Here’s Why We Expect Procter & Gamble’s Grooming Business To Rebound In 2018

by Trefis Team
-10.32%
Downside
110
Market
98.26
Trefis
PG
Procter & Gamble
Rate   |   votes   |   Share

Procter & Gamble’s (NYSE: PG) Grooming business competes in the Shave Care and Appliances market, and the company owns leading brands in these categories such as Gillette and Braun. While Gillette primarily operates in the wet shaving market, Braun is big in electric shavers and trimmers. The Grooming segment contributes only around 10% of the company’s total revenues but accounts for 15% of its value, per Trefis estimates. The segment has struggled to generate revenue growth of late, with its revenues declining in 2016, and the company seeing intense competition from cheaper subscription-based startups. However, we forecast the segment’s total revenues to return to growth in 2018 and grow thereafter to reach nearly $8.4 billion in revenues by 2022, up from a $6.8 billion forecast for 2017.

P&G’s share in the wet shaving market has declined from over 70% in 2010 to 54% in 2016, due to rising competition from smaller subscription-based startups such as Dollar Shave Club and changing beard preferences in men. On the other hand, Harry’s and Dollar Shave Club now combine for a 12.2% market share, up from 7.2% in 2015, according to Euromonitor. The rise in online-subscription models for shaving products (customizable packs of razors, handles, and other shaving products in a kit), which are directly delivered to the doorsteps of customers every month, is largely responsible for the pressure on P&G’s market share in the segment. Apart from this, the frequency of shaving is also declining, as almost 41% of men in the U.S. who use shaving products prefer not to shave daily.

P&G Trying To Cater To Younger Customers

The male grooming market offers a big growth opportunity for P&G, as it is expected to grow at around a 5% compound annual growth rate (CAGR) to reach $43 billion by 2020. To capture a larger share of this market, P&G also launched its own direct-to-customer model Gillette-On-Demand to compete with the likes of Dollar Shave Club. In this service, subscribers are rewarded for their loyalty with their fourth order free, while others can text or email the company at any time to order a one-time purchase. In addition, Gillette also reduced the prices on many of its shaving products for both men and women – some up to 20% – in fiscal 2017. To add to that, Gillette also launched a huge marketing campaign to lure back customers who had switched to other competitors, where it compared its products to those offered by the online startups. In fact, the company also claimed that over 200,000 customers already switched back to Gillette.

P&G is successfully targeting younger customers, and other potential new customers, by distributing free promotional product samples. For instance, P&G distributed Gillette’s Flexball razors to 2 million young men on their 18th birthdays in fiscal 2017. Although such initiatives increase the company’s promotional costs, they are likely to yield results in terms of a long-term customer base.

Our $93 price estimate for Procter & Gamble’s stock is slightly ahead of the current market price.

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!