L’Oréal Q3 2018 Results Reflect Steady Growth of Premium Health-Conscious Solutions

In 2017 L’Oréal maintained its strong leadership position within the beauty and personal care industry holding a 9.7% share, despite a marginal decline in the mass segment due to the divestment of The Body Shop. A strong presence in the most dynamic categories of skin care and colour cosmetics benefits the company as it looks to grow its share with its portfolio of brands that increasingly taps into diverse pricing tiers.

Likewise, 2018 is shaping up to be another milestone year for L’Oréal as evidenced by the latest Q3 release where the company continues the positive momentum thanks to a balanced company portfolio and strong presence in digital channels.

Active Cosmetics division benefits from consumers’ focus on health

L’Oréal’s Active Cosmetics division is continuing to benefit from the trend for health and wellness in Q3 2018, as consumers are increasingly prioritising their own health. According to Euromonitor’s Beauty Survey, 54% of consumers globally associate beauty with looking healthy, while only a few link beauty to stereotypical associations such as glamour and status.

At the same time the focus on health dictates the rising shift towards preventative regimes, which is boosting skin care adoption levels among the young who are not concerned with anti-ageing properties as such, but increasingly prevention over cure. Likewise, we are witnessing increased spending among the age-agnostic Generation X and Baby Boomers, who are drawn to the more benefit-focused and result-driven claims over the age-defined labelling of yesteryear.

As consumer focus shifts to preventative and health-aligned solutions within skin care, it is efficacy and product safety that are taking the front seat in purchase decision-making. In 2018, globally 26% of skin care consumers strongly prefer proven efficacy over just 8% of respondents who prefer a lower price according to Euromonitor’s Beauty Survey.

In this sense, dermocosmetics increasingly appeal to consumers being trusted as an efficacious solution that provides a mixture of prevention and remedy without resorting to pharmaceutical treatments that potentially come with side effects. In 2017 the trend pushed the growth of dermocosmetics brands, including La Roche-Posay and Avene, but also the growth of those brands with health-aligned positioning such as Rodan + Fields or Murad.

Premium is the main growth driver, with China at the wheel

The strong growth of the luxury division reflects the long-term trend within the beauty and personal care market where premium performed stronger than mass in the last five years with a 5.3% CAGR over 2012-2017, while mass saw a CAGR of 4.6%. The growth of premium beauty and personal care is driven by changing consumer priorities as they are increasingly choosing quality over quantity and are willing to invest in high-quality beauty and personal care, especially in categories such as colour cosmetics and skin care.

Despite the premium market being increasingly disrupted by smaller brands, the strong double-digit growth of L’Oréal’s blockbuster brands such as Lancôme, Yves Saint Laurent, Giorgio Armani, and Kiehl’s is a definite sign that legacy big brands still have power over consumers. As consumers are increasingly prioritising experiences over things, all four L’Oréal brands are employing recent technological advances as well as launching pop-up stores to transform transactional shopping purchases into experiences by connecting with consumers on an emotional level.

While the US remains the largest premium market globally and the biggest revenue generator for premium L’Oréal brands, China was the fastest growing in the last five years. In Q3 2018 it is again China that is driving luxury division growth.

The buoyant growth in China is backed up by consumers’ growing purchasing power and ever aspirational Chinese millennials who continue to be driven by status and heavily influenced by brand names. This is supported by Euromonitor’s Beauty Survey which shows that 36% of millennials in China strongly prefer premium formulations within colour cosmetics versus 4% that strongly prefer lower price; a pattern that allowed L’Oréal to double its share in premium colour cosmetics since 2012.

Focus on enhancing digital presence and tapping deeper into technology

L’Oréal’s heavy investment in digital channels is also paying off, where sales grew by an unprecedented 38% in Q3 2018. Moving forward L’Oréal is confident in expanding its digital leadership as sales of beauty and personal care via internet retailing are expected to grow steadily from the 7.8% that internet retailing takes of the market today. The company’s strategy is well on track with the acquisition of NYX and more recently Pulp Riot to increase it social media presence, in addition to the first acquisition of a tech company in L’Oréal’s history through the deal with ModiFace, in a bid to respond to consumers searching for experiences, such as virtual try-on apps.