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L’Oréal has been among the companies to have successfully steered through the rough waters of the economic downturn, but, in 2014, this strength faded somewhat, with reported company growth dwindling for the last three years. In 2012, the company reported a growth rate of 11%, then falling to 3% in 2013, and eventually to 1% in 2014. Fluctuations in foreign currency exchange rates had a negative impact on the company’s sales in 2014, as did the continuing sluggish pace of economic growth. However, Euromonitor International’s Competitor Analytics tool further reveals that there are certain areas within the company’s portfolio needing closer attention, which, when addressed, could help to accelerate future growth. The years shown below are between 2008 and 2013 – not corresponding with 2014, but still relevant in understanding the company’s current challenges.

Overview of L’Oréal Global Operations

The visual below provides a synopsis of L’Oréal’s overall global operation.

Fig 1: L’Oréal Global Operation Overview

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The US is by far L’Oréal’s largest market and, given the weight of the US in L’Oréal’s portfolio, how the company performs in the market has an impact on its global performance. In analysing performance, it is first necessary to consider the competitive landscape in the region.

Competitive landscape in North America

The below graphic shows how fast L’Oréal competitors in North America have encroached into its market space.

Fig 2: L’Oréal Competition North America

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  • The three leading competitors are Procter & Gamble, Estée Lauder and Unilever.
  • Procter & Gamble, although the leading rival, does not seem to pose too strong a challenge, but the relatively steep lines for Estée Lauder and Unilever indicate that these two companies are steadily encroaching into L’Oréal’s beauty space.
  • The question is how well is the company holding up to these competitive challenges?

Overlapping beauty space with key competitors

Viewing the following visuals in tandem sheds light on the question above.

 

Fig 3: L’Oréal and Unilever Overlapping Beauty Categories 2013

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Note: Colour coding denotes overlap change from 2008-2013

Fig 4: L’Oréal and Estée Lauder Overlapping Beauty Categories

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Note: Colour coding denotes overlap change from 2008-2013

Fig 5: L’Oréal 2013 Category Size and Growth 2008- 2013 North America

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  • The three key overlapping categories between L’Oréal and Unilever (shown in Figure 3) are hair care, bath and shower, and deodorants, but L’Oréal has a small presence in bath and shower and deodorants (shown in Figure 5). In fact, bath and shower and deodorants are not priority categories for L’Oréal.
  • What L’Oréal needs to consider is the competition in hair care. The overlapping space between these two companies in hair care has increased, but, as can be seen in figure five, L’Oréal’s sales have been declining. The growth in the competitive overlap between Unilever and L’Oréal in hair care is largely emerging from Unilever encroaching into L’Oréal’s space, primarily through the acquisition of Alberto Culver, allowing it to develop a deeper penetration in the US hair care market. Unilever’s growth has since slowed down, but it is still growing at a faster pace than L’Oréal, thanks to a segmented portfolio and interesting innovations focusing on scalp health. In addition to Unilever, smaller players are also exerting pressure through unique offerings such as Moroccan oil and keratin treatments and products using pure and natural ingredients. Furthermore, Unilever has the luxury to just focus on shampoos and conditioners, while L’Oréal’s focus is more diversified, also including hair colourants, where the company also faces rising challenges from other players, including Kao.
  • The overlapping categories between L’Oréal and Estée Lauder are colour cosmetics, facial care and fragrances, and L’Oréal has been recording positive growth in all these categories, and is thus holding up well to the competitive pressure from Estée Lauder.

Recommendations

  • It is important that L’Oréal pays attention to the rising competitive challenges in North America in hair care, with a particular focus on Unilever.
  • Turning around the negative growth in hair care in the US would not only boost L’Oréal’s growth in the region, but also greatly benefit its overall global performance.

 

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