Harry’s Muscles into Procter & Gamble’s Turf

The shave care industry is important to Procter & Gamble (PG). It is included in its Grooming segment and operates under the Gillete brand.

Shave Care is a $15 billion industry with Gillete holding a 60% share.

Gillete Market Share

From P&G Analyst Day. Click image to enlarge.

This is why the following image is worrisome.

Harry's Razors

Image from WSJ. Harry’s moves from online to brick & mortar. Click image to enlarge.

Razor Blade Sales Disruption

Even the famous Razor/Razor Blade business model isn’t safe from disruption.

Two new companies, The Dollar Shave Club and Harry’s, saw an opportunity to sell razor blades direct to consumers at a cheaper price and comparable quality to Gillette. The online shaving club subscription services took off. They were the fastest growing part of the shave care industry over the last couple of years.

Online razor sales are still the biggest opportunity for growth. According to Euro Monitor, in 2016 only 5% of men in the U.S. belong to shave club. It is why Unilever bought The Dollar Shave Club for $1 Billion and it is why Procter & Gamble created The Gillette Shave Club. Competition is only expected to increase with more entrants.

Harry’s Moves Offline

With Gillette moving into Harry’s online turf. Harry’s decided to move into Gillette’s territory by garnering itself shelf space at the 1,800 stores Target operates. So far it has been a success.

Within weeks, Harry’s grabbed a 10% share of the retailer’s cartridge sales and about 50% of razor handle sales, according to Nielsen data covering the four-week period after the displays launched in August. Procter & Gamble Co.’s Gillette sales in Target stores declined in September from a year ago, according to Target spokesman Joshua Thomas.

Those are outsized numbers given that Harry’s had a 2% share of the overall market for men’s razors last year in the U.S., according to Euromonitor.

Harry’s & PG’s Future Dividend Growth

Procter & Gambles grew its dividend by only 2% from last year. P&G’s payout ratio is 70%. Above average dividend growth won’t come from increasing the payout. It will come from increasing sales of high margin products that generate excess returns on capital where the excess capital not needed to maintain and grow the business is returned to shareholders. Losing ground to discount online razor blade companies does not help.