L'Oreal Eats Into P&G's China Lead With Mushroom Lotions
Comment of the Day

March 22 2013

Commentary by Eoin Treacy

L'Oreal Eats Into P&G's China Lead With Mushroom Lotions

This article from Bloomberg may be of interest to subscribers. Here is a section
The maker of labels from Lancome to Biotherm has been narrowing the gap with P&G in China's beauty and personal-care industry. L'Oreal's share of the market rose to 11 percent in 2011 from 9 percent in 2008, according to the most recent data available from Euromonitor.

P&G, which banks on home staples such as Olay and Gillette, lost 1.6 percentage points to 15.8 percent in 2011. L'Oreal is already ahead in skin-care, with a 15 percent share in 2012 compared with less than 10 percent for P&G.

The companies are fighting for shoppers like 24-year-old Shanghai advertising executive Corina Su, who has an extensive daily beauty regimen. As part of a determined battle against acne, she spent $169 on a Clarisonic electric face brush made by L'Oreal. Her morning routine includes a herbal gel cleanser, cucumber toner and avocado eye cream.

“Chinese people place a huge emphasis on beauty and skin care as they are especially afraid of aging,” Su said.

Eoin Treacy's view Cosmetics represent a major global demand growth story as the ranks of those in the disposable income bracket swell. As with many products associated with the middle classes, once consumers adopt the practice of using cosmetics, they become part of one's everyday routine and we are unlikely to give them up.

Developing products to suit cultural idiosyncrasies, such as tanning treatments in the West and whitening treatments in the East has been a successful strategy of cosmetics companies and also helps to build brand loyalty. Poor air quality in a number of developing countries where the number of people with disposable income is increasing may also act to spur demand for skin creams.

US listed Proctor & Gamble can probably best be described as a highly diversified global consumer goods company. Beauty and grooming represents its second largest business unit behind household goods. The share broke out of a five-year range in January and has been consolidating above $75 since.

The Americas represent Estee Lauder's largest individual market but its ex-USA revenues are its fastest growing. The share broke out of an 11-year base in 2010, consolidated above the range for much of the year and has held a progression of higher major reaction lows since.

Colgate Palmolive is internationally diversified and concentrates on personal products including toothpaste, shampoo deodorants and soap but also dishwasher liquids and laundry products. These two categories are not separated on its financial statement on Bloomberg so it is not possible to ascertain how much is generated from each. The share was among the first companies to break out of its base and found support at the upper side of underlying trading range in 2008. It has held a progression of higher major reaction lows since and found support two weeks ago in the region of $110 which represented the first area of potential support. A sustained move below that level would be required to question the consistency of the overall uptrend. (Also see Comment of the Day on March 7th).

France listed L'Oreal is the world's largest cosmetics company and Asia represents its fastest growing segment. The share broke out of a 12-year base in early September and continues to hold a progression of higher reaction lows.

Germany listed Beiersdorf generates almost half its revenue from outside Europe. The share has held a progression of higher reaction lows for more than a year but has accelerated somewhat of late and is increasingly susceptible to mean reversion.

Personal care accounts for approximately a third of UK and Netherlands listed Unilever's revenue. The UK listing completed a decade long range in 2007 and the Pound's weakness has flattered the performance over the last few months. The share is becoming increasingly overextended and is susceptible to mean reversion. However a clear downward dynamic would be required to check momentum. The Dutch listing is also breaking upwards but is not as overextended.

Japan listed Shiseido generates 45% of its revenue from outside Japan. The share found support in the region of ¥1000 from October and ranged mostly above the 200-day MA from early January until last week when it broke upwards once more. A sustained move below ¥1200 would be required to question medium-term upside potential. When redenominated to US Dollars, the share is bouncing from a retest of its lows.


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