The BCG matrix aims to help corporation analyze their business units by identifying high-growth prospects according to growth rate and market share.
I. L'Oréal Consumer Product – Cash cow (High relative market share, Low future growth) Cash cow is one of the four segments of the BCG growth-share matrix which represents the division that has a large market share in slow-growing industry or in mature market.
L'Oréal Consumer product which products are distributed in mass-market retail channels is the highest SBUs in term of operational sales among the other divisions belong to L'Oréal.
Figure 14: Sale of operational divisions
As announced on financial report for 2015 and the first half 2016, Consumer Products Division is accelerating. The sale growth is rising in all zones, with strong expansion for in North America and new markets (China and India). In addition, consumer product division is successful in strengthening its leadership in taking up the initiatives in make-up. In 2015, Maybelline was voted for number 1 makeup brand in America, has regained its strong momentum. Thanks to making acquisition of NYX profession makeup, the power of makeup consumer products division of L'Oréal has been
increasing significantly. Besides that, haircare section caught more attention, based on innovation and successful digital strategy, it would lead to help L'Oréal Paris roll out its powerful and get achievement in China, successfully expand into German and Spain market. All in all, Consumer products has outperformed its market and become the huge income generation for L'Oréal.
Regarding market growth rate for consumer products SBU, it is rather pity to know the market is slow-growing, or in other words, it is mature market. This is because cosmetic for consumer products is vast industry with intense competition (strong competitors and new entrants). That means there will be have a large number of suppliers, excessive suppliers with competitive prices and promotion or discount strategy. However, the demand of customers does not grow because the desire of them seems not to appear in consumer products more.
The standard of living is higher and higher, people, women in particular, mainly care more about themselves. They fancy to seek some quality products instead. The second sign of mature market is disruptive innovation. Investing in new innovation may too costly and time-wasting, because sometimes it is not paid-off.
In conclusion, due to high market share, well performance in mature or slow-growing market, L'Oréal consumer product division is considered as Cash-cow.
II. L'Oréal Luxe – Star (High relative market share, high future growth) Figure 15: Sale breakdown
L'Oréal Luxe (“Luxe” for short) is the second highest SBU in term of sales contribution with figure of 29% (only after Consumer Cosmetics SBU being 47%) in both 2015 and 9 months of 2016. It demonstrates Luxe has been doing good job for the Group.
Luxe reveals an upward trend in all geographic areas, especially dominates Western Europe market. In 2015, Luxe gained significant market share in five main countries: Italy, Spain, Germany, France and the U.K. Lancôme, Yves Saint Laurent, Giorgio Armani women’s fragrances has proved their success when they were in Top 10 best seller brands.
Figure 16: Sale and growth
As for growth rate, Luxe sees a fluctuation in growth rate of sales during the past 6 years.
The highest rate is 16.7% in 2015 thanks to dynamism of make-up and fragrances, as well as e-commerce. Also fluctuating, the general trend is going up through years. The best brand with highest growth rate in this luxury division was Yves Saint Laurent of +18.4%.
In general, Luxe is expected to continue very high future growth at about 15% in the next year.
III. The body shop - Dogs (Low growth, Low market share)
In this quadrant, the Body Shop was considered Dog due to its low market share and growing slowly in the beauty market. The Body shop, which also known as green cosmetics since they’re using natural ingredients is L’Oréal’s weakest business and generate lowest sales compare to other brand divisions, struggling to keep up with other divisions revenue.
Beside that The Body Shop do less advertisement unlike the other brand divisions which
recruit famous stars to advertise the products which make customer unaware of Body Shop product lines. Before they only produce body lotions, creams but then as they start to making new way to increase their sales then they start to sell makeup and hiring beauty consultants to help customers with their complexion problems.
The worst things if The Body Shop won’t see any further improvement for their sales, in Dog quadrants divestment strategy was used. Instead the money they in this quadrant can be used in cash cow or star.
IV. L'Oréal Active Cosmetic – Question (low market share, high future growth)
L'Oréal Group active cosmetics division of the relative growth rate of 7.8%, thus becoming the group's market leader. Skin cosmetics are recommended by health professionals (doctors, dermatologists, cosmetologists and pharmacists) for specific skin care needs because their ingredients are safe and effective. These cosmetics are distributed in traditional medical channels such as pharmacies, over-the-counter pharmacies, pharmacies, clinics or medical spas (Medi-Spas). The Active Cosmetic Division's mission is to help everyone improve the quality and health of their skin, whether or not they are affected by sensitive skin or dermatological conditions in all health care channels around the world:
pharmacies, beauty and health retailers, pharmacies and medium.
Table 4: Consolidated sales by geographic zone
The dermo-cosmetics market represents 4.4% of the global beauty market and valued at about 7.6 billion euros. However, L'Oréal Active Cosmetics division’s sales is more than 1.5-1.8 billion euros, equal to 20-23% of the whole market. As we can see in this table, consolidated sales of Active Cosmetics Division are significantly increasing over years. By more than 100 million Euros increase in sales every year and 10% growth rate, L’Oréal’s Active Cosmetics Products are selling leader is France, Germany, Brazil, Italy, China. With 6 brands in over 60 countries, 2 factories and many partnerships, Active Cosmetics Division really is a potential income maker as all Zones are contributing to growth. In the New Markets, the Asia, Pacific, Latin America and Africa, Middle East Zones have all recorded rapid growth. Western Europe accelerated in the second half.
V. L'Oréal Professional Products – Question (low market share, high future growth) The Professional Products Division allocates its products in shops worldwide. Through its vast array of brands, the division can meet the needs of different hair care salons and hair care needs.
L'Oréal Professional has a significant presence among L’Oréal’s SBUs in terms of sales, contributing with 13% of it. They generate relevant amount of cash sales although the market it is inserted has a slow future growth potential. Due to the most advanced innovations in hair care products and services, the Professional Products Division has been increasingly growing, especially on sales of hair color. Also, professional skincare has been increasing due to the fact the more people are looking for alternatives to keep one’s appearance fresher.
L’Oréal takes advantage of its know-how in R&D and capability of developing new products to attend the highest standards of quality and expertise from beauty salon professionals all over the world and has kept its investments on the Professional Products Division leading us to believe that it is a segment with great potential if well worked.
VI. L’Oréal Synergy
L’Oréal has been increasing its investments on L’Oréal Active Cosmetic and Professional Products SBU’s through the last years. Focused on increasing its presence on these potential markets where its market shares still low compared to L’Oréal Consumer Product and L’Oréal Luxe.
The company has invested in developing new products bringing innovation to its consumers and has increased the number of channels where they are distributed, including online sales.
Although, L’Oréal doesn't have the best outcome on these segments, they have significantly increased through the years, due to the increase of consumers concerns about aging, beauty and consuming safe products.
Chapter 9