Loreal

With its Eye on Southeast Asia's Burgeoning Middle Class, L'Oreal Opens Huge Plant in Indonesia

L'Oreal, the world's biggest cosmetics company, said the factory outside Jakarta will churn out 200 million products next year, with the potential to raise its output to 500 million.

French cosmetics group L'Oreal SA on Wednesday opened its biggest factory in the world in Indonesia, as it seeks to profit from strong demand for beauty products in fast-growing Asia.

L'Oreal (IW 1000/165), the world's biggest cosmetics company, said the factory outside Jakarta will churn out 200 million products next year, with the potential to raise its output to 500 million.

Joechen Zaumseil, L'Oreal vice president for Asia-Pacific, said the $130 million plant in the Jababeka industrial zone will be the company's "production hub for Southeast Asia."

He said the company plans to double the number of its customers worldwide from its current level of 1 billion, and it hopes the majority of those new clients will be in Asia.

L'Oreal hailed Indonesia and Southeast Asia as "the new frontier of growth" -- its Asian sales have jumped by around 20% between January and September to 3.2 billion euros.

The new factory covers 710,000 square feet and will have several hundred employees.

It will export 70% of its output to Southeast Asia, with the rest destined for the Indonesian market, the country's industry minister, Mohamad Hidayat, said at an opening ceremony.

The increasing demand for beauty products is driven by growth in Indonesia's middle class, as Southeast Asia's biggest economy maintains a strong growth rate above 6%, even as the global economy stumbles.

L'Oreal has seen its Indonesian sales grow 30% a year on average in the past four years -- the fastest growth it has enjoyed in any Asian country, Zaumseil said.

The cosmetics market in Indonesia, where L'Oreal has had a presence since 1986, is currently worth $1.5 billion, out of a total of $47 billion for the whole of Asia, he said.

"In 10 years, Indonesia will be in the top three markets in Asia-Pacific," he said, adding that the country will have 90 million new consumers in 10 to 15 years. He said L'Oreal wants 60 million of them to use its products.

More production facilities will be needed in Asia in the next three to five years to cope with growing demand, he said. But he emphasized that factories also will be opened elsewhere, noting that sites have been established recently in Russia and Mexico.

Jean-Philippe Blanpain, vice president for operations at L'Oreal, said there are no plans to close production facilities in wealthier countries and shift production to places where it would be cheaper.

"We have a strategy to produce regionally. In principle, we will keep the number of factories that we currently have in Europe the same," he said.

"We make 25% of our luxury products in France, where we sell only 10% [of our goods]."

Copyright Agence France-Presse, 2012

By Loic Vennin

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