Posted on 09/20/2003 6:06:00 PM PDT by UnklGene
Gillette accused of taking too big a cut from its customers (Filed: 21/09/2003)
As the world's biggest razor manufacturer launched a billion-dollar lawsuit against its nearest rival, analysts found evidence that it is charging exorbitant prices. Adam Lusher reports
It might be the best a man can get, but the man seems to need very deep pockets.
As a court battle loomed last week for control of the world's £3.75 billion razor market, analysts claimed that Gillette, the world's biggest blade manufacturer, is charging prices that are allowing it to milk almost unheard-of profit margins from its customers.
The apparently exorbitant prices, which last week prompted protests from customers angry about the high cost of shaving, were disclosed in a report published by Morgan Stanley, the global investment bank, that noted "growing consumer resistance to paying ever-higher prices for razors and blades".
Javier Escalante, the co-author of the report, said: "There's no place that Gillette doesn't make money, good money. Gillette averages 37.8 per cent operating margins on its blades and razors. That is pretty hefty: a healthy, healthy operating margin. There are very few industries where you can generate that. With most consumer staples you are talking about margins in the low teens."
The revelations came as Gillette, which controls 72 per cent of the world's wet shave razor market and takes 90 per cent of the $1.5 billion annual global profits, filed a billion-dollar lawsuit against its nearest rival.
Gillette is demanding that the American firm Schick, which sells under the name Wilkinson Sword in Britain, withdraw the Quattro, its latest razor.
Gillette claims that Schick breached its patents by copying technology involved in the Gillette Mach 3 razor. Schick remains defiant, however, and last Monday the Quattro, the world's first four-blade razor, appeared in British shops. In Boots stores in central London, it was priced at £6.49.
Women's razors were similarly expensive. At the same Boots stores, a Gillette Sensor Excel for women, with one blade, cost £4.69. A Gillette Venus with two razor heads cost £5.49, and a pack of four replacement heads also cost £5.49.
At Boots in Bond Street, customers complained that the simple act of shaving was costing them too much. Gary Jones, 40, a fireman, said that he was spending a fortune every year on razors. "It's far too expensive and something has to be done about it."
David Mark, a 39-year-old local government officer, said: "We are being ripped off. The companies should not be allowed to take our hard-earned cash like this."
Such anger is likely to be fuelled by the report, which accused Gillette of "systematic price hikes on old razors".
The report says that before the introduction of its Mach 3 razor in 1998, Gillette was increasing the price of its Sensor and Sensor Excel models by about one per cent a year.
Once the Mach 3 appeared, Sensor and Sensor Excel prices rose by about six per cent a year, almost double the rate of inflation. The tactic places Gillette in a win-win situation, the report concludes. "These price hikes either encourage consumers to trade up to the latest technology, or they increase the profitability of consumers who won't."
Mr Escalante added: "If there were competition, perhaps [Gillette] would not be able to do it. Coca-Cola would be one business that generates those kind of operating margins, but, generally, there are very few of them."
He refused to comment on whether consumers were being treated unfairly but, asked whether more competition would be good for the consumer, said: "You're not kidding."
The razor companies insisted that their prices were fair. Michele Szynal, the communications director of Gillette, based in Boston, Massachusetts, refused to discuss costs and profit margins, but denied the claims about above-inflation price rises on older models.
The company had to cover vast research and development costs, she said. It spent 10 years and $750 million researching the technology behind the Mach 3. The sum included spending on manufacturing equipment for its plants in Boston and Berlin.
"The Mach 3 is an engineering marvel. It's the way the blades are positioned and coated. There are also microfins, little pieces of rubberised material in front of the blade, to smooth the skin and make the hairs easier to cut," she said.
"You think it's expensive? If a guy is changing his blade every 11 shaves, it costs a man in the UK less than he spends every year on his newspapers and cups of coffee - for the best shave in the world. There are a million choices out there, but the Mach 3 generates sales of $2 billion a year and is the world's number-one seller. What men are paying is worth the shave. And we do manufacture these products to make money."
A spokesman for the Office of Fair Trading said she was unaware of any past or existing investigation into razor prices. She added that the information uncovered so far did not in itself amount to the kind of behaviour that required investigation.
"It could just be good marketing," she said. "It wouldn't get investigated unless somebody provided evidence that it was breaching the competition laws. I can't say that we are going to be looking at it."
Additional reporting by Lee-Ann Richards
I'm shocked...., shocked! Gillette actually wants to make a profit when they sell their products? Damned "capitalists."
Gary Jones, 40, a fireman is a dunce.
If he is too stupid to go to the local drugstore and get a dozen disposable Shick or Gillette razors fo three or four bucks that will last him for 100 days or so then he fell off a turnip truck at a young age.
I was watching an auction on E-Bay last night.
A man could have bought one thousand double-blade disposable razors for $91.00, shipping included.
That means that, if he used each razor for two days and threw it away, he would have been able to get five-and-one-half years of shaves from that purchase.
I've used the Mach-3 and, while it's good, it aint THAT good!
OH, the IRONY of this statement!
Ummm...why? Hate to be mean to a fellow freeper...but are you an Idiot?
Jesus Jumping Buddha on a pogo stick- buy a bic.
They have.
The BIC Comfort 3 goes for $2.94 at Wal-Mart for 4 razors. That's 12 razors for $8.82, far lower than the $13.25 for 10 Mach-3s.
I've tried both; they're comparable.
Bic usually includes a $1.00 off coupon in each package towards a future purchase.
Gillette never discounts its Mach 3s.
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