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Buffett’s Gillette Under Pressure From Shave Club Growth

Warren Buffett loves a good moat and this is one of the reasons why he has always been a big fan of Gillette – consider the following quote from Robert Hagstrom’s The Warren Buffett Way

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The shave club boom is changing the face of the shaving product industry, and according to research firm Jefferies, Warren Buffett's Gillette is likely to lose market share and smaller player Schick could face a serious squeeze as consumers today apparently prefer to have their razor blades delivered. Gillette was purchased by P&G in 2005. At the time,  Buffett, was Gillette's largest shareholder and acquired P&G stock via the purchase. At the time, Buffett said "Over that time we've been happy with that investment but I've got to tell you I'm happier today", and "It's a dream deal". Buffett has owned shares of P&G ever since, but secular trends could be eating away at the moat of gillette.

Warren Buffett Gillette

A November 11th report from Jefferies explains the changing dynamic in the sector: "Despite comprising c. 20% value share in US men’s blades, we estimate...have put a relatively small ~5% dent into the profit pool to date. That said, we est. that if shave clubs can profitably scale their businesses, they may control c. 20% of the industry profit pool by 2020, of which close to 1/2 from Gillette's shave club.'

Warren Buffett Gillette

As of July of this year, Schick became a part of the Edgewell Personal Care family of products.

Shave club members actually spend twice as much overall on Gillette and other razor blades

Warren Buffett Gillette

In the report, Jefferies analyst Kevin Grundy and team point out that shave clubs have a "dirty little secret" that not many people know about. They note: "shave club subscribers spend about 2x as much p.a. on blades as men who use systems and nearly 3x as much as those that use disposables."

The dynamic here is really not surprising; it turns out that although they are spending less per razor blade, "shave club users – knowingly or unknowingly – change blades c. 4.5x as frequently as “traditional” men’s systems users and c. 1.5x as frequently as disposable users."

However, Gillette is trying to make inroads in the shave club. Jefferies notes:

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