LOREAL : THE BIGGEST COSMETIC COMAPANY

Submitted In Partial Fulfillment Of The Requirements For BBA (GENERAL) Semester VI Programme Of G.G.S Indraprastha University, Delhi.

Submitted By

(Jatin Sukhija)

(BBA (General) – Semester –VI)

Enrl.No:0581241708

DELHI INSTITUTE OF RURAL DEVELOPMENT

NANGLI PUNA, DELHI -36

Declaration

I here by declare that the major project report , entitled “Loreal: The biggest cosmetic comapany”, is based on my original study and has not been submitted earlier for award of ant degree or diploma to any institute or university.

Place: New Delhi Candidate signature

Date: 4th April 2011 name: Jatin Sukhija

Enrl.no: 0581241708

Countersigned

Name: Ashima Verma

Supervisor

Name:Dr. J.P Varshney

Director

Delhi Institute Of Rural Development Of Rural Development

ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped

and supported me during the writing of this book.

My deepest thanks to Lecturer, [Ashima Verma] the Guide of the

project for guiding and correcting various documents of mine with

attention and care. He has taken pain to go through the project and

make necessary correction as and when needed.

Contents

1. Title page 2.Declaration3.Acknowledgement4.Contents5.Introduction 6.L’ORÉAL brands

7.Strategic analysis

8.Outlook and objectives

9..Future prospects and references

10.Annual report for 2010

11.Conclusions/ Recommendations

Introduction

The L'Oréal Group is the world's largest cosmetics  and beauty  company.[3]  With its registered office in Paris  and head office in the Paris suburb of Clichy, Hauts-de-Seine , France ,[4]  it has developed activities in the field of cosmetics. Concentrating on hair colour , skin  care, sun protection , make-up , perfumes  and hair  care, the company is active in the dermatological  andpharmaceutical  fields and is the top nanotechnology  patent-holder in the United States .L'Oréal is a listed company, but the founder's daughter Liliane Bettencourt  and the Swiss food company Nestlé  each control over a quarter of the shares and voting rights.HistoryIn 1907, Eugène Schueller , a young French  chemist , developed a hair dye formula called Auréole. Schueller formulated and manufactured his own products, which he then sold to Parisian hairdressers.In 1909, Schueller registered his company, the Société Française de Teintures Inoffensives pour Cheveux ("Safe Hair Dye Company of France" literally "French Society of Inoffensive Hair Dyes"), the original L’Oréal. The guiding principles of the company, which eventually became L’Oréal, were research and innovation in the field of beauty.

In 1920, the small company employed three chemists. By 1950, the research teams were 100 strong; that number reached 1,000 by 1984 and is nearly 2,000 today.

L’Oréal got its start in the hair-color business, but the company soon branched out into other cleansing and beauty products. L’Oréal currently markets over 500 brands and many thousands of individual products in all sectors of the beauty business: hair color, permanents, hair styling, body and skin care, cleansers, makeup and fragrances. The company's products are found in a

wide variety of distribution channels, from hair salons and perfumeries to hyper - and supermarkets, health/beauty outlets, pharmacies and direct mail.L’Oréal has five worldwide research and development  centers: two in France: Aulnay  and Chevilly ; one in the U.S. : Clark , New Jersey ; one in Japan : Kawasaki , Kanagawa Prefecture ; and in 2005, one was established in Shanghai , China . A future facility in the US will be in Berkeley Heights, New Jersey .From 1988 to 1989, L'Oréal controlled the film company Paravision, whose properties included the Filmation  and De Laurentiis  libraries. StudioCanal  acquired the Paravision properties in 1994.L’Oréal purchased Synthélabo in 1973 to pursue its ambitions in the pharmaceutical field. Synthélabo merged with Sanofi  in 1999 to become Sanofi-Synthélabo . Sanofi-Synthélabo merged with Aventis  in 2004 to become Sanofi-Aventis .On 17 March 2006, L'Oréal purchased cosmetics company The Body Shop  for £ 652 million.The company has recently faced discrimination lawsuits in France related to the hiring of spokesmodels and Institutional racism . In the UK, L'Oréal has faced widespread condemnation from OFCOM  regarding truth in their advertising and marketing campaigns concerning the product performance of one of their mascara brands.A book by Monica Waitzfelder, published in French as L'Oréal a pris ma maison and in English as L'Oréal stole my house!, details how L'Oréal, a company claimed to be anti-Semitic  by the author, took over the Waitzfelder home in the German city of Karlsruhe  (after the Nazis had engineered the removal of the family) to make it its German headquarters. [citation needed ]

L'Oréal's famous advertising slogan  is "Because I'm worth it". In the mid 2000s, this was replaced by "Because you're worth it". In late 2009, the slogan was changed again to "Because we're worth it" following motivation analysis and work into consumer

psychology of Dr. Maxim Titorenko. The shift to "we" was made to create stronger consumer involvement in L'Oréal philosophy and lifestyle and provide more consumer satisfaction with L'Oréal products. L'Oréal also owns a Hair and Body products line for kids called L'Oréal Kids , the slogan for which is "Because we're worth it too".Protest group Naturewatch states that L'Oréal continues to test new ingredients on animals.[5]  The company states that no animal testing for finished products has taken place since 1989 and that L'Oreal has invested significantly in alternative methods for chemical safety testing, [6] , though they implicitly acknowledge that they continue to perform animal testing of ingredients.[7]

Following L'Oréal's purchase of The Body Shop , who continue to be against animal testing , The Body Shop  founder Dame Anita Roddick  was forced to defend herself against allegations of abandoning her principles over L'Oréal's track record on animal testing. She declared that her belief in the power of cosmetics to enhance female beauty was greater than any concern over animal testing . As a result, calls were made for shoppers to boycott The Body Shop .[8]

In 1987, L'Oréal and 3 Suisses  founded Le Club des Créateurs de Beauté  specializing in mail order sales of cosmetic products.February 2011: L'Oreal will has the largest factory in the Jababeka Industrial Park, Cikarang , Indonesia  with total investment of US$50 million and it will be ready in October 2011. The production will be absorbed 25 percent by domestic market and the rest will be exported. In 2010 significant growth occurred at Indonesia with 61 percent increase of unit sales or 28 percent of net sales.[9]

[edit ]Business

L'Oréal Paris hair gel . Note thePiet Mondrian -esque design.[edit ]Corporate governance[edit ]Board of directorsCurrent members of the board of directors of L’Oréal are: Jean-Paul Agon, Francisco Basco, Werner Bauer, Liliane Bettencourt , Françoise Bettencourt Meyers, Peter Brabeck-Letmathe , Charles-Henri Filippi, Xavier Fontanet, Bernard Kasriel, Marc Lacharrière, Jean-Pierre Meyers, Lindsay Owen-Jones, Franck Riboud , Annette Roux and Louis Schweitzer .[edit ]Management committeeThe management committee includes:Jean-Paul Agon, Chief Executive OfficerFrederic Roze, Chief Executive Officer, L’Oréal USABéatrice Dautresme, EVP of Corporate CommunicationsJean-François Grollier, EVP of Research and DevelopmentChristian Mulliez, EVP  of FinancesJean-Jacques Lebel, President  of Consumer ProductsNicolas Hieronimus, President of Professional ProductsGeoff Skingsley, EVP of Human ResourcesMarc Menesguen, President of Luxury Products[edit ]StockholdersAs at year end 2009:[2]

Breakdown of share ownership: 31.0% by the Bettencourt  family, 29.8% by Nestlé, 2.4% treasury shares, and the remaining 36.8% is public[edit ]Sales, profits, etc.In 2003, L’Oréal announced its 19th consecutive year of double-digit growth. Its consolidated sales was €14.029 bn and net profit was €1.653 bn. 96.7% of sales derived from cosmetic activities and 2.5% from dermatological activities. L’Oréal has operations in over 130 countries, employing 50,500 people, 24% of which work in France. 3.3% of consolidated sales is invested in research and development, which accounts for 2,900 of its employees. In 2003, it applied for 515 patents. It operates 42 manufacturing  plants throughout the world, which employ 14,000 people.Cosmetics sales by division breakdown: 54.8% from consumer products at €7.506 bn, 25.1% from luxury products at €3.441 bn, 13.9% from professional products at €1.9 bn, and 5.5% from active cosmetics at €0.749 bn.Cosmetic sales by geographic zone breakdown: 52.7% from Western Europe  at €7.221 bn, 27.6% from North America  at €3.784 bn, 19.7% from rest of the world at €2.699 bn.In 2007, L’Oréal was ranked 353 in the Fortune Global 500 .[10]  The company had earned $2,585 million on sales of $19,811 million. There were 60,850 employees. [10]

[edit ]Joint ventures and minority interestsL’Oréal holds 10.41% of the shares of Sanofi-Aventis, the world's number 3 and Europe's number 1 pharmaceutical company. The Laboratoires Innéov is a joint venture  in nutritional cosmetics between L’Oréal and Nestlé; they draw on L’Oréal's knowledge in the fields of nutrition  and food safety . Galderma is another joint venture in dermatology between L'Oréal and Nestlé.[edit ]Community involvement and awards

In 2008, L'Oréal was named Europe's top business employer by The European Student Barometer,[11]  a survey conducted by Trendence  that covers 20 European countries and incorporates the responses of over 91,000 students.The L'Oréal-UNESCO Awards for Women in Science  was established to improve the position of women in science by recognizing outstanding women researchers who have contributed to scientific progress.The awards are a result of a partnership between the French cosmetics company L'Oréal and the United Nations Educational, Scientific and Cultural Organization (UNESCO ) and carry a grant of $100,000 USD for each laureate. [1]The same partnership awards the UNESCO-L'Oréal International Fellowships, providing up to $40,000 USD in funding over two years to fifteen young women scientists engaged in exemplary and promising research projects. [12]

L'Oréal organizes every year the L'Oréal Brandstorm, an acknowledged business game for students in 43 countries. The game is related to marketing and has a first prize of $10,000, a second prize of $5,000 and a third prize of $2500.[edit ]Claims of racial discrimination in advertising, and other litigationOn August 11, 2005, the Supreme Court of California  ruled that former L'Oréal sales manager Elyse Yanowitz had adequately pleaded a cause of action for retaliatory termination under the California Fair Employment and Housing Act , and remanded the case for trial.[13]  The case arose out of a 1997 incident in which Jack Wiswall, then the general manager for designer fragrances, allegedly told Yanowitz to fire a dark-skinned  sales associate despite the associate's good performance. When Yanowitz refused, Wiswall pointed to a "sexy" blonde-haired woman and said, "God damn it, get me one that looks like that." Wiswall retired as president of the luxury products division of L'Oréal USA at the end of 2006.

In May 2007, L'Oréal was one of several cosmetic manufacturers ordered by the Therapeutic Goods Administration  in Australia to withdraw advertising regarding the wrinkle  removal capabilities of their products. [14]

In July 2007, the Garnier division and an external employment agency were fined €30,000 for recruitment practices that intentionally excluded non-white women from promoting its shampoo, "Fructis Style".[15]  L'Oréal is reported as saying the decision was "incomprehensible",[16]  and would challenge the measure in court.In July 2007, the British Advertising Standards Authority  attacked L'Oréal for a television advert on its “Telescopic” mascara , featuring Penélope Cruz , stating "it will make your eyelashes  60% longer." In fact, it only made the lashes look 60% bigger, by separating and thickening at the roots and by thickening the tips of the lashes. They also failed to state that the model was wearing false eyelashes .[17]

[edit ]BrandsBrands are generally categorized by their targeted markets, such as the mass, professional, luxury, and active cosmetics markets. Garnier - L'Oreal's product, reached the top 100 brands of The Brand Trust Report  published by Trust Research Advisory in India. Garnier was ranked in the 61st position in the list of Most Trusted brands of India.[edit ]Head office

Centre Eugène Schueller , L'Oréal head office, in Clichy , France

L'Oréal Group has its head office in the Centre Eugène Schueller  in Clichy, Hauts-de-Seine , near Paris .[18]  The building, constructed in the 1970s from brick and steel, replaced the former Monsavon factory, and employees moved into the facility in 1978. 1,400 employees work in the building. [19]  The building is often referred to as the "Beauty Factory" by the public. In 2005 Nils Klawitter of Der Spiegel  said "the building, with its brown glazed façade of windows, is every bit as ugly as its neighborhood." Klawitter added that the facility "gives the impression of a high-security zone" due to the CCTV cameras and security equipment. The world's largest hair salon is located inside the head office building. As of 2005, 90 hairdressers served 300 women, including retirees, students, and unemployed people, per day; the customers are used as test subjects for new hair colours. [20]

L'Oréal USA has its headquarters in New York City ,[21]  its New Jersey headquarters is in Berkeley Heights

L’ORÉAL brands

Consumer Brands:

• L'ORÉAL Paris

• Garnier

• SoftSheen-Carson

• Maybelline New York

• Le Club de Createurs

Professional Products:

• Kérastase

• L'ORÉAL Professional

• Matrix

• Redken

Strategy Analysis of L'Oreal

Strategy analysis focuses on the long-term objective generating alternative strategies, and selecting strategies to pursue. The firm’s present strategies, objectives and mission, couple with the external andinternal audit information, provide a basis for generating and evaluating feasible alternative strategies (David 200).L’Oreal has numerous competitors. To have an advantage on competition, L’Oreal has to apply some strategies that include internal audit information and external opportunities that will make the company stronger. They will also prevent competitors to have an advantage over L’Oreal.This report will be based upon the effectiveness of current strategies of L’Oreal, a real global leader in every segment of the industry.L’Oreal encounters threats and opportunities and they have weaknesses and strengths. It is known as the TOWS matrix. It is an important matching tool that helps managers develop four types of strategies: SO Strategies, WO Strategies, ST Strategies and WT Strategies. Theexternal opportunities and threats were identified earlier (see part 1) by developing the “External Factor Evaluation Matrix” and “Competitive Pro

"L"tmOreal: The Beauty of Global Branding" Business Week. Exchange rate fluctuations, still positive at 0. With the global expansion, new innovations and the Internet strategy, it will definitely increase the sales and automatically more profits. It has adapted to every particular environment. INPLEMENTATIONL"tmOreal has opened the last door to the world. To achieve that, they provide training for employees throughout the world that joins them. ST StrategiesST strategies use a firm"tms strengths to avoid or reduce the impact of external threats. EFFECTIVENESS OF STRATEGIESL"tmOreal capitalize on opportunities in the global market. That makes L"tmOreal competitors more hustling to catch up. file Matrix" is important for the current strategies development. In 2001, the group made two acquisitions: BioMedic, which specializes in skin care products to accompany

dermatological and plastic surgery treatments, and Colorama, a Brazilian mass-market make-up brand. 

Outlook and objectives

Effective supplier relations are essential for sustainable development and L’Oréal has set itself key objectives in this area.

We will: Continue to increase, develop and formalise our business

exchanges with suppliers: Increase coverage of business reviews to all categories and

regions, Measure progress against specific environmental and SD KPIs, Conduct a supplier satisfaction survey to identify critical issues

and areas of improvement, Ensure ongoing feedback to suppliers following Invitations to

Tender.Continue promoting internal awareness of sustainable development issues among purchasing teams:

Organise specific workshops on SD across the categories and regions,

Continue training buyers on good purchasing practices (Purchasing Strategy & Practices training) to achieve a rate of 90%.

Carbon Disclosure Project (CDP) Supply Chain: Monitor progress of the 26 first suppliers of L’Oréal that are

participating in the CDP Supply Leadership Project, Integrate new suppliers into the CDP Supply Leadership Project,

from Latin America and Asia.Encourage suppliers to achieve FSC certification and reduce their packaging and energy consumption,Continue the social audits programme with the objective of 400 audits in 2010,

Pursue the deployment and further development of the "L’Oréal Buy & Care"programme,Increase the visibility of supplier innovations and facilitate access to L’Oréal decision-makers in Research & Innovation and marketing.

Social data scope, indicators, reporting method and systems

Review report by one of the statutory auditors on the procedures used to compile certain social data published in the Group sustainable development report.

General Direction L’Oréal Group 14, rue Royale 75008 Paris

Further to your request and in our capacity as Statutory Auditor of the L’Oréal Group, we have performed a review designed to enable us to express moderate assurance on the procedures used to compile certain social data published in the L’Oréal Group sustainable development report and identified by the sign ( ).

These procedures, together with the data published in the Group sustainable development report, were prepared under the responsibility of the Human Resources Executive Management in accordance with the Group's internal reporting standards. These standards are available on the Group's website.

Our responsibility is to express a conclusion on the procedures for compiling the selected social data, based on our review.

Nature and scope of our work

We performed the work according to The Compagnie Nationale des Commissaires aux Comptes (CNCC) professional doctrine related to this review.

We performed the work described below in order to obtain moderate assurance as to whether procedures used to compile the selected social data are free of material misstatement. A higher level of assurance would have required more extensive procedures. Moreover, our review is not intended to express, and we do not express, a conclusion on the accuracy of the figures published.

We performed the following work:

At headquarters level: For each of the areas reviewed, we met with various representatives from the departments listed below responsible for organizing the reporting procedures as well as for the consolidation of social data at Group level: the Labor Relations Department, HR Information Systems Department, Corporate HR Support Services, Corporate Learning for Development Department.

Based on interviews with these representatives and reviews of documents (Group consolidation manuals and subsidiary reporting schedules), we obtained assurance as to the:

existence of instructions concerning definitions of the data to be compiled and the related calculation methods;

existence of reporting and consolidation procedures; consistency of the data published with the scope set for such

data; due and proper inclusion of the social data obtained from the

reporting systems in the consolidation packages, assessed on a test basis.

Our work was based on the following indicators: total cost of the retirement programmes, % of countries which complete local social security and mandatory programmes, number of employees per gender, data taken from the management database of executives' profiles and careers (nationalities, number of executives by gender, number of women amongst the management committee for instance), number of employees and executive staff trained, amount allocated to the WPS program, number of employees' representatives, absenteeism rate.

At subsidiary level: Additional tests were carried out to ensure the understanding and correct application of Group reporting procedures by the subsidiaries. These tests were carried out at country consolidation level, on a selection of five countries (Denmark, Finland, Norway, Sweden, and Spain) and in respect of the aforementioned indicators,

except for the two specific indicators related to retirement (total cost of the retirement programmes, % of countries which complete local social security and mandatory programmes) performed for all countries at headquarters level.

Our work was based on interviews with the individuals responsible for reporting at country level as well as with other people involved in the data collection and reporting procedures.

The tests involved assessing:

the understanding and application of Group data definitions and data collection procedures at country and subsidiary level;

the consolidation procedures at country level and exhaustiveness of the scope;

the existence and appropriateness of internal control procedures at country level with a view to ensuring compliance with such procedures by the subsidiaries.

We were assisted in our work by Sylvain Lambert, Partner in charge of our Sustainable Development Practice.

Review 

L’Oreal received a score of 58 out of a possible 100 in the latest (2008) Climate Counts Scorecard. Climate Counts is a non-profit website based in New Hampshire that was founded by Stonyfield Farm Organics (85% owned by Groupe Danone).

L’OREAL’S PERFORMANCE L’Oreal has a relatively strong record on climate change, tying for second place among the six companies in the "Household Products" sector reviewed by Climate Counts. According to my method (see below), L’Oreal deserves a rating of 58/20 = 2.9.

Climate Counts has this to say about L’Oreal:

“STRIDING – The best Climate Counts choice. These companies still have work to do, but they’re beginning to hit their stride.”

“Score: 58. Change from 2007 score: +4.

“Review: 16/22 points. Climate Counts has found that L’Oreal has been measuring its companywide impact on global warming since 2001.

“Reduce: 35/56 points. Climate Counts has found that L’Oreal has established clear goals to reduce its energy use and has reduced its impact on global warming (i.e., its greenhouse gas emissions or climate footprint).

“Policy Stance: 0/10 points. Climate Counts has found no public information to suggest that L’Oreal supports public policy that addresses climate change.

“Report: 6/12 points. Climate Counts has found that L’Oreal has made some public information available on its companywide efforts to address global warming.”

PEER PERFORMANCE* Unilever. Climate Counts Score: 75/100. My rating = 3.75 Procter & Gamble. Climate Counts Score: 69/100. My rating = 69/20 = 3.45 Kimberly-Clark. Climate Counts Score: 58/100. My rating = 58/20 = 2.9 L'Oreal. Climate Counts Score: 58/100. My rating = 58/20 = 2.9 Colgate-Palmolive. Climate Counts Score: 44/100. My rating = 44/20 = 2.2 Avon Products. Climate Counts Score: 29/100. My rating = 29/20 = 1.45 The Clorox Company. Climate Counts Score: 15/100. My rating = 15/20 = 0.75

* I include here some major companies that could be considered peers, not just those that are categorized in the same sector by Climate Counts. For example, Climate Counts categorizes Unilever as “Food Products”

and Procter & Gamble as “Household Products,” while both companies compete directly on personal and household products.

METHODOLOGY

Climate Counts says they “use a 0-to-100 point scale and 22 criteria to determine if companies have: • MEASURED their climate “footprint” • REDUCED their impact on global warming • SUPPORTED (or suggest intent to block) progressive climate legislation • Publicly DISCLOSED their climate actions clearly and comprehensively

“GreenOrder, a leading sustainability strategy firm, provided strategic guidance on the Climate Counts program, assisted in the development of the scoring system, and verified the scoring results for accuracy.”

Of the 104 companies on the Climate Counts website, the highest score is 82 (Nike) and most (67) of the scores are below 50. So there’s a lot of room for improvement across the board.

In addition to the 0-to-100 point scale, Climate Counts categorizes companies as “Stuck” (red), “Starting” (yellow) or “Striding” (green). Climate Counts appears to be considering more than the raw score in assigning these categories; potential factors include prior performance and peer performance. For example, Starbucks is labeled as “Striding” (green) for a score of 49 in the pitiful Food Services sector, whereas Dell is labeled as merely “Starting” (yellow) for the same score of 49 in the climate-conscious Electronics sector.

As the methodology for assigning the three Stuck/Starting/Striding categories was not clear, I decided to ignore them and simply divide the raw Climate Counts score (0-100) by 20 to create my Citizens Market rating from 1-5.

L’Oreal – Building a Global Cosmetic Brand

“It is a strategy based on buying local cosmetics brands, giving them a facelift and exporting them around the world."

-- One Brand at a Time: The Secret of L'Oreal's Global Makeover, August 12, 2002.

L’Oreal Makes Waves

In November 2002, L'Oreal, the France-based leading global cosmetics major, received the 'Global Corporate Achievement Award 2002’, for Europe by 'The Economist Group'. Awarded by the publisher of the world's leading weekly business and current affairs journal The Economist, the honour was given in appreciation and recognition of the 'depth, breadth, and diversity of L'Oreal's management team.

In the same month, L'Oreal's Chairman and CEO, Lindsey Owen Jones (Jones) was honoured with the ‘Best Manager of the Last 20 Years' title by the French Minister of Finance and Economy, Francis Mer. This award instituted by the leading French business publication, Challenges, was in recognition of Jone’s outstanding achievements in transforming L'Oreal from a French company into a global powerhouse. Jones also received the prestigious 'Manager of the Year 2002' award from the French Prime Minister, Jean-Pierre Raffarin. Jones was the first foreign head of any French company to receive this award, which was sponsored by the leading French business publication, Le Nouvel Economiste. 

These honours were not just a 'cosmetic' eulogy; L'Oreal deserved them, for it was the only company in its industry to post a double-digit profit for 18 consecutive years (refer Exhibit 1 for L’Oreal's key financials). L'Oreal, which had operations in 130 countries in the world, posted a turnover of € 13.7 billion in 2001. The company recorded a 19.6% and 26% growth in profit in 2001 and 2002 (half-yearly results), respectively. Commenting on L'Oreal's performance, Jones said, "At

L’Oreal, we are 50,000 people who share the same desire; because it is not just about business but about a dream we have to realize, perfection."

Known for its diverse mix of brands (from Europe, America, and Asia), like L'Oreal Paris, Maybelline, Garnier, Soft Sheen Carson, Matfix, Redken, L'Oreal Professionnel, Vichy, La Roche-Posay, Lancome, Helena Rubinstein, Biotherm, Kiehl's, Shu Uemura, Armani, Cacharel, and Ralph Lauren, L'Oreal was the only cosmetics company in the world to own more than one brand franchise and have a presence in all the distribution channels of the industry (refer Exhibit C.8.2 for a note on the global cosmetics industry). 

Background 

In 1907, Eugene Schueller (Schueller), a French chemist, developed an innovative hair colour formula. The uniqueness of this formula, named Aureole, was that it did not damage hair while colouring it, unlike other hair colour products that used relatively harsh chemicals. Schueller formulated and manufactured his products on his own and sold them to Parisian hairdressers. Two years later, in 1909, Schueller set up a company and named it 'Societe Francaise de Teintures inoffensives pour Cheveux’. 

From the very beginning, Schueller gave a lot of importance to research and innovation to develop new and better beauty care products. By 1920, the company employed three in-house chemists and made brisk business selling hair colour in various countries like Holland, Austria, and Italy. Schueller used advertising in a major way to market his products. He used promotional posters made by famous graphic artists like Paul Colin, Charles Loupot, and Raymond Savignac to promote his company's products.

In 1933, Schueller, created and launched a beauty magazine for women named, Votre Beaute. In 1937, he started the 'clean children' campaign and created a jingle 'Be nice and clean, smell good' for Dop shampoo,

which went on to become one of the most famous jingles in France. In the early 1940s, the company's name was changed to L'Oreal, which was an adaptation of one of the brands 'L' Aureole' (the halo). 

In 1957, after Schueller's death, Francois DaIle (DaIle), Shueller's deputy, took over as the company's Chairman and CEO. During the 1950s, the company pioneered the concept of advertising products through film commercials screened at movie theaters. The first movie advertisement was for L'Oreal's 'Amber Solaire' (sun care cream) with the tagline, "Just as it was before the war, Amber Solaire is back". 1

In 1963, L'Oreal became a publicly traded company. This posed a threat to its existence as it could easily come under the state's control,2 which in turn could affect its international growth plans. Dalle, therefore, began taking steps to internationalize L'Oreal's ownership structure to prevent it from coming under the control of the government. His efforts bore fruit a decade later in 1973, when he persuaded Liliane Bettencourt (Bettencourt), Schueller's daughter and the company's main shareholder, to dilute her majority stake. Later, half of L'Oreal's stock was sold to Gesparal, a France-based manufacturer of personal care products, while the other half was publicly traded. Later, 49% of Gesparal's stock was sold to Nestle, the Swiss food products giant, while the remaining 51 % was held by Bettencourt.

In 1972, the company launched the legendry advertisement campaign 'Because I'm worth it' to promote the 'Preference' line of hair colour. The slogan summed up the company's philosophy of providing the most innovative, high-quality, and advanced products at an affordable price.

The campaign was considered as brilliant by many marketing gurus. The slogan seemed to cleverly differentiate L'Oreal's products from others and proved to be a 'winning' factor. 

In the cosmetics business, profit margins tend to be generally low as there was not much differentiation between the products offered by various companies. L'Oreal's decision to differentiate its products by attaching an emotional quality to its brands thus worked very well. The emotional pitch, ''Because I'm worth it", indirectly conveyed the message that ''I'm willing to pay more". According to a article, it conveyed that, "I will prove that I value myself by paying more than I have to." This translated directly into profits for the company. Commenting on the campaign, an analyst stated, "The extra 50% L'Oreal charges for nothing other than your warm glow of self-satisfaction, goes from your pocket right to theirs, and everyone's happy. Genius." 

Over the next few years, the company's business expanded considerably. It started distributing its products through agents and consignments to the U.S., South America, Russia, and the Far East. L'Oreal soon emerged as the only cosmetics brand in the world that had products in all segments of the Industry, that is, Consumer, Luxury, Professional, and Pharmaceutical. Although the company started as a hair colour manufacturer, over the decades it had branched out into a wide range of beauty products such as permanents, styling aids, body and skincare cosmetics, and cleansers and fragrances over the decades (refer Table 1 for product launches till the mid-1990s and Table 2 for a segment wise break-up of sales for the year 2002).

On The Road To Fame

By the 1970s, L'Oreal's products had become quite popular in many countries outside France. Jones’ entry in the late-1970s marked the beginning of a new era of growth for the company. During 1978-81 Jones functioned as the head of L'Oreal's Italian business. Due to his exceptional performance, Jones was given the responsibility of looking after L'Oreal's US operations (the company's most important overseas operation) during 1981-4. 

Managing the company's US operations was not an easy task. Jones' colleagues argued that European brands such as Lancome (in the luxury cosmetics segment) could never compete with established American brands like Estee Lauder and Revlon.

In spite of their doubts and the reluctance of retailers to carry European brands, Jones persuaded Macy's, one of the leading retail stores in the US, to give Lancome the same shelf space that it gave to Estee Lauder. Not surprisingly, Lancome's sales increased by 25% in the US in 1983.

Jones, a company insider with good management skills, succeeded DaIle as L'Oreal's Chairman in 1988. He was aware that DaIle had begun the work of internationalizing L'Oreal to prevent it from remaining as 'just a French cosmetics company'. As he tried to continue Dalle's work, he realized that he had to tackle the situation created by L'Oreal's image.

During the late 1980s and early 1990s, almost 75% of the company's sales were in Europe, mainly in France. L'Oreal's image was so closely tied to Parisian sophistication, it was difficult to market its brands internationally. Jones thus decided to take a series of concrete steps to make L'Oreal a globally recognized brand and the leading cosmetics company in the world. In what proved to be a major advantage later on, he decided to acquire brands of different origins.

In the cosmetics industry, companies did not acquire diverse brands; they generally homogenized their brands to make them acceptable across different cultures. By choosing to work with brands from different cultures, Jones deliberately took L'Oreal down a different road. Commenting on his decision, Jones said, "We have made a conscious effort to diversify the cultural origins of our brands." The rationale for the above decision was to 'make the brands embody their country of origin'. The reason Jones had so much conviction in this philosophy was his own multicultural background (he was born in Wale, studied at Oxford and Paris, married an Italian, and had a French-born daughter). Many analysts were of the opinion that Jones had turned what many marketing gurus had considered a 'narrowing factor' into a 'marketing virtue'.

May Be? No, It 'Is' Maybelline

One of the first brands that L'Oreal bought in line with the above strategy was the Memphis (US) based Maybelline.3 The company acquired Maybelline in 1996 for $ 758 million. Buying Maybelline was a risky decision because the brand was well known for bringing out ordinary, staid colour lipsticks and nail polishes. In 1996, Maybelline

had a 3% share in the US nail enamel market. Maybelline was not a well-known brand outside the US. In 1995-6, only 7% of its revenues ($350 million) came from outside the US. L'Oreal decided to overcome this problem by giving Maybelline a complete makeover and turning it into a global mass-market brand while retaining its American image.

The first thing that L'Oreal did was to move Maybelline's headquarters to New York, a city known for fast and sophisticated lifestyles. Commenting on this decision, Jones said, "Memphis just did not quite fit the sort of profile for finding some of the key people we needed." Then L'Oreal aggressiveness promoted the US origins of Maybelline by attaching the tagline 'Urban American Chic' to it. The company also attached 'New York' to the brand name in order to associate Maybelline with 'American street smart'.

In 1997, the company launched Maybelline's new make-up line called 'Miami Chill' with bold colours like yellow and green. This gave the brand a new look and targeted it at spirited and lively teenagers and middle-aged women. It also renamed Maybelline's 'Great Finish' line of nail polish 'Express Finish,' because the nail enamel dried within one minute of application. The company positioned it as a product used by the 'urban woman on the go'.

This revamp was very successful: Maybelline's market share in the US increased to 15% in 1997 from just 3% in 1996. In addition, Maybelline's sales rose steeply from just over $320 million in 1996 to $ 600 million in 1999. In 1999, buoyed by the success of Maybelline in the US, L'Oreal acquired the Maybelline brand in Japan from Kose Corporation, the brand’s Japanese distributor, thus gaining world rights to Maybelline. 

L'Oreal introduced its new line of Maybelline lipsticks and nail polishes in the Japanese market. However, Maybelline's 'Moisture Whip' (a wet look lipstick) did not do well in Japanese markets as it dried quickly after application. L'Oreal gave the lipstick a makeover by adding more

moisturizers to it. The new Japanese version of 'Moisture Whip' was given a new name-'Water Shine Diamond'. Water Shine-Diamonds became a runaway success in Japan. Commenting on the success of the brand, Yoshitsugu Kaketa, L'Oreal's Consumer-Products General Manager (Japan), said, "It was so successful in Japan that we started to sell Water Shine in Asia and then around the world." 

By the end of 1999, Maybelline was being sold in more than 70 countries around the world. While in 1999 50% of the brand's total revenues came from outside the US, by 2000 the figure increased to 56%. Maybelline became the leading brand in the medium priced makeup segment in Western Europe with a 20% market share. Commenting on the company's superior brand management framework, an August 2000 article stated, "L'Oreal achieved sales growth of nearly 20% by developing new products, expanding into key international markets, and investing in new facilities, all the while concentrating on increasing the reach of the group's top 10 brands."

Cashing in on the Maybelline Formula

Maynelline's success proved Jones' philosophy of creating successful cosmetic brands by embracing two different yet prominent beauty cultures (French and American). Commenting on this, Guy Peyrelongue, head of Maybelline, Cosmair Inc., 4 US Division, said, "It is a cross-fertilization." L'Oreal followed this strategy for the other brands it acquired over the years, such as Redken (hair care), Ralph Lauren (fragrances), Caron (skin care and cosmetics), SoftSheen (skincare and cosmetics), Helena Rubenstein (luxury cosmetics), and Kheil's (skin care) (refer Table 3).

L'Oreal acquired the above relatively unknown brands, gave them a face lift, and repackaged and marketed them aggressively. The US-based hair care firms Soft Sheen and Carson were acquired in 1998 and 2000 respectively. Both these brands catered to African-American women.

Jones merged these two brands as SoftSheen-Carson and used them as a launch pad to aggressively promote itself outside the US - specifically Africa. As a result, the brand derived over 30% of its $ 200 million revenues in 2002 from outside the US, most of it from South Africa.

L'Oreal firmly believed in the strategy of promoting all its brands in different nations. Even though it had brands originating in different cultures, it sold all its different lines in all countries. However, L'Oreal promoted only one brand aggressively in a country. The brand to be promoted was selected on the basis of the local culture. Thus, for people who preferred 'American products, L'Oreal promoted Maybelline, and for those who preferred 'French' products, the L'Oreal brand was promoted. Similarly, the company promoted Asian and Italian brands for customers who preferred them.

Jones also encouraged competition between the different brands of the company. For instance, L'Oreal acquired Redken, a US-based hair care brand in 1998, and introduced it in the French market, where it would have to compete with L'Oreal's Preference line of hair care products. Analysts were skeptical of this move as they thought introducing new brands in the same category would cannibalize L'Oreal's own established brands. However, Jones took a different point of view; he argued that the competition would inspire both the Redken and Preference marketing teams to work harder.

Since self-competition was encouraged at L'Oreal, teams had ample freedom to innovate and develop better products. This kind of competitive spirit from within allowed L'Oreal to beat competition from other players in the market. Commenting on this, Jones said, "The only way to favour creativity in large corporations is to favour multiple brands in different places which compete with each other." 

To encourage competition and nurture creativity, L'Oreal operated two research centres - one in Paris and the other in New York. These centres helped Jones maintain L'Oreal's image as the 'scientific' beauty

company. The company spent around 3% of its revenues on research every year, which was more than the industry average of less than 2%. L'Oreal employed 2700 researchers from all over the world and had 493 patents registered in its name in 2001, the largest ever for any cosmetic company in one year. 

L'Oreal made sure that each of its brands had its own image and took care that the image of one product did not overlap with the image of another product. A cosmetics industry analyst, Marlene Eskin, said; "That is a big challenge for this company-to add brands, yet keep the differentiation." 

One of L'Oreal's most radical experiments was the makeover and re-launch of the Helena Rubinstein skin care and cosmetics brand. Originally positioned in the luxury segment, Helena Rubinstein had the image of a product used by middle aged-women. In 1999, L'Oreal relaunched the brand and targeted it at a much younger and trendier audience than the brand's typical luxury customers (middle-aged women). Now, the target users were women aged between 20-30 years, living in urban centres like London, Paris, New York, and Tokyo. The company also opened a Spa 5 in New York to promote the brand (the first instance of a company attempting to run a retail operation as part of a promotional package).

L'Oreal also made use of 'dramatic' advertisements to promote the brand. In one of its advertisements, the model sported a green lipstick and white eye shadow. Many analysts even thought that such advertising for a traditional luxury brand was incoherent. However, Jones argued that industry observers who held this opinion had not taken into account how fast the market was changing. He said, "Is it incoherent for younger people to buy luxury cosmetics? Why? Perhaps it was 10 years ago when luxury was equated to the middle-aged customer. But sorry, the biggest luxury consumers in all of Asia, which is one of the strongest luxury markets in the world, are between 20 and 25. This is why the Guccis and Pradas have taken the luxury-goods market by storm." 

Jones also said, "The worldwide luxury consumer no longer equates to a middle-aged lady. She can be. But she can also be young and trendy. So the whole idea that it is incongruous for Helena Rubinstein to be cutting edge in terms of image and makeup is out of date by about 10 years. On the contrary, it is very good, original positioning for Helena Rubinstein to be the coolest of the traditional luxury brands." Thus, L'Oreal cleverly positioned Helena Rubinstein as a luxury brand for a younger audience without overlapping its image with that of other luxury brands like Biotherm, Lancome, and Shu Umeura.

L'Oreal attached a tinge of glamour to its brands to make them more appealing to customers. The company liberally used celebrities from various fields of life, from all parts of the world, for promoting its brands. Some of the well-known personalities featured in L'Oreal's promotional campaigns included Claudia Schiffer, Gong Li, Kate Moss, Jennifer Aniston, Heather Locklear, Vanessa Williams. Milla Jovovich, Diana Hayden, Dayle Haddon, Andie MacDowell, Laeticia Casta, Virginie Ledoyen, Catherine Deneuve, Noemie Lenoir, Jessica Alba, Beyonce Knowles, and Natalie Imbruglia.

L'Oreal’s brand management strategists believed that good brand management was all about hitting the right audience with the right product. Commenting on the company's brand portfolio management strategies, Jones said, "It is a very carefully crafted portfolio. Each brand is positioned on a very precise segment, which overlaps as little as possible with the others."

Future Prospects

L'Oreal's efforts paid off handsomely. The company posted a profit of € 1464 million for the financial year 2002, as against € 1236 million for the financial year 2001. Its overall sales grew by 10% in 2002, and much of this increase was attributed to impressive growth rates achieved in emerging markets like Asia (of the 21 % increase in sales volume, China

contributed 61 %), Latin America (sales grew by 22% with sales in Brazil increasing to 50%), and Eastern Europe (sales grew by 30% with sales in Russia increasing by 61 %).

Industry observers noted that L'Oreal was much ahead of its competitors in terms of profitability and growth rate. L'Oreal's rival in the luxury segment, Estee Lauder, had reportedly posted a 22% drop in profits in August 2002. The company had also announced a cost-cutting programme. Even Revlon, L'Oreal's competitor in the mass-market segment, had posted nine consecutive quarterly losses since late-2001.

Not all competitors were in such bad shape though; rival companies like Beiersdmf (a Germany based company that owns the globally popular brand Nivea), Avon, and Procter & Gamble had been performing quite well. However, industry analysts agreed that no other cosmetics player matched L'Oreal's combination of 'strong brands, global reach, and narrow product focus'.

In March 2003, L'Oreal ventured into new businesses that were closely related to its core activities. One such initiative was Laboratoires Inneov, L'Oreal's joint venture with Nestle. Through Inneov, L'Oreal entered the market of cosmetic nutritional supplements. Analysts observed that this would mark the beginning of 'neutraceutical6 development. A research analyst at Frost and Sullivan (US based leading provider of strategic market and technical information), commented, "The Inneov business will draw on both the growing demand for skin products designed to retain youthfulness and the growing market for dietary supplements." 

L'Oreal expected the cosmetics market to grow at 4-5% per annum in the future. Looking at the future with optimism, Jones said, "No other consumer products group has grown as quickly as we have. The prospects for the next three to four years seem promising to me. L'Oreal has the good fortune of being involved in a business that is a bit less sensitive than others to economic cycles. When, the economic climate is bleak, you might put off buying a new car, but you will still buy a tube

of lipstick that lets you 'take a different sort of trip' for a much smaller price.

In March 2003, the company entered the prestigious list of the world's fifty most admired companies compiled by leading business magazine, Fortune, for the first time. This was yet another indicator of the fact that L'Oreal seemed to be going from strength to strength each year. If the strategists at the helm of affairs continued focusing on enhancing stakeholder value year after year, the future would continue to be rosy for the company that sold millions of women the dream of living a 'beautiful' life.

REFERENCES

1. Initially launched in 1936, Amber Solaire was withdrawn from the market during the war period due to production hitches. It was relaunched in 1957.2. The French people were attached to the notion of having a special identity called the 'I' exception francaise', which was nurtured by French politicians. It was rooted in two beliefs: the threat from the outside world (global trade and Anglo-Saxon economics) and the role of the French state in preventing such threat. The French political system was attached to the idea of a strong French state, which could provide security to the French community and its trade. Therefore, the French state played a central role in subsidizing, managing, and directing the ways in which France's publicly owned businesses were managed, L'Oreal being a publicly traded company was easily susceptible to come under the state's influence.3. Maybelline was established in 1915 in the US by T.L. Williams. After beginning with the hugely successful mascara (a cosmetic to darken eyelashes), Maybelline expanded its product portfolio to include other cosmetics and built up a sizeable brand equity. Till 1967, it was under the control of the Williams family. It was sold to Plough Inc. (later Schering-Plough Corp.) in 1971, to Wasserstein Perella & Co. in 1990, and finally to L'Oreal in 1996.

4. L'Oreal's wholly-owned US subsidiary.5. The word spa (originally name of famous mineral springs in Spa, Belgium) refers to any place/resort that has one or more of the following facilities: therapeutic baths, massages, mineral springs, health improvement, beauty treatment, exercise, relaxation and meditation (not an exhaustive list). 6. The term 'neutraceutical' is derived by combining two words 'nutritional' and 'pharmaceutical' and refers to foods that acts as medicines. Neutraceuticals act as a source of specific food that provides essential nutrients to users.

Established in 1946 in New York, US, Estee Lauder competed with L'Oreal in the luxury segment with brands like Estee Lauder, Aramis, Cliniaje, Prescriptives, Origins, MAC, Bobbi Brown Essentials, Tommy Hilfiger, Jac, Donna Karan, Aveda, La Mer, Stila, and Jo Malone. Proctor and Gamble, the US based FMCG manufacturer, competed with L'Oreal in the mass-market segment with skincare, haircare and bodycare products. Some of P&G's well-known brands include Biactol, Camay, Cover Girl, Ellen Betrix, lnfasil, Max Factor skincare), Herbal Essences, Loving Care; Natural Instincts, Nice n' Easy, Panteen Pro-V, Rejoice, Vidal Sassoon, Wash & Go (haircare), Laura Biagiotti, Hugo Boss, and Helmut Lang (perfumes). The US based Revlon Inc also competed with L'Oreal in the mass-market segment with brands like Charlie, Colorsilk, Colorsay, Fire&lce and Skinlights. Other companies like Avon, Kose, Coty, and Siseido competed globally in the mass-market segment. L'Oreal remained the overall industry leader, as it was the only company that competed in all four segments.

The cosmetics industry has always been characterized by & intensive research and innovation by companies to introduce newer and better products. Since the 1990s, the industry has witnessed many changes in terms of the manufacture of cosmetics owing to growing awareness among consumers about the harmful effects that harsh chemicals (generally used in cosmetics) may cause to their body (skin and hair).

This was one of the reasons for the manufacture of products with natural or herbal ingredients by companies like L'Oreal and P&G. Due to the increased focus on 'wellness', the industry as a whole is now moving towards 'cosmecuticals' and 'neutraceuticals', that is products that combine the qualities of nutrients and beauty aids. Industry analysts speculate that the market for these products would rise sharply in the 21st century.

2010 Annual Results

STRONG GROWTH

IN SALES AND PROFITS

¾ 2010 sales: 19.5 billion euros

ƒ +11.6% based on reported figures

ƒ +5.6% like-for-like

¾ Operating profit: +18.6%

¾ Net earnings per share*: +17.2%

¾ Confidence in a new year of sales and profit growth

¾ Increase in dividend**: +20% at 1.80 euro

The Board of Directors of L'Oréal met on February 10

th

, 2011 under the chairmanship of Sir Lindsay OwenJones and in the presence of the Statutory Auditors. The Board closed the consolidated financial

statements and the financial statements for 2010.

Commenting on the figures, Mr Jean-Paul Agon, Chief Executive Officer of L'Oréal, said:

“In the context of an upturn in the cosmetics market, L’Oréal achieved strong sales growth. The group

advanced in all zones, all channels and all business segments; more dynamic than the market, it bolstered

its position as the world number one in beauty.

2010 was a year of conquests for the group, with several of our brands achieving spectacular

breakthroughs: L’Oréal Professionnel with its hair colourant Inoa, Maybelline in mass-market make-up,

Yves Saint Laurent which is experiencing a true renaissance, and La Roche-Posay which is continuing its

expansion.

The group is growing in Western Europe, clearly improving its positions in North America, and continuing

its conquest of the new strategic markets, particularly in Asia and Latin America. In 2010, L’Oréal China

became the group’s number three cosmetics subsidiary, with sales of more than one billion euros.

These performances confirm the relevance of the strategic thrusts adopted at the end of 2008: accessible

innovation, new product categories, accelerated globalisation of our brands, and strengthening of our R&D

and advertising & promotional investments.

2010 was also a year of strong profit growth; the actions taken over the last two years to improve operating

efficiency are continuing to pay off.

Well prepared to seize all strategic opportunities, and driven by the ambition of winning a further one billion

new consumers, L’Oréal is turning a new page in its history: the page of universalisation and beauty for

everyone.

Supported by an encouraging start to the year, we are confident in the group’s ability to achieve a new year

of sales and profit growth in 2011.”

Furthermore, the Board of Directors has decided to propose to the Annual General Meeting on April 22

nd

,

2011 the payment of a dividend of 1.80 euro per share, an increase of +20% compared with 2009.

The Board will also propose to the Annual General Meeting on April 22nd

2011 the renewal of the terms of

office of Mrs Liliane BETTENCOURT, Mrs Annette ROUX and Mr Charles-Henri FILIPPI.

At the end of the board meeting, Sir Lindsay Owen-Jones said: “With this level of growth and results, the

group produced a good performance in 2010. Thanks to their drive and imagination, Jean-Paul Agon and

his teams have succeeded in opening up new areas for growth and profitability, which are also paving the

way for the future. The proposal by the Board of Directors to pay a dividend of 1.80 euro is an expression

of our confidence in the group’s solidity and dynamism.”

* diluted net earnings per share, based on net profit excluding non-recurring items attributable to the group.

** proposed at the Annual General Meeting of April 22

nd

, 2011.www.loreal.com - Follow us on twitter @lorealpress

2/15

A – 2010 sales

Like-for-like, i.e. based on a comparable structure and identical exchange rates, the sales trend of the

L’Oréal group was +5.6%.

The net impact of changes in consolidation amounted to +0.4%.

Currency fluctuations had a positive impact of +5.6%.

Growth at constant exchange rates was +6.0%.

Based on reported figures, the group’s sales, at December 31

st

, 2010, amounted to 19.496 billion euros, an increase of +11.6%.

1) Cosmetics sales

PROFESSIONAL PRODUCTS

In a hairdressing market which picked up slightly, the Professional Products Division achieved

growth in 2010 of +4.1% like-for-like, and +13.8% based on reported figures. Its initiatives, rolled out

through a portfolio of highly complementary brands, enabled the conversion of more than 35,000

new salons. More than ever before, the division is asserting its role as the unchallenged leader in

this channel.

ƒ In 2010, the initiatives introduced in technical products brought decisive success.

In hair colourants, Inoa by L’Oréal Professionnel is a worldwide success, both in recruiting consumers

and hairdressers and winning their loyalty. Repositioned at a more accessible price per application,

SoColor by Matrix is conquering many salons in Europe, while Wonderbrown, a colourant for dark hair,

is expanding in the United States.

In textures, Optistraight by Matrix and Dulcia Advanced perm by L’Oréal Professionnel are winning

over Asia. In the West, X-Tenso Moisturist by L’Oréal Professionnel is driving the worldwide

development of “Brazilian straightening”.

Haircare is growing, supported by innovative launches: Kérastase Chronologiste, a luxury haircare line

with caviar, L’Oréal Professionnel Fiberceutic with intracylane and Colourist Solutions by Pureology.

L’Oréal Professionnel and Matrix are driving the division’s growth; Kérastase is gradually accelerating,

while Redken is strengthening its leadership in the United States.

ƒ In Western Europe, the division is winning market share, with significant growth in Germany, the United

Kingdom, Sweden and France. In North America, 2010 saw a return to growth for Matrix, and dynamic

growth for Mizani and Pureology. The acquisition of two distributors, CB Sullivan and Peel’s, has

completed the SalonCentric network.

The New Markets are dynamic, with strong growth rates in India, China, Indonesia, and also in the

Middle East and Brazil, where L’Oréal Professionnel is helping to build the professional markets of the

future by opening its first institute for the training of young hairdressers.

CONSUMER PRODUCTS

The Consumer Products Division recorded growth of +5.5% like-for-like and +11.4% based on

reported figures. It is winning market share in North America and the New Markets. The dynamism

of the make-up market, the number one category in this division, stimulated growth across all

zones. All the brands are growing, and above all Maybelline which achieved growth of +13.3% likefor-like.

ƒ L’Oréal Paris had a good year in haircare with strong growth in Latin America, the United States and

Asia. In skincare, Youth Code achieved good scores. In make-up, Volume Million Lashes mascara

proved to be a worldwide success.

Garnier is strengthening its leadership in the facial skin cleanser segment for young people with the

launch of Pure Active Exfo-Brusher. The brand is continuing its progress in the new category of

deodorants: it is consolidating the positions it has won in Latin America and in Eastern Europe, and is

moving into Western Europe.

Maybelline is growing strongly in all regions. It became the make-up market leader in the United States

thanks to the success of Falsies mascara and Instant Age Rewind The Eraser foundation. In Asia, the

tinted skincare line BB Cream is proving highly successful.

Finally, the division is making considerable progress in the men’s skincare category, particularly in

Western Europe where Men Expert is now number 1 in the market, and in Asia where the Garnier Men

launch complements the L’Oréal Paris Men Expert range.

ƒ In Western Europe, in a sluggish market, the division advanced thanks to make-up, haircare and

deodorants, particularly in the United Kingdom, Germany and Scandinavia.

In North America, in a market which was also stable, the division significantly improved its positions

with market share gains in make-up, hair colourants, haircare and styling.

The New Markets are being galvanised by powerful regional initiatives: in Brazil and Argentina, thanks

to L’Oréal Paris haircare and Garnier deodorants, and in China, India, Indonesia and the Philippines

thanks to L’Oréal Paris haircare, make-up, and L’Oréal Paris and Garnier men’s skincare. www.loreal.com - Follow us on twitter @lorealpress

4/15

LUXURY PRODUCTS

The Luxury Products Division recorded growth of +7% like-for-like and +11.5% based on reported

figures. In the context of an upturn in the selective market, the division posted sell-out growth in

line with the market trend. It thus consolidated its worldwide positions, and particularly its

leadership in Travel Retail. Its major core brands delivered good performances.

ƒ Lancôme returned to strong growth, bolstered by the success of its skincare lines, particularly

Génifique, but also by the launch of Teint Miracle foundation, the product of ten years of research,

which won the Prix d’Excellence Marie-Claire. The fragrance Trésor by Lancôme is growing strongly,

thanks to a new advertising campaign and the launch of Trésor in Love.

Yves Saint Laurent is experiencing a renaissance, with double-digit growth: the brand has had a string

of successes in fragrances - L’Homme Yves Saint Laurent, La Nuit de L’Homme, the relaunch of

Opium and the arrival of Belle d’Opium – and is making a strong comeback in make-up with the launch

of Rouge Pur Couture.

Giorgio Armani had a very good year, driven by the success of the new women’s fragrance

Acqua di Gioia, not forgetting Giorgio Armani Cosmetics, with Eyes to kill Excess mascara proving a

hit with consumers.

Lastly, Kiehl’s achieved an exceptional breakthrough in 2010 on all continents.

ƒ In Western Europe, the division is clearly number one, and sales are in line with the market trend. Its

momentum is boosted by France, Germany, the United Kingdom and the Scandinavian countries. The

good performances of the Yves Saint Laurent, Kiehl’s and Ralph Lauren brands are also worth noting.

In North America, the situation is more contrasting, yet the Yves Saint Laurent, Kiehl’s and

Viktor & Rolf brands are posting strong sales growth. Ralph Lauren showed outstanding performance

with The Big Pony Collection.

In the New Markets, the division is growing faster than the market: in Asia, thanks to the dynamism of

Travel Retail, China, and the good performances of Lancôme, Kiehl’s, Giorgio Armani and

Shu Uemura; and in Eastern Europe, where the division is continuing to make conquests.

ACTIVE COSMETICS

The annual sales of the Active Cosmetics Division grew by +4.7% like-for-like and +8.9% based on

reported figures. All the brands and all the zones achieved growth. Across the world, the division

confirmed its position as number one in dermocosmetics.

ƒ La Roche-Posay achieved double-digit growth, thanks in particular to Redermic[+], and is winning

market share everywhere.

Vichy saw the success of the LiftActiv franchise confirmed in the anti-ageing market on all continents,

and particularly in China. Launched at the end of the year in Western Europe, NutriExtra bodycare has

been very well received. This initiative is enabling the brand to reinforce its position in bodycare, which

is a very strategic segment for pharmacies.

Thanks to a dynamic last quarter in hair products, Innéov strengthened its leadership in Western

Europe and achieved a spectacular breakthrough in Brazil.

SkinCeuticals recorded very strong growth, thanks to its roll-out in European markets, and the opening

up of China, Canada and Brazil.

The integration of Roger & Gallet into the division is extremely encouraging, and internationalisation

has begun in Western Europe and Brazil.

ƒ All the zones ended the year with positive growth, and this was particularly clear in Western Europe.

The division is accelerating in the New Markets. Latin America produced a good performance, thanks

in particular to Brazil.www.loreal.com - Follow us on twitter @lorealpress

5/15

Multi-division summary by geographic zone

WESTERN EUROPE

ƒ With performances of +1.7% like-for-like, and +2.6% based on reported figures, the group’s growth was

very slightly faster than the market trend, particularly in the United Kingdom, Germany, Sweden and

France, and in Travel Retail. All divisions recorded positive growth.

NORTH AMERICA

ƒ 2010 brought significant growth, far exceeding the market growth trend, at +4.1% like-for-like and

+12.5% based on reported figures. The Consumer Products Division produced a very strong

performance, thanks in particular to the excellent results of Maybelline. The Luxury Products Division

continued the recovery which began at the end of 2009. The Professional Products Division had a very

good year thanks to the success of Inoa.

NEW MARKETS

With growth of +11.3% like-for-like, and +22.4% based on reported figures, the group is growing twice as

fast as the market. The main driving forces are Asia and Latin America.

ƒ Asia, Pacific: Over the full year, the group recorded +11.2% growth in this zone like-for-like, +22.9%

based on reported figures, and +13.2% excluding Japan, like-for-like. The group is continuing to win

market share, particularly in India, the Philippines, Indonesia, and also in South Korea and Taiwan.

With another year of double-digit growth, L’Oréal China, driven by the dynamism of its Men’s lines,

make-up, and haircare initiatives, continued to win market share, and exceeded the 1 billion euros of

sales mark, thus becoming the group’s number three cosmetics subsidiary.

ƒ Eastern Europe: Growth remains sustained, at +8.1% like-for-like and +15.3% based on reported

figures, despite the highly contrasting market situations in different countries. Ukraine and Russia are

the most dynamic countries, particularly thanks to make-up, Garnier, and the continuing advances of

the Luxury Products Division.

ƒ Latin America: Sales advanced by +17.5% like-for-like and +32.6% based on reported figures. All the

major countries in this zone are growing, particularly Brazil and Argentina. Mexico has returned to

growth. The Consumer Products Division is the driving force of this expansion, through haircare and

deodorants.

ƒ Africa, Middle East: Sales grew by +4.1% like-for-like and +13.8% based on reported figures, with

contrasting trends. While the situation remains difficult in South Africa and Turkey, Lebanon and

Morocco recorded strong growth.

The Body Shop sales

The Body Shop ended the year with like-for-like growth at –1.1%. Retail sales

are at -2.6%. The Body

Shop had a year of contrasting performances, with trends differing between the developed countries and

the New Markets.

2010 was a year of transition for The Body Shop, which completed its strategic reorganisation.

The brand is stepping up its militant approach to innovation, with launches including Natrulift, a firming

skincare line with organic pomegranate, Dreams Unlimited, a fragrance with Community Fair Trade

Ecuadorean alcohol and also Rainforest, an eco-conscious haircare range.

Above all, The Body Shop is accelerating its expansion into the New Markets, particularly in Eastern

Europe, Asia, and India where the brand has doubled the number of its stores. The brand has also

extended its distribution into new channels, such as the Internet and Travel Retail, to increase its reach and

its visibility.

Lastly, the actions taken on the operational front continue to deliver: The Body Shop is steadily improving

its profitability.

At the end of 2010, The Body Shop has a total of 2,605 stores.

Retail sales: total sales to consumers through all channels, including franchisees. www.loreal.com - Follow us on twitter @lorealpress

6/15

Galderma sales

Galderma achieved record sales, with a like-for-like increase of +16.1% and +23.0% based on reported

figures, re-enforcing its position as a worldwide leader in dermatology. The company recorded double-digit

growth in all regions across the world.

Sell-out is growing twice as fast as the market.

Strategic prescription brands Epiduo (acne), Oracea (rosacea), Clobex (scalp psoriasis), Metvix (skin

cancer), Rozex/Metro (rosacea) and Loceryl (onychomycosis) have all shown excellent results. Galderma

also significantly expanded its presence in the corrective and aesthetic dermatology segment. The

company continued to successfully launch Azzalure (a botulinum toxin type A developed for use in

aesthetic medicine) in several European countries and broadened its product portfolio with the pre-launch

of Emervel, a hyaluronic acid dermal filler range.

B – Important events during the period 10/01/10 - 12/31/10

ƒ On December 10

th

2010, the group’s subsidiary L'Oréal USA, acquired, via its SalonCentric division,

the salon distribution business of Peel's Salon Services, a Nebraska-based company which operates in

12 central states of the U.S. With this new acquisition, L’Oréal USA’s SalonCentric division is extending

its distribution, which now covers the vast majority of U.S. territory.

ƒ On December 13

th

2010, the pharmaceutical company Galderma, a 50:50 joint venture between

L'Oréal and Nestlé, announced the launch of a bid for the Swedish company Q-Med, which specialises

in corrective and aesthetic dermatology. This acquisition should enable Galderma to accelerate its

development in the highly dynamic segment of corrective and aesthetic dermatology. After receiving

the support of 77.79% of Q-Med shareholders, Galderma has indicated today, February 10

th

, in a statement, that its offer has been extended by 15 days and increased to SEK 79 per share.

Cash flow Statement, Balance sheet and Debt

Gross cash flow amounted to 3,171 million euros, up by +15% compared with 2009.

There was a very positive change in the working capital requirement, which decreased in 2010, for the

second consecutive year, by 132 million euros.

Capital expenditure continued to be contained, at 3.5% of sales.

After dividend payment and purchases of investments, and allowing for the exercise of options, the residual

cash flow comes out at 1,891 billion euros.

The balance sheet, whose structure was already robust, has been strengthened, with shareholders’ equity

representing 62% of total assets.

Net financial debt amounted to 41 million euros, representing 0.3% of shareholders’ equity.

Proposed dividend at the Annual General Meeting on April 22

nd

, 2011

The Board of Directors has decided to propose that the Annual General Meeting of Shareholders of April

22

nd

, 2011 should approve a dividend of 1.80 euro per share, an increase of +20% compared with the

dividend paid in 2010. This dividend will be paid on May 4

th

, 2011 (ex-dividend date April 29

th

at 0:00 am).

Share capital

Finally, the Board of Directors has set the amount of the share capital at December 31

st

, 2010: 600,992,585 shares with a par value of 0.20 euro, representing a total of 120,198,517 euros.

Conclusion

Based on our work, no material misstatement came to our attention that would cause us to believe that the social data selected and published on the Group Sustainable Development report has not been prepared in accordance with the Group's reporting procedures.

Neuilly-sur-Seine, June 4, 2010

Statutory Auditor PricewaterhouseCoopers Audit

Etienne Boris Sylvain Lambert, Sustainable Development Practice

L’Oréal India

The L’Oréal Group cares about more than making women beautiful. Vishal Sahgal, industrial director of the Pune manufacturing facility, talks to Jayne Alverca about the importance of promoting sustainable development.

 

Few consumer brands are better known than those of the L’Oréal Group. The portfolio of 23 global brands including household names such as Maybelline, Garnier and Biotherm, as well as the L’Oréal Paris brand itself, are all at the forefront of their market, whether it be for cosmetics, skin care, fragrance or hair care.  

Headquartered in Paris, L’Oréal has over a hundred years’ experience in bringing out the best in women of all ages and races. Today, the group has a presence in 130 countries and its 65,000 employees were behind sales of €17.5 billion last year.

L’Oréal’s presence in India dates back to 1994. “L’Oréal has a strong belief in the value of manufacturing close to its markets,” explains Vishal Sahgal, industrial director of the company’s Pune manufacturing facility.

However, India did not begin a programme of liberalisation for foreign companies until the early 1990s, so at first, manufacturing was

undertaken by a sub-contractor. “In 1998 we were finally able to move into direct production, driven by the belief that no one has more expertise than L’Oréal in the manufacture of the products that we are famous for,” he adds.  

Sales of L’Oréal products in India have been meteoric. “We not only give products that are better in terms of quality and safety, we have also been instrumental in creating new markets. For example, hair colouration was revolutionised by L’Oréal when we introduced fashion shades which women had never been used before. Our Colour Naturals brand is very accessible, costing close to €2, and it offers an international quality standard that was never available before. Similarly, we introduced Indian consumers to conditioners for the first time and they have quickly taken over from traditional hair oils,” he comments.

Since 2004, manufacturing for hair care, hair colour and skin care lines for L’Oréal’s Consumer Products division and Professional Products division has taken place at Pune. “We need to attract and retain the best talent in order to grow; and our first location was simply too remote,” Sahgal explains. “Pune is where all our operations are now based and we have up to 600 people working for us at any one time.”

Sahgal explains that promoting sustainable development is a fundamental tenet within all plants and distribution centres that operate under L’Oreal’s umbrella. Environmental sustainability and corporate social responsibility (CSR) are the twin pillars that support this broader aim. Even within the vigorous framework that all L’Oréal manufacturing centres operate, Sahgal believes that the achievements ofthe manufacturing facility at Pune are something special. “Our Pune factory stands out within the group for its environmental achievements,” he asserts. “The state government of Maharashtra where we are based awarded the Pune factory first prize in the Excellence in Energy Management category in 2009 for its various energy conservation projects.”

Within the L’Oréal Group, the Pune site has won a number of accolades. “We won the internal award for the best environmental project in 2007 for a project that involved using 320 solar cells, rather than expensive diesel oil, to heat water for washing in our processes. Two years latter, we again picked up first prize for a project that uses vermin culture to convert chemical sludge into useful fertiliser. This led to the proportion of waste being recovered from the site to increase from 95 per cent to 99 per cent,” he says.

At corporate level, the company’s Indian headquarters in Mumbai has achieved a rare synergy between its core business, which is beauty and good citizenship. A project aptly named ‘Beautiful Beginnings’, which is implemented  together with the French NGO Aide et Action, aims to help girls from marginalised communities who were unable to complete their normal education to train as beauty therapists and achieve financial independence. “It is expensive and quite complex to organise so it is done centrally, but at present ‘Beautiful Beginnings’is operating in Mumbai, Pune and Hyderabad and it represents wonderful opportunity for the girls involved,” he says.

L’Oréal also believes that the world needs science and science needs women. The L’Oréal India For Young Women in Science scholarships programme, with the support of the Indian National Commission for Cooperation with UNESCO, has helped young women passionate about science to achieve their dreams and aspirations of pursuing a career in science. Established in 2003, it reaches out to deserving female students from Maharashtra and scholarships worth Rs.250,000 each are given to five young girls to pursue graduate studies in any scientific field. Thirty-five scholarships have been awarded to date.

The Pune factory itself has recently picked up another prize, this time the internal Citizen of the World Award, for its approach to good citizenship within the community where it is based. “We do not like one-off donations and look for long term projects which will have a long term impact in the communities around Pune, where many of our staff come from,” he explains.

“‘Project Care’, which won us the first prize, is an integrated project that looks at safety, health and hygiene, the environment and child education, which we deal with in turn on a quarterly basis with the aim of raising standards and improving the local quality of life. We rely on a mix of professional trainers and our own employees from these villages who feel a huge pride in our work and whose voice is sometimes more acceptable to local communities than outsiders.”

The project is ongoing and includes facets such as free medical check-ups for the elderly and a scheme to support schools with redundant laboratory and IT equipment that still has relevance in the classroom. The company is also involved in a partnership that will provide two new classrooms to a local school—at present the children have to study outside.

On the procurement side, L’Oréal extends its values by insisting on a very specific vetting process. “Suppliers must pass our stringent quality requirements and also a Safety and Social Audit. We use external consultants like Intertech who will monitor for unacceptable practices such as child labour, ensure that minimum wages are paid and that there is no requirement for excessive working hours. The government has labour laws, but not all companies comply. We only want to work with those that do.”  

Meanwhile, Sahgal believes that the factory’s steady expansion creates a virtuous cycle in the local economy, as at least 50 per cent of staff are recruited from surrounding villages. “Last year we grew our capacity by 30 per cent and there is still enormous scope for L’Oréal in India. It is very important that as we grow, we give something back to the society that has contributed to our success,” he concludes. www.loreal.co.in

Since the company was founded in 1907 by the chemist Eugne Schueller, scientific research has always been the heart of the L'Oréal Group's strategy.The performance, safety and quality of our products rely on this continuous search for innovative scientific advances.

More than 3% of the Group's turnover is invested in R & D every year and over the past ten years, L'Oréal's research budget has increased fourfold. In 2002, this equated to 469 million euros. Research centres in France, Japan and the United States employ over 2,800 staff working in 30 different specialist fields such as chemistry, biology and toxicology.

Unusually for the industry, L'Oréal is one of the few companies able to carry out all stages of research and development, starting with advanced research into hair and skin. The Group focuses its work on the following three sectors:

Advanced Research aims to prepare for the future by concentrating on innovations for the next ten years. Through advanced research, L'Oréal aims to understand the fundamental mechanisms that govern skin and hair, for example hair loss and pigmentation. Advanced Research is also responsible for the creation of new molecules upon which the development of new products depends.

Applied Research prepares for the medium term. On the basis of synthesised molecules produced by the Applied Research teams or proposed by external suppliers, the Applied Research teams improve cosmetic products and study new concepts. More than 3,000 new formulas are created each year.

Development deals with the short term. Working in close partnership with the marketing teams, the development laboratories design products on the basis of innovations proposed by the Applied Research branch.Significant research achievements of recent years include skin models, Ceramide R and sun filters. In the 1980s, L'Oréal scientists succeeded in

reconstructing skin through cell engineering. Today these skin models are routinely used for biological research and for evaluating the safety and efficacy of products.Ceramide R is a synthetic ceramide, which repairs the cuticle of damaged hair, strengthening it and making the hair shine. Discovered in 1989, it first appeared in a L'Oréal Elvive shampoo in 1995. The first photostable UVA and UVB filter, Mexoryl XL has been incorporated in all the L'Oréal Group's sun protection products in the UK since 1999.

Eugne Schueller, the chemist who founded L'Oréal in 1907, was the inventor of the world's first synthetic hair colorants.

3% of the L'Oréal Group's consolidated sales is invested in R&D every year. In 2002, this equated to 469 million euros.

55% of L'Oréal research staff are women. In the last three years, L'Oréal has registered more than 1,400

patents, including 501 in 2002. More than 120 new molecules have been patented and used by

L'Oréal over the last 40 years.

Conclusion

• L’ORÉAL is the world market leader in cosmetics

• They are very innovative and invest a lot of money in

research and development

• Products are positioned in the high-priced segment because

of their high quality

• They offer well coordinated products for different target

groups

• To keep their strength alive they have to observe their competitors

Recommendations

Observation of the market

• Competition analysis

• Using competitive intelligence to achieve strategically

competitive advantages

• Early market entry

• Growing competition

to ensure the long-term economic success at the market