History
According to Yue-Sai Kan, a Chinese-American TV celebrity and founder of one of the most successful cosmetic brands in China, modern Chinese women didn’t wear much makeup until the early 1990. Although makeup is extensively used in Chinese opera and other performing arts, the use of color on nails and lips was more used to indicate social class then as a sign of beauty. Chinese people began to stain their fingernails with gum arabic, gelatin, beeswax and egg from around 3000 BCE. The colors used represented social class: Chou dynasty royals wore gold and silver; later royals wore black or red. The lower classes were forbidden to wear bright colors on their nails.
After Mao Ze Dong came to power, the use of makeup was considered decadent and anti-revolutionary. The aesthetic taste during the Cultural Revolution (1966-1976) advocated for a "revolutionary beauty" style like the gray Mao suit, army uniform and short hair, a unisex style which went hand in hand with Mao's advocating for women as the other half of the sky. "Growing up during the Cultural Revolution, I genuinely believed these were the only measurement for beauty and the uniform was the most beautiful thing on earth, that make-up and permed hair were a horror”, said Wang Ping who is now a university professor in Minnesota .
With the opening up of China in the early 1990, the interest for makeup increased and so did the interest of companies to access this largely untapped market. Yue-Sai , an American-Chinese started her own brand in 1992, leveraging on her fame as a television star and exclusively targeting Chinese women. Other entrepreneurs saw the growing cosmetics market as an investment opportunity. The Raystar Cosmetics Company was founded by Chinese investor Li Zhida who saw the potential of being one of the first mass market producers of brand makeup in China.
L’Oreal has a history going back to 1907 when Eugène Schueller, a young French chemist, developed an innovative hair-color formula he called Auréole . In 1909, Schueller registered his company, the Société Française de Teintures Inoffensives pour Cheveux ("Safe Hair Dye Company of France"), the future L’Oréal. The guiding principles of the company that would become L’Oréal were put into place from the start: research and innovation in the interest of beauty. Today, L’Oreal is the largest cosmetics and beauty company in the world with revenues of over 14 billion Euro and more than 52,000 employees. Although the company is listed, the founder’s daughter, Lilianne Bettencourt and the Swiss Nestlé company together own more than half of the shares and voting rights.
Growing the company, a sustainable strategy for L’Oreal.
Before planning to branch out in the Far East, L’Oreal always had a healthy growth. Like any successful company, its strategy is one of careful brand management and even more careful acquisitions. Competition in the cosmetics industry is fierce. Brands like Olay and Pond’s are brought in the market by giants like Procter and Gamble and Unilever, who have extensive experience managing brands for exact target groups. Even if they haven’t marketed cosmetics in a country before they can acquire practical knowledge of local culture before marketing more culturally sensitive products. Specialist brands like Avon and L‘Oreal may have knowledge of their respective products but can only enter a foreign market once.
By focusing on 10 global brands concentrated on hair color, hair care, skin care, color cosmetics, and fragrances, the company has turned into a global force by distilling the cultural cachet of different countries into its vials . Instead of doing exhaustive marketing research and running the risk of misreading their target group, they follow a strategy of acquisitions of local companies and established brands that already have that knowledge.
It was this strategy of “becoming a local brand” that led to the acquisition of the Mininurse brand from Raystar Cosmetics in 2003 and Yue-Sai in 2004. Having learned from their negative experience with the initial introduction of the Biotherm brand in the US, L’Oreal had set up only a modest amount of counters in Shanghai, Beijing and Guangzou and opened a plant in Suzhou in 1996. Despite being a latecomer to the Chinese market they still managed fast growth and an ever increasing market share.
L’Oreals strategy of managing global brands with local variations meant that they needed to become a “local” rather than a foreign company in China. The acquisition of the successful Mininurse brand and the Yue-Sai company fits exactly into this strategy. The group has three plants on the mainland, one in Shanghai and the others in East China's Jiangsu Province and Central China's Hubei Province, with their products exported to Japan, South Korea, Southeast Asia and Taiwan Province. This gives an exclusive “locally manufactured” feel to the products. "We are creating some formulas and products specifically for China and Asia and we will invest a lot to meet the different needs of customers in China", Thierry Prevot, managing director of the group's Asian operations said in an interview with China Daily .
L’Oreal’s brand portfolio, risks and opportunities.
L’Oreal markets 14 brands in China, including L'Oreal, Maybelline, Lancome, Biotherm, Helena Rubinstein, Shu Uemura, Matrix, Vichy, Garnier, and the local Mini Nurse and Yue-Sai. China is becoming increasingly important after sliding sales in the US due to the weakening economy . As mentioned, L’Oreal’s brand strategy is based on diversifying brands to fit local culture. While many companies seek to homogenize their brands to make them palatable in myriad cultures, L'Oreal's products embody their country of origin.
For example: in 1996, L'Oreal acquired the US cosmetics company Maybelline and began a complete makeover of the brand, including moving the headquarters from Memphis, Tennessee, to New York City to promote its U.S. origins. When L'Oreal marketers discovered that the moderately successful Maybelline Great Finish nail enamel dried in one minute, they changed the name to Express Finish—to be used by urban women on the go . Maybelline's share of the nail-enamel market in the U.S. has climbed from 3% to 15% since 1996.
By acquiring existing and successful brands in China L’Oreal took a risk. Each brand not only needs to have its own image, targeted towards its market group but also needs to stand out culturally. By marketing local brands, L’Oreal runs the risk of cannibalizing its existing “core” brands or estranging buyers who don’t recognize their “local” brand anymore. When differentiating brands, a company runs the risk of fragmenting, leaving the individual brands weaker as a whole. L’Oreal however has managed to keep its brands strong by realizing that its customers are individuals and that it should cater to individuals rather than a homogenous market.
L’Oreal’s future in China
The successful acquisition of two Chinese brands hasn’t ended L’Oreal’s ambitions in China. China is L'Oreal's largest market in Asia surpassing Japan in 2008, where the group saw a drop in sales. The company is now the second biggest cosmetics provider in China after Procter & Gamble which has operated in China for more than 20 years. Maybelline is the largest brand in China with 51.88% market share. In 2005 L'Oreal decided to launch its Chinese brand Yue-Sai globally “because of growing recognition of Chinese beauty”, completing the circle from localizing a global brand to globalizing a local brand.
The growth of L’Oreal has triggered a wave of consolidations and mergers in China making the already tough market even more competitive. In 2007 China sales rose 30 percent to 523 million Euro (777.4 U.S. million dollars) signaling that the Chinese markets is far from mature yet. L’Oreal is planning to set up the Giorgio Armani brand, starting with a boutique at Hong Kong International airport. Make-up and fragrance will be the focus, although a skincare offer is planned at some point in the future .
The growing economy and increase in spending power of Chinese women means that there is no end in sight for growing opportunities. L’Oreal’s unique approach sets it apart from competitors. The Chinese tradition of having a white skin has L’Oreal’s biochemists experimenting with Chinese herbs, roots, and flowers. Hua jiao, the flower of the prickly ash tree that adds tongue-scorching spice to Sichuan cuisine, is reputed to clear up acne and will be among them, as will traditional whitening agents such as ginkgo leaf, ginseng, and mulberry.
In contrast to its coastal cities, rural China is a largely untapped market for beauty products. Retailing and distribution is still badly managed in China's hinterlands therefore the companies that have the best strategies for reaching the women there, rather than the minority who shop for imports at department-store counters, ultimately will win the cosmetics race. L’Oreal may acquire more local brands but should be careful not to fragment the market too much. The R&D center in Pudong is part of L'Oréal's transition from the image its core brand it currently projects in China--its Chinese name, Oulaiya, means "elegance coming from Europe," and its ads feature pinkish colors on white faces--to something more recognizably Chinese.
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