Without doubt China has become an economic superpower of late. Not only is it a major exporter of finished goods, but is also a massive market, one which, however, can be difficult to penetrate. Here is one success story of a European firm that has succeeded in `capturing` the Chinese market.
Key facts:
Presently, the cosmetics market, especially the high-end market, in China is mainly covered by foreign brands or joint-venture brands, including L’Oreal, P&G, Shiseido, Estee Lauder and so on. Compared with the cosmetic giants from other countries, the home-grown producers of China are still little or middle-sized enterprises, with lower-standard equipment and technologies. And China hasn’t even contributed one international-level cosmetic brand to the global market.
and the market will mainly be boosted by skin-protecting cosmetics and colour cosmetics.
In 2010, global cosmetics demand was USD $190 billion, while the Chinese cosmetic’s market size hit CNY 80 billion in 2008, with most of the products focusing on the white collar workers.
In China:
L’Oreal, is the largest cosmetics producer in the world. With a history of 93 years, it owns more than 500 famous brands such as Lancôme, L’Oreal, and Maybeline. The company’s sales in China increased by 26 percent to 585 million Yuan (US$70.5 million) in 2001, which outnumbered the company’s total 19.6 percent worldwide sales growth in the same year, making China one of L’Oreal’s most important markets. When developing products targeted at the Chinese market, L’Oreal follows the consistent principle of adjusting its products according to the cultural backgrounds, aesthetic standards, skin colours, and conventions of the local people. As early as the early 1980s, L’Oreal began to learn more about the Chinese people and to understand Chinese civilization, culture, customs, and conventions. Ten years of preparation has laid a solid foundation (no pun intended) for its success in China.
Early 1993, L’Oreal made its approach to the enormous Chinese market. A Chinese team was set up in Hong Kong to test the Chinese market by establishing image counters in three major cities: Guangzhou, Shanghai and Beijing. In 1996, Suzhou L’Oreal Beauty Products Co. Ltd was created in partnership with the Suzhou Medical College, one of the oldest universities for medical studies in China. Due to the long-term cooperation with Suzhou Medical College, L’Oreal came to fully understood the Chinese customer skin type, cosmetic preference and has obtained a great deal of accurate information which enabled its R&D department to produce the suitable cosmetics that match the Chinese customer’s needs.
In order to increase its market share, L’Oreal used the pyramid strategy for their price and product structure. L’Oreal has all levels of products and brands from the bottom to the top of the pyramid. Upon entering the Chinese market initially, L’Oreal did not adopt this strategy, rather it considered itself to be at the top of the product range and thus located its products in the upper and medium scales of the market place. As competition in China intensified, however, largely from Japanese (Shiseido and Kanebo) and Chinese producers, the L’Oreal group began to reduce their popular brands, subdividing brands into different levels, enabling them to match different levels of customers in different price brackets. Maybelline, which was the American brand purchased by L’Oreal in 1992, is regarded by Chinese consumers as a fashionable product and tends to appeal to younger customers. L’Oreal has marketed it as a less expensive brand targeting younger Chinese consumers. Alternatively, Lancôme is L’Oreal’s top grade brand. It is sold in perfume shops and duty-free stores which have been carefully selected for their reputation as purveyors of high quality, high price goods.
Cleary L’Oreal’s story in China has been of a European company doing exceptionally well in a difficult market by being creative. What is more remarkable is it has beaten competitors like Shiseido from Japan which may be more familiar to Chinese consumers.
Updates: China Daily 3 October 2005
French cosmetics leader L’Oreal recently bought two Chinese cosmetics companies within two months. That’s some indication of how red-hot the cosmetics trade has become in China. In January the world’s biggest cosmetics group, L’Oreal, acquired Chinese skincare brand Mininurse. Launched on the local market in 1992, Mininurse is one of country’s three famous skincare brands and holds 5 percent of the market share. The acquisition hands L’Oreal a valuable manufacturing base as the deal included Mininurse’s large factory in Yichang, Hubei Province. The acquisition was an “important step into the Chinese market,” said L’Oreal’s Chairman and CEO, Lindsay Owen-Jones. But the French firm isn’t resting yet. Its latest buys will “show our determination to step up the pace of our growth in China,” said Owen-Jones.
A month earlier L’Oreal signed a takeover deal with Yue-Sai, the cosmetics brand founded by Chinese-American TV celebrity Yue-Sai Kan. Yue-Sai is an attractive buy for L’Oreal because the company’s large customer base around China will allow it to compete with Avon and Mary Kay in provincial cities. Yue-Sai has sales operations in 240 cities — many of whose customers are loyal followers of Yue-Sai Kan’s beauty advice and TV shows. The television queen is so popular in her native land that China Post issued a stamp with her image. The company carrying her name reported sales of 38 million euros last year.
The Shanghai Daily 04/03/2009
L’OREAL said yesterday sales in China last year jumped almost 30 percent on a year ago and it will increase investment in the country as China outperformed markets in the United States and Europe.
It is the eighth consecutive year the company witnessed double-digit growth in China, making China the seventh largest market for L’Oreal and the largest in the Asia-Pacific. Its market share in China lifted to 10.5 percent last year from 9.3 percent in 2007.
“2008 was a challenging and eventful year. Despite an adverse economic environment, we managed to achieve an honorable growth in sales and market share. This shows the strongly adaptable and sustainable nature of our business model in China,” said Paolo Gasparrini, president of L’Oreal China.
The French company said it would develop more mass-consumer goods to grab a bigger market share and boost sales during the downturn.
Mass-market products better weather the economic recession — women apparently spend on affordable luxuries as a substitute for more expensive items like clothing and jewellery during times of economic uncertainty.
L’Oreal will introduce its high-end pharmaceutical and herbal brand Kiehl’s into China this July.
L’Oreal To Enter 600 Second-tier Chinese Cities In Q2 2011
October 18, 2011 ChinaRetailNews.com
L’Oreal China will reportedly accelerate its deployment in 600 second-tier cities in China, of which half of these cities are with a population of over one million.
According to local media reports quoting Alexis Perakis, chief executive officer L’Oreal, after its sales in China reached over EUR1 billion for the first time in 2010, L’Oreal set a new goal for the Chinese market, aiming to exceed its major competitor Procter & Gamble in the Chinese beauty and skin care market.
Since the beginning of 2011, L’Oreal sales in China have increased by 17%, and its market share in China increased from 11.4% to 13% over the past year. Meanwhile, Procter & Gamble’s market share reportedly decreased from 19% to 17% in China.
China Retail News March 2013
L’Oreal published its financial report for 2012 in Shanghai, stating that its sales in China reached CNY12.05 billion in 2012, a year-on-year increase of 12.4%.
At present, L’Oreal operates 20 brands in China, including Lancome, Kiehl’s, Yue Sai, L’Oreal Paris, Maybelline, Garnier, Vichy, La Roche-Posay, and Kerastase. In 2012, the company’s sales in China achieved double-digit growth for 12 years in a row; however, the growth slowed compared with the 18% growth rate in 2011. Commenting on this, Perakis-Valat said on one hand, the global economic situation was not so optimistic in 2012; on the other hand, the number of their sales was large and it is not that easy to achieve a large growth rate.
Questions:
What has been the secret of L’Oreal’s success in the Chinese market?
Why has L’Oreal been able to out perform foreign and domestic rivals in China?
Why do you think L’Oreal partnering with the Chinese organisation was a success?
