Taking a Shine to Hair Care Business
A small Santa Clarita cosmetics company has pinned its success on a potent mixture of vanity, thrift and grass-roots marketing.
Al Rodriguez’s Newhall Laboratories has peddled fruity scented, large and inexpensive shampoos and other beauty products to Latino families for decades. With products such as Mega Hold Styling Gel and Tropical Banana Conditioner used by teenagers and grandmothers alike, Rodriguez’s company has captured the loyalty of large families in the Southland and beyond.
Rodriguez, 56, said his private company, which he founded in his garage 31 years ago, had grown an average of 20% over each of the last five years. In 2005, Newhall Laboratories sold about $20 million in products.
“With a name like Rodriguez,” he said, “it was an obvious marketplace.”
Although his staff is lean -- about 25 employees work full time -- Rodriguez has achieved solid results by getting his products onto the shelves of America’s largest retailers. Strongest in California, his line of La Bella and other hair products is sold nationally in stores such as Wal-Mart, Target and Albertsons.
Rodriguez said years of guerrilla marketing to Latino families had given the company an enviable customer loyalty among a rapidly growing national demographic. By setting up tables on weekends at community parks, baseball games and concerts and giving away samples, the company harvests valuable consumer data directly from the street, Rodriguez said.
“We keep things very simple, instead of relying on a lot of fancy reports and data,” Rodriguez said. “We stay very, very much in touch with our consumers.”
Rodriguez, who emigrated from Cuba when he was 11 years old, found himself working in his early 20s as a manager for a vitamin manufacturing plant. In 1975 he quit, convinced that the only boss he wanted was himself.
Rodriguez scraped together several thousand dollars, including $600 for selling his stereo, to start his own vitamin business in his garage. He took orders in the morning, filled them in the afternoon and delivered the products that he bought wholesale throughout the Southland in his ramshackle station wagon, which often left him stranded on the side of the freeway. He sold his vitamins to gyms, health food stores and a few grocery stores.
By the late ‘70s, customer demand for vitamin-based cosmetics pushed Rodriguez into the hair care market. He started manufacturing shampoos, conditioners and hair gels.
As his company grew, Rodriguez noticed a trend in the sector: a focus on African American consumers. “Then we looked around the market and saw there was really nothing being directed at the Hispanic consumer here in Southern California,” Rodriguez said. “The few specialty items were coming in from Mexico and by the time they got to the consumer, they were very expensive.”
Today, Rodriguez outsources his manufacturing to California labs. Despite his small staff -- his wife, Ana, has kept the books for 23 years -- Rodriguez has ambitions to compete with the multinationals on a larger scale.
He wants to replicate the company’s cachet in Latino communities in California and Florida by marketing to the same demographic in the Midwest and Northeast. And soon, he hopes to take the brand global by exporting his California products to Latinos in South America.
But because of his company’s size, Rodriguez said, he has had to fight an uphill -- and costly -- battle to squeeze onto the shelves crowded by his multinational cosmetic competitors.
This, Rodriguez said, has created an unfair playing field for the smaller firms. Although his company is expanding, growth has been stymied by a little-known retail practice of charging new companies and products a fee for a place on the shelf.
Called a slotting allowance, the practice has made Newhall Laboratories’ expansion into the nation’s stores an expensive endeavor. Rodriguez estimates that his company paid $500,000 last year to get his products on the shelf next to companies that dominate the market, such as Cincinnati-based Procter & Gamble Co. and Anglo-Dutch giant Unilever.
“We have to struggle to get our products on the shelf even though the Hispanic segment is the fastest-growing segment in the U.S.,” Rodriguez said. “The saddest part of all of this is that the innovation comes from the small marketers. If the multibillion multinationals continue to step on the little guys, the retailer isn’t going to have the little guys and the consumer is going to have less and less of a choice.”
Slotting allowances have been controversial for decades.
With lean margins and a daily onslaught of new products, supermarkets introduced the practice to boost profits and weed out weaker new manufacturers. But today many retailers charge slotting allowances even to existing products and established manufacturers, with the exception of multinational brands that have the power to bargain with the chains.
K. Sudhir, a professor of marketing at the Yale School of Management, coauthored the first empirical study of slotting allowances in 2004. He said the practice was efficient for retailers that need to focus on serious contenders for shelf space. But for mid-size companies struggling to become bigger, slotting allowances can be a challenge.
“To go onto a national scale would be hard for a company like this,” Sudhir said. “It is a problem for creating national brands, and it’s part of the reason of why small companies so often end up selling themselves off to larger manufacturers.”
George Whalin, president of Retail Management Consultants, said it was a practice nobody wanted to discuss.
“Slotting allowances is one of those subjects that is kept in the darkest of closets,” Whalin said. “If you’re a smaller company, then slotting allowances is a part of the business. It impacts what we see on the shelf as a consumer, no question.”
The propriety of the practice, also known as slotting, has been debated for years. The Bureau of Alcohol, Tobacco, Firearms and Explosives has banned slotting allowances in the alcohol trade.
Congress has held hearings and the Federal Trade Commission has studied whether slotting allowances harm competition among suppliers to supermarkets and drugstores. FTC reports in 2001 and 2003 were inconclusive and called for further investigation. The FTC doesn’t provide guidelines on the practice.
“Our biggest challenge is still the David-and-Goliath story,” Rodriguez said. “We are a multimillion-dollar company that has to compete with multibillion-dollar companies.”
