition in the retail market is particularly tough and market share gains costly. But in European markets like the U.K. and the Scandinavian countries, Wella is focusing on its consumer brands.

  • Strategic acquisitions to meet these objectives. Last June, Wella acquired SmithKline Beecham's hair care brands, which had a volume of $64 million. In September, the company acquired Sebastian International of Woodland Hills, Calif., which generates $80 million in salon product sales.

  • In addition, Wella has been looking hard at developing markets like China. In May, it will open its first factory in Russia, a joint venture with a Russian chemical firm called Caprolaktam.
As a rule, most successful mass market companies first establish a solid domestic base before venturing overseas. That means Wella has some work to do in Germany, where it got a late start in the consumer products market during the Seventies. It had been beaten to the punch by L'Oreal and by another German company, Schwarzkopf.

Although Wella claims its professional care and color lines command a dominant 50 percent of the German salon products market, its consumer products share is only 9 percent.

Color is considered its strongest suit, but Wella has only 11 percent of Germany's hotly contested retail color market, estimated at $263 million. German competitor Henkel has 42 percent -- down from 50 percent in 1992 -- and L'Oreal has 27 percent, according to Nielsen.Wella's 11 percent share, however, is more than triple the company's share in 1987, when it launched its semi-permanent color products.

"Clairol already had Loving Care in the U.K., but we took a different approach," recalled Riecke. "Our product was not positioned to cover gray, but we took a fashion approach instead to bring young girls into the customer range."

Although the product was originally introduced in liquid form, Birgit Bauermees, group product manager for retail color products in Germany, said the real breakthrough came in 1990 when it became available in a foam.

"We recognized that younger people wanted to color their hair with fashionable tints, and the foam made for an easier application," she said.

The foam is priced at $5.25 (9 marks), compared to $47 (80 marks) for a salon color job and $6.50 (11 marks) for a permanent at-home application.

The Wella product has been launched in France, Spain and the U.K. Bauermees said it will be rolled out to other European markets, Latin America and Asia this year, and should be available worldwide by 1996.

Although Wella has a history of picking up innovative salon products for retail, executives discovered that not all products adapt easily to home use. Living Colors, for example, a plant-based natural coloring product introduced for salon use in April 1992, has been well received by professionals, but Wella executives worry that it would be difficult to get consistent results at home.

The company was founded by Franz Stroher in 1880 and took off in the Twenties. Although the Stroher family had registered the company name in more than 25 countries, several of the trademarks -- including those in the U.S., South America, Norway and Finland -- were confiscated during World War II.

A buyback campaign included the reacquisition of Wella Corp., based in Englewood, N.J., in 1983, and the 1990 acquisition of VEB Londa, the East German subsidiary, which was originally Wella's parent and was expropriated in 1945. Londa became a leading brand in the Eastern Bloc during the Cold War.

Riecke acknowledges that Wella's position in the U.S. is weak. The brand has less than a 10 percent share of the salon market and less than a 3 percent share of the retail products market.But he also argues that "trying to be global without the U.S. is a mistake."

"We've made lots of efforts in retail, but we didn't succeed because we're coming from a weak position," he said. "We invested, but we needed too much money and so now we are focusing on the salon business."

Riecke reported that Wella's U.S. salon sales were up more than 20 percent in 1993. The key was the acquisition of Sebastian, which has a more exclusive distribution and prestigious positioning than Wella's.

In Latin America, however, where Wella started a retail business in the Fifties because there were no salons, consumer products are the core business, although the company is now stepping up its professional business.

With sales of some $175 million (300 million marks) in the region, Wella claims it's the leading brand, especially in color.

In Europe, Wella is out to increase its consumer business, particularly in the United Kingdom and Scandinavia. Those are weaker markets for L'OrÄal, which dominates European retail market share with 30 percent, according to Riecke.

Wella also is focusing on Asia, where it got a jump on competitors by entering Japan in 1968.

Currently Japan is Wella's third-largest market behind Germany and the U.K., but Riecke believes the largest Asian growth will come from the rest of the Far East, especially emerging markets like China.

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