L'Oréal buys second Chinese skincare stake as C-Beauty brands snare market share

By Sophie Yu and Casey Hall

BEIJING, November 17 (Reuters) -Cosmetics giant L'Oreal said on Monday it has taken a minority stake in mass-market Chinese skincare brand Lan, marking its second investment in recent months in China, where local brands have grown rapidly.

L'Oreal did not disclose the size or cost of the stake, but L'Oreal North Asia President and China CEO, Vincent Boinay, said it highlights how central China is to the company's global strategy. 

"We firmly believe investing in China is investing in the future, and we will continue to cultivate the Chinese market, work with more Chinese brands to create a beautiful future and meet the expectations of sophisticated Chinese consumers," he said in a statement.

Reuters was unable to contact Lan for comment for this story.

The investment in Lan comes after L'Oreal paid 442 million yuan ($62 million) for a 6.67% stake in Chando, as disclosed by the Shanghai-based company last month in its prospectus for an IPO in Hong Kong.

China has been challenging for international players, as an increasing proportion of its $75 billion beauty and personal care market has been won in recent years by domestic brands, dubbed C-Beauty. At the same time, overall growth has slowed, with consumer confidence hit by a prolonged property crisis and widespread concerns about job stability.

Buying stakes in well-known domestic names could be a shortcut for L'Oreal to piggyback on C-beauty's momentum, said Ben Cavender, managing director at Shanghai-based China Market Research Group.

"L'Oreal and other international brands face a tremendous amount of pressure from domestic brands that are iterating new products faster, and often have been more aggressive at marketing new skincare ingredients, concepts, and routines," he said.

Following its third-quarter earnings last month, L'Oreal CEO Nicolas Hieronimus said the group's China business grew around 3% in the quarter, its first increase in two years.

According to data from consultancy Frost & Sullivan, Chando Group is China's third-largest home-grown beauty player - in terms of retail sales - behind Proya and Chicmas. Both Chando and Lan market natural, clean ingredients as selling points.

Chando's strength in the mass-market price range - mainly selling between 49-390 yuan - and access to China's smaller cities, are resources that can support L'Oreal's recovery in the country without directly competing with the group's core brands, said Yang Hu, APAC Insight Manager at Euromonitor International.

($1 = 7.1038 Chinese yuan renminbi)

(Reporting by Sophie Yu; Editing by Sonali Paul)