Procter & Gamble is slashing prices at Gillette.
“The pricing changes deployed will vary from zero to more than 20 percent reductions…with a double-digit average reduction,”said Jon Moeller, P&G chief financial officer, speaking at the Consumer Analyst Group of New York conference on Thursday. The pricing change is slated for early April for consumers, Moeller noted.
“For the last two years we’ve been losing users in the mid and value tiers of the U.S. blades and razors business,” Moeller said. The men’s grooming business has recently faced new entrants to the market, including Dollar Shave Club (recently acquired by Unilever for a reported $1 billion) and Harry’s.
“The company has been vocal about its intention to regain lost share in its midtier blades and razors business, but until today we’d been under the impression that this would be via innovation rather than a full capitulation on price,” wrote Barclays analyst Lauren Lieberman in a note. “Importantly, while we would have thought that a decision this severe would be met with a targeted and specific cost savings plan so as to protect margins, the company was explicit that pricing actions will be dilutive to total company margins. We estimate that the U.S. blades [and] razor’s business is [about] 50 percent of global grooming sales ([about] 5 percent of total company sales) with gross margins in the 70 percent range, such that a -12 percent price reduction could cost overall gross margins [about] 40 [basis points] on an annual basis. In short, while we think this list price change could provide a temporary boost to volumes, over the long-term we do not think this will change the downward trajectory of P&G’s business — i.e., we think it will be very tough to switch users back from Dollar Shave Club [and] Harry’s.”
P&G reported beauty net sales of $2.9 billion for its second quarter, down 1 percent year-over-year. SK-II, Pantene and Head & Shoulders all sold well, the company said. Moeller noted that Head & Shoulders now has more than $3 billion in annual sales. P&G recently closed the divestment of 41 beauty brands in an $11.6 billion sale to Coty Inc., and has simplified into 10 key categories with higher growth and profits than those it sold.
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In the wake of Kraft’s $143 billion offer for Unilever, one audience member asked about M&A, and while P&G just finished a years-long divestiture process, Moeller didn’t rule out future purchases. “We’re going to continue to look for attractive opportunities that leverage our key strengths and those will be both organic and acquisition,” Moeller said. “We’re going to continue to be active members of our portfolio.”