ALBERTO-CULVER: DOING IT QUIETLY
Byline: Chantal Tode
NEW YORK — Alberto-Culver Co. whispers when others roar.
In a era dominated by giant consumer-product companies brandishing megabrands, there is no talk of core brands or sweeping marketing programs in Melrose Park, Ill., where Alberto-Culver’s corporate headquarters sit. The company is obsessed with niches — but on a grand scale.
And there’s little turnover in the executive suite since it’s populated by the second generation of the founding family. Alberto-Culver was founded by Leonard Lavin in 1955 and today is run by his daughter, Carol Bernick, and her husband, Howard Bernick.
On Thursday morning, the Bernicks had a lot to celebrate, when the company’s latest set of financial figures was released, showing another record year.
“Of the independent companies our size, so many have disappeared,” said Howard Bernick, president and chief executive officer. He added that the company’s strength stems from the continuity it enjoys by remaining in the family and a knack for developing niche brands.
The company’s diverse enterprises include Sally Beauty Supply, a chain of stores that sells salon supplies to professional stylists and consumers, the 42-year-old Alberto V05 hair care brand and St. Ives hair, skin and body products. Alberto-Culver’s stable of brands also contains food and household items such as Static Guard and Mrs. Dash.
Corporate sales for fiscal 1997, which ended Sept. 30, were $1.77 billion, an 11.6 percent increase over last year’s. These figures follow the same upward trajectory the company has been on for the past decade; sales today are more than four times greater than what they were in 1985. Net earnings for the most recent 12-month period were $75.6 million, a 20.5 percent increase over last year’s. The Bernicks want to keep the momentum going.
“We hope as a corporation within five years to be doing over $3 billion in sales,” said Howard Bernick. Growth will come from product introductions, international expansion and strategic acquisitions, he added.
Amy Low, an analyst with Goldman Sachs, is optimistic the company will accomplish its goals, saying it is “running on all cylinders.
“Over the past several years, Alberto-Culver’s major earnings have been coming from a turnaround of its packaged goods business,” said Low. “Now Sally Beauty’s growth is accelerating.”
One of the company’s strengths is an ability to find unmet consumer needs and building niche brands around them. “We are rather entrepreneurial; we don’t have any $500 million brands,” said Howard Bernick. “We have a number of very specialized products such as Static Guard that offer good prices and good margins for the retailers and good margins for us, and they help us compete against the giants.”
Niche doesn’t mean small, cautioned Carol Bernick. “When we talk about niche, the predominant feeling around here is that you want to be in a category where you can advertise something and people will consider it new and exciting and not one of 35 in the category. For us this is an important piece of business and there is money to be made there,” she said.
A good example of Alberto-Culver’s creativity in developing new brands is Cortexx, a line of shampoos and conditioners introduced in February. The formulas contain gelatin, which the company purports helps decrease hair breakage, a concern of women. It is backed by a $10 million TV advertising campaign.
Cortexx is doing “surprising very well,” said Joel Weingarten, beauty category manager at Drug Emporium, based in Powell, Ohio. “As soon as they broke with their advertising, it started to sell.”
Weingarten added that Cortexx “is the type of item you don’t have to be worried about being competitive on,” because there’s nothing else on the market like it.
Initially sales for Cortexx were slower than expected, said Howard Bernick, but the most recent figures indicate consumers are responding to its message and he expects the line to meet first-year projections.
Industry sources estimate Cortexx could do $10 million in its first year of sales.
The feather in Alberto-Culver’s cap is Sally Beauty Supply, which has grown from two stores in the late Sixties, when it was purchased by Alberto-Culver, to 1,833 stores across the U.S. and in the U.K., Japan and Germany. Worldwide sales this year for Sally were $880 million, a 14 percent increase over last year’s.
Sally’s success comes from its unique format, he said. The stores, most of which are located in strip malls, provide a centralized location where salon owners can drive up, purchase supplies and load boxes directly into their cars.
“The fact that we have Sally Beauty Supply gives us a balance that a lot of other companies do not have,” he said. “It has been a terrific success story. Its sales and profits are more stable and more predictable, so it allows us to be more aggressive in investing behind certain brands and making certain acquisitions in the consumer packaged goods field.”
He contends there is still room for Sally to grow. “We really think Sally is in the early stages of its growth. I believe that Sally can and will be a $2 billion to $3 billion entity in the next five to 10 years.”
Domestically, the plan is to add another 1,000 to 1,500 Sally outlets. Internationally, Alberto-Culver will look to expand Sally in the markets where it already has a presence by another 2,000 to 4,000 stores.
Two factors will be key to Sally’s continued strength, he said.
First is his belief that the professional business is poised for growth. “We feel that the professional category, which has been around for a long time, is going to stay around and is going to grow,” he said. “With more and more women in the work force, I believe that they are attending beauty salons more.”
The second factor is the addition of full-service stores to the Sally business. These outlets are only open to salon owners, unlike other Sally stores that are also open to consumers, and they carry more upscale brands that aren’t sold in the other Sally outlets.
Over the past few years, Alberto-Culver has acquired three full-service dealers in the Midwest: Victory Beauty Supply in Chicago, Barnum Beauty Supply in Cleveland and Locklear Beauty Supply in Rochester, N.Y. Howard Bernick said this part of Sally’s business has the potential to be a $500 million subsidiary.
“At one time, 10 years ago, I didn’t know if full-service would stay around, based on the dramatic growth of Sally,” he said. “But it has not only survived, it has thrived.” The strength of lines such as Redken, Matrix and Nexxus, which are only available through full-service distribution, explains why this segment remains a contender, he added.
Alberto-Culver’s other professional hair care enterprise is Tresemme, a salon hair care brand. “We like being in the professional business as a manufacturer of professional product because a lot of ideas that end up being important in the consumer marketplace originated in the professional field,” he said. He pointed to V05 Hot Oil Treatment as an example.
Alberto-Culver’s consumer products business consists of American and international divisions, each of which represents approximately one-quarter of the company’s total sales. Sales for 1997 were $445 million for the U.S. business, an 18 percent increase over last year’s, and $466 million for international, a 4 percent increase.
Carol Bernick, who is president of Alberto-Culver’s U.S. business, said that as the daughter of the owner of the company, she had to spend years proving her capability. She started out in product development where she was responsible for creating several successful new items, namely Static Guard and Mrs. Dash.
After that, “I didn’t have to fight anymore,” she said.
Before she took the helm of the U.S. consumer products business in 1994, there were three divisions — food, household products and HBA (health and beauty aids) — and profits were on the wane. She immediately brought all three divisions under her control and set about trying to return profitability to the U.S. business.
“In the late Eighties and early Nineties, Alberto-Culver USA was a strong profit area of the company,” she said. “Then we went through a significant change in profit mix in the early Nineties. We made very little money on Alberto V05 shampoos, and it was our biggest brand.”
The business was unduly reliant on the Alberto V05 brand, she explained, which has approximately $300 million in sales globally and includes budget-priced shampoos and conditioners as well as higher-priced treatment products, such as hot oils.
As the company’s profits were evaporating, an evolution was taking place in HBA categories, and consumers were cultivating a desire for higher-priced, value-added hair care and bath products.
Carol Bernick changed the company’s focus to include more higher-margin brands and reduced the stockkeeping units of Alberto V05.
“Previously we focused on low-margin brands, which was a critical mistake for us,” she said. “Now, we are focusing on businesses that make us money. We’ve put the new product emphasis on higher-margin brands.”
Several launches from Alberto V05 with a more upscale bent are imminent within the next six months, she added. The company also is investigating how to reinvigorate Alberto V05 Hair Dressing.
Alberto-Culver’s acquisition of St. Ives in February 1996 represents another move in the plan to place a greater emphasis on higher-margin brands. It also gave Alberto-Culver its entry into skin care.
St. Ives, based in Chatsworth, Calif., makes a line of naturally positioned personal care products under the St. Ives Swiss Formula banner that cuts across several categories: hair care, skin care and body care. The brand falls into a medium-price range, between budget and upscale.
Because of St. Ives’s wide range, Howard Bernick said he believes it can be a $400 million to $500 million brand. Currently, its business is approximately $150 million.
“We believe that the fragrances, the products, the formulations and the packaging are very attractive to the consumer public, and we are going to be investing significantly to grow that business,” he said. The focus will be on fewer but bigger launches.
In February, St. Ives launched body washes with fragrances such as Chocolate Almond and Peach Sorbet, indicating the brand would take a more cosmetic, forward-looking approach, where appropriate. Bath and body products featuring trendy flavors traditionally have had a gift-market positioning. Each 13.5-oz. bottle is $2.59.
St. Ives always had been promoted through the trade, but Alberto-Culver will change this by giving the brand a TV advertising campaign with a multimillion-dollar budget, said Howard Bernick, who refused to give an exact figure. According to industry sources, Alberto-Culver’s gross advertising budget ranged from $28 million to $30 million in 1996 and was up by about 20 percent in 1997.
The company also launched St. Ives into New Zealand and Australia this year, and will look for more growth overseas in the future.
The introduction of Cortexx provides yet another example of how Alberto-Culver is focusing on higher-priced brands. Each of the four 12-oz. items in the line is $3.89. The U.S. business is stronger today, said Carol Bernick, because it has diversified its range of products to include budget-priced and higher-priced brands, and is in a better position to make some riskier moves. “If [all our plans] don’t pan out, the good news is that we’ve fundamentally changed our business so that we can take those risks and we will continue to do that.”
Alberto-Culver’s international business is getting stronger. It is approaching $500 million in volume — $300 million in Europe; $100 million in Canada, Central and South America, and $100 million in Australia, New Zealand and Asia.
“I think we will possibly grow a little quicker internationally than domestically,” said Howard Bernick. “I would hope that within five years, international would be a $1 billion entity for us.
“Leonard Lavin always told us and believed that international would become bigger than U.S.,” he said, referring to the founder, “and he was actively involved in the Sixties, Seventies and Eighties in traveling and opening up markets with international management. He turned out to be correct, and we are actively pursuing this business at this time.”
Between 1991 and 1995, the company acquired two Scandinavian packaged goods manufacturers — Cederroth and Molnlycke Toiletries — making it one of the largest packaged goods marketers in Scandinavia, according to Bernick.
Items offered include adhesive bandages, antacids, laundry products, oral care products and a variety of personal care items. Alberto V05 and St. Ives also have a presence in Northern Europe.
Alberto-Culver plans to use its Scandinavian business as a jumping-off point for an entry into Eastern Europe and Central Europe.
“We are looking for the right ways to exploit and grow our brands in Poland, the Czech Republic and Hungary,” he said. “As utilization of these categories grows and per capita spending grows in these markets, there is opportunity to grow more quickly than in more competitive markets.”
St. Ives and certain Cederroth products already are distributed in Russia, he said.
Both Bernicks said they enjoy what they do, and as long as they are successful at it, they don’t plan to sell the company.