2021 was another record year for L'Oréal. According to the financial report, as of December 31, 2021, L'Oréal Group's sales reached 32.28 billion euros, an increase of 15.3% year-on-year, and operating profit reached a record 6.16 billion euros, an increase of 18.3% year-on-year, continuing to consolidate its position as the world's number one beauty brand.
Cosmetics as an imported product, the brand discourse power has long been in the hands of international cosmetics groups, domestic cosmetics faucets are far less than international brands in terms of product market share and revenue scale, and the sum of the revenue of domestic head cosmetics companies is less than half of L'Oréal's profits.
Is there a chance for China to give birth to a new L'Oréal? As a large consumer of cosmetics second only to the United States, with the domestic cosmetics industry maintaining a high degree of prosperity and the advent of the era of national tide, who is most likely to become "China's L'Oréal"?
This article will analyze the industry trends and industrial chain layer by layer, and excavate the core elements that have become the "next L'Oréal", to assess which domestic enterprises are more likely to catch up with top foreign brands and become industry leaders in the domestic and even world markets.
1, the whole industry chain of cosmetics disassembly: who is the most profitable?
2. The secret of L'Oréal's success
3. Benchmark L'Oréal, the core ability of domestic cosmetics players is dismantled
1. Dismantling of the whole industry chain of cosmetics: the profit margin of the midstream brand is the highest
The cosmetics industry chain can be disassembled into upstream raw materials and production ends, midstream brand ends, downstream agent channel ends and end consumers.
Upstream raw materials and production ends are greatly affected by the price fluctuations of raw materials and packaging materials, and the production foundry enterprises are sandwiched between raw material manufacturers and brand owners, and the upstream and downstream bargaining power is low, the gross profit margin is 10%-30%, and the net profit margin is 2%-10%.
Midstream brand enterprises control pricing power, the highest profit level in the industrial chain, gross profit margin is mostly in the range of 60%-80%, but brand owners need to spend great efforts on marketing to maintain brand recognition, sales costs are higher, and net profit margins are mostly between 5% and 15%.
The profit margin of downstream channel providers will be different according to the category and brand, the more prominent the brand of cognition and loyalty, the weaker the channel profit discourse, the lower the profit margin, and the gross profit of most of the enterprises in this link is between 15% and 50%, and the net profit margin is between 5% and 10%.
Among the 14 A-share listed cosmetics companies, the midstream brand owners with the highest profit margin account for half, 4 downstream operators, and 3 upstream raw materials and foundries. The following will focus on the analysis of the four listed companies with higher revenue scale among the brand owners: Bethany, Bloomage Bio, Polaria, and Shanghai Jahwa.
2. The secret of L'Oréal's success: brand, R&D and marketing work together
2.1 Buy Buy Buy Build Brand Matrix "Moat"
Founded in 1909, L'Oréal gained international influence with the hair dye formula invented by young chemist Eugène Schuller. In 1963, L'Oréal landed on the Paris Stock Exchange, and after obtaining capital replenishment, the group began to make mergers and acquisitions. So far, L'Oréal Group has formed a huge brand matrix of four major business units and dozens of sub-brands.
The acquisition enriches L'Oréal's product matrix, from high-end to the public, from basic skin care to efficacy skin care, covering people with different needs in different circles in an all-round way, and also helping L'Oréal to tide over the crisis again and again.
The 2008 financial crisis led to a sharp decline in consumer spending in developed countries and a decline in high-end cosmetics consumption, but L'Oréal's mass beauty business has borne consumer demand for affordable beauty, and although the high-end beauty business has declined significantly after the financial crisis, the steady growth of Volkswagen's beauty business has helped L'Oréal successfully survive the crisis. The group's financial report shows that in 2008, the group's revenue still maintained positive growth, and the revenue in 2009 was basically flat in 2008.
Since 2020, due to the impact of the new crown epidemic, global beauty consumer demand has declined, but functional skin care has risen against the trend. L'Oréal's active skincare business based on the Brands of Skin Spring, Xiulike and Vichy has grown rapidly, and the revenue growth rate has not decreased but has risen, and in 2021, L'Oréal's active health beauty division revenue reached 3.92 billion euros, an increase of 30.3% year-on-year, which is the fastest growing department among the four major divisions, making up for some of the losses suffered by the Group in the epidemic.
The acquisition also helps L'Oréal to quickly roll out channels when entering a new market. In 2003, L'Oréal quickly entered the Chinese mass cosmetics market with the help of its 280,000 offline outlets through the acquisition of Little Nurse.
Multi-product, strong channels to L'Oréal has brought sustained revenue growth, scale effect and brought continuous growth of profits, with this set of play L'Oréal rapid rise.
2.2 Successful digital transformation after the crisis
L'Oréal has also encountered crises in its development.
From 2012 to 2014, L'Oréal's revenue growth rate continued to decline, and in 2014, there was even negative growth, a year-on-year decline of -2.94%. Revenue growth in the Asia-Pacific market, an important strategic market, also fell to single digits, and continued to decline from 2013 to 2016, and the market share of beauty and personal care in China also declined.
Comparative research will find that in the past few years when L'Oréal's growth has stagnated, it is the rise of cosmetics domestic brands, domestic brands rely on online channels such as e-commerce to rise rapidly, and L'Oréal's e-commerce revenue channels accounted for only 3.6% in 2014. In the context of the rapid increase in e-commerce penetration in China, L'Oréal' market share in China, which relies on traditional offline supermarkets, has been eroded.
Aware of the crisis, L'Oréal embarked on a vast digital overhaul.
On March 18, 2014, L'Oréal officially appointed Lubomira Rochet, 36, as Chief Digital Officer to carry out a digital strategy centered on e-commerce, data technology and user operations.
Vigorously laying out e-commerce channels has become the first stop of L'Oréal's digital transformation. According to the financial report data, the proportion of L'Oréal's e-commerce revenue increased rapidly from 3.58% in 2014 to 28.9% in 2021.
China has become the main battlefield of L'Oréal's digital transformation, taking the L'Oréal sub-brand in Paris as an example, in 2021, e-commerce will contribute 80% of China's revenue. L'Oréal's DIRECT-to-Consumer model, which is based on the official website, Taoshi and JD.com e-commerce, fully understands consumer needs and quickly adjusts marketing plans through first-hand data, thereby increasing overall product sales.
As the Internet dividend fades, how to establish special relationships with consumers and develop new products and services has become the focus of the second phase of L'Oréal's digital reform.
L'Oréal is one of the first companies to explore the live streaming mode, the company actively embraces social media such as Douyin and Xiaohongshu, and also attaches great importance to the refined operation of "private domain traffic", mass brands carry out online follow-up services through the community, high-end brands are guided to the offline counter experience, and the stickiness of fans is enhanced through a series of follow-up refined services, fully mining fan value, and improving product conversion and repurchase rate.
Thanks to the success of its digital transformation, L'Oréal is back to the throne, achieving a significant increase in performance in 2021, with revenue growth rates setting a record high in 33 years.
2.3 Strong R&D continues to improve product strength
In fact, digitalization is only the tip of the iceberg of L'Oréal's success, and the brand accumulated over the years and the product strength brought by strong research and development are the cornerstone of L'Oréal's standing for a hundred years.
According to the Ping An Securities report, L'Oréal's R&D expenditure in 2020 was nearly 1.2 billion US dollars, and the number of global R&D personnel was as high as 4,000, both of which were much higher than the other two world-class beauty giants. From the perspective of R&D expense ratio, L'Oréal Group's expense ratio has remained stable at more than 3%, and it has not dropped below 3% in crisis environments such as 2008 and 2020.
L'Oréal Group's R&D achievements are shared among the brands to create a product matrix with an exclusive concept to maximize the value of R&D results. With its patented gold anti-aging component Bose, for example, around this anti-aging concept, L'Oréal Group has created a product matrix with high to low efficacy and price, layered and distributed.
In the products of top brands such as Helena, the concentration of bose added and the unit price of the product are higher, and the anti-aging effect is more obvious; in high-end or mass brands such as Lancôme and L'Oréal, the concentration of bosein is relatively low, but the product cost performance is relatively high.
3. Benchmark L'Oréal, the core ability of the head player of domestic cosmetics is dismantled
From L'Oréal's successful experience, it is not difficult to see that the development of cosmetics companies looks at marketing in the short term, research and development in the medium term, and brands in the long term. Looking at the leading cosmetics companies in China, who is most likely to grow into China's L'Oréal?
3.1 Revenue: Polaria leads in scale, and Bloomage Biotech has a high growth rate
In addition to Shanghai Jahwa, the mainland A-share listed head cosmetics companies were established for no more than 25 years, Bloomage Bio was established in 2000, initially a high-tech enterprise with hyaluronic acid microbial fermentation production technology as the core; Polaria was established in 2006, is a large cosmetics company integrating research and development, production and sales; Bethany was established on May 13, 2010, positioning the skin health care Internet + big health industry group The predecessor of Shanghai Jahwa was founded in 1898 in Hong Kong Guangshengxing, even earlier than the establishment of L'Oréal, with a history of 100 years.
According to Tonglian data Datayes! Bethany's operating income in 2021 is 4.022 billion yuan, of which skin care revenue is 3.629 billion yuan, accounting for 90.55%; Bloomage Bio's operating income in 2021 is 4.948 billion yuan, of which functional skin care business revenue is 3.32 billion yuan, accounting for 67%; Shanghai Jahwa's operating income in 2021 is 7.646 billion yuan, of which skin care business revenue is 2.7 billion yuan, accounting for 35%; Polaria's expected operating income in 2021 is 4.80-48.7 billion yuan. Its main business is divided into skin care products and makeup, both of which belong to the cosmetics category.
If you only compare the cosmetics (skin care + makeup) business, in 2021, Polaria has the largest revenue scale, followed by Bethany and Bloomage Biology, and Shanghai Jahwa Cosmetics has the smallest revenue scale.
Among them, Bloomage Biologics, which started with the hyaluronic acid raw materials business, has rapidly developed its functional skin care business in recent years, launching a total of 11 brands focusing on strong functional skin care through endogenous incubation and acquisition, such as Runbaiyan, Quadi, Mibel, etc., with rapid sales growth in recent years. In 2020, the revenue of skin care products exceeded the raw material business, accounting for more than 50%, and in 2021, the scale of skin care products business continued to climb, an increase of 146.57% year-on-year, and the main business accounted for up to 67%, from the perspective of main business, Bloomage Biology has changed from the upstream raw material manufacturer of the cosmetics industry chain to the cosmetics brand owner.
Bethany, which creates dermatological-grade skincare products for sensitive skin, has maintained a cosmetics business growth rate of more than 50% since 2018 (excluding 2020). According to the statistics of Wanlian Securities, the dermatological skin care market for sensitive skin was still dominated by international brands Avène and Vichy in 2014, with CR2 as high as 51.1%. From 2014 to 2020, Bethanie's Winona's market share rose from 3.1% to 22.8%, and surpassed international brands such as Vichy, Risper springs and Avène all the way, and won the first place in 2019-2020.
Polayal, which promotes the growth of the main brand with a large single product strategy, is more like L'Oréal in the development path, and continues to explore and build a multi-brand matrix through the upgrading of the main brand + sub-brand incubation. From 2017 to 2020, the company's revenue increased from 17.83 yuan to 3.752 billion yuan, with a compound annual growth rate of more than 28%.
Shanghai Jahwa, which is even "older" than L'Oréal, has already sounded the bell when other domestic brands have not yet been established. From the perspective of brand matrix, Shanghai Jahwa, which has a century-old history, is richer in both categories and brands, but this has not supported the performance of Shanghai Jahwa, and too many long-tail categories have become a stumbling block in the transformation process of Shanghai Jahwa. In 2021, the company's beauty and skin care business increased by 22.2% year-on-year to 2.7 billion yuan, and the proportion of revenue increased from 31.38% to 35.27%.
Compared with L'Oréal's sales of 32.28 billion euros (about 228 billion yuan), the annual revenue of the four major cosmetics companies is less than 2%. Whether it is Bethanie, whose current product matrix is relatively single, or Polaria, which has begun to take shape, there is a lot of room for growth in the future.
3.2 R&D: The four companies have different models, and Bloomage Biotech is the first to invest
According to Tonglian data Datayes! The average R&D expense ratio of mainland listed beauty care companies in 2021 is 3.57%, and the median is 2.81%. In addition to Bloomage Biology, which has a background on the Science and Technology Innovation Board, the other three R&D expense ratios of the four head cosmetics companies are all less than 3%, of which Polaria has the lowest R&D expense rate, and the data in the third quarter of 2021 is only 1.74%.
However, the data shows that domestic cosmetics brands have paid more and more attention to independent research and development in recent years, and the average research and development expense rate in 2021 has increased by 0.63 percentage points compared with 2020. Among the four companies, the proportion of R&D investment in Bethanie increased rapidly, from 2.41% to 2.81%, and the R&D expenditure in 2021 was 113 million yuan, an increase of 78.47% year-on-year; the proportion of Bloomage's R&D investment increased to 5.75%, and the R&D investment in 2021 was 284 million yuan, an increase of 101.4% year-on-year; but Shanghai Jahwa obviously did not increase R&D investment like its peers in 2021, and the R&D expenditure in 2021 was 163 million yuan, an increase of only 13% year-on-year.
In terms of research and development model, the four cosmetics companies have their own advantages.
Bloomage Biofunctional Skincare adopts the innovative model of internal research and development (original C-end studio) and external (B-end cooperation, university cooperation), and deeply integrates pharmaceutical technology, biotechnology and cosmetics industry. Relying on a variety of self-produced bioactives, the company has more advantages in the research and development of functional skin care products. Bloomage Biotech has been granted 166 patents by the end of 2021, including 89 inventions, 49 utility models and 28 designs.
Bethany relies on more than 6,500 plant banks in Yunnan to screen characteristic exclusive active ingredients according to local conditions, and undertakes the Yunnan Characteristic Plant Extraction Laboratory, integrates the resources of Universities in Yunnan Province, and adopts the mechanism of "flexibility + double employment" to introduce high-level scientific research talents at home and abroad. By the end of 2021, Bethany had been granted 80 patents, including 22 inventions, 27 appearances and 31 utility models, of which 23 were newly approved during the reporting period.
Shanghai Jahwa adopts the medical research co-creation model in the research and development of skin care products, and under the medical research co-creation model with the Department of Dermatology of Ruijin Hospital affiliated to Shanghai Jiao Tong University School of Medicine, its Yuze brand continues to be optimized and upgraded. At the same time, it cooperates with Huashan Hospital affiliated to Fudan University, Shanghai Dermatology Hospital, the Ninth People's Hospital Affiliated to Shanghai Jiao Tong University School of Medicine and many other universities. By the end of 2021, Shanghai Jahwa has granted 374 valid patents, including 89 inventions, 20 utility models and 265 designs.
On the one hand, Pleia has built a team by introducing technicians with rich R&D experience in the industry, such as jiang Ligang, a former Estée Lauder R&D engineer, as R&D director in 2012, and a product formula development department, and in 2021, Wei Shaomin, former chief scientist of Shanghai Jahwa, as the chief scientist, mainly responsible for basic research on raw materials, on the other hand, through technical cooperation with BASF and other well-known international raw material companies, while investing in domestic high-quality raw material manufacturers, through internal construction + external cooperation to enhance research and development capabilities.
3.3 Marketing: Bloomage's sales expense ratio is well above average
As the Internet dividend fades, the cost of online customer acquisition is getting bigger and bigger, which makes the cosmetics industry, which has high marketing expenses, more difficult, the money is not spent, and if it cannot bring effective conversion, the company's profits are getting thinner and thinner. In 2021, the average sales expense ratio of beauty care companies increased by 2.9 percentage points as a whole, and the unit sales expense revenue generated declined.
Among the four head enterprises, Bloomage Biology's sales expense ratio has been nearly 50%, far beyond the average, in 2021 per 1 yuan of sales fees to bring 2.03 yuan of revenue, compared with 2020 there is a sharp decline, which means that Bloomage Bio's marketing effect in 2021 is not good, although the large-scale marketing expenditure makes its 2021 revenue increase by 88% year-on-year, but the net profit attributable to the mother only increased by 21%, and there was no increase in revenue.
Bethany's overall marketing strategy in 2021 should be relatively successful, the overall control of sales expenses is better, and the unit sales expense revenue generation has also achieved growth in the general environment, and the sales expense ratio in 2021 has dropped by 0.2 percentage points, the revenue has increased by 52.57% year-on-year, and the net profit attributable to the mother has increased by 58.77% year-on-year.
Bethany said in the March 4 investor relations activity record sheet that the core large items adopt price control daily without price reduction, the sales off-season heavy publicity momentum, waiting for the double eleven discount to bring about a rapid outbreak of sales, and for emerging channels to set up a Douyin Kuaishou division specializing, using different playing methods.
At the same time, Bethany also mentioned the refined operation of users, according to a large number of consumption data and membership base, you can speculate when they need to buy, to achieve accurate matching.
4. Conclusion
If in the era of digitalization 1.0, local cosmetics brands have seized the opportunities brought by the domestic Internet dividend one step ahead of international brands, relying on the rapid rise of e-commerce and achieving overtaking in curves, then, with the "awakening" of international cosmetics giants such as L'Oréal and gradually beginning to "recover the lost ground", domestic cosmetics brands are facing a major reshuffle.
As the Internet dividend fades and the marginal growth of active users slows down, how can cosmetics companies retain users? On the one hand, it is necessary to shift from extensive traffic channel investment to refined private domain operation, at the same time, it is also necessary to continuously improve product strength through strong research and development, timely insight into consumer demand to improve the repurchase rate, and gradually accumulate brand power to reduce dependence on marketing.
In general, in the era of digitalization 2.0, who can establish a closer relationship with consumers, provide differentiated services with insight into consumer needs, and continuously enhance product capabilities through research and development, who is more likely to truly grow into China's "L'Oréal".
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