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L’Oréal Eyes Top Spot in India

The beauty giant has kept one hand on the pulse of the Indian consumer, while maintaining a fast moving strategy that has kept the brand growing.

MUMBAI, India — Doctors from the old Indian school of medicine, Ayurveda, often diagnose a disease just by reading the pulse of a patient.

Several analysts agree that although it is a French brand, L’Oréal has performed just this function in India. The beauty giant has kept one hand on the pulse of the Indian consumer, while maintaining a fast moving strategy that has kept the brand growing in the high-double digits for years. The company has diagnosed the consumer need and dispensed what is desired at a rate just ahead of the market trend.

“We’re not number one in India, but we will be,” said Jochen Zaumseil, managing director of L’Oréal’s Asia Zone. “We want to be the first beauty company among the rising middle class. The Indian consumer spends approximately 3 euros [$3.89 at current exchange] per person. In the next 10 years, this will triple to 10 euros [$12.95] per person.” He spoke with the quiet confidence of someone whose brand is now the third largest in India and is ranked second in advertising spending.

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L’Oréal has been in India for 10 years and recently notched another beginning with the opening of a new office, an enlarged factory (with a capacity to produce 500 million units), the inauguration of a Research and Innovation Center, and even a new managing director of L’Oréal India, Pierre-Yves Arzel.

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“The beauty market in India has been growing more than three times the GDP rate,” Arzel said. While the gross domestic product “in the second quarter of 2012 has been estimated to be at 5.2 percent, the beauty market has been growing at 20.2 percent in the same time.”

L’Oréal India had sales of 240 million euros and had grown 25 percent in 2011 and 20 percent in 2012, he added.

“L’Oréal India has grown four times in six years with a compound annual growth rate of 24 percent, up from 65 million euros [$85.24 million] in 2006 to 240 million euros [$314.74 million] in 2012,” he pointed out, observing that while India ranked number 14 amongst the top 15 countries for beauty (as of 2011), it was expected to jump to number six by 2025, behind China, the U.S., Brazil, Japan and Russia.

“We want to multiply our sales by four by 2020,” he remarked. “It’s not unrealistic, if you do the math. The way to do it is a very consumer-centric approach. The idea is not to bring products from the West to India but to develop products the India way, to really decode what Indian consumers want.”

Market analysts observe that one of the keys for the phenomenal brand growth for L’Oréal India has been its strength in distribution and its sheer visibility in terms of advertising. L’Oréal has 16 brands in India and consumer products are available in 750,000 urban stores. The professional hair salon division is in 30,000 locations, while the luxury business is in 216 points of sale.

There are certain peculiarities that are unique to the Indian market, and L’Oréal has not closed its eyes to these. Sachets, for examples, have been big winners with consumers, in terms of both disposability and accessibility offered by lower price points. L’Oréal has shampoos and skin-care products available in sachets in the Indian market.

“In India, three-quarters of sales and shampoo are made with packets of 5 milliliters and 7 milliliters and are sold at 1.5 rupees and 3 rupees [2 and 5 cents],” said Zaumseil. The lower prices did not ruin the aspirational nature of the brand, he said. These can now be found hanging at many of the smaller shops, which are called kiranas.

On the other extreme, luxury has been growing fast, too. Dinesh Dayal, chief operating officer of L’Oréal India, said the organized luxury beauty market in 2012 totaled approximately 4.5 billion rupees, or $851 million, and the category has shown both fast growth and resilience to crisis.

“In the luxury market, fragrances account for 69 percent, makeup 18 percent and skin care 13 percent,” he said. L’Oréal’s brands from the luxury division include Lancôme, Giorgio Armani, Kiehl’s, Ralph Lauren and YSL. L’Oréal India took control of the distribution of YSL in July from Baccarose, the company’s earlier distributor in India.

Although its not a race to be run, the folks at L’Oréal boast many firsts: Garnier Color Naturals, which was created in India in 2002 then rolled out globally; the first fairness and anti-dark spot cream in 2004, and Garnier Men, created in India, then launched globally from here in 2010. A recent local innovation has been “the Colossal kajal,” a smudge-free innovation, which is a popular and traditional eye color used by Indian women for centuries. The kajal market is estimated to be roughly equal to the rest of the entire modern makeup market in volume.

Satyaki Ghosh, director, Consumer Products Division, remarked that the kajal had been so popular that it was hard to keep up with the demand. Kajal is a special kind of eyeliner that is popular with Indian women and is worn in the inner lining of the eye.

He said that small retail formats don’t damage equity and that the target was to have one million stores in multiple formats at all price points and to create leading products.

L’Oréal’s consumer brands play the retail spectrum, appealing to different audiences, in India: L’Oréal Paris and Maybelline are in select department stores all over the country while Maybelline is also in traditional distribution outlets such as cosmetics stores and general trade along with Garnier. Garnier is also distributed in supermarkets and hypermarkets. Vichy is in pharmacy outlets.

According to Aseem Kaushik, director, Professional Products Division, out of a salon universe of 171,000 shops with the total professional market of 4.6 billion rupees, or $870 million, in which L’Oréal Professionnel claims a 35 percent share, Matrix has a 12.5 percent share and Kérastase has a 3 percent sliver, while Procter & Gamble Co.’s Wella has 15 percent and Schwarzkopf 8 percent.

For many Indian women, beauty is about hair care, a market that is estimated to be worth 47.1 billion rupees, or $866 million, and growing at 20 percent a year. Of this total, hair oil accounts for 56 percent, shampoo for 40 percent and conditioners for 4 percent, with 3 percent of this being rinse off conditioners. An Indian-born innovation for hair care was the Garnier Fructis Shampoo + Oil, a two-in-one product, and also Oil Therapie from Matrix, an oil-based, in-salon treatment.

All of this is fueled by the changing beauty codes from traditional to contemporary. “Yet many of the concerns for beauty are rooted in traditional beauty practices and principles,” said Comal Hate-Malik, head of Consumer Insights,which tracks sales trends. “Despite regional differences, there is a pan-India beauty ideal with lighter skin tones, sharper features and straighter hair.”

With the changing beauty ideals, the market has been making perceptible shifts as well. Makeup sells more than it ever did before and skin care is growing fast. “We’re looking at innovation, a bridge between tradition and innovation,” Zaumseil said. “It’s important to localize as much as possible. The biggest [category] in terms of the market is hair care. Skin care will become the biggest in the next 10 to 12 years. The fairness market is very big. Also, face washes are replacing soaps, so a sophistication is happening. Indian customers are using lots of lip balms and nail products.”

“It’s a momentous year for us,” said Arzel. “There is a fast growing customer who is very aspirational. The growth curve starts from shampoo, face wash, moisturizer then makeup.”