SIMON BROWN: I’m chatting now with Victor Mupunga. He’s a senior investment analyst at Old Mutual Wealth. Victor, I appreciate the early morning. L’Oréal results [are] out. I’ve got to say I was looking for good results from them, but they really knocked it out of the park. Growth of over 16% in the global sort of beauty market, picking up market share, with online doing well – back above 2019. A set of results where there is truly everything to love about them.
VICTOR MUPUNGA: Morning, Simon, and thanks for having me. Yeah, you’re right. They had a great ending to the year, as you rightly pointed out. Record sales, record profit; they are already the largest player in the personal-care market, twice the size of their immediate peer, and yet they grow at twice the rate of the broader industry, which is quite remarkable –and that’s all market-share gains.
This started well before the pandemic and it seems to have just accelerated as the pandemic has just gone on.
That’s one of the reasons why we like L’Oréal – the fact that it is a lot more resilient, perhaps, than many people realise.
From an industry perspective as well, despite many of us still working from home, I think we’ve seen that people are still keen on maintaining their beauty routines. When they cannot and they get the opportunity to start those routines again, they’re rushing out to do so. I think that’s what we saw in L’Oréal last night.
SIMON BROWN: The pandemic was hard for them. Salons were closed. As you point out, we weren’t going out, so we didn’t need to look nice for anybody. I suppose we could look like nice for ourselves and our partners. It’s not a classic consumer staple like toothpaste; but it almost is in a sense. The beauty industry, even when times are tough there is still going to be spending there. L’Oréal has the brand and that, perhaps more than anything is, is really what works so incredibly well for them.
VICTOR MUPUNGA: Yeah, you’re right. I think the key for L’Oréal is just how well diversified that business is. They are sitting there within their portfolio with over 40 different brands, and this time around the key performer from a segment perspective was actually Active Cosmetics. Those are the products that are recommended by dermatologists; they were up over 30% over the year. This is speaking to a much broader theme, where consumers are just a lot more conscious about their health, and here I’m speaking of skincare and whatever the dermatologists recommend.
The luxury segment also did very well. That’s now the largest segment in the group. So I think it’s just that diversification, being able to play in the mass market, but also at the upper end. And then also the segment that is recommended by dermatologists. When you bring that all together, you have a business that is resilient during the difficult times. Then, as you get out of the depths of the crisis, you benefit from that – as you saw in the most recent results.
SIMON BROWN: Their e-commerce is doing really well, it’s up to almost 29% of sales. I suppose with beauty, if you know the product and you’ve been using the product, buying it online is almost a no-brainer. If you need some new product, that’s a different story, but for the ones that you know, love and have used, the e-commerce channel makes perfect sense, and they really are managing to do incredibly well in that space as well.
VICTOR MUPUNGA: They are the leader in their market, with an even much, much higher contribution – almost a third of sales, as you mentioned, much better than other companies that you would think would lead in that aspect. There I think they’re really benefiting from sort of two ways of growth themes, if I can call them that. One of them is just appreciation of beauty products by the youth, people who tend to spend a lot of time online, and I think the trend around sort of sharing pictures, digitisation and, if all that people are going to see when you’re online is your face, you’re probably going to spend a lot more money on it. So from that perspective it’s sort of natural for e-commerce to be a big part of their business.
Then I think the move to premium product as well is the big theme that they’re benefiting from. We’ve seen that not only in cosmetics, but even across other businesses – that people are sort of trading up for superior quality, that health focus that I spoke about earlier on. Then even ingredients; it’s not only applying to food, but even in cosmetics consumers are a lot more conscious of what ingredients are used in their beauty products, and they’re willing to pay up for that. L’Oréal benefits from that, given their large luxury brand portfolio.
SIMON BROWN: Yeah. That certainly has been a trend over decades. That’s really coming to the fore now, and of course premium products, premium margins fit in there.
We’ll leave that there. Victor Mupunga, senior investment analyst Old Mutual Wealth, I appreciate your insights this morning.