In Good Company with Nicolai Tangen - Nicolas Hieronimus CEO of L'Oréal

Episode Date: May 4, 2022

In this episode Nicolai Tangen talks to Nicolas Hieronimus, CEO of L'Oréal. They discuss the future of the beauty industry, if people’s desire for beauty products is a good thing, and how are they looking at potential opportunities in the Metaverse?The production team on this episode were Plan B’s Tor-Erik Humlen and Olav Haraldsen Roen. Background research were done by Sigurd Brekke and Bård Ove Molberg with additional input from our portfolio manager Yvonne Sliden Langlo.Links:Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

So, Nikolaj, very welcome to this program. We are absolutely thrilled to have you on. Thank you. I'm very happy to be with you, too. I've been following L'Oreal for, you know, very many years, as your colleagues can confirm. I just think it's one of the most spectacularly incredible companies I've ever seen. Thank you very much. And we are just so thrilled to have you on.

And why are the French doing beauty so well? Oh, well, I think it's, we have a long history with beauty, you know, particularly in the courts of the French kings in Versailles or in the Louvre, where there was a lot of attention paid to beauty, to luxury, to craftsmanship. You know, very early on, Catherine de Médicis brought her perfumer in her luggage wherever she traveled. And in Versailles, I guess there was a lot of, fragrance was very important because I heard that there was not always a pleasant smell.

So they developed a pretty strong art in mastering fragrances. And there was a lot of attention to the aesthetics from the creation of wigs at Louis XIII and all across the French history. So it has become part of the French art de vivre, as we say. And I guess we like it and we are good at it, but we are not the only ones.

And in reality, if I look at L'Oréal, L'Oréal is indeed a French company, but it's a very international company. We are global. We have, I think, 170 different nationalities. Our executive committee is multinational. So in the end, it's a French savoir-faire, a French know-how. But we are very uh eager to share this with and share this passion with other nationalities and and bring it to other countries but um with the exception of perhaps italy anybody else who does it as well as you do well uh if you look at the top groups uh in in terms of beauty in the world you have uh you have lots of European companies, but you also have a few Japanese companies

or American companies. But I have to say, as we know, beauty is an offer market and there is this very unique blend of science, but also of creative flair, invention. And I think probably the French have this dual brains or dual origin, which is both being the country of Pasteur and at the same time, a country that has always given a lot of room for arts and this blend of arts and science is probably very unique to France and you're right to say to some extent to Italy.

That's why we have, by the way, in our portfolio, very beautiful Italian brands from Armani to Valentino and Prada, just to name the three biggest, which are also great beauty and luxury brands. When you say creative flair, what do you mean by that? Well, what I mean is that, you know, when you are creating beauty products, it's not just about analyzing what people need.

It's trying to second guess their dreams and make people's dreams or dreams they haven't dreamt yet become reality. So there's a part of risk taking. There's a part of invention of creativity. You know, if I take even my own example in my early days of my career, when I was a marketing director and I created the Fructis brand, if I was looking, I was briefed to create a hair care brand that could rival with the pantines of this world. And all the studies were telling me that hair care

was about white products, very creamy, very reassuring. And it had to be in this type of very reassuring aspect of an aesthetics. And because of intuition, because of who I was, and I think that's what also part of the L'Oreal recipe of success is that you give the people the freedom to create. I came up with the idea that on the contrary, if we wanted to take share and to bring consumers something new,

we had to disrupt the market. And that creative flair led to create a fluorescent green shampoo, which was probably contradicting all the boxes that I supposedly had to take. It took me a while, by the way, to convince everybody, but I was given the opportunity and the freedom to do it and it became a fantastic success. So that's where the flair comes in. But as I said, this project was backed by science because there was a real discovery from our R&D that discovered that acid, the fruit acids were strengthening the hair. So you had the combination of science and this creativity, which are kind of unique to L'Oreal.

Now, in your mind, why is beauty such a great business to be in? Well, it's a great business for several reasons. First of all, you know, it's a great business for several reasons. First of all, it's a very positive business. It's a business that can change people's lives, make them feel better about themselves, allowing them maybe to be who they are or who they want to be, sometimes solving their problems, sometimes just improving their confidence and their morale. And it has been proven since the very dawn of humankind that beauty had this power to either make people feel better or solve people's problems. And that's fantastic. When I go to work every morning, I know that I'm working for the greater good.

that I'm working for the greater good. And that's why, by the way, we've added to our own products the desire to have a positive impact on the world and society, which we have encapsulated in our sense of purpose to create the beauty that moves the world. So that is the number one reason

why it's exciting. The other one, and that relates to what we were discussing before, is that because it's an offer-driven market and because beauty is unattainable, there's no perfection. And I guess this market is going to continue to grow for the next decades. What are the main drivers now behind this growth? Well, there are several drivers. Obviously, demography.

Well, there are several drivers. Obviously, demography. Demography plays an important role in many ways because you've got, of course, population growing, you've got people living longer, and maybe there are some beauty products that you will stop using when you're 70 or 80, but you still need skincare, you still need to protect your skin, You still need some makeup. You still need to wash yourself. And on the other hand, younger generations are starting sooner and sooner to take care of their skin, to either wear makeup or use different products. So demography is a very powerful growth driver. A second growth driver, which is related to demography, is the growth of

middle classes. Overall in the world, even though there are some tensions in the world and about the gaps that can be created between the wealthiest and the poorest, but overall the average income of the worldwide population continues to grow. And that's great. If I take the middle and upper classes between now and 2030, there'll be more than a billion people joining these ranks. Just in China alone, there will be 370 million new people entering the middle classes by 2030. And all these people,

while they aspire to take care of themselves, when they are properly housed and fed, the next thing they want is to feel better, to look great, and they buy beauty. Now, an example, you mentioned demography. I think I saw somewhere that women doubles the spend on cosmetics from age 25 to 50. Have you got any stats like that? Well, I am not aware of these statistics, but I'm not surprised because, of course,

the older you grow, the more you need to use products, even though one of the phenomenons that, frankly, have happened over the last probably four or five years is that the number of products used by younger consumers has increased a lot. Typically, skincare was not a category that was very used by 20 years old

or 25-year-old because they felt this was just about anti-wrinkle, which were not really relevant for them. But now they're using, first of all, wearing masks has increased heavily acne. It's called maskne, and there's lots of skin issues that have been generated just by the fact of using masks.

But more globally, people see that protecting your skin, for example, from the harmful effect of the UV rays. It's not just a question of looking good. It's also a health-related issue. So you've got younger and younger people that are using skincare on top of makeup, hair color. So no, I'm not surprised with your statistics. And the other things we have to work on is to make sure that men

increase also their beauty products usage. We know that in Asia, for example, men traditionally use skincare, even sometimes makeup in some countries. But we are still a bit behind on that in the Western world where men mainly use fragrances and shampoos and shower gels and a bit less skincare. But the market is growing also, not just for men-specific products, but with men using products that are non-gender allocated. And that's also a big opportunity for us. How does social media impact this? I mean, I guess now we have to look good 24-7, no? Yeah, well, you know, the first huge accelerator of the makeup market

was the appearance of iPhones or cell phones and selfies. Suddenly, you were showing your image and taking pictures all the time, and then it was augmented by social networks such as Instagram or Facebook, where you start, or the Chinese equivalent, where you're posting your images and try to look the best. And even if we look at what we're doing right now, which is a type of video conferencing, If we look at what we're doing right now, which is a type of video conferencing, well, in the very early days of COVID, people were just appearing normally without paying particular attention to their look in the first video conferences.

And after seeing their face on the screen the way I see mine right now, every day, 10 hours a day, people started saying, well, I got to find the right makeup or I got to find the right lighting to look even better on my screen. So yeah, you have to look great, whether it's in real life or in virtual life. I think you look great.

You can rest assured. Thank you. You look great too. Thank you. Where do you think the beauty market is 10 years from now? I mean, what is going to look differently? Well, first of all, it's going to be much bigger and definitely more sustainable.

That's really the number one preoccupation of younger consumers. And it's the number one preoccupation of L'Oreal. That's why we've started a long time ago with our Sharing Beauty With All program and now have moved to our L'Oreal for the Future program with very strong commitments as it relates to sustainability, be it in the usage of post-recycled plastic, renewable ingredients. And that's why we're

investing so much in our green sciences, which are going to be the next revolution in terms of science. So it's definitely going to be more sustainable. Health, and that's one of the things that has been significantly accelerated by COVID. Health has become a very strong preoccupation for consumers, which means that not only do they want sustainable ingredients, but they want safe products. They want products that are prescribed by dermatologists like our Active Cosmetics brands. But safe products, it's got to be more digital, of course,

because the weight of e-commerce will continue to grow. And who knows, maybe it will be a part of the beauty market will be in the metaverse. That's the very early days in this new venture. Will people virtual selves want to be beautified with virtual makeups from

Yves Saint Laurent or from Lancome? We don't know, but it's definitely things that we will want to explore. Do you think that will happen? I don't know. Who would have, if somebody had asked me 20 years ago whether I would have access to

all the information I need on my phone, take pictures, and I would have said, well, I don't know. It sounds kind of strange. But today, video gaming is a bigger industry than music and movies together. People, the younger generations

like to spend time online. So it's definitely going to be a new way to engage consumers, so in a way to connect the brands. Whether people will want to spend enough time in this metaverse and be buying virtual makeup or virtual hairstyles, it's a possibility. We have to explore it. To be honest, today I'm focused and I'm focusing my research and my marketing teams on creating and selling real products to real people in the real world. But as one of our mantras is, cease what is starting, we have to explore this new landscape and be ready for whatever direction it takes. or whatever direction it takes.

Now, moving on to L'Oreal, the company itself, a lot of the listeners probably don't know the full scope of your brand portfolio, which is unrivaled and incredible, including the top brands such as Lancome. You've got L'Oreal Paris, you have, you know, Kiehl, Biotherm. Do you feel you lack anything in your portfolio? I don't think I lack anything, but we're always on the lookout for new opportunities. We just bought used to the people.

It's a small Californian vegan skincare brand. And we saw that Gen Zs were fond of this type of brands. And when we saw the brand rising, we contacted them and invited them to join the L'Oreal family. So it was not a need, it was an opportunity. Now you've rolled out the kind of the environmental and social labeling to not so many of your brands yet. Why is this taking such a long time? Well, I think there are two things. First of all, it took some time to develop a very robust calculation methodology and we are rolling it out.

We started, it was last year, with Garnier and we have a rollout plan for most of our brands over the next couple of years. But I think we made a decision that was both very strategic, very unusual and very important for this, I would say, ecological score, eco-score of beauty, is that we decided to share it with the industry. Because if L'Oreal comes out with a label and auto-analyzes its own products, and every brand comes out with their own label, consumers will say, this is not serious. How can we believe somebody who's judging its own products? So we contacted a few of our competitors, who we normally compete with, and we told them,

okay, we have developed this. We think it's great. It's demanding. And we'd like to share it with you. And we'd like this to become the new standard of the industry. And we first contacted Unilever. And then progressively, we created that consortium and invited the whole industry to join us.

And that's what they're doing. I think today, we probably have 90% of the beauty players around the world that are in our consortium. And now what we are doing, obviously, is that as always, when there are many players, we need to agree on every little detail because they can't just take the L'Oreal method and implement it like that for their own business but it's making good progress which doesn't stop us from publishing our own scores on our products but as the the big ambition is to create a European and, why not, a global standard of assessment of the ecological impact of products. We think this will probably happen probably end of 2023, beginning of 2024. But if we manage that, then consumers will have a reliable, uniform, shared method that will be used by all brands and that will be priceless.

method that will be used by all brands and that will be priceless. If somebody argued that you spend billions and billions of euros on marketing and in a way creating a need that doesn't exist, how do you answer those kinds of comments? What's very clear is that, and we've seen it again during this crisis, is that beauty is an essential part of humanity. People need and use cosmetic products because it's part of their way to feel better about themselves, to feel clean, to feel protected. And we've seen every time the lockdowns were stopped, people rushed to buy products. It's part of what it is to be human. And it doesn't, you know, we didn't start today. I was, I took a week off a month ago and I went to Egypt and I was visiting the Cairo

Museum and there was a whole window which I photographed where you had all the beauty products, the eye makeup products, the onguents for the skin that were used by Egyptians and Cleopatra. And, you know, it was not imposed onto them by L'Oreal. They briefed their own little researchers to create stuff that make them look great. Sometimes it was even to please the gods. But beauty is so essential to humanity that I think what we are doing is doing, creating products that are important to people, but we are creating them in a way that has the least possible impact.

And so far we've done a good job with the reduction of our CO2 emissions, for example. And I can tell you that the whole company is like super focused and dedicated to creating that beauty that moves the world, which means creating a beauty that does not impact the world and allows us to stay within the 1.5 degrees of science-based targets. Impressive. You've decided to suspend all sales in Russia.

Do you think that geopolitics will become more and more important for you? Well, what is clear is that we live in a world which is, at least in this period of time, getting more polarized, with more divides between different big countries. And so we have to always adapt to the reality of the moment whilst remaining true to our values, you know, L'Oreal has always prioritized the safety and the support to his teams.

to abide by the sanctions and to make sure that none of what we were having there could benefit the local regime and fund the local regime. But we continue to pay and to protect our Russian teams. So I think that's very important. And looking ahead, I think brands and companies will be more and more expected to take stances on things, on events of the world. I think we have to be wise and cautious because we are a company. We are there to deliver our products and to fulfill this essential need that I was talking about as it relates to beauty. We are not a political institution.

So we have always to stay within the boundaries of what is our role. And that's what we are trying to do. So I think that we are always able to land on our feet and balance in an unstable world, I think is a good thing to have. Moving on to governance. Now, I'm the third CEO of the Norwegian Southern Wealth Fund in 26 years.

And I thought that was, you know, pretty good. But you are number six CEO at L'Oréal for the last 114 years. So on average, 19 years per person. And I have just never seen anything like it. You know, it's both a great honor for me, obviously, to be given that responsibility. But I think it's a testimony to a few of the L'Oréal keys to success. The first one, as you say, is continuity. This company, which is always transforming itself, but you will never hear big steering the wheel right and left. We are following a strategy, we are consistent, and the way the company is managed with such stability allows this. It's a stability that's provided by the management.

It's also a stability that's provided by the shareholding structure with the Bettencourt family being there from the very beginning and still being the number one shareholder and clearly with a long-term vision i mean you've been with laurel since you were 23 years old and we are pretty much the same age so you know not super young anymore but what are the disadvantages of being an old-timer well it's uh i think it can only be a disadvantage if you assume you know everything and if you assume that you can run the show and if you assume you know everything and if you assume that you can run the

show and if you assume that the world doesn't change and that's i think you know it's so uh not the loyal culture so what you need to do is first of all constantly question yourself you also have to surround you with people that are different from you and some of them come from different backgrounds i I've tried to bring in and before that Jean-Paul, you know, different profiles at the executive committee of the group, a few come from outside. And so you have to have a blend of different profiles, you have to build a team. I'm a great, great believer of the power of the team. You know, I'm a great sports fan and collective sports. I've played for many years handball, which is

a big sport in Norway. It's one of the sports where Norway is pretty good. And you have to play with the team. You can't do it alone. And that's probably the recipe to avoid either to have too many people thinking the same

or to pretend you know yourself. So I create a strong team and I make sure they challenge me, they come with ideas, they tell me when they disagree with what I say. Of course, then I have to make the decisions. But it's really not a, you know, be alone in your ivory tower and think you know everything because you've been there 34 years. The majority of your sales is to women, yet you still haven't had a female CEO. When do you think we'll see the first one? Well, you know, I don't know the answer to the question. What is clear is that L'Oreal is a meritocracy and the people are given their roles

not based on the color of their hair, their skin or their gender. And so I'm sure there will be a woman CEO for L'Oreal just because there are fantastic women in the company. And if I look today at the way our top positions are split between men and women, if we take the top 300 jobs, so I would say the key leading position of L'Oreal, it's 47% women. So I think there will be a woman CEO of L'Oréal someday, and she will be appointed CEO because she's the best.

And if you were to mention one or two things with the corporate culture that you're trying to tweak now, what are the type of things you're working on? one or two things with the corporate culture that you're trying to tweak now? What are the type of things you're working on? Well, I think now what needs to or what can evolve are several things. First of all, I think we have to simplify even more. The danger when you're a big company is that you have over complex processes and the world being so complex and the speed we need to have to react to any change in the world is such that I want to make the processes even simpler. So we have a big task force internally to simplify further our ways of working, our processes, our meetings, our reports, so that people can fully dedicate their energy to their work

and be as agile as possible. Another element which I'm also trying to evolve, which is not so much a cultural thing, but just the result of history, I want to bring more diversity inside L'Oréal. We are, you said, we are a French company. In reality, we're a very international company. But if I look at our executive committee, it was very European.

And since my nomination, I've really brought more diverse profiles. So trying to build more perspective, which is what beauty is, because beauty is really global, but it's very cultural and having point of views of people from different nationalities, skin colors, I think is something that is true at the

top, but has to be probably continuously improved at the global level of the company. Nicolas, finally, you mentioned that L'Oreal is a young company and we have a lot of students listening into this podcast. What is the best advice you can give young people and students who want to get into the beauty industry? Well, first of all, I tell them it's a fantastic choice because, you know, I've been 34 years in this industry and I can think of very little other industries that have this incredible balance of creativity, innovation, which is really at the heart of what we do, and at the same time, making people feel really better

and happy when they use our products. And I would tell them, if they join L'Oréal, of course, that they have to keep their passion, to nurture it, to be entrepreneurs, to propose, and to follow their ideas, even if sometimes people tell them, well, it may not be a good idea, but to be passionate because L'Oreal is a company where everybody can have an impact.

And I hear a lot of young people say, I want to have an impact. And at L'Oreal, you can create the beauty that moves the world. And that's a fantastic impact to have. And what should they study, read and do to get a job with you? Well, I think as it relates to studies, it really depends on the function or the department they would want to join. We need marketeers, we need engineers, we need data scientists,

we need tech people. So there's frankly, there are jobs for any type of studies at L'Oreal, but I think we need curious people, people that are excited, looking out to what's happening in the world. They should be going to the movies. They should be reading either the classics or sci-fi books. I'm a fan of science fiction, which is why I'm interested in the metaverse. Watch TV series, go to museums and to some extent be sensible to beauty because you don't need to be passionate

about lipsticks or cosmetics. I wanted to be an oceanographer, so I had nothing to do with beauty, but I was curious and excited about the world and the power of image and arts. And I think in the end, we need passionate, curious people. That would be an important criteria.

Wonderful. Sounds like a great plan. It's been fantastic having you on and thank you so much for taking the time. Thank you very much. Take care now.