With a target of reaching one billion customers in the next 10-15 years, L’Oreal (PINK:LRLCY) is expanding its presence in the emerging African markets that have a large untapped customer base. After opening a Nigerian subsidiary in September to establish a base in West Africa, L’Oréal has now opened a Kenyan subsidiary that will the hub for its expansion activities in East Africa, which includes markets like Uganda, Tanzania, Rwanda, Burundi and Ethiopia. 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).
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High Growth from Emerging Markets
With the addition of Kenya, the company now has nine subsidiaries in Africa and the Middle East. The African and the Middle East markets currently generate only 3% of the company’s sales but have grown by 9% this year. Overall, L’Oreal’s new markets outside of North America and Western Europe have generated about 38% of its sales, growing by 9.7% so far for this year. Compare this with Western Europe that generated almost similar sales but grew by less than 1%.
L’Oreal 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.
Customized Products for Local Markets
L’Oréal’s foray into the African markets comes with a customized product line-up to meet strong local demand for hair care, body care and deodorant segments, particularly hair straightening and relaxing products. Currently, most products are developed by the research and innovation testing center in Johannesburg and produced at the Midrand plant. L’Oréal has expertise in understanding ethnic hair and African skin at its specialist research center in Chicago, while its Softsheen-Carson and Mizani brands will serve as L’Oreal’s flagship brands for drawing in new customers in the regions, in addition to Garnier and L’Oréal Paris.
The Trefis price estimate of $23 implies an upside of about 10% to the current market price.
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