Cosmetic companies are already bracing themselves for higher costs in the year ahead as higher oil prices put pressure on energy and raw material costs.
Inflationary pressure Higher oil prices also fuel inflation and therefore reduce the spending power of workers prompting L'Oreal employees to strike last week against the company's system of individualized pay increases based on performance.
The largest cosmetics company in the world abandoned across the board wage increases in 2004 but after a week of negotiations with unions it has reintroduced general salary increases for its 12,000 French employees.
Last Thursday L'Oreal had proposed salary increases in line with inflation for all of its employees earning less than €50,000 along with a €250 bonus to all of its workers payable in March.
Unions were unhappy with the offer and L'Oreal decided yesterday to reinstate general pay increases although it did not provide any details.
The company stated the decision was taken following talks with employee representatives and a sharp rise in France's consumer price index, published on Friday by Insee, the national statistics office.
Wage increases combined with higher raw material and energy costs will put pressure on L'Oreal's margins in 2008.
Nevertheless the company plans to widen its margins over the coming year by increasing productivity in an effort to combat the difficult sales environment in the US.
L'Oreal hopes to increase margins by focusing on fast growing emerging markets, cutting the number of its buying offices to four from seven and studying targeted partnerships with suppliers to reduce costs.
Dermatology acquisition In other L'Oreal related news, Galderma, created in 1981 as a joint venture between Nestle and L'Oreal, has acquired US-based CollaGenex Pharmaceuticals for around $420 million.
Galderma is a pharmaceutical company that specializes in dermatological products and has acquired CollaGenex in an effort to further enhance its product portfolio.
"The immediate implication for the U.S. market is very positive," said Albert Draaijer, president of Galderma's U.S. operations. "
CollaGenex's oral rosacea therapy will be an important complement to Galderma's topical products, providing improved options to treat a condition affecting more than 14 million Americans."