The comparison is inevitable. During World War II, British Prime Minister Winston Churchill decreed that cosmetics and makeup were essential items in any establishment in the UK. In a single stroke, the cold and calculating anti-Nazi politician removed beauty product makers from the list of sectors that should devote themselves to the war effort and produce supplies for the country’s military troops. “Now more than ever, beauty is your duty,” Churchill said in an interview with Vogue magazine in 1941. The women’s reaction was immediate. In a few days, perfumeries and pharmacies were out of stock. The phenomenon, hitherto unknown, went down in history as “the lipstick effect”. Churchill understood that red lips lifted the nation’s morale amid the atrocities of battle, and made women feel more optimistic, more confident, and more attractive, feelings essential to overcoming the crisis.
Times are different, the front is not on the battlefield, but the lipstick effect remains the same during the biggest pandemic of the last 100 years. At least that is what shows the Brazilian operation of L’Oréal, the biggest global company in the beauty industry, with sales of 27.9 billion euros last year. Latin America, the second most punished region by Covid-19, with a rate of 463 deaths per million inhabitants (only behind Europe, with 555 deaths in the same comparison, according to Reuters calculations) is the one with the greatest growth in demand by personal care products, whether for hair, skin or makeup. In the first half of this year, the region — in which Brazil accounts for about 70% of company sales, according to industry analysts — grew 32.8% in the French company, with sales of 809 million euros. The company’s total revenue increased 21% in the first six months of this year compared to the first half of 2020, and totaled 13.08 billion euros in sales.
The good result can be considered a successful facelift in the group balance. The 2020 consolidated had been harmed by the melting of the value of the real. Although sales rose in volume in all categories, and revenue reached 1.469 billion euros in Latin America, there was a slight drop of 1.5%. The figure was in the red because it ended up affected mainly by the devaluation of the real and neighboring currencies, such as the Argentine peso. The company sold in local currency and accounted for in euros. Last year, the real lost nearly 30% of its value against the dollar, the third largest currency devaluation in a list of 121 countries. It was second only to Zambia and Venezuela.
The 2021 performance, however, appears to have rejuvenated the wrinkles caused by last year’s global turmoil. The region stood out as the best among all L’Oréal operations on the planet. In Asia, the expansion reached 27.3%. Then came North America (23.2%), South Pacific, Middle East and North Africa (19.9%) and Europe (11.9%). “The Brazilian operation has become one of our main laboratories for inclusion, diversity and growth in the world,” Marcelo Zimet, 46, president of L’Oréal Brasil, told DINHEIRO. “The country plays a fundamental role in the group’s investment, innovation, diversity, inclusion and results strategies,” said the executive, who took over in April from Belgian An Verhulst-Santos.
Driven by the good results in Brazil, Zimet’s mission is to accelerate the process of digital transformation, expand the current portfolio of 19 L’Oréal brands in the country (there are 36 in the world) and bring new products to existing brands and, mainly, lead the subsidiary in the strategy of organic growth and through acquisitions. Since the end of 2019, two new brands from the group have been brought to Brazil: Garnier and Cerave. “I cannot say which brands will come because everything can change, but it is certain that we will accelerate our expansion”, said the president. “And we are also open to any type of acquisition of a company that is related to our business, including technology and service companies, as part of the plan to consolidate not only as a product company, but as the largest beautytech in the world. ”
Being more and more a technology company, not just a cosmetics manufacturer, is fundamental for the longevity of the centenary L’Oréal, founded in Paris in 1909, and in Brazil since 1939. For professor at Ibmec Rio, master in marketing Rosana de Moraes, a specialist in luxury products and services, Brazil is experiencing an intense cycle of sophistication in the consumption of premium products, with an emphasis on personal care items. “Consumption does not go backwards. Once we get used to a certain higher quality product, the tendency is to remain”, said Rosana. “Furthermore, not only does Brazil have more access to what is best in the world, but Brazilian companies are globalizing at an impressive speed. Just look at Natura, O Boticário or even Granado and Phebo, which are advancing strongly in the European market.”
E-COMMERCE One of the biggest thrusts for Zimet — perhaps the biggest one — has been managing the exponential growth across digital channels. In 18 months, the company’s e-commerce sales volume doubled and today represents 20% of the company’s revenues. The percentage already reached was the goal to be reached in 2025. Now, the plan is to reach 50% in four years. “We are not yet out of the pandemic, but we realize that the pace of digital distribution channels will continue. This is here to stay. Even with the reopening of physical stores, sales through e-commerce did not drop,” he said.
Another big challenge for the new president is to expand the nationalization index of his factories in the country. Despite producing locally more than 90% of everything he sells in Brazil, the rise in the dollar is an important cost factor and a detail to be monitored with magnifying glass. “We have been very careful in passing on highs to consumers, as it takes a long time to build a brand with a strong relationship with the customer, and the price cannot be a deterrent to consumers of any income bracket.”
The numbers from Nielsen, one of the largest retail research consultancy in the world, endorse Zimet’s statement. In the first half of this year, the hygiene and beauty category had a high of 5% in sales value, well below the high of the basket of beverages (24%), food (19%) and cleaning (9%). The retail average, including all categories that make up the Nielsen Basket Survey, was 18%. In volume, the sector was stable, against a high of 11.3% in beverages, 3% in cleaning and 1% in food. “Once again, the personal care industry has shown resilience in times of crisis,” said Margareth Utimura, leader of the hygiene and beauty industry at Nielsen. “Even with the greatest income restriction of the population this year, with cuts in the payment of Emergency Aid, which led the country to have 60% of families in restricted condition [quando há na algum desempregado em casa, alto endividamento ou houve queda na renda familiar], access to novelties, the democratization of information and the incorporation of the use of items such as sunscreen, helped the sector to remain on the rise”, he said.
Under Zimet’s command, L’Oréal’s Brazilian formula has visibly shown results and, by the performance printed on the balance sheets, the executive has managed to fulfill the main motto of the group: Saisir ce qui commence! In free translation, something like “enjoy what is to come”.
Marcos Zimet, President of L’Oréal Brasil
What was the formula in the crisis?
L’Oréal knew how to work very well during this period of pandemic. As we work in all segments and price ranges, we are able to make adjustments and compensation in times of transformation in the crisis. This is reflected in our results.
In isolation, did Brazilians devote more time to taking care of themselves?
Yes. Skin care had a great acceleration, along with other products such as hair care. All with double digit growth. Our industry played a very important role during the pandemic, which is not over, in helping people to improve their self-esteem.
What is the plan in brands and products?
The objective is to continue expanding the portfolio in Brazil. We can bring some of the 36 brands of the group, as well as acquisitions and development of brands in Brazil. I cannot say which ones will come, but we have brought Cerave and Garnier, who carry a banner of diversity and inclusion as an engine of growth. We launched products aimed at different skin tones, co-developed with consumers and even influencers, including the singer Iza. The Brazilian operation has become one of our main laboratories for inclusion, diversity and growth. The time is to invest and grow.
Is the country, given the population’s miscegenation, an export platform for the group?
We call it reverse innovation. What Brazil develops does not necessarily stay in Brazil. There are several technologies that we do here, such as the Elséve Hialurônico recently, which has been a super success, which was a Brazilian development and is being expanded to the whole world. That’s the beauty of working for a company like L’Oréal.
Brazil, as the fourth largest market in the beauty sector, is highly sought after by national companies. How to deal with the competition?
Competition is always welcome because it makes us do a better job and accelerates our transformation. There are incredible companies in Brazil, such as Natura and O Boticário, which we respect a lot, in addition to many smaller ones that do an excellent job, but this helps L’Oréal to implement a job that is even better. In sustainability, for example, this year we will already be carbon zero, four years ahead of schedule.
Does the country’s economic environment worry you?
I believe a lot in Brazil. I believe in potential. It is not any short-term variation that will change our strategy in the country. I have no way of judging the economic decisions of the country’s management. What I can say is that for companies like L’Oréal, when investing, questions are always considered. of legal and tax security and a medium and long-term vision.