“We have devoted this year to preparing for the future with three major strategic changes: the broadening of the consumer base with the target of winning a billion new consumers, a thorough transformation of the company to make it stronger and more flexible, a determined increase of investments in R&D and advertising & promotion to accelerate growth,” said Jean-Paul Agon, L’Oreal CEO.
Agon went into more detail about the strategy in a financial information presentation, given in Paris on Tuesday in front of both shareholders and press.
Broadening consumer base
Referring to the first pillar of the strategy – the broadening of the consumer base – Agon said that the recent economic crisis has bought into focus the importance of following this particular approach.
“Excessive value-adding can lead to the creation of niche products that do not drive sales growth, so to counter this end the strategy to broaden the consumer base will see the company concentrate on accessible innovation,” he said.
Agon explained that the cosmetics market is driven by innovation, while accessibility will prove important because it will help to boost both sales volume and value to consumers.
“Following this strategy we are looking for the ‘right price’ – the price consumers are willing to pay for the right product, although this is in no way a synonym for low price” he said.
Agon referred to several premium products – including the G énifique fragrance by Lancome, which sells for €78 and saw 2 million units sold in 2008 – that have proved to be highly popular, despite higher price tags.
Another important part of this strategy will see the company going back into niche and smaller categories that the company has not been focused on in recent years.
Meanwhile Agon said that expanding geographically, has already been a focus in the course of the past year , evinced by the company’s move into the Latin American and Eastern European markets for deodorants, which he said had proved to be an outstanding success.
Changing the way the business operates and functions
The second part of the strategy will be less visible, but will ultimately see big differences in the way the business is run and ultimately aims to create a more efficient business.
“We also began fundamental changes to the way the company operates in 2009, changes that have been focused on streamlining, focusing, simplifying and making the business more efficient,” said Agon.
These measures have resulted in the continued industrial re-engineering of the business in every area, including the closure of inefficient production facilities, centralization of purchasing processes, better utilization of equipment and major advances in productivity.
“All of these measures have enabled us to improve our productivity by 10 basis points, despite slight drops in production volume,” said Agon.
Agon also referred to the tighter rein the company has begun to take on costs, which has been achieved through a freeze on hiring, reducing the travel budget by almost half and by carrying out restructuring wherever needed.”
Increasing expense in R&D and P&A
Implementation of the third part of the strategy was also begun during the course of 2009, as the company started to actively increase R&D investment by 4 per cent in R&D during the course of the year, which Agon said would also form a part of the company’s future investment strategy.
“We will continue to increase investment in R&D at least in line with sales growth as we are convinced that it contributes invaluably to the innovation efficacy, quality and safety of our products that will enable us to stand out from our competitors,” Agon said.
Increased expense will also be made in promotions and advertising (P&A), in an effort to support sales growth for the company’s brands and products.
“The fact that we have increased our P&A expense in 2009, combined with the fact that the price of advertising has fallen has meant that we have managed to increase our advertising voice on every continent,” said Agon.
“In 2010 we intend to maintain a high level of investment in P&A, at the same time as undertaking an in depth analysis of our operations in this area to ensure that every euro generates maximum additional growth.”
Stressing that the foundations of the new strategy has largely been laid during the course of 2009, Agon said that the company is already showing signs of getting off to a good start in the first quarter, which should lead to ‘a handsome growth rate’ and set the pattern for 2010.
“To reach the extra billion consumers over the best ten years, our goals will be to consolidate modest but lasting growth in the Europe and North America, as well as establishing strong and sustainable growth in the new markets,” Agon said.