Case Study - LÓreal
Case Study - LÓreal
Case Study - LÓreal
L’Oréal beauty products: using financial data to explore the strategy dynamics of
an industry
How does the world market leader, L’Oréal, compare with its rivals? How has the company built its beauty products
business? What strategies are likely to prove successful in the cosmetics and fragrances business?
This case provides some answers: importantly, all the data is
available from publicly available resources – Company Annual
Reports, the World Wide Web and library-based surveys. For
reasons of space, the case focuses on one part of L’Oréal and
then one section within this part. In a more complete strategic
analysis, it would be essential to explore every part of the
company.
SoftSheen Carson and Maybelline. The next two tables are taken
from the web version of the annual report and accounts. They
show sales by geographic zone and sales by business segment
within the Consumer Products Division – see Tables 5.6 and 5.7.
Readers will see that some of the numbers appear to be
Figure 5.4 L’Oréal: share of sales by product group 2004 inconsistent. For example, the sales appear to have declined
Source: company accounts with graphic prepared by author. between 2002 and 2003 whereas the web table claims that sales
actually grew by 7.7 per cent on a like-for-like basis. We have
that the profit margin is higher in Western Europe than else- to trust the accountants here – they will give the actual sales
where. Moreover, Western Europe is the biggest contributor figures for 2002 and 2003. But in recording like-for-like com-
to sales and the most profitable part of the business. We can parisons, they will have adjusted for other events – for example,
also examine data at the other two companies: not shown perhaps a product was discontinued or a subsidiary sold during
here for reasons of space. This shows that L’Oréal derives more the year and therefore removed from the accounting data.
of its sales from Western Europe than its two rivals, suggesting L’Oréal Consumer Products Division was very satisfied with
either that Western Europe is a more profitable market in itself a +7.7 per cent sales growth, which it described as substantial.
or that L’Oréal’s dominant position in Western Europe is par-
ticularly important in delivering profits. For reasons of space,
this is not explored further here. But it is directly related to the Table 5.6 L’Oréal: Consumer Products Division sales by
dynamics of the cosmetics market and the three companies geographic zone
competing worldwide. Sales in € millions
It would also be useful to examine in more depth which
Sales Sales % of Like-for-like
products have the highest product margins. The starting point
2002 2003 2003 sales growth
is to examine the contribution that each product group makes sales 2003/02 (%)
to the overall sales of L’Oréal – see Figure 5.4 and Table 5.5.
Although the company accounts show the various products Western Europe 3,837 3,991 53.2 5.3*
in L’Oréal’s range, they do not show which products are the North America 2,319 2,080 27.7 6.7*
most profitable. Nevertheless, the annual report does give
some further data on each product group. For our purposes, Rest of world 1,445 1,434 19.1 16.4*
we will focus on the largest group – consumer products. Total 7,601 7,505 100.0 7.7*
Source: Retrieved from Lynch, R. (2015). Strategic management. Pearson. 7th edition (page 163).
ADDITIONAL INFORMATION:
3) It describes some of the actions carried out by L'Oréal, within its Corporate
Social Responsibility.
5) Taking into account the information from the case study as historical context,
where we can see the comparison of L'Oréal with two competitors (Estée Lauder
and Shiseido), what strategies do you think L'Oréal has followed to achieve
this growth? You can find support on the Three 'S' Framework for your answer
(sensing the changes in the environment; seizing the opportunities that such
changes present; and surveying the outcomes of such changes).
You must submit your response to the proposed questions, individually or in groups
(maximum 3 students attending the interactive session; you must add your names in
the first page). In case of not attending the interactive session (Wednesday, Oct 20th),
you must submit the case individually.