French cosmetics giant L’Oreal (PINK:LRLCY) plans to build a $50 million production facility in Indonesia as its main production base in Asia. It aims to produce 500 million units in Indonesia by 2015. L’Oreal targets reaching one billion customers in the next 10-15 years and expects to attract almost 50 million of these potential customers in Indonesia by offering customized products at attractive price points. It expects more than three-fourths of its future growth to come from the emerging markets of Asia and Latin America. L’Oreal’s products in the emerging markets compete with hair and skin care products of consumer giants Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL).
L’Oreal, the producer of Garnier hair products and Maybelline cosmetics, announced plans to invest $100 million in Indonesia last year, and is likely to develop it into its biggest global facility. Asia currently generates about one-fifth of L’Oreal’s sales, and the company intends to tap more market share in the Asian region through this new facility. In the Indonesian market, the company expects to attract 50 million new customers by 2020, up from the current 20 million. Indonesia is L’Oreal’s second production base in Asia after China.
Emerging Markets Focus
The company is making a conscious effort to deepen its presence in the emerging markets of Asia, Latin America and Africa as these are the regions for future growth as well as to reduce dependence on the developed markets. In emerging markets of Asia and Latin America, it has been expanding by customizing its products to tap into the unique requirements of local shoppers. It launched two new R&D centers in India and Brazil last year to roll out products covering a wide range of consumer needs, pack-sizes and price points.
In 2011, L’Oreal’s markets outside North America and Western Europe generated about 40% of its sales, growing by 10%, compared to Western Europe that generated almost similar sales but grew by less than 1%.
We have a Trefis price estimate of $23, almost in-line with the current market price.