The Lowdown: The science that means L'Oréal's success is more than skin deep

Lindsay Owen-Jones tells Jason Nissé why the grand plans of rivals won't cause any worry lines at the French cosmetics giant
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The Independent Online

When Lindsay Owen-Jones was growing up in Lancashire, he would often go to stay with his aunts, who lived over the Pennines in Skipton. Nearby, on the moors, is a famous local landmark - two giant outcrops of rock called the "Cow and Calf".

This must have lodged itself in the young Owen-Jones' psyche because, nearly half a century on, the 57-year-old's "cow and calf" philosophy is one of the key forces driving the cosmetic powerhouse of L'Oréal.

"It is a characteristic of our company that we try to do some long-term things without knowing how big they will be," Owen-Jones explains. "Part of our culture - it makes people laugh - we call the "cow and calf" culture. It means you have to be constantly investing in not yet profitable ventures. A herd only exists in the long term if it is producing calves and only a small proportion of the herd actually produces the milk. And instead of letting the accountants whittle down the herd to only the part that makes all the money, you have to be constantly investing long term in things that don't already do that."

For a man who has lived in France most of his adult life, and who has made his career in a quintessentially French group, Owen-Jones is still grounded in his Lancastrian roots. Often described as Welsh - an in- accuracy he has rarely chosen to correct - this short, tanned, dapper man, with a penchant for exciting sports such as motor racing, was born in the Wirral and educated at Uppingham and Oxford. Though he has not lived in the UK since he joined L'Oréal in 1969, he is often described as Britain's most successful businessman. This is thanks to his 15 years at the helm of the group, a period in which L'Oréal has delivered double-digit growth every year and grown from being a mid-sized European cosmetics company into an industry leader, boasting such brands as L'Oréal, Garnier, Lancôme and Maybelline.

He ascribes his success partly to finding an industry "where my particular mix of talents was relevant", partly to joining a company where he felt happy, and partly to his background.

"I was born with a struggle-through-life attitude somewhere up there in the north of England," he explains. "My parents were from an educated but financially modest background. Investing in my education so I could go away to university and so on was a very major part of their ambition. In that sort of family or environment, you grow up with a feeling that you have to produce."

His success also stems in part from his ability to recognise his limitations. "Historically, the heads of cosmetic companies were one- man bands," says Owen-Jones. "Charles Revson [the founder of Revlon] had one phone to his stockbroker on his ear and was on another hiring a new model. And at the same time he'd have three lipsticks on his hand that he was looking at.

"L'Oréal was like that, my predecessor [François Dalle] was like that. He chose me because he thought I could do the same thing. Fortunately I soon came to realise that the sheer size of this thing, the sheer growth, just would not let me do this even if I had the talent to do so, which was a thing about which I had some doubts."

One of the most interesting things about Owen-Jones' time at L'Oréal is what he has changed and what he has kept the same. He led the group's massive expansion first into America and now into the Far East. When he became chief executive in 1988, less than a tenth of L'Oréal's sales were from outside Europe, and half were in France. A mixture of acquisitions (notably of Maybelline) and brand expansion has made L'Oréal the market leader for cosmetics in the US, which now accounts for nearly a third of the group's sales. France is only 15 per cent these days.

Management has been decentralised, with important brand decisions not merely going down one level, but two. Under a team of vice presidents, Owen-Jones has a layer of international brand managers. These people have enough power to launch products without any reference to Owen-Jones (though he says some do consult him "for superstitious reasons").

This decentralisation, claims Owen-Jones, has been the most difficult task during his 15 years in charge.

He has also been ruthless in rationalising and repositioning the company's brands. "In the early years [of my leadership], L'Oréal started up products and brands left, right and centre, and bought lots of others. It was extremely dynamic but a little bit disorderly. So we've spent a lot of time in the last 10 years culling a lot of that and separating a lot of the brands, so that now 14 brands represent 92 per cent of sales."

Brands like L'Oréal and Garnier, which used to bump up against each other, have been repositioned. According to Owen-Jones, Garnier is less feminine, younger and more humorous. The L'Oréal brand, with its famous tagline "Because you're worth it", "smiles but never laughs".

Amid all this change, one thing has remained constant: L'Oréal's commitment to research and development. The group spends over 3 per cent of its turnover on R&D each year, more than most of its competitors. It has three research centres, nine applied research operations and 12 evaluation centres where products are developed and tested and consumer behaviour is studied.

Owen-Jones argues that this is a fundamental difference between L'Oréal and its rivals as the company was founded by a research chemist, Eugène Schueller. "It was a condition of the success of the company that they would try and build it on technical improvements. This was revolutionary because all the famous guys were saying 'We sell hope in a jar'."

As part of this R&D thrust, L'Oréal has a joint venture with Nestlé to produce pills that will stop the signs of ageing. The venture was first discussed a decade ago, and after a long period which Owen-Jones describes as "gradually moving from speculation to conviction to proof", the first products are on the market. "Initial reactions are, I would say, almost explosive. But I would caution anybody, including my own team, to treat that with some prudence because we will really only know after quite some time whether women will just buy the first one or will continue to buy them."

The partners are also unsure whether this will be a niche product, or something that millions of people will take, like vitamin tablets.

Another development has been the opening, a couple of weeks ago, of a research centre in Chicago dedicated to products for ethnic communities, initially Afro-Americans. L'Oréal recently bought Carson, a brand specifically for the black market, and was shocked by how its global rivals had ignored the sector. "Why is no one spending much on research in this area? Why has it been abandoned?" asks Owen-Jones. "The products look like no one has spent very much money on them for years. None of the big companies have become involved. Can we make a difference?" There is a sound business reason behind this investment. "We have learned that people of Afro-American descent spend three times as much as their Caucasian equivalents on beauty products, which was a surprise even to us."

All this research is helping L'Oréal to build its presence in the emerging markets. The three Owen-Jones sees as having the greatest potential are Russia, Brazil and, most of all, China. "It's a truism, but there are more lips in China than America and Europe combined."

L'Oréal has successfully introduced brand after brand into China, with Maybelline being the star, recording 80 per cent growth last year.

As well as having this organic growth, L'Oréal is well placed for acquisitions. Not only does it have low debts but it is sitting on a 20 per cent stake in drugs group Sanofi-Synthelabo. It is committed to holding on to this share until December 2004, but after that? "As you know we are linked to the end of next year, and we have not determined our position on that business. Historically, we have to say that L'Oréal has been an extremely focused company on consumer marketing products."

Analysts argue that the biggest threat facing L'Oréal is Procter & Gamble's purchase of the German hair care group Wella. This has had a rough passage but should be completed shortly. Owen-Jones, though, is unruffled by the prospect. He argues that Wella's market proposition has always been as a specialist in professional healthcare, and P&G's purchase dilutes this. "We feel this situation in the professional business creates more kinds of opportunities for us than any kind of threat."

And he has a shot across the bows for the likes of P&G and Unilever, which might consider themselves to be L'Oréal's rivals. "In general, one of the things that is not well understood about the cosmetics industry is the way that competition is exerted," says Owen-Jones. "Competition in our business is not about price wars and coupons offering money off. What the consumer is guided by is product performance. Is there something new and exciting about this product? Is it fashionable? Is it in step with every psychological, sociological and any other sort of trend? Is it something pleasurable and seductive that consumers want to buy? Is it imaginative? Is it beautiful? Is it timely? Is this what I want it for at this moment in time. All this requires qualities that are not typically those of big packaged goods companies."

He argues that excessive market research can kill product innovation. In the three months it takes to check out whether a market exists for a new product, the ideal moment to launch may have gone. "We have to shoot from the hip," argues Owen-Jones.

The other worry that shareholders and analysts regularly voice concerns Owen-Jones' retirement. At 57, he has already withdrawn from one of his main interests, motor racing, though he has filled the gap by buying a 77ft racing yacht. But he gives The Independent on Sunday the strongest indication yet that he is not about to put away his face cream.

"For senior L'Oréal managers, the retirement age is somewhere between 62 and 65, so the question is extremely premature," he says. "And because it is premature, I have not defined it in my own mind."

But one thing shareholders can be sure of is that he will leave the company in good hands. He is already on the hunt for someone even better than himself to take over the reins.

"My idea of success will be if this company does even better than it has done under me in the 10 years after my departure," says Owen-Jones.

The cow is already grooming the calf.

Making L'Oréal the 'United Nations of beauty': Lindsay Owen-Jones in soft focus

Born: 1946, Wallasey, The Wirral.

Education: Uppingham, Oxford University, Insead business school.

First job: Intern at L'Oréal, selling Dop shampoo in Normandy. His first assessment said: "Either he'll be fired immediately or he'll end up as president of L'Oréal."

Career highlights: Chief executive of L'Oréal Italy 1978-81; president L'Oréal USA 1981-1984 (Owen-Jones points out that when he went to America, the company's annual sales were $1.2bn, or £720m; they are now $4bn); group deputy chairman 1984; group chief executive and chairman 1988 to present.

Owen-Jones became only the third president of L'Oréal. The group was founded by Eugène Scheuller, a chemist who made hair dye, in 1907. It was named L'Oréal in 1914. Scheuller appointed François Dalle, also a trained chemist, as president just before he died in 1957.

The company went public in 1963. Its turnover last year was €14.3bn (£10bn), producing pre-tax profits of €1.7bn.

Remuneration: €6.26m (£4.4m) in 2002. €3.05m is his basic salary, the rest was bonus.

Family: Married to Critina, who is Italian. They have one daughter.

Interests: Was a keen motor racer, starting with go-karts before moving to "historic" cars; he won the FTA European Championship in 1980 in a Lister Jaguar. Moved to GT racing with McLaren, coming seventh in the Global Endurance GT Championship in 1995.

Retired from motor racing five years ago. Now owns a 77ft Wally ocean-going yacht, which he races. Also enjoys skiing and fine wines, owning a cave in Bordeaux.

Famous quotes: "This is a profession in which you have to be half administrator, half poet."

"Running L'Oréal is like steering a tanker as if it were a speedboat."

"My ideal is to make L'Oréal the United Nations of beauty."

"I'm never satisfied and never convinced we are winning. I try and convince my people we might not be."

Advice for someone starting out: "You've got to join a good company and stay with it. All this nonsense that has been said about creating a career through job hopping is the most destructive thing I know. Great careers are built by joining a good company, doing everything it wants, going everywhere it suggests you might want to go, and volunteering for the tough jobs before anybody asks you. And by being a world citizen - accepting that you can't run world businesses without being a world citizen."

Acquisition strategy: "L'Oréal in general is financially conservative.

"For a company that is successful and generates cash, the ultimate challenge is to find ways to use it. I think we've done that successfully. Why I say acquisitions are opportunistic is because you cannot predict them. You cannot programme one third of our growth from acquisitions. You might be in discussions with a company for three years and then it might happen the next year."