According to results published this week, P&G saw organic sales rise 7% year-on-year, the fastest rate for 13 years, the Financial Times noted. This was despite an overall 3% increase in prices across all divisions, a reversal of the more usual price-cutting strategies of large FMCG firms.
In part, such rises reflect what finance chief Jon Moeller described as a “tsunami” of costs and trade tariffs, which the company has managed to pass on to its consumers.
The news reflects two sides of legacy brands. Firstly, a strong brand is crucial to diminishing price sensitivity among consumers and therefore pulling off price hikes. Conversely, the company’s writedown of its Gillette razor and grooming brand to the tune of $8bn indicates how size can become a problem when consumer habits change. On this subject, P&G noted a “market contraction of blades and razors, primarily in developed markets due to lower shaving frequency, and competitive activities”.
Speaking on an earnings call, CEO David Taylor noted, “These factors caused us to reduce the accounting and carrying value for this business on our balance sheet.” In addition, the company says that currency devaluation contributed significantly.
It appears that men are shaving less. Yet, on the same call, Moeller insisted that the brand continued to enjoy “strong market positions” in a “very attractive” sector. According to Euromonitor figures for the US (via CNBC), Gillette enjoys a 52.8% share of the US men’s razors and blades market.
But problems have been building for the brand for some time. The Wall Street Journal noted that the brand began cutting prices in 2017 in response to the rise of DTC shaving brands Dollar Shave Club and Harry’s, which were able to compete primarily on price, but also on convenience.
Simply, razors need to be simple. P&G has acknowledged that its focus on pursuing the premium razor market by adding largely superfluous features was a mistake that paved the way for lean, low-priced upstarts to enter the market.
But the company is now focusing on differentiating those brands. “We’re rejuvenating both the Gillette and the Venus brands,” Moeller explained, adding that the new campaigns are seeing an “80% positive response [among] millennials”. Overall, the company recognises the “need to step up our game both user experience value and offerings,” with a greater emphasis on e-commerce.
It is likely that people will read marketing impact into the company’s accounting tactic, especially after Gillette’s The Best Men Can Be campaign drew a variety of vocal responses, as the brand replaced its longstanding “Best a Man Can Get” tagline. At Cannes Lions 2019, P&G’s Marc Pritchard and Grey New York CEO Debby Reiner explored the lessons from facing such a volatile response to the campaign.
Sourced from P&G, Financial Times, Seeking Alpha, CNBC, Wall Street Journal; additional content by WARC staff