P&G, Gillette, and the Decline of the TV-Industrial Complex

[ShaiDardashti]

.

[Guest longinvestor]

Curious about this topic, I checked the prices of a dozen pack at Walmart.

 

Gillette Pro Fusion: $46

Schick (equiv 5 blade):$ 28

Greatvalue (equiv 5 blade): $16

 

I have been using Schick for the past few years (never upgraded to the new gen Gillette). Walmart has just recently launched the store brand. Will be testing it soon. 

 

 

 

 

[Foreign Tuffett]

I agree with the thesis of the article, at least insofar as it's that the future of the big consumer brands is likely to be less bright than the past. Ultimately mainstream razors, laundry detergent, cleaning supplies, crackers and chips, etc. etc. are largely fungible (aka there is little difference between store and name brands). I think consumers (especially younger consumers) are becoming more and more aware of this. I think in the longer term the market is likely to become increasingly bifurcated, with cheap store brands on one end, and expensive organic and specialty brands on the other.

 

Anecdote: I live in anytown USA. ALDI and Trader Joe's, two grocery chains that sell next to no name brands, are becoming increasingly popular.

[HJ]

Thank you for the discussions.  Very insightful. 

[Jurgis]

On one hand I don't watch TV, so for me TV-Industrial Complex is gone long time ago.

 

For some things I buy noname cheapest stuff without even thinking.

 

On another hand, quality matters and that's where brands still live. Maybe less so than in the past, but they still do.

My wife would never buy cheapo shampoo or toothpaste. It's not that she watched Colgate ads on the screen, it's that she doesn't like the quality of cheapo toothpaste. I can use pretty much any toothpaste, but I agree with her on shampoos: there's a lot of crap and some of it branded too. Cat food? No way store brand. Yeah, the quality differs.

 

BTW, fastest way to make $millions? Create pet food brand. Advertise that it's all natural spring water, wild river salmon, home grown potatoes, molecular vitamins, etc. Outsource the manufacturing. Sell like crazy. $$$ profit $$$. Well, maybe parts of the story should be true... ;)

 

Whoever said Trader Joe's sells no name brands - LOL. Trader Joe's is a brand. Unlike some (most?) cheapo stores where shop brand is the ugly cousin, TJ's products are mostly geared to push TJ's brand message. It's a brand that has good quality and is not available elsewhere. Double ka ching. I don't go to TJ's for price - well maybe a little - I go there for good quality products I can't get elsewhere. Sure they also have some fungibles, but I wouldn't go there if they only had fungibles.

 

In general, it's not a single night revolution. Things are changing, but they've been changing for the last 15+ years. Brands will still be there but possibly in a way different than "TV-Industrial Complex". Moats may not be insurmountable as people thought, but they are likely deeper than people think.

 

And BTW, Amazon rules a lot of this. It's not clear how much they understand and use their power (yet). On previous Dollar Shave Club thread someone mentioned "The Art of Shaving". I went to their website, got interested in pre-shave oil, went to Amazon, picked oil (not "The Art of Shaving" brand - heh lost sale for these guys) that seemed to have OK reviews and OK price, bought it. IMO, Amazon could make huge $$$s if they managed to earn extra money through brand placing, low impedance advertising, etc. I think they are doing it a bit, but IMO there's way more that they can do, they just have to be careful not to annoy and push away their customers.

[rkbabang]

An few interesting wrinkle to all of this:

 

1.  Dollar Shave Club sources all their blades from Dorco, in South Korea:

 

http://www.dorcousa.com/cartridge-refills-men/

https://www.amazon.com/Dorco-Blade-System-Refill-Cartridge/dp/B00YJCLRP2

 

2.  Interesting to see Dorco was an equity-owner of Dollar Shave Club, which suggests a zero capital invested business model for the *next* round of challenger brands!

 

http://www.recode.net/2015/12/17/11621564/gillette-sues-dollar-shave-club-for-patent-infringement

 

3.  Buffett effectively gave away his shares of P&G in exchange for a battery business.  Does this imply that Buffett traded a relic of the TV-Industrial Complex for a supplier of portable energy in a world with increasing consumer-level demand for stored mobile power?

 

http://www.reuters.com/article/us-duracell-m-a-berkshire-hatha-idUSKCN0IX1F020141113

 

So, what I think seems to have happened is:

 

1.  We're seeing a data-point that a well-designed 21st century marketing machine (alone) is worth $1 billion to Unilever; what worked very well in the past few decades perhaps has a meaningfully different trajectory. The price per unit of Dollar Shave Club doesn't imply a price war, it implies a cost shift.  Maybe, the razor company makes similar bottom line margin, by operating with a leaner cost structure.  Implication, potentially, is less oxygen supply for traditional media channels. 

 

2.  “You go to bed feeling very comfortable just thinking about two and a half billion males with hair growing while you sleep. No one at Gillette has trouble sleeping."  Unless the revenue per unit goes down, as the market share begins to decline, with an unchanged level of annual product consumption?

 

3.  And Buffett side-stepped both of the above earthquakes.

 

Shai

 

I've been using the Dorco Pace6+ for the last few years: $1.92/cartridge if you buy 52 at a time on Amazon Prime (http://www.amazon.com/gp/product/B00X6L90GK).  Each cartridge lasts me about 2.5-3 weeks where the Gillette Fusion cartridges I used to use lasted 3-4 weeks. (Note: I tend to use my catridges until they start scratching my face and/or drawing blood, Yeah I'm cheap).  So there isn't much difference in the quality and the price difference is night and day. 

 

The internet is such an always present everyday feature of our lives we forget that it is relatively new and we are still at the very beginnings of how it will reshape our society.  I personally thing most of the old pre-internet big brands are doomed in the medium term. They are dead brands walking, people (especially the people that work for the companies) just don't realize it yet.

[LC]

Another way to look at, from an investment opportunity, is find the "old TV" brands that are being lumped in with the dying ones, but which won't hurt as much from industry shift.

[CorpRaider]

Could P&G price at a 25 - 50% premium to them and ground them into oblivion if they were willing to take the hit to earnings for a year or two? 

[Jurgis]

BTW, fastest way to make $millions? Create pet food brand. Advertise that it's all natural spring water, wild river salmon, home grown potatoes, molecular vitamins, etc. Outsource the manufacturing. Sell like crazy. $$$ profit $$$. Well, maybe parts of the story should be true... ;)

 

You don't trust me, take a look at BUFF ( http://finance.yahoo.com/quote/BUFF ). They did it. Perhaps now it's too late, though I know at least couple more companies that are on success track with this recipe. Not saying it's trivial, but it has been somewhat easy way to riches. (I don't advise buying their stocks once they go public - IMO most money is made before going public or by going public).

 

:)

 

And there's a comment from three weeks ago:

 

"Dog food on amazon is 3 times more expencive than in the shops"

 

LOL. I wonder what they are comparing. For cat food Amazon is cheaper for most same-brand comparison vs PetCo or grocery store or so.

 

Though Amazon is still crappily stocked for some human food brands and sometimes 3rd party prices for such are indeed 3x the price in the shop... so perhaps the author of the comment chanced on one of such brands.

 

 

[Jurgis]

I really wonder if there will be success for monthly wipe club. Isn't toilet paper already efficiently priced at shops with all qualities and price points covered unlike the razors? Sure, maybe it's still cheaper to order online, Amazon b-ass-ics  ;D brand via Amazon Dash button in your bathroom, but do you really need to join a wipe club?  :o  ::)  :-X

 

I'll go on a limb here and say that the similarity with shaving is misleading and that this area might be much more shitty  ;D business than Dollar Shave Club was. But then it's now Unilever's problem, isn't it.  :-X

 

 

Edit: BTW, "Monthly X club" is not a modern Internetz-age invention at all. There have been monthly CD, video, panty, pantyhose, coffee, tea, cosmetics, etc. clubs for ages. With various levels of success. Mostly success is in persuading consumers that they will spend less money (they usually won't) for better quality (or same quality) merchandise (sometimes true, sometimes not) while making less effort (mostly true). Been there, seen that, and all I got is a pile of lousy VHS tapes.  ::)  ;D

[rkbabang]

I really wonder if there will be success for monthly wipe club. Isn't toilet paper already efficiently priced at shops with all qualities and price points covered unlike the razors? Sure, maybe it's still cheaper to order online, Amazon b-ass-ics  ;D brand via Amazon Dash button in your bathroom, but do you really need to join a wipe club?  :o  ::)  :-X

 

I'll go on a limb here and say that the similarity with shaving is misleading and that this area might be much more shitty  ;D business than Dollar Shave Club was. But then it's now Unilever's problem, isn't it.  :-X

 

 

Edit: BTW, "Monthly X club" is not a modern Internetz-age invention at all. There have been monthly CD, video, panty, pantyhose, coffee, tea, cosmetics, etc. clubs for ages. With various levels of success. Mostly success is in persuading consumers that they will spend less money (they usually won't) for better quality (or same quality) merchandise (sometimes true, sometimes not) while making less effort (mostly true). Been there, seen that, and all I got is a pile of lousy VHS tapes.  ::)  ;D

 

I've tried similar clubs in the past and even Amazon's "Subscribe & Save" feature and have never liked them.  You end up with either way too much or not enough of the product over time.  No one can predict in advance exactly the amount they will need every month from now and indefinitely into the future.  I've given up all such subscriptions and just order stuff when I need it.  The shave club isn't so bad, because razor blades are not perishable and you do use it everyday without fail, so it is more predictable than almost anything else.  The problem with the dollar shave club though is that it is more expensive than just buying the equivalent Dorco blades on Amazon in bulk, so why bother?  If the point was to save money then why not save even more?

 

[Jurgis]

Amazon's "Subscribe and Save" feature may be the least annoying of the monthly clubs, since you can shift the orders forward/back without penalty and you can easily cancel. A lot of monthly clubs rely on difficult cancellation to keep subscribers (even in this Internetz age).

 

OTOH Amazon gets back at you with floating prices - your subscription is not fixed price and prices may vary +/-20% in practice.

 

I use Amazon's "Subscribe and Save" for some items.

[CorpRaider]

I really wonder if there will be success for monthly wipe club. Isn't toilet paper already efficiently priced at shops with all qualities and price points covered unlike the razors? Sure, maybe it's still cheaper to order online, Amazon b-ass-ics  ;D brand via Amazon Dash button in your bathroom, but do you really need to join a wipe club?  :o  ::)  :-X

 

I'll go on a limb here and say that the similarity with shaving is misleading and that this area might be much more shitty  ;D business than Dollar Shave Club was. But then it's now Unilever's problem, isn't it.  :-X

 

 

Edit: BTW, "Monthly X club" is not a modern Internetz-age invention at all. There have been monthly CD, video, panty, pantyhose, coffee, tea, cosmetics, etc. clubs for ages. With various levels of success. Mostly success is in persuading consumers that they will spend less money (they usually won't) for better quality (or same quality) merchandise (sometimes true, sometimes not) while making less effort (mostly true). Been there, seen that, and all I got is a pile of lousy VHS tapes.  ::)  ;D

 

Die Columbia house with your "new paradigm".  I agree that Amazon is becoming sketchy lately with all the marketplace offerings fulfilled by Amazon.  Have to be careful not to buy some product purchased at Costco and marked up 3x just because it says prime.  My only real interest in P&G at this point is maybe creating discounted COTY shares via exchange rate with beauty brands transaction.

[rkbabang]

Amazon's "Subscribe and Save" feature may be the least annoying of the monthly clubs, since you can shift the orders forward/back without penalty and you can easily cancel. A lot of monthly clubs rely on difficult cancellation to keep subscribers (even in this Internetz age).

 

OTOH Amazon gets back at you with floating prices - your subscription is not fixed price and prices may vary +/-20% in practice.

 

I use Amazon's "Subscribe and Save" for some items.

 

I was using it for a few years, but I'd inevitably forget to log on and adjust it and I'd get a shipment full of stuff I don't need.  I just gave up and cancelled all of my subscriptions.

[CorpRaider]

Ditto also have no idea what price they will charge you.  pass.

[Travis Wiedower]

I was using it for a few years, but I'd inevitably forget to log on and adjust it and I'd get a shipment full of stuff I don't need.  I just gave up and cancelled all of my subscriptions.

 

Yup. In its current form, it sounds a lot better than it actually is (in my opinion). It'll be improved though.

[Jurgis]

Well, I mostly like Amazon's "Subscribe and Save", though it has some annoyances. :)

[netnet]

Shai,

 

Thanks for opening the topic.  The links are great.  I have already sent to colleagues as the link of the day!

 

It just goes to show, yet again how f*&king on the ball Buffett is.  If any of you are so inclined that would be a question for him or Munger next year.  What was it that you saw.  (Of course someone asked that about Wesco sale of Freddie Mac securities, however many years before the crash and basically the answer was useless, at least to me. It was something on the order of, 'Well we saw that it was getting risky.')

 

Another point on prescience or lack thereof, Amazon in the depths of the Great Recession, was about as sure a thing as you would want, frankly way more 'secure' than BofA if you ask me, with the considerable benefit of hindsight. (Even with a government guarantee!)

[Jurgis]

Another point on prescience or lack thereof, Amazon in the depths of the Great Recession, was about as sure a thing as you would want, frankly way more 'secure' than BofA if you ask me, with the considerable benefit of hindsight. (Even with a government guarantee!)

 

Hah, AMZN is almost 10 bagger since the peak before the Great Recession. That 50% drop during? Just icing on the cakez.

 

8)

 

Nope, did not buy. The only justification: I got other ~10 baggers then. More risky ones though. And learned bad habits. ;)