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L'Oreal: High-end skin care

L'Oreal: High-end skin care:

L’Oreal is all set to expand its portfolio in India by rolling out Kiehl’s, a 159-year-old brand. Kiehl’s has been a part of L’Oreal since 2000 and is present in 39 countries worldwide.

In India, the brand will take off at the Ambience Mall in New Delhi. Subsequently, L’Oreal plans to take the brand to other cities like Mumbai, Bangalore, Pune, Chennai and Kolkata.

In India, the strategy is to establish the brand through standalone stores, unlike the West where Kiehl’s is also present in shop-in-shop formats in upscale departmental stores. L’Oreal has partnered with Quest Retail which will help the company identify retail locations and recruit staff.

“Online retail is not on the agenda for now, as we want consumers to visit our store and experience the brand first-hand,” says L’Oreal Group Chief Operating Officer Dinesh Dayal.

Kiehl’s will sell grooming lines for both men and women — cosmetics for the face, body and hair. “Initially, we will stick to our core product portfolio. We will not display our extended range like pet products (dog shampoo etc) as we believe the market is too early for that,” says Dayal.

With households raising discretionary purchases such as personal products from 8 per cent in 2005 to 11 per cent in 2025 (says a McKinsey report), ignoring this market would be a missed opportunity.

In addition, with rapid growth in average annual household incomes, the demand for luxury products is rising at a fast clip. The brand’s primary target will be individuals who have bought these products overseas. Thus the price tags in India are similar to Europe. “We also see the new working woman as a target group, who now has the wealth and desire for self-indulgence and opulence,” says Dayal.

The immediate target audience might seem like low-hanging fruit which can be easily captured, but Kiehl’s has ample company in the luxury skincare space. There are brands like Lancome from L’Oreal’s existing portfolio. Then there are multitude of others like Estee Lauder, Chanel, Shiseido, Clarins and the nature-driven L’Occitane and Body Shop that vie for consumer attention.

However, the competition does not intimidate Dayal who believes the premium skincare market, though small, is witnessing double-digit growth, and there will be an opportunity for brands to co-exist. Kotak Institutional Securities Analyst (consumer division) Manoj Menon sees the entry of premium brands as an investment towards the future. “The premium skincare market has grown in other countries like Thailand, Singapore, China and brands are hoping that the same will happen in India.”

As far as differentiation goes, the company says it will capitalise on retail engagements to stand out in the marketplace. Dayal believes that Indian consumers are today seeking a personalised retail experience, and distributing free samples and offering in-store consultation are unique ways that the brand will connect with the customer.

“Our entire brand draws inspiration from natural ingredients, and our beauty guides are equipped to educate consumers about our products,” claims Dayal. “In fact, the brand team flew down from New York and Singapore to train the staff at the Delhi store.”

To generate awareness for the brand in India, L’Oreal will not invest in above-the-line campaigns. “Following Kiehl’s global policy, we will focus on word-of-mouth marketing to build a loyal base of customers which includes achievers in different walks of life like dermatologists, fashion designers, artists and musicians.”

The brand will also pursue the digital route to build a community around the Kiehl’s brand. It is preparing to release a micro-site and a Facebook page soon.

The future of FMCG

The future of FMCG:

Fast moving consumer goods will become a Rs 400,000-crore industry by 2020. A Booz & Company study finds out the trends that will shape its future

Consider this. The anti-ageing skincare category grew five times between 2007 and 2008. It’s today the fastest-growing segment in the skincare market. Olay, Procter & Gamble’s premium anti-ageing skincare brand, captured 20 per cent of the market within a year of its launch in 2007 and today dominates it with 37 per cent share. Who could have thought of ready acceptance for anti-ageing creams and lotions some ten years ago? For that matter, who could have thought Indian consumers would take oral hygiene so seriously? Mouth-rinsing seems to be picking up as a habit — mouthwash penetration is growing at 35 per cent a year. More so, who could have thought rural consumers would fall for shampoos? Rural penetration of shampoos increased to 46 per cent last year, way up from 16 per cent in 2001.

Consumption patterns have evolved rapidly in the last five to ten years. The consumer is trading up to experience the new or what he hasn’t. He’s looking for products with better functionality, quality, value, and so on. What he ‘needs’ is fast getting replaced with what he ‘wants’. A new report by Booz & Company for the Confederation of Indian Industry (CII), called FMCG Roadmap to 2020: The Game Changers, spells out the key growth drivers for the Indian fast moving consumer goods (FMCG) industry in the past ten years and identifies the big trends and factors that will impact its future.

The report estimates the FMCG sector witnessed robust year-on-year growth of approximately 11 per cent in the last decade, almost tripling in size from Rs 47,000 crore in 2000-01 to Rs 130,000 crore now (it accounts for 2.2 per cent of the country’s GDP). Growth was even faster in the past five years — almost 17 per cent annually since 2005. It identifies robust GDP growth, opening up of rural markets, increased income in rural areas, growing urbanisation along with evolving consumer lifestyles and buying behaviours as the key drivers of this growth.

The report further estimates that the FMCG industry will grow at least 12 per cent annually to become Rs 400,000 crore in size by 2020. Additionally, if some of the factors play out favourably, say, GDP grows a little faster, the government removes bottlenecks such as the goods and services tax (GST), infrastructure investments pick up, there is more efficient spending on government subsidy and so on, growth can be significantly higher. It could be as high as 17 per cent, leading to an overall industry size of Rs 620,000 crore by 2020.

Based on research on industry evolutions in other markets and discussions with industry experts and practitioners, Booz & Company has identified some important trends that will change the face of the industry over the next ten years. Some key ones related to evolution of consumer segments are as follows:

Accelerating ‘premiumisation’

he rising income of Indian consumers has accelerated the trend towards ‘premiumisation’ or up-trading. The trend can be observed prominently in the top two income groups — the rich with annual income exceeding Rs 10 lakh, and the upper middle class with annual income ranging between Rs 5 lakh and Rs 10 lakh. The reports says, the rich are willing to spend on premium products for their ‘emotional value’ and ‘exclusive feel’, and their behaviour is close to consumers in developed economies.

Evolving categories

Categories are evolving at a brisk pace in the market for the middle and lower-income segments. With their rising economic status, these consumers are shifting from need- to want-based products. For instance, consumers have moved from toothpowders to toothpastes and are now also demanding mouthwash within the same category.

The trend towards mass-customisation of products will intensify with FMCG players profiling the buyer by age, region, personal attributes, ethnic background and professional choices. Micro-segmentation will amplify the need for highly customised market research so as to capture the specific needs of the consumer segment targeted, before the actual product design phase gets underway.

Value at the bottom

Booz defines the bottom-of-the-pyramid or BoP consumers as those who earn less than Rs 2 lakh per annum per household. The group constitutes about 900 to 950 million people. While the middle class segment is largely urban, already well-served and competitive, the BoP markets are largely rural, poorly-served and uncompetitive. A lot of the basic needs of BoP consumers are yet unmet: Financial services, mobile phones & communication, housing, water, electricity and basic healthcare. And so there is untapped opportunity.