PARIS — Unilever’s recent acquisition of the online men’s grooming business Dollar Shave Club was the subject of the Anglo-Dutch giant’s financial analyst conference call, led by its chief executive officer Paul Polman, Thursday morning.
“In these environments that we operate in, the strategic changes we are making to continue to build our business are obviously very important, and they focus on driving agility and resilience,” he said. Polman outlined that those comprise numerous elements, such as Unilever stepping up its innovations.
“Secondly, we continue to evolve our portfolio, including the adoption of more flexible models for some parts of our business that operate on the edges of our traditional model,” he said. “And the Dollar Shave Club acquisition that we announced [Wednesday] is a good example of that.”
Polman explained that over the past seven years, Unilever has built its personal-care business from just 28 percent of company sales to now nearly 40 percent, making it today an activity generating some 20 billion euros, or $22.02 billion at current exchange. He called Unilever’s “probably the fastest-growing personal-care business.”
The executive outlined some reasons why he is excited about the purchase of the Dollar Shave Club, which was made for a reported $1 billion in cash.
“First and foremost, it takes us further in the male grooming category, where Unilever, if you exclude the shaving segment, is the outright number one,” he said. “This is much more than just a razor company. Their portfolio and their dialogue with consumers extends across male grooming into hairstyling, skin care and skin cleansing. Male grooming…is a $40 billion market, growing faster than the personal-care average, and so we feel it is a huge opportunity.”
Polman said that by stripping out a shaving activity, Unilever has twice the share of the personal-care space than its direct competitor. Without naming names, he was referring to Procter & Gamble, the world’s leader in the razor category.
Polman said with the Dollar Shave Club Unilever has bought an innovative and disruptive brand with a cultlike following that compliments the company’s existing core male grooming brands.
“This also obviously is the category leader in the direct-to-consumer channel, which is very attractive and successful,” the executive continued, adding the subscription model involves up-front investment while acquiring subscribers during the rapid-growth phase and then thereafter is inherently profitable with a fan base of consumers — including the highly attractive Millennial segment — regularly buying the range of products that cover all price categories.
Polman said big companies traditionally have a hard time establishing direct-to-consumer brands themselves, due to their inherently involving a different culture and knowledge.
“We are able to acquire the knowledge that they have built very quickly and undoubtedly will apply it also on other brands,” he explained.
This includes technological know-how. Dollar Shave Club gets Unilever into the razor game, too.
“That market is about $4.5 billion in retail sales, and we currently don’t have any of that. So for us, it’s all incremental,” he said. “And there’s a lot more to go for.
“We believe that it is a great acquisition that goes well beyond either shaving or e-commerce, and we look forward to welcoming the business into our portfolio, and scaling it further,” Polman said.
Dollar Shave Club, run by its founder Michael Dubin, will continue being built up in the U.S., its core market.
“But we’ll also look at other expansion opportunities beyond that, and then [leverage] the knowledge that we have acquired here across some of our other businesses,” Polman said. “I can think of our tea business. I can think of our prestige business and other things.
As reported, Unilever released earnings figures prior to the conference call. The company’s second-quarter sales this year grew 4.7 percent on an underlying basis to 13.7 billion euros, or $15.47 billion, in a challenging trading environment due to slower global economic growth and intensifying geopolitical instability.
Unilever registered first-half net profits of 2.7 billion euros, or $3.01 billion, up 2 percent. Operating profits declined 0.1 percent to 3.8 billion euros, or $4.24 billion, and sales retreated 2.6 percent to 26.3 billion euros, or $29.35 billion.
Underlying sales growth at the company was 4.7 percent in the first half, ahead of its markets, and volume gained 2.2 percent. Revenues increased 5.4 percent at constant exchange rates.
In the six-month period, Unilever’s personal-care division posted an underlying sales gain of 5.6 percent to 5 billion euros, or $5.58 billion. The company said growth was spurred by volumes that improved across all sub-categories thanks to innovations that expanded the core of its brands and extended into the more premium segments.
“We have been preparing ourselves for tougher market conditions in 2016 and do not see any sign of an improving global economy,” Polman said.
“Against this backdrop we continue to drive agility and cost discipline, implementing the key initiative announced at the end of last year: net revenue management, zero-based budgeting and ‘Connected 4 Growth,’ which is the next stage in our organizational transformation. Our priorities continue to be volume-driven growth ahead of our markets, steady improvement in core operating margin and strong cash flow,” he added.
While Unilever did not divulge terms of the Shave Club deal, media reports indicate the company paid $1 billion in cash.