L'Oréal - History, Evolution, Present and the Future

A comprehensive background of L'Oréal containing its History and Origins, Early Evolution, Modern Business, Global Expansion, Company Structure, Recent Efforts and Company DNA. As one of the chapters of the book FMCG: The Power of Fast-Moving Consumer Goods by authors Greg Thain and John Bradley. For more details on their success story and that of other leading FMCG companies, check www.fmcgbook.com or Amazon http://amzn.to/1jRyd20.

1. History & Origin . . . . . . . . . . . . . . . . . . . 3 Early Evolution . . . . . . . . . . . . . . . . . . . . 5 Modern Business . . . . . . . . . . . . . . . . . . 8 Global Expansion . . . . . . . . . . . . . . . . 13 Company Structure . . . . . . . . . . . . . . 17 Recent Efforts . . . . . . . . . . . . . . . . . . . .19 Company DNA . . . . . . . . . . . . . . . . . . 30 Summary . . . . . . . . . . . . . . . . . . . . . . . .32 Social Media Accounts . . . . . . . . . . . .33 2

2. L’Oréal is the world's leading company in cosmetics and  beauty care products Originally named as Société Francaise des Teintures Inoffensives pour Cheveux (literally translated French Society for Inoffensive Tinctures of Hair ) and was founded in 1909 at Clichy, France by Eugène Schueller L’Oréal‘s founder Eugène Schueller entered the Institute for Applied Chemistry in Paris and became an instructor at the Sorbonne He w orked as a chemist at Pharmacie Centrale de France and later became the head of their research laboratory and chemical services In 1905, he was visited by a hairdresser who was anxious to pay someone 50 Francs a month to find a safe and reliable hair dye This is when Eugène’s life, and the future global cosmetics industry, changed. In 1907, he launched his new hair dye under the brand name Auréole 3

3. To publicise his ventures, he contributed articles to a magazine called Coiffure de Paris. While Eugène had been giving the German army the treatment he later doled out to his competitors, the management of L’Oréal was in the hands of his wife. L’Oréal did very well. The formula for success was already very well established, and top scientists were coming up with products, which offered breakthrough performances at affordable prices. In 1919, he bought out the Lumière film production company He also dabbled in companies making Bakelite, cellulose acetate and artificial silk Revenues ran at 300,000 francs a month In 1954, he managed to run a soap company, a paint factory and a magazine alongside L’Oreal 4

4. L’Oréal employed three (3) chemists in 1920 In 1925, L’Oréal came up with its first real blockbuster product, L’Oréal d’Or, a hair dye that added golden highlights which made dyed blonde hair seem natural Business boomed because of a sea of change in women’s hairstyles. Hollywood star-inspired craze for the bob and frequent dying was bad for hair It immediately set the business to work on devising a ground-breaking bleach In 1929, L’Oréal Blanc, the hair bleach was launched The rise of the perm was another threat. Perms did not accept hair dyes that did not penetrate the hair They f iled a patent for paradiamines which formed the basis of fast-penetrating hair colours , Imédia , a perm-friendly dye 5

5. Company revenues in the year exceeded a million francs a month In 1934, Dop , the first mass market shampoo was launched, marking the start of making its science available at affordable prices to as wide as a market as possible During the same year, Ambre Solaire , the sun protection oil was developed and launched With 300 employed salesmen, L’Oreal was by far the country’s most successful hair and skin-care company A French politician, André Bettencourt joined the business in 1938 and François Dalle in 1941 In 1942, they developed a mixing tower that embodied a new saponification process which became the industry standard, improving the manufacture of soap In 1951, the company had more than 100 chemists 6

6. During the same year, the first lightening tin, Imélda D was produced. In 1954, the company expanded its research capabilities in skin care. They s igned a technical agreements with Vichy, owned by a cosmetologist Georges Guerin. They used the Vichy Thermal Spa Water to treat a skin wound while staying at the famous spa Subsequently developed a range of skin products all containing the magic elixir In 1955, the first coloring shampoo, Colorette , was introduced In 1957, Eugène Schuller passed away and François Dalle was the next in line as the new boss. 7

7. In 1957, hair products were launched onto the consumer market This took the science to a new level, thus, the establishment of a Fundamental Research Unit Focused on developing a greater understanding of how skin and hair actually function Focused on hair and skin care products and sold off the soap business The firm worked on enhancement of any hair and skin care brands with the use of research capabilities in basic skin and hair physiology and function In 1964, Lancôme became the first major acquisition This took the company into the upscale perfume and make-up sectors The Kérastase brand was also launched, a cross between a hair treatment and a spa experience 8

8. In 1965, Laboratoires Garnier was acquired, a manufacturer of hair care products made with organic ingredients In 1970, ano ther brand, Biotherm , was acquired. During the same year, L’Oreal was already employing 500 scientists and had just acquired the mass-market Gemey brand of makeup In 1973, a majority stake was taken in the pharmaceutical company, Synthélabo In 1979, the company bought the pharma company, Metabio-Joullie , and substantial strakes in both Marie Claire and Interedi -Cosmopolitan By 1980, the merging of Synthélabo and Metabio-Joullie took place Gesparal , a new French holding company, was formed owned 51% by Liliane and 49% by Nestlé. I t provided L’Oréal a strong defense against hostile takeover 9

9. For Nestlé, it was an excellent investment into a category that was growing faster and had higher profit margins than most of their core businesses The idea of the business with Nestlé is that it protect the company from the short-term demands of the stock market The partnership enabled them to take a longer-term perspective to business strategy Cacharel was also invested in. T his was where the Parfums et Beauté International expertise was applied to The perfume arm of Cacharel and Anaïs Anaïs was taken control of Designed to be the first perfume bought by or for teenage girls In 1981, a new state-of-the-art dermatological research facility, Laboratoires Dermatalogiques Galderma , was opened 10

10. Another tangible benefit from their Nestlé shareholder, a 50:50 joint venture between the two companies For the Ambre Solaire brand, the company patented an ultra-powerful, anti-UVA ingredient, Mexoril SX It kept abreast of the changing nature of the sun cream market - away from bronzing to protection The company was convinced it could revive Helena Rubinstein while benefiting from its attractive stable of brands The brand, along with Estée Lauder, was one of the Grande Dames who dominated the early cosmetics industry The US arm of Helena Rubinstein’s company grossed $22 million a year By 1972, the company was sold out to Colgate-Palmolive for $146 million 11

11. In 1983, Helena Rubinstein Inc.’s Japanese and South American business units were bought By 1984, 45% of the main business had been purchased Come 1986, the high-end Lancôme launched the market’s first anti-ageing cream, Niosôme In 1988, the company gained full control of the brand and business they had long coveted (Helena Rubinstein Inc.) and L’Oréal became the largest cosmetics company in the world It was making a profit of over a billion francs a year It made Madame Liliane , the largest individual shareholder, the richest woman in France. In 1988, a 42-year-old, Welsh-born L’Oréal lifer, Lindsay Owen-Jones became the company’s third CEO. Owen-Jones’ governance would make Liliane the richest woman in the world. 12

12. In 1912, L’Oreal started selling their products in Holland, Italy and Austria In 1922, they opened an agency in Berlin but failed to prosper From 1936-1937, company subsidiaries were established in Italy, Belgium, Denmark, UK, Algeria and Argentina In 1953 , using a complex ownership arrangement, Cosmair was established as t he sole US licensee for L’Oréal products Most of the action was in mainstream cosmetics (market that grew at 10% a year throughout the 1950s and 1960s) It was h andled by Jacques Corrèze (slowly began to gain distribution for a select few L’Oréal products ) By the mid 1970’s, they were busy gaining foothold in Uruguay, Peru, Algeria, Mexico, Canada, Japan, Australia, New Zealand and Hong Kong 13

13. By 1976, a joint venture was set up: L’Oreal with the Soviet chemical company, Mosbytchim , to gain a toehold into the Soviet Union The company was generating an annual turnover of about $350 million By 1984, Cosmair doubled its size and acquired Warner Cosmetics from Warner Communications , with the help of Nestle In 1985, Biotherm was launched into the US market to add further impetus In 1989, Plénitude was launched with a $35 million advertising blitz The success of Giorgio Armani men’s fragrance, Helena Rubinstein’s brand gave Cosmair another step change in the size of its US and global operation In 1990, L’Oréal ranked second only to Unilever due to the acquisition of Armani and Ralph Lauren brand franchises 14

14. The year after, L’Oréal w as turning over $1 billion in sales They were also d ubbed as the sixth largest marketer of cosmetics in the United States It h ad 3,600 employees in a company laboratory located in Clark, New Jersey In 1994, L’Oréal became the first foreign company to obtain authorization from the Indian government to establish a 100% owned subsidiary By 1996, the company had acquired the mass-market makeup giant, Maybelline. This propelled L’Oréal into the number two slot in US cosmetics, behind Proctor & Gamble They distributed the product as a range of low-priced makeup aimed at teenagers 15

15. Come 1997, L’Oréal China was formed as part of a multi-divisional Asian zone structure By 1998, Maybelline brand was launched to spearhead their charge in China. Soft Sheen, leader in ethnic hair care, was also acquired in the US By 2000, Carson was acquired, a leading beauty products business, aimed at the African American sector L’Oréal transformed its position with the acquisition of the sector’s leading brand, Matrix Essentials, followed by Kiehl’s In 2001, L’Oréal acquired a 35% share of the Japanese firm, Shu Uemura Cosmetics, Inc. Redken was acquired in 2003 Cosmair was purchased by L’Oréal to be a 100% owned subsidiary which Nestlé has 70%; Liliane Bettencourt 26% and L'Oréal only 4 %. 16

16. L’Oréal has had such a consistent strategy over time that has resulted in very little internal disruption due to re- organisations . The McKinsey recommended divisional structure from 1969 was tweaked in 1985 when Parfum’s et Beauté division became unwieldy By 2004, the structure re-arranged as follows: Professional Products - Key brands: L’Oréal Professional; Redken ; Matrix, distributed through hair salons Consumer Products - Key brands: L’Oréal Paris; Garnier ; Maybelline; SoftSheen -Carson, distributed through mass-market channels, including hypermarkets, supermarkets and drug stores Luxury Products – Key brands: Lancôme; Biotherm ; Helena Rubinstein; Giorgio Armani; Ralph Lauren; Cacharel ; Kiehl’s since 1851; Shu Uemura Active Cosmetics – Key brands: Vichy; La Roche-Posey, distributed through pharmacies and dermatologists 17

17. L’Oréal a cquired Body Shop which was set up as the fifth division. In 2009, Kérastase had been added to Professional Products; Yves Saint Laurent and Diesel to Luxury Products and Innéov and Skinceuticals were added to Active Cosmetics The Gasparal Holding Company, which had been set up to facilitate the selling of family shares to Nestlé, was merged with L’Oréal to create a more normalized shareholding arrangement Nestlé’s 49% stake in Gasparal became a 26.4% direct holding in L’Oréal , with Liliane Bettencourt, taking 27.5% 18

18. 1995 L’Oréal reached an annual turnover of over 8 billion Euros Sales were significantly boosted by the 1990 launch of Lancôme’s Trésor , the world’s best-selling perfume 1996 Garnier Fructus was launched, offering a range of affordable hair products Acqua di Gio , the world’s best-selling men’s fragrance, was likewise launched Merger between their 57%-owned Synthélabo pharma unit and Elf Aquitaine’s Sanofi 2001 L’Oréal sold its stakes in Lanvin and Marie Claire L’Oréal bought Revlon’s Colorama make-up brand   19

19. 2003 L’Oréal announced its 19 th consecutive year of double-digit growth in operating profits Sales reached14.5 billion euros 2004 3.6 % sales increase, primarily driven by a sluggish European market which accounted for half the company’s sales Launch of L’Oréal’s ReFinish , Kérastase’s Réflection and Innéov Hair Mass G rowth on the Professional Products (up 7.6% like-for-like) and Active Cosmetics (up 165% like-for-like ). Shift in consumer spending patterns between price bands L’Oréal opened stores for Lancôme and Biotherm 20

20. U.S . Growth was still building sales (up 8.1% like-for-like to break the $4 billion barrier) and share in the largest cosmetics market in the world Sales in Asia grew 17% (Sales in China almost doubled through organic growth), while in Eastern Europe by 29% (Vichy, up 37% in Eastern Europe, and had become Russia’s leading skincare brand and was launched in India in the year) 2005 T he sales increase almost doubled to 6.5% Sales in North America, grew by 8.3% after launching Garnier Fructus The first year in which two significant shifts in the business crossed key thresholds: No longer a Western European-dominated company and no longer a haircare -dominated company   21

21. R&D labs continued to fuel product innovation with 2,900 researchers. Invested 496 million euros, registering a staggering 529 patents (70 of them on packaging developments) Put increased emphasis on men: In 1990, 4% of European men used a skincare product and will increased to 20% by 2003. In Japan, 30% of men under 30 were skincare users and over 80% in South Korea Vichy had been ahead of the game Launched Basic Homme in 1986 L’Oréal Men Expert was launched into mass-market channels Shu Uemura brand was launched on the US West Coast Matrix was expanding from America into markets such as Brazil , India, China and Eastern Europe 22

22. 2006 Fourth L’Oréal CEO: Jean-Paul Agon announced some tweaks to their strategy Invested on a new product, Age Recharge by Kérastase , with a budget of 533 million euros. The product contains Pro- Xylane , a revolutionary anti-ageing compound for mature skin made using green technology which was being sold on Seniors/older people Lancôme, Vichy and La Roche- Posay , all launched products containing Pro- Xylane Acquiring the Body Shop during the year, marked a new direction They opened its first store in India and began online shopping in Germany Signed license with Diesel 23

23. In the Active Cosmetics division, L’Oréal acquired Sanflore The global market share increased from 15% to 15.6 % 2007 Sales increased by over 8% to over 17 billion euros Every division grew like-for-like by at least 7.5% Business segment perfumes and skincare both grew by double digits Both Western Europe and North America grew a respectable 4% Signed an agreement with Light BioScience US Professional Products division was strengthened with three acquisitions: Luxury haircare brand, PureOlogy , and two regional salon distributors, Beauty Alliance and Maly’s West The Body Shop delivered a healthy 5.7% like-for-like growth Russia delivered the highest absolute sales growth of any country 24

24. Brazil and China were already top five world markets for cosmetics L’Oréal increased its focus on what it called the “Next 12” countries Sales went up in Argentina by 37 %, Columbia 27%, Czech Republic, Dubai, Indonesia by 21%, Philippines and Poland 16%, South Africa and Thailand 22%, Turkey, Ukraine (already the third-largest Eastern European subsidiary, after only three years in existence) and Vietnam, where a subsidiary was established . 2008 Advertising and promotional spends were maintained Third-largest advertiser in the world Increased share of voice Research and development budget was increased by nearly 4% Increased the department employee count by 6 % 25

25. Selling , and general and administrative costs came down as part of a policy of “permanent restructuring” Acquired the following: Yves Saint Laurent Beauté, Boucheron , Stella McCartney, Zegna , Roger & Gallet and Oscar de la Renta Strengthened its American route to market and had acquired Columbia Beauty Supply, a third salon distributor 2009 A sales decline of 0.4%, given a heavy influence by retail inventory reduction on a massive scale The Body Shop held steady Dermatology JV grew by over 10% Action was taken in the poorly performing regions and sectors Lower-priced Garnier Essentials range priced at under 5 euros helped the brand grow 26

26. Luxury Products division introduced small format perfume bottles and entry-level-priced skincare products Kiehl’s was promoted to pillar brand status Total sales growth, up by 28% Yves Saint Laurent brand grew by 17% in the US Notable year for making official that it’s primary goal was to reorient the company decisively towards developing and emerging markets The company set the goal of recruiting an extra billion consumers Two new strategic changes to facilitate this shift: Further ramping up of R&D capabilities and investment Transformation of company culture and structures A new product was developed, the Innovative Renewal Lash Serum   27

27. 2010 Sales were up a very impressive 11.6% to just under 20 billion euros Global retail monitoring calculated theirs at $24 billion Efficiency measures had driven the operating profit margin in New Markets up to 16.9% Consolidated its three Asian research centres into a new Asian division of R&D Increase the focus on products relevant for Asian skin and hair needs Professional Products grew by 4%, having added 35,000 salons Luxury Products growing by 7% due to the growth of Génifique , Kiehl’s , Yves Saint Laurent and Lancôme Maybelline was spearheading the drive exemplified by Falsies Mascara and became the best-selling mascara in North America and Western Europe 28

28. First factory in Russia opened its doors, to service the countries of the old Soviet Union Essie nail care brand was purchased by the North American unit   2011 Sales breached the $20 billion E uros mark Sales in New Markets came within 20 million euros Luxury products grew by 7.7% Best-performance of the cosmetics divisions Lancôme Visionnaire became the first ever-fundamental skin corrector on the market Acquired Clarisonic , the market leader in sonic skincare technology The Body Shop finally showed like-for-like growth just over 4% with around 16 online stores 29

29. Competitors can easily predict what the company will do, but it is extremely difficult to pre-empt them, copy them or stop them from doing it Built a unique business model with a well-entrenched company culture Their superior research function has enabled them to grow and develop virtually every brand they have acquired Commitment to the centrality of core research into skin and hair has been passionate, prolonged and ongoing By focusing their research into skin and hair, rather than any specific production technologies, their research has always been solution neutral L’Oréal is unbeatable at their business 30

30. Two factors combined for longer timescales : Consistency of management Has had just four CEO’s in a century Keeping it in the family – both personal and corporate – became a key part of the company’s future success Consistency of ownership 150 years of L’Oréal service 31

31. The combination of the following has led to consistent success over a long period of time Scientific Capabilities Acquisition Strategy Regional Expansion Nestlé buying L’Oréal outright would be deciding factor in 2014 Restrictions on either Nestlé or the Bettencourt family selling to outside parties are lifted 32

32. Website: www.loreal.com/default.aspx   LinkedIn: www.linkedin.com/company/loreal   Facebook: www.facebook.com/beautyforallbyloreal   Twitter: twitter.com/ LOrealParisUSA   Instagram : instagram.com/ beautyforallbyloreal   Youtube : www.youtube.com/user/lorealparisnyc   Google+: plus.google.com/u/0/110853080416846743402/about   Pinterest : www.pinterest.com/lorealparisfr /   33