L'Oreal proves tough competitor

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A resurgent Procter & Gamble Co. has put a hurt on most of its major global competitors in some fashion, in at least some parts of the world, over the past year. Unilever, Colgate-Palmolive Co., Kimberly-Clark Corp. and Henkel all issued disappointing revenue and profit numbers at some point in 2003 as P&G saw its revenue grow by double-digit or high single-digit percentages.

But one global rival, L'Oreal, has proved the toughest to beat. Though a strengthening euro and weak dollar pushed L'Oreal sales down 1.8% in 2003 to $17 billion globally, its sales were up 7.1% on a constant-currency basis. Sales rose 6% in North America on a fixed currency basis, despite a U.S. market where, even including Wal-Mart Stores, most beauty and personal-care categories were down or up only by low single digits.

Privately, many P&Gers acknowledge L'Oreal is the rival they respect and fear most. And with good reason. Resurgence or no, P&G lost ground to L'Oreal last year in U.S. shampoos and conditioners, cosmetics and hair color, gaining only in skincare.

Learning to compete better with L'Oreal is crucial to P&G's future, as the company has bet more than $10 billion in the past three years that it can do so. Acquisitions of the Clairol and Wella businesses put P&G in direct competition against L'Oreal in hair color and professional haircare for the first time.

formidable

But P&G's long struggle against L'Oreal in cosmetics, where only in recent years it has slowed steady erosion of market share, shows it won't be easy.

"L'Oreal is just a very formidable competitor," said Jeffrey Nugent, who competed against both P&G and L'Oreal for nearly two decades, having run Johnson & Johnson's Neutrogena business and later serving as CEO of Revlon. L'Oreal "has found a way to have more chess pieces on the board. ... And they're able to leverage more technology between brands, including their prestige brands, which is something Procter doesn't have."

P&G does have a prestige fragrance business and a small, but rapidly growing prestige skincare and cosmetics business in SK-II, mainly in Asia. Those are buttressed by majority interest in a small customized prestige operation in Reflect. But P&G's prestige businesses, combined, account for less than half of L'Oreal's $4 billion-plus prestige business.

L'Oreal benefits, too, because beauty is its only priority, Mr. Nugent said, and Chairman-CEO Lindsay Owen-Jones has spent his entire career in beauty.

P&G now has a global beauty business that vies with L'Oreal for leadership, with both about $2 billion ahead of Unilever. But Mr. Nugent said P&G's top leadership has trouble understanding the beauty business like L'Oreal leaders.

P&G is trying to address the experience issue, keeping key executives in jobs longer-and keeping senior leadership of recently acquired Wella, including CEO Heiner Gurtler though he didn't originally welcome the takeover.

P&G Chairman-CEO A.G. Lafley also recently shifted Rob Matteucci, VP of P&G's Clairol hair color business, to report to Marc Pritchard, president-global cosmetics, who has more than a decade of experience battling L'Oreal.

marketing know-how

Suzanne Grayson, principal with the consultancy Grayson Associates, has worked with both P&G and L'Oreal, and she finds the two roughly equal in research & development capacity but very different in how they market their know-how.

P&G tends to be slower and more risk-averse, Ms. Grayson said, attributing the traits to P&G's history of having technologists lead innovation. At L'Oreal, she said, marketing and technology have been on a more equal footing.

Ms. Grayson said: "I think that's changing, and that's why Procter is getting so much better. It's coming from the top looking for the creative ideas."

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