L'Oreal relying on China in slowdown

The rising demand for grooming products among Chinese consumers means good business for L'Oreal, the maker of Lancome lipsticks and Maybelline mascara, even during the economic slow down.

The French company's sales slipped in Western Europe and North America in 2008 but rose in China to 6.95 billion yuan, a 27.7 percent increase from 2007. The cosmetics giant made double-digit growth in the country for the eighth consecutive year.

China is now L'Oreal's seventh largest market (by sales volume), according to Paolo Gasparrini, president of L'Oreal China.

The company has increased its sales and profile in the country by using actresses and models such as Gong Li, Zhang Ziyi and Du Juan as advertisers for the company's cosmetic brands .

"L'Oreal has done quite well in localization strategies, some product lines which are particularly popular in China like whitening and anti-aging creams have performed quite well here," said Michelle Huang, a Shanghai-based analyst with research agency Euromonitor International.

L'Oreal carved out the second largest market share in China's cosmetics industry in 2008 at 9 percent (up 0.7 percentage point from 2007), according to figures compiled by Euromonitor. Its biggest rival, Procter & Gamble, which entered China six years before L'Oreal in 1988, lost 0.3 percentage point of its market share last year, although it remained well ahead of L'Oreal with a 17.9 percent share.

"We've invested huge amounts of capital into marketing to strengthen our brand awareness and followed up with more innovations in products. Our performance in China proves our strategies are good," said Gasparrini.

The cosmetics producer began making acquisitions just after it turned profitable in China in 2003, starting with local brands Mininurse and Yue-Sai in late 2003 and early 2004, respectively.

Mininurse suffered consolidation pains for some time but finally reached double-digit sales growth in 2008, according to L'Oreal.

Before the acquisition, Mininurse ran 280,000 outlets across the country, and analysts say reviving the mass-market brand will help L'Oreal tap into second and third-tier cities faster.

"We have huge market potential in the second and third-tier cities and our mass market brands, such as Garnier and Mininurse, are seeing robust sales jumps in these areas," said Gasparrini.

"Even though major cosmetics consumption remains concentrated in big cities, demand for basic skin care products in the second and third-tier cities has climbed rapidly in recent years. L'Oreal has to promote its mass-market products to expand its consumer pool into these cities," said Huang.

But Gasparrini said that, due to less-developed logistics and sales channels in central and western China, an aggressive business move in these areas remains unlikely at present.

The company is also likely too busy figuring out how to maintain its growth in face of global economic recession to be contemplating such moves.

"In a complex economic environment, such as we have now, we're fortunate to be in China, where the market is pretty dynamic and has a lot of potential. And we'll continue to invest in China in 2009 in spite of a slowing economy," said Gasparrini.

(China Daily 03/23/2009 page9)