How does Estée Lauder do R&D in China?
- Chaileedo Press
- May 18, 2023
- 6 min read
Estée Lauder Companies China Innovation Labs is not just for Chinese consumers, but will be radiated worldwide through the Chinese market.
(Credit: Estée Lauder Companies China Innovation Labs in Shanghai)
In recent years, more and more international beauty companies have been stepping up their efforts in China to accelerate localised research and development in the Chinese market. Recently, Estée Lauder Companies China Innovation Labs was inaugurated in Shanghai. According to Estée Lauder officials, this means that the Estée Lauder’s largest innovation lab in the international market was officially launched.
Confident in the Chinese market
The inauguration of Estée Lauder's heavyweight Innovation Lab is a 'shot in the arm' for the cosmetics industry. Meanwhile, for many brands, 2023 is the year of the rebound for the cosmetics industry.
Following many consecutive months of decline last year, China's cosmetic retail figures has a positive growth for the first time this year.
On May 16, China's National Bureau of Statistics released data showing that from January to April, total retail sales of consumer goods amounted to 1.498 trillion yuan ($213.3 billion), up 8.5% year-on-year. Among them, the cosmetics category in April this year, the total retail sales amounted to 27.6 billion yuan ($3.92 billion), an increase of 24.3% year-on-year. From January to April, the total retail sales of cosmetics category was 129.9 billion yuan ($18.5 billion), an increase of 9.3% year-on-year.
As Estee Lauder's financial reports, in FY2022, Estee Lauder's net sales were $17.74 billion, up 9% by reported basis. While its business in Asia Pacific, the second largest market, was the worst performer, being the only one of the three regions (The Americas, Europe, the Middle East & Africa, Asia/Pacific) to decline with full-year sales down 1% to $5.437 billion. It declined in the first, third and fourth quarters in addition to the second quarter.
However, the turnaround came in the recently published third quarter financial report. Estée Lauder Companies released its third quarter results for the fiscal year 2023, showing that net sales in Asia Pacific increased by 7% to $1.192 billion in the three months to March 31, and Estée Lauder's Mainland China market achieved double-digit growth in both February and March of this year.
Through Estée Lauder's financial results for the past three years, CHAILEEDO found that the business in Asia Pacific, where China is located, has maintained double-digit year-on-year growth in both FY2021 and FY2020. In FY2022, however, the performance of Asia Pacific declined due to the fading of the travel retail channel as a result of the pandemic.
(Credit: Estee Lauder's performance in recent financial years)
Even so, Estée Lauder remains confident in the recovery of the China market. In FY2023 third quarter financial report, President and Chief Executive Officer Fabrizio Freda concluded, "While we are working to overcome the severe headwinds facing travel retail in Asia, we believe this is a temporary headwind and we are encouraged by the strong other business momentum."
Indeed, this year marks the 30th year of Estée Lauder's presence in China since its entry into the mainland market in 1993. During this period, Estée Lauder has continued to increase its investment in the China market and the its net sales in China have almost doubled during the past three fiscal years.
It is clear that Estée Lauder's performance in China are gradually in a rise. At the same time, and more importantly, being Estée Lauder's second largest market worldwide, China has also become the heart of Estée Lauder's research and development.
Estée Lauder's world's largest innovation lab is located in China
According to official sources, Estée Lauder Companies China Innovation Labs enjoys 12,000 square metre and is located in Shanghai's Minhang Caohejing Development Zone. It is its first integrated R&D centre worldwide that combines research, ideation, insight, clinical, sensory and performance evaluation, formulation, packaging and engineering.
Justin He, Vice President, R&D China & APAC told CHAILEEDO that the Estée Lauder Companies China Innovation Labs combines modern and traditional Chinese design elements with architectural aesthetics. The beauty of this fusion is reflected in the design of the building's five floors - each of which is inspired by the five elements of traditional Chinese culture (gold, wood, water, fire and earth), with the five elements corresponding to the different responsibilities of each floor: consumer insight, cutting-edge R&D Centre, Packaging Model Studio, Interactive Testing Unit and Pilot Workshop. All of the parts are committed to accelerating the transition from consumer insight to commercialisation. Moreover, there is a dedicated Live Streaming Room and Experience Centre, giving Chinese consumers the opportunity to participate in the co-creation of new products on-site.
Global Advanced Technology Center, which opened on the Innovation Day held by Estee Lauder on March 29, also collaborated with Chinese academic and research institutions in the field of materials science to develop new, highly effective skincare ingredients and formulations. According to Justin, over 60% of the staff at the labs have a master's degree and 90% of the staff at Global Advanced Technology Center are PhDs.
The local scientists will also make full use of their strengths to deepen their research on natural actives with Asian characteristics and continue to improve the extraction process, so as to develop product formulations suitable for Asian skin. During the tour of the labs, Justin showed us rows of plants in containers placed in the Global Advanced Technology Center. He described to them that Estée Lauder is focusing on researching Chinese specialty botanical ingredients, categorised by active ingredients or species, combined with more advanced extraction techniques to maximise the active ingredients of raw materials. It is committed to providing Asian consumers with very good, skin care needs that can address efficacy.
In fact, Estee Lauder's Innovation and Research Centre was established in 2005 on Bibo Road, Zhangjiang Hi-Tech Park to focus on new formulations for the prestige brand. 2008 saw the development of the first successful product, the M-A-C Lip Scrub, a classic product that has been sold to this day. In 2011, Estée Lauder Innovation Centre was upgraded to the Estée Lauder Asia Pacific Research and Development Centre, with the aim of further exploring consumer needs and developing products for the skin of Asian consumers, especially in China.
The Estée Lauder Group announced this long-term strategic investment at the height of the pandemic in February 2020. On November 8 of that year, during the 3rd China International Import Expo, Estée Lauder, Shanghai Minhang District People's Government and Lingang Group held a signing ceremony for the labs. The construction officially began on May 13, 2021, taking a year and a half to finally complete.
Speaking at an Innovation Day held at the centre, Estée Lauder Group China President and CEO Fan Jiayu said, "The growing innovation and research capacity will bring Chinese consumers more new products that are relevant to their needs, expectations and aesthetics. It will breathe new life into the continued development of our business in China. With the labs, Estée Lauder will continue to lead and reinvent the premium beauty industry, bringing a better experience to consumers in China, Asia and around the world."
(Credit: open ceremony on Innovation Day held by Estee Lauder)
In China, for the world
In an interview with CHAILEEDO, Jane Anders, Senior Vice President, APAC R&D, The Estee Lauder Companies said the labs is dedicated to expanding from the Chinese consumer to the Asian consumer. Then the results will radiate globally. The philosophy of this lab from top to bottom is: "In China, for China"; "In China, for Asia"; and then "In China, for the world". By 2025, the labs will be the largest cutting-edge research centre in the Estée Lauder Group's international markets.
At the same time, as a localisation function, the labs will also enable the Group's brands to develop and bring a customized product portfolio to Chinese and Asian consumers. "At the Innovation R&D Centre, our core strategy is that we want to understand Chinese, Asian skin, and we want to understand all aspects of Asian and Chinese skin and their skincare needs from a biological, chemical and morphological perspective." So says Jane.
Chinese consumers are the most important group that Estée Lauder wants to serve. When it comes to anti-ageing issues, which are of greater concern to Asian consumers, Jane said that another core aspect of Estée Lauder's work is to look at extremely strong Asian-related iningringredients to address consumers' anti-ageing concerns, such as ginseng extract and Eastern Angelica root extract. As a result of Estee Lauder's research, it was found to be extremely effective in anti-ageing skincare as well. Currently, there are more than 10 Chinese specialty ingredients being used in Estee Lauder products to address the issues that consumers want to address.
CHAILEEDO found that except for the Chinese market, the labs will also apply products and formulas developed in China to products in other countries. Currently, the centre focuses on skincare and make-up. The products developed will first satisfy Asian consumers and then be sold to international markets according to the needs of people in different countries. Jane said in the exclusive interview with CHAILEEDO: "Every market has its strengths and weaknesses. Like in the Chinese market, we just talked about toner, emulsion, air-cushion foundations, sun protection, which are probably at the forefront of the world. These things are advancing from the East to the West. There are other things that are probably at the forefront of the West, advancing from the West to the East." "We are basically seamlessly linked to our colleagues around the world, keeping the information flowing. The best quality technology is found first over here, and even if it's not available elsewhere yet, our colleagues will be the first to know about it because we see it over here and develop it, so it's a symbiotic and win-win situation."
Opmerkingen