Men With Beards Are Trimming Down P&G’s Grooming Market

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PG: Procter & Gamble logo
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Procter & Gamble

Procter & Gamble’s (NYSE:PG) grooming segment is the most profitable of all the five segments in which the company operates. As per the the Trefis valuation, it comprises 14% of the company’s total value with only 10% of the revenues. In the past, the segment performed considerably well after P&G acquired Gillette in 2005, but in the last few years the company’s grooming sales have been continuously declining. P&G’s market share of shaving products declined from over 60% in 2011 to nearly 40% in 2015, as men go on to experiment with their beards and the new players continue to steal the show with their cheap subscription based products.

In this article, we analyze in detail P&G’s grooming segment problems along with the possible future options for the company.

See our complete analysis for Procter & Gamble

Growing Beard : Shrinking Revenues

The trend of keeping beards is gaining popularity among men as facial hair become more acceptable worldwide. There is no doubt about the fact that the world is shifting away from more formal clean shaved looks to the rough bearded look. In addition, the popular events like ‘No Shave November’ are encouraging more men to keep whiskers “natural.”  Apart from this, the frequency of shaving is also decreasing. According to Mintel, 41% of men in the U.S. who use shaving products don’t shave daily. The above trend has become a nightmare for Procter and Gamble, as it has continued to lose market share in the segment.  This is because a majority of its grooming sales come from products like razors, shaving gels and aftershave lotions, which are only used for clean shave.

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The Rise of Subscription Model

There has been a fast rise in online subscription model for shaving products where companies like Dollar Shave Club and Harrys have come up with customizable packs or bundles consisting of razors, handles and other shaving products in a kit which is directly delivered to the doorsteps of the customers every month. Moreover, these subscription models are relatively cheaper than the Gillette’s products available in stores, which has led to Gillette’s share being affected in the market. As of 2015, Dollar Shave Club had a very minor share of less than 1% in men’s razor market, with revenues of around $152 million.  But recently, Dollar Shave Club has been acquired by Unilever (NYSE:UL), which means higher investments and resources of Unilever can make it a prime competitor for Gillette in coming years.

How P&G Plans To Heal Its Shaving Wounds?

  • The increasing prevalence of beards may turnout to be a passing trend which is likely to fade in the coming years. This can result in P&G regaining its revenues from the segment.
  • To compete with Dollar Shave club, P&G launched ‘Gillette Shave Club’ subscription model in 2014. Apparently Gillette has quickly gained a 4% share in the online subscription market, and has the capabilities to create its dominance over the segment.
  • With the rise in the trend of beards, there is a simultaneous potential of an increase in the market of beard styling products and trimmers. P&G owns Braun, which is focused on electric shavers and trimmers, which offers an alternative  play of the shaving products market .  Moreover, it serves as a buffer against any decline in the razor market in the future.

Scenarios

  • If the above mentioned strategies work for P&G and market share of the company increases from the current 40% to around 50% in the coming years, then we can see a price increase of around 10% in the company’s valuation.
  • However, if Unilever successfully stages Dollar Shave Club against P&G’s Gillette in the future and the latter is unable to catch the growing trend in beard styling products, then we can see a price decline of 5% in the stock valuation, provided its market share falls as low as 20%.

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