P&G Talks Digital, Shave Biz Strategy In Light Of Unilever’s DSC Buy

Many emerging e-commerce brands may merely be flash-in-the-pan phenomena, but P&G is investing significantly in e-commerce and digital marketing to “win mobile back,” according to CEO David Taylor. The firm also will continue to strengthen the mid and value tiers of its shave business, he said during a Q4 earnings call in which Unilever’s Dollar Shave Club acquisition was on a number of analysts’ minds.

Procter & Gamble Co. discussed its digital marketing and e-commerce platforms, openness to strategic acquisitions and moves being made to strengthen its presence in lower-tier shave segments during the firm’s fiscal 2016 fourth-quarter earnings call.

Much of the discussion around those subjects stemmed from analyst questions about P&G’s outlook on Unilever PLC’s acquisition of Dollar Shave Club, announced in July.

Unilever has suggested that DSC’s game-changing marketing, online subscription sales model and deeply connected customer base makes it well worth the rumored $1bn acquisition price, which values DSC at five times its projected 2016 revenue.

DSC also has expanded in the past year into personal-care categories in which Unilever has an existing stake, so its acquisition effectively removes a budding rival from the Anglo-Dutch firm’s growth path.

Analysts see the deal as a clear signal that multinationals are taking the threat from innovative e-commerce startups seriously and looking to armor themselves against share losses accordingly. They also predicted that Unilever’s entrance into the men’s razor market – which has it “parking their tanks on P&G’s lawn” – could provoke retaliation from the Cincinnati-based consumer-goods giant (Also see "Unilever Mitigates E-Commerce Grooming Threat With Dollar Shave Club Buy" - HBW Insight, 20 Jul, 2016.).

“Our intent is collectively as a leadership team to grow our business from this point forward. In no way do we feel encumbered by any of the past. We’re looking forward through the lens of each of the ten core categories, and M&A is a tool that is open to each president.” – P&G CEO David Taylor

During the Q4 call, P&G President and CEO David Taylor assured investors that the firm will continue efforts initiated earlier this year to support and grow its US shave-care business.

“The strategic choice we made, which is very important and should play out positively in spite of Unilever’s acquisition of Dollar Shave Club, is activating more than just the high end of the portfolio,” he explained.

The exec noted that P&G, whose Gillette brand has long been leading the razor arms race, has been vulnerable in the mid- and lower-tier shave-market segments, particularly as DSC and other direct-to-consumer businesses have cropped up with simplified instruments and value propositions that are resonating particularly with the younger set online.

In the lower price tiers, “if you look at our share losses, that’s where they’ve been most acute,” Taylor noted. “And Dollar Shave Club has come in with, in some cases, a lower absolute cash outlay. Not a better performing product and actually not a better-valued product when you look over time.”

Gillette has been criticized as being late to the game with its Shave Club, but now claims that its plans can offer subscribers up to 51% savings compared with the DSC model. The math is predicated, however, on the brand’s assertion that each of its cartridges can last users up to a month, a claim that some daily shavers have challenged.

To better compete at levels below the premium tier, P&G also is investing more in its mid-range Mach3 razor, as well as in value disposables, Taylor noted. Gillette’s Venus line for women includes two throwaway options – Sensitive, priced at $9.99 for a pack of three, and Simply Venus Pink, $7.99 for a four-count pack.

The Gillette Body range also includes a disposable option, priced at $9.99 for a pack of two.

Digital Clearly A ‘Powerful Opportunity’

Taylor also responded to analyst observations that the lower cost of entry and doing business in an increasingly digital marketplace has created fertile ground for upstarts, such as DSC, to rise up and take on P&G in categories it historically has dominated.

The exec acknowledged the significantly different market dynamics today versus a decade or even five years ago. “The digital and social space to me is a powerful opportunity for any consumer marketing company,” he said, “and it’s left to all of us to figure out how to best leverage the capability that has been developed and frankly continues to emerge rapidly.”

He said the firm has reallocated its resources and investments accordingly “to ensure that we are showing up with communication that wins mobile back … because whether it's e-commerce or whether it's consumption of media, in many markets it's now primarily through the mobile phone.”

According to Taylor, P&G is winning increasingly with its digital and social marketing as a result of the intensified focus. He pointed to the “Like a Girl” campaign from the firm’s Always feminine products brand as an example.

Last year, P&G said the project in female empowerment included the most tweeted and talked-about Super Bowl ad, exposure that had a direct impact on Always product sales (Also see "Slimmed-Down P&G To Consist Of 65 ‘Leading Brands’ By FY 2017" - HBW Insight, 23 Feb, 2015.).

As for the threat posed by e-commerce brands, Taylor said, “I expect we’ll continue to see competitors that can pop up, but generally to sustain and grow a business you have to have a product and a product experience that meets the consumer’s need.”

Customer retention and long-term sustainability is the key for any business, and this is where some blustery gatecrashers ultimately may fizzle out, he suggested.

“There are many, many examples of Internet-based competitors that have been popping up both here and in China, a tremendous number of those that get trial. Repurchase though is another story, and repurchase and a profitable business model is the highest bar, and that's the one that we're working against.”

P&G’s goal, Taylor said, is to have “substantive” products that meet consumer needs, along with communications that reach consumers whenever and wherever they’re ready to entertain them, recognizing that “they want less to be sold and more [for brands] to be part of their life. And we’re adjusting our marketing communication programs to do just that.”

The firm also is working to optimize its e-commerce game, collaborating with its retail partners to ensure that its messaging, product mix and even the packaging and sizing of products is appropriately tailored to their platforms and customer bases, Taylor said.

According to the exec, P&G’s e-commerce business is growing in six of the top eight e-commerce markets for the firm, identified as the US, China, UK, Germany, Japan, Korea, France and India.

The growth reflects a strategic shift at P&G “to not see [e-commerce] as a separate activity but an integrated part of how we go and reach consumers when and where they are receptive to shop.”

Substantially more than 10% of P&G’s business is e-commerce at this point, and that portion is rapidly growing, the CEO said.

Growth-Minded P&G Open To M&A

Finally, asked by an analyst on the call whether P&G is open to considering acquisitions “such as Dollar Shave,” Taylor emphasized that despite the firm’s efforts over the past two years to trim down its portfolio to 65 brands in 10 core categories, P&G is not closed off to strategic M&A opportunities.

“Our intent is collectively as a leadership team to grow our business from this point forward. … In no way do we feel encumbered by any of the past. We’re looking forward through the lens of each of the ten core categories, and M&A is a tool that is open to each president,” he said.

The firm recorded net sales of $16.1bn for the fourth quarter, ended June 30, down 3% compared with the prior-year period, driven by currency effects, Venezuela deconsolidation and minor brand divestitures, according to its release. In organic terms, sales increased 2%, fueled by volume gains, P&G says.

In the release, Taylor, who took P&G’s helm roughly a year ago, characterized the quarter as “another period of progress driving P&G’s results to a balance of strong top-line growth, bottom-line growth and cash generation.”

Investors have been keen on seeing growth at P&G since the firm wrapped up its portfolio streamlining initiative last year, an undertaking that included divestment of a large chunk of its beauty business to [Coty Inc.] (Also see "P&G May Be Simpler, More Efficient, But Investors Anxious For Growth" - HBW Insight, 30 Jul, 2015.).

P&G’s remaining beauty business, which includes Pantene and Olay and SK-II skin care, has been dragging. During the fourth quarter it declined 5% to $2.75bn.

Grooming was up 1% to approximately $1.7bn, the firm reports.