Scott Galloway on the CPG space: Unilever vs. P&G. Go checkout and follow their YouTube channel at: https://www.youtube.com/user/l2thinktank/featured
So, the Celebrity Deathmatch of this week, Apple versus Samsung, no, there’s a bigger fight shaping up and that’s between Unilever and Procter and Gamble. What brought this on? The category has enormous margins and is still growing, but not for the big players. 90 of the 100 biggest CPG brands in the US lost share last year and two-thirds declined in revenue. Why? Largely because of the death of the industrial advertising complex. These companies are great advertisers and advertising has become the Velarium steel that is losing its edge. It’s getting duller and duller. In addition, the firms are largely dependent upon distribution that is in structural decline, specifically brick-and-mortar grocery distribution. And their investors have become addicted to their profits, similar to a heroin addict. So, they’re likely to tell them, “Yeah go innovate, but don’t give up my profits”. VCs and entrepreneurs smell blood in the water of these unbelievably rich margins. And there’s now dozens of start-ups armed with cheap capital and no legacy reflex reaction toward broadcast media or traditional channels.
So, two very different reactions. PNG is aggressively invested in their Gillette Shave Club, however Unilever is taking a different tactic and going for the chin and ass, the baby ass, there’s some sort of analogy in there I just can’t figure it out. With acquisitions that directly take on the core of PNG’s business, specifically diapers and razors.
So, on Friday, it was leaked that Unilever was in talks with the honest company to acquire them for a billion dollars. Fast on the heels of their billion-dollar acquisition of Dollar Shave Club. By the way, it was probably leaked by Unilever, who wanted to see if the financial markets threw up on it before they proceeded. Both start-ups are masters of the medium and catalyze more traffic in searches than the Cincinnati and London behemoths, and a more depth with social platforms and more aggressive with online advertising. Granted, it’s easier to be innovative when your investors are rooting for you to grow and spend more money versus Unilever and PNG investors, who are rooting on them to grow as long as they stay profitable. So, some unsolicited advice to the various parties here.
First off, disclosure: we work with both Procter & Gamble and Unilever and like them both a lot. And our backers, are the same backers of the honest companies, so you’re about to see me kiss everybody’s ass. Every day that goes on, the price is going to get better. There is no other acquire. The honest company threatened to go public. That is never going to happen. The public markets have become more discerning than the private markets. Let’s flip back to the honest company. Another big piece of advice to you: sell! You who are being valued at three to four times revenue and an infinite multiple on your EBITA. You are a CPG company and you are never going to get this price again in my view point. Advice for Procter & Gamble, specifically the folks at Gillette. I think this warrants an adult conversation that if you don’t invest two billion dollars plus in your own subscription efforts, specifically Gillette Shave Club, you are going to lose share.
So how does this all play out? Your diapers and your razors are about to become a lot less expensive. Jessica Alba and execs at both firms that get this stuff are about to get a lot richer. And tens of thousands of people who manufacture and market razors and diapers are going to make less money. Why? The future involves higher stock prices, more billionaires, but fewer middle-class households. Both firms will come under pressure to reduce costs, specifically people with technology. However, the upside: razors and diapers whenever and wherever you need them. Yay.