M a r k e t N e w s

Africa To Be A Major Market To Help Achieve the 2 Billion Target

Posted on : Monday, 29th December 2014

 The company aims to add 1 billion new customers by 2020, so as to double its existing user base. The majority of the growth is expected to come from emerging nations like Asia, Africa, and Latin America. We believe Africa will play a pivotal role in L’Oreal’s expansion plan. The Middle East and Africa segment is the fastest growing geographical segment for L’Oreal (approximately 15% year on year). In 2013, L’Oreal’s revenues grew by 2.3% to €23 billion (~$30.5 billion) out of which 2.4% came from this region.

In this article, which is the first part of a two-part thought piece, we explain why Africa is strategically important to L’Oreal’s portfolio, and what have been L’Oreal’s achievements in the region, so far. In our next article (coming shortly), we will be describing what are L’Oreal’s further plans for development in Africa.
We have a $37 price estimate for L’Oreal, which is at 12% premium to the current market price.
See Our Complete Analysis for L’Oreal Here
Factors Driving The African Beauty Segment Growth Potential
Seven out of ten fastest growing economies are from the African continent. African markets like Ghana and Rwanda have outpaced the growth rate of the Asian tigers in five of the past seven years.
In 2012, the African economy was sizes at €1.5 trillion, with a population that is forecast to be 1.2 billion by 2017. Looking out further, Africa is expected to account for over 40% of the world’s population by 2030, of which 60% will be aged under 25 years. This implies that Africa will have a relatively young population and hence there will be a greater demand for beauty and personal care products.
The middle class population (L’Oreal’s major clientele in Africa) of Sub-Saharan Africa is 300 million strong, comprising of 34% of its total population. The number is estimated to reach 1 billion by 2060 (source: African Development Bank).
The value of the African beauty and cosmetics care market was estimated to be around €7 billion in 2012 and is expected to grow at an annual rate of 8%-10%. Comparatively, the global beauty industry growth rate is around 4%. The Sub-Saharan beauty market size is expected to reach €10 billion in 2017.
Africa’s initiatives towards loosening trade restrictions and creating trade blocs resulted in 16 to 17 Sub-Saharan African countries, being featured on the list of 50 countries with biggest improvements, in World Bank’s 2013 Ease of Doing Business report. Hence, doing business in Africa is becoming easier for multinational companies such as L’Oreal.
L’Oreal’s Africa Journey So Far
L’Oreal is strategically expanding its presence in Africa with a focus on countries like Kenya, Egypt, South Africa, and Nigeria. In 2013, L’Oreal had three branch openings in Nigeria, Kenya, and Ghana, and a new plant opening in Egypt. L’Oreal’s presence spread to Egypt, Nigeria, Morocco, Ghana, Ethiopia, and Tanzania, over the last five years . It is building its presence in Uganda currently. There is great potential for growth in these countries as cosmetics consumption is still 10 to 20 times lower than the developed countries. L’Oreal underlined its growing focus on the region by creating a new position – Head of the Africa Middle East zone – in 2013.
L’Oreal already commanded a dominant position in Africa’s haircare segment with its brand, Dark and Lovely. It acquired the local skin care leader Interconsumer products in April 2013, to establish dominance in the skin care segment as well. The acquisition is strategically important because of several reasons: L’Oreal’s access to an R&D center already dedicated to Sub-Saharan beauty requirements would strengthen its future product development initiatives catering to this region. L’Oreal’s market penetration will be enhanced with ICP’s manufacturing plant in Kenya and a distribution network in growing East African economies. Finally, the acquisition expanded L’Oreal’s portfolio of offerings to these emerging geographies.
In Africa, L’Oreal focuses on pocket-friendly brands like Garnier and L’Oreal Paris. It also concentrates on products customized for African needs, like SoftSheen-Carson and Mizani. L’Oreal Paris, Maybelline and Mixa, are some of the other L’Oreal brands, present in Africa.
 

Source : www.forbes.com
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