L’Oréal Vies For Top Spot In Growth Markets With Rapid Acquisitions

by Trefis Team
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On September 21, L’Oréal (PINK:LRLCY) announced the acquisition of another beauty product maker in the fast-growing Indian market to strengthen its New Markets’ portfolio. The beauty product giant bought Mumbai-based Cheryl’s Cosmeceuticals for an undisclosed amount to foray into the professional salon skincare market. [1]

This acquisition comes a month after the company announced its plans to acquire Chinese facial mask products’ manufacturer Magic Holdings for HK$6.54 billion (approximately $850 million). The takeover bid for Magic Holdings from L’Oréal has been backed by six key stakeholders representing 62.3% of Magic Holdings equity and is supported by the company’s board of directors. [2] Prior to this announcement in August, the company acquired the health and beauty divisions of Interconsumer Products Limited (ICP) in Kenya in April 2013. [3] Interconsumer Products Limited is also a key player in the skincare and haircare categories, manufacturing and distributing various facial creams and body lotions within the Sub-Saharan Africa region.

New Markets contributed 40% to L’Oréal’s total sales in 2012. However, given their growth potential, these markets continue to have higher priority over mature markets of Europe and North America. L’Oréal is already the global leader in the professional haircare products space, with sales from L’Oréal Professional, Matrix and Kérastase and Redken, propelled by extensive R&D investments. However, consumer products like Garnier Fructis from L’Oréal have been falling behind Dove and Head & Shoulders from competitors Unilever (NYSE:UL) and Procter & Gamble (NYSE:PG) due to their higher pricing. [4]

Looking at the dynamics of the acquisitions that L’Oréal is making, it might be possible that the company is looking to force its way to the top in the premium skincare segment from its current second place. [4] [5]

View our detailed analysis for L’Oreal here

How Are L’Oréal’s Competitors Faring In The Skincare Segment?

Major competitors for L’Oréal are consumer product giants Unilever and Procter & Gamble, which have held firm ground within the skincare and haircare markets in India. Both the companies have been fiercely trying to push their premium skincare products such as Olay and Dove (P&G), and Ponds (Unilever) into the Indian mass market. Unilever, the leader in Indian skincare market, has resorted to providing leaner packages at lower prices to better sell its premium products while P&G claims its product Olay Regenerist has 20% more anti-aging ingredients over other creams in the market. [6]

L’Oréal however remained in the upper end of the premium product market until recently to differentiate itself from Unilever and P&G. Increasing disposable incomes among Indian nationals has increased demand for low-end premium skincare products and the company’s India head believes the acquisition of Cheryl’s Cosmeceuticals could strengthen its position in this segment. Products from Cheryl’s Cosmeceuticals are priced between Rs500 – 2,000 (between $8-$33) whereas L’Oréal’s skincare products are priced at least 50% higher. [1] In comparison, Unilever’s and P&G’s premium skincare products Pond’s Gold Radiance and Olay Regenerist are priced between Rs500 – 1,000 (between $8-$16) and Rs2,200 – 2,600 (between $35-$42) respectively. [7] [8]

The latest acquisition also helps L’Oréal to tactically produce low-cost skincare products better suited to the Indian demographics. Demand for products that are locally relevant is on the rise in emerging markets and L’Oréal’s strength in R&D positions the company to capture market share in the premium skincare segment. [1] [9] Currently, we estimate the company’s global market share in the skincare segment to be approximately 14.3% and expect this share to grow to about 17.5% by 2020. However, focused acquisitions like these in high potential markets such as Asia Pacific and Africa can quickly expand L’Oréal’s global footprint within the skincare segment.

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Notes:
  1. L’Oreal buys Mumbai-based Cheryl’s Cosmeceuticals, The Economic Times, September 2013 [] [] []
  2. L’Oréal announces proposal to acquire Magic Holdings in China, L’Oréal Investor Relations, August 2013 []
  3. L’Oréal acquires beauty firm Interconsumer Products in Kenya, L’Oréal Investor Relations, April 2013 []
  4. Cosmetics giant L’Oreal makes maiden acquisition in India, The Business Standard, September 2013 [] []
  5. All’s Fair in India’s Cosmetics Market, beautypackaging.com, June 2011 []
  6. FMCG firms try all tricks in bag for premium products, The Business Standard, September 2013 []
  7. HUL’s Ponds to counter P&G’s Olay, The Economic Times, November 2010 []
  8. Beauty business booms: Olay, Neutrogena, L’Oreal and likes drive sales for retailers, The Economic Times, July 2013 []
  9. P&G no match for L’Oréal as R&D is diluted, cosmeticsdesign-europe.com, August 2013 []
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