Leading razor company Gillette (PG) is officially on the defense. Unilever (UN), the Anglo-Dutch consumer goods company, announced it would acquire hot startup Dollar Shave Club for a reported $1 billion on Wednesday.
The monthly razor subscription service started in 2011, and CEO Michael Dubin made a splash with his YouTube video, modestly called “Our Blades are F***ing Great.” The video has garnered 22.9 million views.
Offering three distinct razors — the Humble Twin at $1, The 4X at $6 and The Executive at $9 — Dollar Shave Club’s model is simple. Choose a blade and get it delivered once a month (bimonthly if you don’t need to shave so frequently).
With fewer than 5% of American men currently part of an online shave club, there’s significant upward potential in the $8.5 billion US market for men’s grooming products. Even within the smaller space, Dollar Shave Club has been the original and the incumbent — with 3.2 million subscribers. Harry’s — another subscription and a la carte razor service — has also gained significant momentum (likely because co-founder Jeff Raider is also a co-founder of Warby Parker) and has 2 million users.
This momentum may be making the industry leader Gillette a little nervous. To be sure, Gillette is one of the most profitable businesses for Procter & Gamble, which acquired it for $54 billion in 2004. According to its 2015 annual report, Gillette has 65% market share in the global blades and razors market.
But its stronghold on the market has deteriorated materially. P&G announced that grooming net sales decreased 7% to $7.4 billion in 2015. Much of that decrease is precisely because of the momentum that upstarts have seen.
Dollar Shave Club and Harry’s both employ a direct-to-consumer subscription strategy that’s become trendy over the past few years (e.g. Blue Apron for food, Birchbox for beauty, and Stitchfix for clothing, to name a few).
In order to remain competitive, Gillette even launched its own subscription service — Gillette Shave Club — in 2014. The company has the search engine optimization comp-nent down pat. When searching “shave club,” Gillette is the first advertisement available. The key here, however, is that companies like Dollar Shave Club are using their cheeky branding, clean design and youthful vibe to target audiences through social media.
Dollar Shave Club, in particular, has dominated the digital realm. The company posts clever, cutesy images frequently, and its Instagram account has 58,300 followers and was posted on just 19 hours prior to this writing. The startup has 2.8 million likes on its Facebook page.