The France-based firm reported its first half 2012 results singling out ‘New Markets’, which includes Asia and Africa, as the leading drivers of sales for the first time, accounting for 40 percent of the group’s turnover.
Key growth markets
According to company chief executive Jean-Paul Agon, Asian markets will be key to growth in the next two decades for the world's biggest cosmetics company, with the markets in India and China highlighted as holding the greatest opportunities.
"India and China will be a priority for the group. The potential for growth in these countries is considerable," says Agon.
First half 2012 results from L'Oreal showed an overall consumer spending slowdown.
However, cosmetic sales in India grew 26.4 percent to €101.5 million and rose 17.1 percent to €576.7 million in China; two markets identified as having strong growth opportunities, particularly in such difficult economic times.
China’s cosmetics market, the second largest in Asia Pacific after Japan, is witnessing increased demand due to improving lifestyles and rising disposable income of the Chinese population.
However, the level of development of the market is still very low. This suggests a huge growth potential for foreign cosmetic producers. Although several domestic firms are present, foreign companies dominate the market, and L’Oreal has the largest market share in China.
India is being targeted by global cosmetic giants due to its favorable demographics. The modern, urban Indian women are becoming increasingly conscious about their style and looks, with great emphasis on lightening of skin tone.
Skin care and color cosmetics have witnessed solid growth for the last few years, with more than half of the skincare market comprising of skin lightening creams. Lip products form a majority of the color cosmetics market.
In India, small pack sizes are very popular as they offer a lower cost and the chance to try new products. Hindustan Unilever is India's largest cosmetics company, but is followed closely by L'Oreal.
According to Credit Suisse Research Institute (CSRI) India and China are regions where cosmetics brands are well positioned and locally owned, and possess good opportunities for future growth.
“Having a well-positioned brand for the improving living standards amongst low and middle income earners can be just as relevant for growth as the typical focus of investors on luxury brands,” reads a CSRI report.
In line with this, the industry has seen the big players such as L’Oréal, along with Beiersdorf, Procter & Gamble and Unilever all expand in into these markets, citing local consumers as a key target.