Facing market pressure from upstart razor companies, Gillette is lowering its prices. (Daniel Acker/Bloomberg News)
The razor business is all about the blades.
Get consumers hooked on your razor, and they buy the highly profitable refill blades forever.
That seemingly indestructible, high-margin revenue stream is what made Warren Buffett once fall in love with Gillette, which dominates the global razor business with an estimated 50 percent market share. Buffett became one of its largest shareholders and added to his humongous fortune when the razor king was sold to Procter & Gamble for $57 billion in 2005.
But Gillette’s dominance is at risk, with lower-priced private-label upstarts such as Dollar Shave Club and Harry’s eroding market share that Gillette built over more than a century.
[ Which industries will prosper and which will suffer under President Trump ]
Last week, Gillette began across-the-board price cuts averaging 12 percent in an attempt to halt the inexorable surrender of its men’s razor business to the newcomers. The market share held by the Boston-based company, now a division of P&G, has dropped from 70 percent in 2010 to 54 percent in 2016.
Barclays analyst Lauren Lieberman said Gillette’s moves are too late.
“We are not assuming that there’s any material change in the long-term trajectory of the Gillette business as a result of these cuts,” Lieberman said in an interview Wednesday. “There is something about Dollar Shave and Harry’s . . . we are in a consumer environment where people like feeling they are making a differentiated personalized choice. Small and niche is in vogue.”
Gillette said Wednesday its price offensive is hitting every part of its portfolio “as we speak.”
“We want to be available at all price points that men are looking for and give them the best shaving experience in that category, regardless of what they want to spend,” Gillette spokeswoman Barbara Diecker said.
Diecker said refill blades for the Gillette Fusion, for example, will drop from $4.99 to $3.74 per blade, a savings of about 25 percent.
The company is also recharging its longtime “18th Birthday Program” initiative, with a goal of putting a Gillette razor handle and cartridge blade against the cheek of every American boy turning 18. Parent P&G has a strong relationship with Amazon.com, which also helps the company’s online sales, according to industry observers.
“We are fully aware of the challenges we are facing as a North American business,” Diecker said. For decades, Gillette was focused on a trade-up model similar to how General Motors encouraged its customers to start with Chevrolet and eventually buy up to Cadillac. Gillette prided itself on every seven years or so inventing new — and pricier — razors that would offer an even better shave.
“Gillette was the only game out there for high-quality shave,” Lieberman said. “The idea was if you were a [Gillette] Sensor user, when they launched Mach3, to get Sensors to trade up to Mach3. Then trade up from Mach3 to Fusion, an even better shave.
“That business model was always in place.”
[Unilever to buy start-up grooming brand Dollar Shave Club]
Rival Schick disrupted Gillette’s cycle several years back with its own innovations such as the Quattro. Then along came Dollar Shave Club, Harry’s and even smaller players such as 800Razors.com.
“This is not a new issue,” Lieberman said. She said Gillette realized that it needed to emphasize lower-priced products but that the company waited too long to launch them. “If I go back to 2012, they were already losing share and it was before the advent of the Dollar Shave Club.”
The Wall Street Journal, in a report this week on Gillette’s price changes, said Gillette’s refill razors are $2 to $6 a cartridge when not in bulk, compared with $2 to $2.75 per Schick cartridge. Dollar Shave Club’s cheapest refill razor cartridge is 20 cents.
Publicly traded Edgewell Personal Care, which owns Schick, last year began selling a compatible refill blade that fits Gillette’s Mach3 handle after the Mach3 patent expired. The refill is a fraction of the price Gillette charges.
Phil Masiello, who founded 800Razors.com and built its sales up to $2 million before selling it to ShaveMOB last year, said Gillette’s strong online presence could help halt the erosion if it is able to compete with its rivals’ prices.
“Gillette makes a great shave,” Masiello said. “Nobody has ever complained about the great shave of Gillette and Schick. People only complained about the price. You take the price difference out, all of a sudden they are back in the game.”
Read more:
Mars and Hershey are going to war over malted-milk balls
The story behind Atlantic owner David Bradley’s ‘biggest business failure’
Kmart, Sears face ‘substantial doubt’ about finances as losses grow