There aren't many consumer products segments Procter & Gamble (NYSE:PG) dominates as thoroughly as shaving. With help from powerhouse brands, including Gillette, Mach3, and Fusion, P&G is the global leader for a product that millions of people use daily. In fact, it commands 65% of the blades and razors market.
However, this attractive product line is under fierce attack, both from value-focused rivals and from subscription services like Unilever's Dollar Shave Club. Recent competitive wins have whittled P&G's market share down from 70% just four years ago. Below, we'll take a closer look at the prospects for this key product segment.
An increasingly crowded field
Procter & Gamble's grooming division accounts for 11% of sales and is dwarfed by larger segments like fabric care, home to Tide detergent, and baby care, anchored by the Pampers and Luvs diaper brands. Yet grooming accounts for an outsized 15% of earnings, so it's no wonder that the shaving franchises were kept on board even as the company shed nearly 100 brands from its portfolio over the last two years.
The division has also been home to some of the company's worst demand losses recently. Grooming shed over one percentage point of market share in fiscal 2016 due to a combination of negative trends that included a weak sales environment in the U.S., surging competition from in-store brands, and growing e-commerce challenges. That last threat only intensified after Unilever acquired Dollar Shave Club and promised to aggressively promote the service as a tool to expand deeper into the $42 billion male grooming category.
Fighting back with new offerings
Procter & Gamble is responding by stepping up its online efforts and introducing a wide range of new disposable and premium technologies to better defend against competitors across the value spectrum. The early results on these initiatives are encouraging. Market share trends have been improving recently, which is just one reason why the company raised its growth outlook at its last quarterly check-in. P&G sees organic sales rising 2.5% at the midpoint of guidance, not too far behind the 3.7% that Unilever achieved over the past 12 months.
Innovation is key to defending the company's market position, and that's why it's so important that premium products like the new Gillette Fusion perform well.
In addition to staying one step ahead with new product introductions, P&G will need to support its releases with aggressive marketing campaigns. A growing part of that blitz now includes sampling. The company aims to distribute more than two million Fusion razors to young men on their 18th birthday this year.
The grooming category grew at a 2% organic sales pace in the most recent quarter, improving from the 1% uptick a year ago. Ultimately, P&G hopes to achieve with shaving what it has done with laundry over the long term. With new releases like Tide Pods and Downy fabric softener beads, the category has expanded dramatically since the 1970s, and as the market leader, P&G has pulled in more than its fair share of that sales and profit growth.
Before it can realistically target an expanding opportunity in the same way for grooming, however, the company will need to start showing evidence that its three-year global market share slide is ending.