The Rising Influence of Rising Affluence

[DewDiligence]

Emerging Markets Boost L’Oréal Profit

http://online.wsj.com/article/SB10001424052748704132204576136383959549642.html

›FEBRUARY 10, 2011, 4:23 P.M. ET
By CHRISTINA PASSARIELLO

PARIS—Millions of new customers from countries like China, India and Brazil helped propel French cosmetics giant L'Oréal SA's profit 25% higher last year, underscoring the importance of new markets for consumer-goods groups.

The company "succeeded in opening up new areas for growth and profitability, which are also paving the way for the future," said L'Oréal Chairman Sir Lindsay Owen-Jones, who is stepping down next month. L'Oréal aims to gain one billion new consumers by 2020, double its current clientele.

L'Oréal, home to iconic brands such as Maybelline and Lancôme, said net profit came to €2.24 billion ($3.08 billion) last year, up from €1.79 billion in 2009. Sales in 2010 jumped 12% to €19.5 billion.

In a sign of the importance of new frontiers, sales in China surpassed €1 billion last year, making it the third-largest market for L'Oréal after the U.S. and France. Sales in Asia increased 23%, while sales in Latin America were up 33%.

American and European consumer-goods companies such as L'Oréal, Procter & Gamble Co. and Nestlé SA are increasingly looking to Asia and Latin America for the bulk of their growth—a phenomenon that increased with the consumer-spending slump in the U.S. and Europe during the economic downturn.

That shift has fundamentally changed how companies do business, from the conception to the packaging and advertising of products. For instance, L'Oréal developed a men's skin-care line in India, which it has now rolled out to other countries.

Yet consumer spending has recovered even in countries hit hard by the economic crisis. L'Oréal's sales in the U.S. and Canada grew 13%, driven in part by a weaker euro. In Western Europe, sales increased 2.6%.

The outlook, however, is souring for L'Oréal and its competitors. Rising commodity costs are putting pressure on margins, and analysts question how able companies are to pass along the increase to consumers.

L'Oréal's expectations for this year are conservative: it says only that sales and profit should grow in 2011, contrasting with bullish double-digit targets in recent years.‹