Assignment 1 - Unilever

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Strategy Formulation and Implementation MGMT.6910-061

Fall 2016

Assignment 1 – Unilever Due date October 1, 2016

Review the article uploaded in Blackboard titled, “Unilever’s Big Strategic Bet on the

Dollar Shave Club” do additional research and answer these questions. You should prepare your report according to this format:

Introduction/Context (write about one page summarizing the case; include the context,

that is why is this case written and what are the learning points)

Q1 (list the question) A1 (your answer) Etc.

Conclusion (write no more than one page of your conclusions and observations) Work cited

Use list (bullets), graphs, charts, tables, etc. to make your report more effective (a sample is on Blackboard). Be sure to use data available in the Case supplemented with additional research. Your report must be between 4 and 5 pages, 1.5 space with font TNR11

********************************************************* QUESTIONS:

1. Visit Unilever website and review their 2006-2015 financial data (under Investors Relations) and make relevant comments concerning its strategy and performance.

2. Do a web research (you can also use UML library) and discuss Shaving Industry size, trends, major players & their market shares and industry drivers. Be sure to support your responses with hard data.

3. Using Porter’s Five Force Model, assess the profitability potentials of the Shaving Industry. Treat Dollar Shave Club as a new entrant in discussing your response. Use Table 1 (below) to analyze Competitive Force Model


Table 1 - Shaving Industry Competitive Force Model

Force Discussion of the intensity Intensity (High, Moderate,

Low) Threat of New Entrant Threat of substitute Rivalry among current players Bargaining Power of buyers (identify buyers) Bargaining power of suppliers (identify key suppliers) Overall conclusions


The smartest insight and analysis, from all perspectives, rounded up from around the web:

Who would have guessed that the lowly men's razor would be at the cutting edge of retail innovation in 2016? said Bhaskar Chakravorti at Harvard Business Review. In a deal that has shaken the stodgy consumer products industry, Unilever announced last week it will pay $1 billion to acquire Dollar Shave Club, a scrappy five-year-old firm that delivers no-frills disposable blades to subscribers for as little as $3 per month. Since launching in 2011, the

Venice, California–based startup has grown to 3.2 million subscribers — earning $152 million in revenue last year and becoming a case study in how a disruptive innovator can "break into a highly profitable and overserved industry." The global razor business has long been built on convincing people they need more and more blinged-out blades at higher and higher prices, said Sharon Terlep at The Wall Street Journal. Dollar Shave Club's "simple, low-price razors have upended" that model. The startup now claims 5 percent of the U.S. men's shaving market, long dominated by the colossus Gillette, a property of Unilever rival Procter & Gamble. Since 2010, Gillette's market share has fallen from 71 percent to 59 percent.

Dollar Shave Club's success "shows that no company is safe from the creative destruction brought by technological change," said Steven Davidoff Solomon at The New York Times. Once upon a time, challenging a market leader like Gillette would have required factories,

sophisticated distribution, an enormous and experienced sales force, and a TV-marketing blitz. "But the internet, mass transportation, and globalization destroy everything." Dollar Shave Club doesn't actually make any of its products; it contracts with a South Korean razor manufacturer and then sells the blades directly to consumers over the web, bypassing retail middlemen. Because of this lean approach, Dollar Shave Club has just 190 employees. Thanks to YouTube, its initial advertising was essentially free. The company's first irreverent viral video, promising "f —ing great" razors at affordable prices, was responsible for 12,000 orders within 24 hours. Since then, the video has been seen more than 20 million times. When startups can get free advertising through YouTube, easy distribution through the mail, and low-cost sales via the web, "every other company should be afraid, very afraid."

Consumers are the clear winners of this brave new business model, said Farhad Manjoo, also at The New York Times. Just as Dollar Shave Club has made buying razors cheap and convenient, Warby Parker has done the same for eyeglasses, Casper for mattresses, and Primary for kids' clothes. "By cutting out the inefficiencies of retail space and the marketing expense of TV, these companies can offer better products at lower prices." And because brands born online live and die by their reputation, their customer service is fast and friendly. Small wonder then that

Unilever is eager to "buy its way in," said Catherine Piner at Slate. P&G is also playing catch-up with its own Gillette Shave Club, and has launched the Tide Wash Club, which sends consumers detergent refills for a monthly fee. Both firms are eyeing Amazon, which aspires to provide regular deliveries of everything from diapers to groceries through its "subscribe and save" program. The future of retail is coming, and it's arriving via the mail.




August 7, 2016


Unilever's Big Strategic Bet on the Dollar Shave Club (Bhaskar Chakravorti, JULY 28, 2016, Harvard Business Review)

Absorbing a disruptor. Dollar Shave Club is an interesting illustration of the theory of a disruptor breaking into a highly profitable and over-served industry from the low-end; it's not unusual for incumbents to seek to absorb these rivals when they're still relatively small.

Thanks to the momentum Dollar Shave Club created, the online market for razorblades has grown from essentially zero to $263 million, according to estimates from Slice Intelligence, a market research firm. While disruption has become an over-hyped and misunderstood idea, particularly in the tech industry, it is still relatively novel in consumer goods whose products may be "fast moving," but with far more slowly evolving business models.

Despite all this, it is hard to rationalize paying such a high premium for a small player, no matter how disruptive, with a low margin business model, focused on a zero-sum game of taking business away from an incumbent. This would be particularly at odds in a time when Unilever's corporate strategy is focused on re-balancing in favor of higher margin categories and brands, with growth potential. At the very minimum, the company would be sending a confusing signal to its shareholders.

A fundamental shift in the industry. A third rationale that builds on the first two, to my mind, is the most compelling one. As I mentioned earlier, a deal such as this - involving an acquisition of a disruptive rival for a five-times revenue multiple -- would feel at home in Silicon Valley. The best explanation for it is that it is, indeed, a "Silicon Valley" play. Unilever's move is a signal of more fundamental changes in the consumer products industry.

Dollar Shave Club has shown that the shaving market can still be transformed - thanks to an online subscription model, a memorable brand, and a strong consumer experience. For more evidence of this, consider that Gillette, still the No. 1 razor brand, saw its market share fall from 71% in 2010 to 59% in 2015. (And for the record, P&G-owned Gillette sued Dollar Shave Club late last year for patent infringement. Dollar Shave Club filed a countersuit in February.)

One of the ways in which P&G managed to slow Dollar Shave Club's encroachment was by responding with its own subscription entry, the Gillette Shave Club. In fact, P&G has extended the idea into new categories, the Tide Wash Club, offering pod refills for a subscription fee. Other competitors, such as Harry's, have also jumped on the bandwagon with its own "shave plans".

In the meantime, the biggest player on the online retail block, Amazon, is growing as a serious competitor to consumer products companies, with its push into private-label goods - diapers, detergents and grocery items -- combined with its "subscribe and save" option for these sorts of staples that require regular replenishment.

The accumulation of these transitions suggests that the classic consumer-products business model is about to be busted across the board, with both retailers and their suppliers gearing up to encroach on each others' traditional positions along the value chain using a digital connection with the consumer.

Unilever's billion-dollar shaving bet is an expensive way to do the right thing.

The Anglo-Dutch maker of Dove shaving cream and Axe body spray is moving deeper into men's grooming by buying the razor subscription service Dollar Shave Club. At first blush, the reported $1 billion price tag looks foolishly expensive. Unilever is paying more than double the median multiple for major cosmetics and personal-care deals of the last five years by offering 5 times Dollar Shave Club's projected 2016 revenue of about $200 million. The valuation even surpasses what Danone put forward for organic and natural-foods maker WhiteWave in one of the food industry's pricier deals.

But by the same comparison, $1 billion hardly makes a dent in Unilever's massive balance sheet next to the $12.5 billion check Danone is writing for WhiteWave. Both deals are bets on faster-growing alternatives to more staid markets, such as packaged food. And while that growth doesn't come cheap, it's a wager consumer giants increasingly need to make to stay relevant and competitive. Hence, why Unilever's stock (like Danone's after the WhiteWave purchase) rose on the takeover announcement.

The Dollar Shave Club deal continues Unilever's strategy of expanding in personal care, while shedding slower-growth food brands. In the past few years, Skippy peanut butter, Slim-Fast foods and Ragu pasta sauce have all been put on the auction block, while the company added Dermalogica, Murad and Kate Somerville skincare products. In particular, buying Dollar Shave Club -- with its tongue-in-cheek marketing and cheap prices -- will advance Unilever's efforts to attract men, something it's already trying to do with fancy shave-care products and cute commercials about dads under its Dove Men's line.

And why wouldn't it? The men's grooming market is forecast to grow about 3.3 percent a year through 2020, slightly outpacing the growth for the overall beauty and personal-care market, according to data from Euromonitor and Bloomberg Intelligence. Compare that to the packaged-food market, which is targeting a pace of 2.6 percent expansion per year over the same stretch, most of which is driven by Asia and other emerging markets.

Up until this point, Unilever had largely left razors to rivals such as P&G and Edgewell Personal Care. Arguably, the consumer giant should have been a bigger player in shaving earlier -- and it probably could have gotten a better deal on Dollar Shave Club if it had been quicker to the punch. But at least it's doing what it can now and investors have more reason to be excited about this deal than, say, a takeover of Edgewell Personal Care, which would have run Unilever almost $8 billion including debt, assuming a typical takeover premium of 30 percent.

Edgewell is on track to report a sales slump of about 4 percent for fiscal 2016, with only weak gains expected for the following two years. Buying the maker of Schick razors and Skintimate shaving cream would have given Unilever a sizeable block of the shaving market but via tired products that aren't really drawing consumers like they used to. Where's the fun in that? As Bernstein analyst Ali Dibadj points out, Unilever is now in a position to just keep attacking Edgewell and P&G similar to how Dollar Shave Club has been, but with more might.

Dollar Shave Club began to lose market share in 2015 as P&G started offering online subscriptions through its Gillette brand, according to Euromonitor. But the startup is still on track to grow sales by more than 30 percent this year. The revenue opportunity will likely be buoyed further once Unilever starts using its manufacturing and marketing capabilities to expand the business.


The direct-to-consumer aspect of Dollar Shave Club's business model also gives Unilever a leg up as consumers increasingly go online for regular deliveries of basic staples, rather than running to the corner drugstore. Amazon is looming as a potential competitor with its push into private-label goods like diapers, detergents and grocery items.

So yes, laying out $1 billion for a company that bills itself as an online dollar store for razors may seem expensive. But for Unilever, it may turn out to be a case of better late than never. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.



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