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Power Sheet: How P&G Missed Out on Dollar Shave Club’s Rise

Taking a break from RNC coverage today – back on it tomorrow . But today a confluence of news events begs us to look at disruption, the No. 1 worry of most business leaders, and how it’s happening in businesses where you might not expect it and in ways you wouldn’t imagine. No one is immune – everyone nods when you say that, yet big, famous, smart companies still get blindsided.

Today’s example is Procter & Gamble and the beating its Gillette business has suffered at the hands of Dollar Shave Club, Harry’s, and other new competitors. I confess: Even I thought it was impossible. I’m among the many people who believed that personal care products like those sold by P&G, Unilever, and Colgate-Palmolive were one of the world’s most disruption-proof businesses. That’s because their power is beyond rationality; it’s in brands and brand loyalty, built up over decades with billions of dollars in marketing. A competitor could make a toothpaste identical to Crest, but it couldn’t be called Crest, so millions of faithful consumers wouldn’t switch. Relationships between brand and buyer are especially deep and powerful with products that touch the body – toothpaste, soap, deodorant, razors, for example. No startup could digitally disrupt those relationships.

At least that was conventional wisdom. It’s wrong. In just the five years since Dollar Shave Club launched, P&G’s North American market share in razors and blades has tumbled from 71% to 59% in a business where competitors wage nuclear war over single points of share. Dollar Shave Club is the main reason. “It was probably on the radar, but we weren’t necessarily having the right conversation around what might disrupt us,” an unidentified source told the WSJ. P&G is responding belatedly with its Gillette Shave Club and is testing the same concept with other products. An example is the Tide Wash Club, an online subscription service it launched in Atlanta.

Which brings us to another news event: Yesterday Unilever bought Dollar Shave Club for $1 billion. So now the worst thing that ever happened to Gillette will be bulked up on the resources of a giant global competitor. Why would Unilever pay five times this year’s projected revenue for an unprofitable business? Because it’s getting more than entry into the North American market of a sector in which it’s only a minor player. It’s also getting something P&G barely has: extensive data on individual customers. With its direct sales model, Dollar Shave Club knows a great deal about its 3.2 million members, and Unilever with its mammoth product portfolio can do a lot with that data.

None of this was supposed to be possible. No company that five years ago consisted of two guys could disrupt a 115-year-old brand like Gillette that’s backed by a global champion brand builder like P&G, right? Nope. The lesson for incumbents is to stop asking “Can it happen to us?” and to start asking “How will it happen to us?”

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What We're Reading Today

Cruz snubs Trump
Texas Senator Ted Cruz crushed the GOP's hope for party unity at the Republican National Convention last night. In a prime time speech, he refused to endorse Donald Trump and said voters should "vote their conscience,” to a shower of boos. Even Cruz's own delegates expressed anger at Cruz's decision, which may have been a gambit for a 2020 run. Fortune

A-B InBev wins U.S. approval for SABMiller merger
The $107-billion merger of the world's No. 1 and No. 2 brewers took a giant step forward when U.S. regulators okayed the deal. SABMiller will have to sell the rights to its brands imported into the U.S., and A-B InBev will need regulatory approval to buy craft brewers or distributors. Carlos Brito's Anheuser-Busch InBev now awaits only China's go-ahead, which it expects to receive in exchange for divesting SABMiller's business in the country. Reuters

CEOs meet to discuss the state of public companies
A year ago, Warren Buffett, BlackRock's Laurence Fink, Vanguard's Bill  McNabb, and other business luminaries met at Jamie Dimon's JPMorgan Chase headquarters for unannounced talks on improving public companies. The group had grown tired of governance rules, accounting guidelines, and lack of trust, which were prompting growing companies to stay private. It created a set of principles, which the leaders signed and will release today, outlining their view on  governance, executive pay, and accounting. NYT

Turkish President declares state of emergency
President Recep Tayyip Erdogan made the declaration, which will last for three months, as the government responds to last week's attempted coup. The proclamation lets Erdogan impose laws and suspend rights without parliamentary action. The move raises concerns about Erdogan's continuing efforts to strengthen his own authority. BBC

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VC-backed startups with female leaders...
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Moving Forward

Internal inquiry forced 21st Century Fox's hand with Ailes
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Musk unveils the second part of his 'Master Plan'
In a blog post, Tesla CEO Elon Musk shared his thoughts on his company's future, which include a compact SUV, a pickup truck, and a newly designed bus. He reiterated his support for Autopilot features and his bid to purchase SolarCity, and he unveiled ideas for ride-sharing services. Some argue that the post was largely an attempt to turn investors' attention away from recent negative headlines. Los Angeles Times

Bill Ackman doesn't back down from Herbalife
In a presentation outlining why he's still shorting Herbalife, even after the FTC ruled it could continue operations, Ackman said the company and investor Carl Icahn are misleading investors about the settlement. He says the FTC didn't rule on whether Herbalife is a pyramid scheme, but Icahn says the agency ruled it isn't. Ackman claims these statements from Icahn and Herbalife CEO Michael Johnson are what drove the stock up 22%. Fortune

Up or Out

Airbnb hires former U.S. Attorney General Eric Holder to develop the company's anti-discrimination policy. CNNMoney

Robert Long has been hired by Del Monte Foods as CIO. WSJ

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Apple security bug lets hackers...
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Quote of the Day

"I congratulate Donald Trump on winning the nomination last night...And like each of you, I want to see the principles that our party believes prevail in November...Don't stay home in November. Stand and speak and vote your conscience." -- Texas Senator Ted Cruz, refusing to endorse Donald Trump last night at the Republican National ConventionCNN

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