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L'Oréal is investing in niche Chinese perfume brands

Why the Chinese beauty market is of interest to international beauty industry giants

L'Oréal is investing in niche Chinese perfume brands Why the Chinese beauty market is of interest to international beauty industry giants

L'Oréal continues to expand in the Chinese market. After Documents in 2022 and the beauty biotechnology company Shinehigh Innovation in September 2023, the French giant has announced a minority investment in the Chinese high-end perfume house To Summer. Revealed during the presentation of the financial results for 2023, but without disclosing the amount, the agreement was concluded through Shanghai Meicifang Investment, the L'Oréal fund established in May 2022 to support the most innovative and interesting Chinese brands with high growth potential, with the support of Bold, its venture capital fund.

Why L’Oréal Chose to Invest in To Summer

To Summer was founded in Beijing in 2018 by Shen Li, a former fashion editor, and Huipu Liu, an e-commerce expert. Inspired by Chinese aesthetics, art, and culture, the luxury perfume brand has become known for fragrances like Triple Tea and Cedarwood. In addition to the initial offerings, it has also added candles, body lotions, shampoos, and scented waxes, sold in its 11 flagship stores across the continent. With the brand's strong reputation and extensive distribution network, L'Oréal is well-positioned to enter the growing Chinese perfume market and leverage the growth potential predicted by Mintel to reach a compound annual growth rate of 13.4% from 2023 to 2027, with total sales of 22 billion yuan (3.05 billion dollars).

Why Invest in Local Niche Brands?

Less competitive than the skincare market, the Chinese perfume market is particularly enticing, despite presenting challenges. According to Cyril Chapuy, president of L'Oréal Luxe, there is tremendous growth potential since "penetration in China is still half of that in the West, so we still have a lot of space ahead of us", and consumer behavior changes are favorable. Just 10 years ago, "young generations did not regularly use perfumes; now they do". Therefore, for L'Oréal, investing in To Summer and Documents can prove to be a winning move. The fact that these are two local niche brands allows the French company to better understand the unique preferences of Chinese consumers and customize its offerings to meet their specific needs. Relying on local fragrance producers is also advantageous in terms of speed to market. While the development cycle of an international brand usually takes a year or even two to launch, national brands take two months to develop a perfume and product, quickly capturing current trends. Finally, To Summer and Documents incorporate ingredients closer to Chinese culture, such as ink, wood, and incense, complementing rather than cannibalizing other perfume brands within L’Oreal, like Viktor & Rolf's Flowerbomb and YSL's Black Opium, which, with their floral and vanilla notes, target mainstream marketability.

Conquering the East

Recently, speaking on Good Morning Business on BFM Business, Nicolas Hieronimus, CEO of L'Oréal, emphasized that the group is doing quite well in China, growing by about 5% and nearly 8% in terms of product sales, with the largest market share it has ever had, around 32%, especially in luxury goods. The next step? Successfully retaining Chinese customers, who love to change and try new products. The competition is becoming increasingly fierce as many foreign conglomerates have chosen to enter the local beauty market. Estée Lauder Companies invested in Melt Season, a brand founded by Ni Lishi in 2021; Shiseido Beauty Innovations Fund invested in Trautec, a Chinese company specializing in collagen; while last year, L Catterton, the private equity firm backed by LVMH, invested in Hi!papa, a Chinese brand of children's skincare products.