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WIKI ANALYSIS
L'Oreal is the world's largest producer of health and beauty products with revenues of €17,063 M in 2007.[1] L'Oreal has 27 brands that offer products in hair care, skincare, make-up, deodorants, and perfumes. Hair care and skin care make up the largest percentage of L'Oreal's sales, 24% and 25%, respectively.
L'Oreal generated 29% of its revenue and 60% of its growth from emerging markets in 2007. L'Oreal has been effectively building its presence in emerging markets for the last 10 years as in 1999 it made up 17% of total sales. L'Oreal's international growth has been supplemented by its ability to deliver innovative new products to the market. L'Oreal spent €560M (3.5% of revenue) on research and development and registered 576 patents in 2007.[2]
L'Oreal had a lull in organic sales growth in 2006 when it dropped to 5% from over 10% in 1999. As a result, L'Oreal increased its acquisitions to help drive growth. In July, 2006 L'Oreal acquired The Body Shop which now makes up about 5% of L'Oreal's revenues. This aquisition received much criticism because consumers were concerned that The Body Shop would become less socially aware under its new management. L'Oreal also acquired Beauty Alliance, a major distributor of professional hair care products, and YSL Beaute, a luxury fashion company, in 2007 and early 2008, respectively.
Business Outline
L'Oreal operates the following business divisions: Consumer Products (49%), Professional Products (14%), Luxury Products (23%), Active Cosmetics (7%), The Body Shop (5%), and Dermatology (2%). Professional products commands the largest market share, compared to other divisions, in all of L'Oreal's geographic segments.
Cosmetics
Cosmetics primarily include products in hair care, make up, colourants, skin care, and perfumes. L'Oreal has a 15.3% market share in the world cosmetics market and this market share has been growing since 1996. L'Oreal gets the almost half its sales from hair care (24%) and skin care (25%), and together those two segments make up about 55% of the world cosmetics market.
Trends and Forces
Older Women and Men Will Drive Cosmetics Demand
Traditionally women aged 15-30 formed the consumption base for cosmetics companies. Since 2001 7 million new men consumers entered the cosmetics market. This growth is shown in the accompanying table. Men are beginning to purchase facial skincare products.
Emerging Market Growth Will Increase Global Disposable Income
As emerging markets in Asia, Africa, and South America grow, income growth will spur consumption. This presents an opportunity for consumer product companies like L'Oreal. Each year 60 million new consumers achieve an income level that allows them to buy more sophisticated cosmetics products.[5] This demand growth will be seen in both the middle and high income segments of the consumer population as seen in the table.
Competition
| Company | Revenue (mm) | Operating Income (mm) | Operating Margin | R&D Spending (mm) | Major Brands/Products |
|---|---|---|---|---|---|
| Revlon (REV) [6] | $1,400 | $121 | 10.14% | $24.4 | Revlon, Almay, Charlie, Bozzano, Ultima II |
| Procter & Gamble[7] | $76,476 | $15,450 | 20.20% | $2,075 | Pantene, Crest, Tide, Downy, Bounty, Folgers, Gillette |
| L'Oreal[8] | €17,063 | €2,827 | 15.5% | €560 | Garnier Fructis, L'Oreal Paris, Maybelline |
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References
- ↑ LRLCY 2007 Annual Report, Consolidated Financial Results, pg. 20
- ↑ LRLCY 2007 Annual Report, Research & Development, pg. 55
- ↑ LRLCY 2007 Annual Report, Market Trends, pg. 31
- ↑ LRLCY 2007 Annual Report, Market Trends, pg. 31
- ↑ LRLCY 2007 Annual Report, Market Trends, pg. 31
- ↑ REV 2007 10-K, Item 15, pg. F-5
- ↑ PG 2007 10-K, pg. 49
- ↑ LRLCY 2007 10-K, pg. 23
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