Unilever has acquired online-only subscription service Dollar Shave Club for a rumoured $1bn (£760m). The FMCG startup delivers razors straight to customers’ doorsteps for a fixed monthly price and has rapidly disrupted the shaving market, still dominated by Procter & Gamble‘s Gillette brand.
Dollar Shave Club holds 54% of the online shaving marketing in the US, according to Euromonitor, and 5% of the total shaving market. By comparison Gillette’s share of the online market is 21% while its overall share has dropped from 71% in 2010 to 59% last year.
Gillette has launched its own subscription service in a bid to win back market share. And just yesterday (19 July), it launched a new subscription service for its Tide Pods laundry brand as it looks to stop other markets being disrupted by online upstarts.
Unilever did not disclose how much it paid for Dollar Shave Club, but multiple sources told Fortune the amount was around $1bn for the business. It is understood Dollar Shave Club had revenue of $152m (£115m) in 2015 and is on track to exceed $200m (£152m) this year, although it is yet to turn a profit. Besides delivering razors, Dollar Shave Club has also branched out into other product categories including hair gels and body washes.
While Unilever did not respond to a request for comment, Jeremy Bassett, head of its startup platform Unilever Foundry tweeted it was a push to “embrace disruption”. According to the president of Unilever North America, Kees Kruythoff, Dollar Shave Club’s direct-to-consumer business model gives Unilever “unique consumer and data insights”.
— Jeremy Basset (@jeremybasset) July 20, 2016
On the face of it, $1bn seems like large sum for a business to make a profit. Yet Kruythoff’s comments hint at the opportunity. By moving from selling individual products through a third-party retailer to selling direct to consumers, Unilever can build longer term relationships and ensure more loyal customers and more secure revenues. However, the strategy does make sense, says Nick Liddell, director of consulting at branding agency The Clearing.
“Unilever isn’t alone in being a consumer product brand that would like to see if it could be a consumer services brand, which has a lot of benefits,” says Nick Liddell, director of consulting at branding agency The Clearing.
“You’re building more direct relationships, you don’t have to go through those pesky retailers anymore and you can cross-sell loads of your products and bundle them. You’re not just selling shaving, but personal care.”
Integrating innovation ‘at the core’
However, not everyone agrees. Tom Goodwin, SVP of strategy and innovation at Havas Media, believes Unilever’s decision to acquire the startup was an expensive move that could have “easily” been made by the company itself if it had a “different culture”.
It's expensive buying startups you could have easily made yourself with a different culture. https://t.co/gQU8mdkASX
— Tom Goodwin (@tomfgoodwin) July 20, 2016
Nevertheless, Goodwin believes the purchase is interesting because it shows how larger brands are looking to incorporate innovation at the core of their business, instead of at the edge.
“I’m excited to see how Unilever will grow the Dollar Shave brand, but also intrigued to see how they handle innovation in the future,” he says. “Will they start to invest in creating their own startup brands or is it worth purchasing smaller companies that they can further grow? We should get excited about how large companies with incredible scale, consumer understanding and world class production systems could grow in the future.”