L’Oreal says sticking real close to consumers is the key to the India game

'Pyar karne wale, pyar karte hai shaan se... ' The Asha Bhonsle song from Shaan pierces through the glass windows of Vismay Sharma’s office at Peninsula Tower in Lower Parel, Mumbai.

An annoyed colleague sympathises, saying the blaring music from the Ganesh festivities down the road must be disrupting work, but the director of the consumer products division of L’Oreal India begs to differ. “It’s fantastic, isn’t it? I love it. That’s what my consumers are. You have to stay close to your consumers always.”

Sharma is echoing the sentiment the Indian unit of Parisian beauty giant L’Oreal SA has adopted in the recent years: Listen to the Indian consumers carefully, create accessible packs and prices, and make products more suited to them.

Over the next decade, the Indian unit expects to have at least 150 million consumers from 25-30 million now through innovations in pack sizes, relevant products and increased distribution.

Of the one billion new consumers L’Oreal is eyeing worldwide, a huge number will come from emerging markets such as India and China.

The group has already announced its sixth global research and innovation centre in Mumbai to focus on creating products specific to Indian needs. The centre which will start functioning this year will be headed by Mohamed Kanji, vice-president, research and development at L’Oreal US.

The company is also doubling capacity at its Pune plant this year. There may be also be a need for an additional research and innovation centre and a facility in the country in future, Sharma says.

All this to ensure that India figures in its top five markets for L’Oreal globally. Currently, India does not even figure in top 10 markets, he says.

When the company started operations in India in 1991, it brought in the best products available with L’Oreal internationally. “Then we realised we needed to adapt to local needs, and have been adapting our products to India for the longest time now,” Sharma says.

In the recent years, innovations like shampoo with oil, hair colours, men’s skincare range, skin lightening creams, modern format of hair oil and serums, all under the Garneir brand, have been launches specific to India, which have now been taken to other Asian markets like China, Indonesia, Thailand and Malaysia.

Then came in efforts to make its aspirational brands affordable to the mass-segment with skin creams in Rs25 tubes, and shampoos in sachets priced at Rs1.50 for consumers who have limited access to running water. In a first of its kind instance that sector analysts remember, the company has also effected price cuts in its skin lightening creams recently, further challenging the competition in the category where Hindustan Unilever and Procter & Gamble (P&G) are already battling.

“India is growing in all directions. Our pyramid is becoming a diamond,” says Sharma, who has been with the company for 18 years and visits at least 3-4 consumer homes a month — a practice even the country manager Jacques Challes follows — to get an insight into consumers needs. Everytime L’Oreal India officials travel to across India, they spend at least half a day talking to the consumer in different cities.

Thus, the company would, over the next three years, identify gaps in its portfolio and launch newer products and variants.

“We are creating smaller packs to go deeper in India for consumers who want high quality product but do not have as much money to spend. At the same time, for consumers who want more expensive products, we are creating bigger sizes.”

Stock-keeping units of 400 ml and 700 ml in shampoos have been launched specifically for modern trade, where consumers like picking up large packs.

Since 2009, the company has more than doubled distribution reach - from 250,000 outlets to 600,000. The ambition is to reach a million outlets in 3-4 years. “Four years ago if I had gone to one million outlets, I did not have products that I could sell. And I didn’t have consumers who would be able to afford L’Oreal products. As we are creating more products to satisfy their needs, we are also creating distribution to reach them,” he says.

At over Rs1,000 crore turnover now, the company wants to sustain a 30% topline growth over the next decade. “Today, 80% of business for the company comes from the consumer products division, 18% from professional business division and the remaining from luxury products division that has brands like Lancome, Yves Saint Laurent and Armani,” he says.

L’Oreal globally spends over €600 million each year on research and development, and this, Sharma thinks, will give Indian consumers confidence enough to pick the company’s brands from store shelves.

The company is betting on youth population that is aspirational and willing to spend on looking good. And in line with that strategy, it is actively promoting hair care products under the new premium brand, L’Oreal Paris.

Though the company does not divulge the advertising and promotions (A&P) spend ratio to turnover, analysts suggest it is as high as 30-35% of sales, which is putting a pressure on company’s profitability.

Despite burdened by higher raw materials, transportation and packaging costs, in some cases as high as 40%, the company is not passing on costs to the consumers. It is doing so to gain consumers and muscle competitors like Hindustan Unilever and P&G in categories like hair and skin care.

“We are absorbing all the increase in costs at the moment. Over the years, we want to have 4-5 times the number of consumers we have today, go deeper on distribution. Consequence of this should be our market share, which should put us in the leadership position in the next 10 years,” he says.

Already a leader in the professional products channel through salons and pharmacies and in the premium hair colour market, L’Oreal is the number two player in skin care market through its Garnier range.

Its market share in hair and skin care is a little less than 10%, as per research firm The Nielsen Company estimates and the size of the company is not more than 20% of Hindustan Unilever’s personal products business. Yet analysts suggest, Hindustan Unilever, the largest skin care and shampoo player should be more worried of competition from players like L’Oreal than P&G alone.