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L’Oréal picks up the pace in Russia

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Claudio Cavicchioli

L’Oréal has ridden out the severe economic recession to post double-digit growth in Russia since early 2015. Claudio Cavicchioli, Managing Director of L’Oréal Russia, explains the reasons for this success.

“Tailoring our approach to the specific features of the Russian beauty market”

Russia has 146 million consumers – 79 million of them being women. Before international sanctions and falling oil prices unleashed a recession in late 2014, Russia’s cosmetics market was fifth-largest in the world. Ruble devaluation subsequently compounded the pain. “Owing to the crisis and inflation, the beauty market lost ground in volume terms but grew by value”, explains Claudio. After a tough time in 2011-2012, L’Oréal is back on track, posting double-digit volume and value growth and adding market share. “We are now number-one, ahead of our rivals, Henkel, Procter & Gamble and Unilever”, says Claudio

Other than its size, what is special about the Russian beauty market? According to Claudio, one key difference is cultural. “A Russian woman will seldom go out without make-up, and the saying goes that it’s never too cold to wear a mini-skirt”, jokes Claudio, who says that Russia has a veritable “cult of beauty” that you won’t find in any other Western country. This cult has exploded with the internet, with female YouTubers taking Russia by storm, as evidenced by the success of influencers such as Kate Clapp, who boasts over four million followers, and Sasha Spilberg, who has over three million.

Russian women’s search for beauty has resulted in high penetration rates for L’Oréal’s make-up and hair colour products. Claudio observes that most of the products marketed by the Group are international, explaining: “There are those products that we adapt to Russian tastes, including some fragrances, such as Magnificent Blossom by Yves Saint Laurent or Climat by Lancôme, as well as skincare lines by Garnier and L’Oréal Paris. overall, though, Russians take a fairly international view of beauty in general and of luxury in particular”. Among the international mass market brands, Garnier and Maybelline report the best results. The latest market entrant, NYX Professional MakeUp, a US brand targeting millennials, has also made a bright start in Russia. On the professional market, Claudio mentions Matrix and L’Oréal Professionnel, while Lancôme, Yves Saint Laurent and Kiehl’s are stellar performers in the luxury segment.

Distribution: L’Oréal’s strategic choices in Russia

Distribution in Russia is organised by division. The three main retail chains for luxury products are Ile de Beauté, Rive Gauche and L’Etoile, which together occupy 90% of the market. In the pharmacy and professional divisions, L’Oréal works with local retailers and retail chains directly. Distribution-wise, the biggest challenge faces the mass market division. Here, the Group works with major international chains such as Auchan, as well as regional operators, including Magnit and X5, plus local retailers. “We want to build up our major accounts and improve our visibility with more local chains”, says Claudio. To achieve this, L’Oréal Russia is working to strengthen its network of merchandisers, who maximise product visibility at sales outlets. Finally comes e-commerce. Claudio spells out the challenge: “Although it accounts for a mere 2% to 3% of our sales right now, online shopping is seeing triple-digit growth. We are monitoring these market developments closely and regularly organise conferences to get our client retailers into e-commerce”.

The benefits of a made-in-Russia strategy

The final pillar of L’Oréal’s Russian strategy is production. In 2010 the Group opened its first plant in Russia. The 10,000m2 facility can produce 130 million units a year. Says Claudio: “Our factory is in the Kaluga region south of Moscow, which is the base for many foreign companies, particularly from the auto sector. We just signed an agreement with the local authorities to double the size of our facility”. The aim is to be more flexible and less at the mercy of currency fluctuations.

All of which will help L’Oréal to pick up the pace in Russia.

Consumption | June 2016