The high-margin revenue stream from disposable razors that made Warren Buffett once fall in love with Gillette is now 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.
Gilette dominates the global razor business with an estimated 50 percent market share. Last week, the company began across-the-board price cuts averaging 12 percent in an attempt to halt the inexorable surrender of its the men's razor business to the newcomers. The Boston-based company, now a division of Procter & Gamble, has seen its market share drop 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. "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 that its price offensive is hitting every part of its portfolio.
"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 spokesman 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 around 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 male turning 18. Parent Procter & Gamble 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 inventing new -- and pricier -- razors that would offer an even better shave.
Business on 04/06/2017