In the latest salvo in the US razor wars, Procter & Gamble plans to sharply reduce prices of its Gillette-brand offerings, as it attempts to recoup the market share it lost to startup online rivals Dollar Shave Club and Harry’s.
Starting in April, Gillette will reduce prices of its razors by as much as 20 per cent, depending on the quality and pack size of the offerings. On average the reduction will be in the “double digits”, said P&G’s chief financial officer Jon Moeller on Thursday at the Consumer Analysts Group of New York’s annual shindig.
Mr Moeller said that Gillette was missing some offerings in the low- and mid-tier range and that the price reductions would help address those gaps. However, the move is likely to hurt the brand’s margins in its all-important US market.
Gillette has dominated the US shaving industry for years, but complacency led to a loss of market share to 58.5 per cent from 71 per cent over the past five years, as new entrants captured online demand through innovative offerings such as a subscription service and undercutting Gillette on prices.
Gillette initially responded by introducing its own subscription service, and it has also sued Dollar Shave Club for patent infringement (DSC has denied liability). More recently it has used advertising as a weapon with a controversial campaign directly targeting Harry’s by “welcoming back” former customers it claims has returned to Gillette after trying the startup’s razors. Gillette said it had won back more than 150,000 consumers.
The success of the online subscription model by DSC, which was acquired by Unilever last year for $1bn, put Gillette on the back foot. Its failure to anticipate the power of selling direct-to-consumer via the internet has been an important lesson for the company.
The move comes just a week after news that Nelson Peltz’s Trian Fund had built up a $3bn plus stake in the company — which has a market cap of $234bn market cap — making it the second activist investor to take a stake in the company. Although P&G has been aggressively reducing costs over the past five years and has pledged to cut them by a further $10bn, it is still struggling to improve sales growth at the pace it has promised.
While Mr Peltz has yet to make any public demands, the investment adds to pressure on P&G to take cost-cutting to its limits and could reignite the debate over whether the company would be better split.
Mr Moeller did not mention Mr Peltz’s investment on Thursday, and the company has only said so far it “welcomes” all investors. However, he made a point of emphasising that its average operating margin of 22 per cent was only beaten by rivals Reckitt Benkiser and Colgate-Palmolive. He added there was plenty of cost-cutting still to do, including reducing its annual $15bn spending on so-called trade promotions, where manufacturers offer incentives to retailers to help stimulate demand.
“We’re at early innings of programme to be as effective as we can with trade promotions,” he said, adding that it was a “significant opportunity”.