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Final Presentation for our fall 2010 Integrated Brand Management team project on Barbasol Shaving Cream

Final Presentation for our fall 2010 Integrated Brand Management team project on Barbasol Shaving Cream

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  • Why Shaving Cream?Low volatility and steady growthConsistent consumer demandWhy Barbasol and who is Perio Inc.?Dominant market share in shaving foam#1 SKU of any shaving cream productMake up 89% of holding company, will buy the whole concernEstimated Current Value = $52.7MUnder DPI Management = $78.1MPurchase Price Range = $45M – $69MROI = 13.6% - 73%
  • Ownership:Invented in 1919Sold to Phizer in 1962Sold to Perio in 2001Ads:Early ads used celebrity endorsementChanged to sexy ads in the 40’s and 50’sLittle advertising under PhizerAds are more wholesome under Perio management reflecting Perio’s values
  • 89% of Perio Inc. revenues from the Barbasol brand.Perio’s other products include men’s body wash and a women’s shaving gel.Because of the single Management Team, we recommend buying Perio as a whole.Barbasol Soothing Aloe is #1 retail SKU of all men’s shaving cream products.Uniform packaging shows characteristic stripes modeled after traditional barber’s pole.
  • Rapid grow and new employees are potential weakness
  • The men’s “shaving cream” market is made up of sales from several product types: gel, foam, cream and others such as butters and oils.Shaving gel and foam make up approximately 94% of sales revenues in the whole industry, so as a result of the lack of demand for other shaving products, Rook Consulting does not believe those markets should be of interest to Barbasol.One of the most powerful forces in the industry as a whole is the power of retail buyers. In fact, Wal-Mart makes up 44.9% of all retail sales in the market.The industry is very reliant on macro-level growth factors such as the overall growth in the male population of the US. Overall, the men’s shaving cream market is projected to by grow 2.7% per year for the next 5 years.Last Twelve Months (LTM) Men’s shaving cream retail sales of $338M.Forecasted growth rate of 2.7% annually for the next 5 years.Wal-Mart comprises and estimated 44.9% of retail sales.Last 12 Months Retail Sales by Product Category:Gel: $221MFoam: $99MCream: $15MOther: $3MTotal: $338M
  • Each major product segment is highly fractured – two major players in each that dominate the market share:At growth rates of only around 2.7% compared to the gel industry’s 7.15%, - In foam, Barbasol and Gillette account for 88% of retail sales dollars with the remainder coming from fewer than 10 competitors.- In the gel segment, Edge and Gillette make up 75% of retail dollars, and the other 25% is spread among approximately 100 other companies.Currently, Barbasol does not offer any products in the gel segment – the former “Ultra” product line did offer a gel line extension (from its initial launch as a premium foam), but the company began to discontinue the entire line in 2010.- Barbasol is one of the two prominent market leaders in foam, but does not offer a gel product.- Product variety and ability to segment the market have benefited the competition.
  • Price segments were identified using scatter plot analysis of price per can which is how the typical consumer perceives the price point. All products which deviate significantly from the standard 11oz foam and 7oz gel size have been removed. The exceptions are Schick Hydro Gel which is an 8.4oz can and Gillette Series Foam which is a 9oz can.Foam market is evenly divided between Economy and Mid-Price Segments.Mid-Price is the largest Gel segment with little competition from Economy.Gel market has substantial Premium and Super Premium consumers
  • 46% of survey respondents believe that good value for price 34% of them believe the brand stand for values.
  • Although Barbasol has had notable growth in recent years, we estimate that the recessionary boost will begin to slow in line with the industry average of 2.7%
  • We project that the unleverel free cash flows will grow at an 18.9% Compound Annual Growth Rate over the next few years from$1.4M to $2.8M in 2015.Based on an industry average Beta of 0.7, post-tax weighted average cost of capital is 5.7%. We believe that a valuation of $57.1 million would be attractive to Perio company.
  • Barbasol is positioned as a cheap product. Company specifically positions itself as a “value brand” according to VP of Product Management, Jill CrumbacherConsumer perception is reflects Barbasol’s positioning as inexpensive, reasonably priced that works.The targeted consumers are price conscious foam users who value a historic brand and the quality they get for their money. Barbasol also has a high (86%) net promoter score, making it a relatively strong brand in the market. With its current positioning Barbasol is at the top of the Economy segment. As Barbasol grew, it forced out many of the small shaving foam brands and now is selling 96.7% of total equivalent units sold within that segment.There are no major substitute products for Barbasol foam.There is a $0.76 per can gap between Barbasol and next major competitor, Gillette Foamy.Therefore it seems reasonable to raise the price and capture the extra value and turn it into profit. The question is: by how much can we raise the price and still make extra profit? Which leads us into price elasticity for foam.
  • Price elasticity for Barbasol and similar products (such as Gillette Foamy) for the last five years was taken into account and was adjusted for the price difference between the two product unit prices.The prices that assured a higher contribution margin than earlier is considered even if it meant reducing sales volume. The price elasticity suggests a price increase of 15 cents on the retail price from $1.54 to $1.69. This translates to a corresponding MSP increase of 5 cents from $0.92 to $0.97.
  • Points to notePotential INCREMENTAL first year unit sales are based off the elasticity curve previously discussed.Two key variables were simulated:Sales growth rates (from -0.13% to 13.35%) centered 2.7%WACC (varies from 3.74% to 7.45%) centered on 5.7%The base assumption for sales volume hit of 1% is from the price elasticity curve described earlier. The sales growth rate is the industry average rate of 2.7% for the first year and simulated thereon.The Scenario analysis is based on the assumption that in the case of no price increase, sales would have grown at the same rate they grow with a 5 cent increase.Although this option has a 24.51% probability of being in the red, Rook Consulting believes promotions and operating efficiency improvements in subsequent years, should reduce loss probabilities.
  • Key Points: Gel is where the money is in this industryBarbasol’s primary consumer base is older
  • Barbasol Ultra attempted to be a premium foam while targeting less price sensitive consumers. Perio failed to support the launch by advertising to a new target group.Barbasol Ultra’s target segment was not clearly identified so the new product’s inherent weakness was the cannibalization potential of Barbasol’s original product.
  • As the gel market stands now, the economy price segment is only 1% of gel retail salesBarbasol expects to continue its current distribution methods Expected ACV for the new product in its early years is 75% (Barbasol products currently 97%)
  • Barbasol Gel when launched will be available in two varieties: Regular and Soothing Aloe. We will maintain the option of introducing Sensitive Skin in the third year to continue growing Barbasol’s gel portfolio.The designer also created a variety of striking color combinations that can be used in the future to differentiate the gel varieties.Barbasol Gel will continue to display the characteristic barber shop strips, but in an updated and more youthful style.
  • Economic recession has had a significant impact on price-sensitivity of shaving cream buyersLow price-point in the gel market will allow Barbasol to capture these sales from the main competitors – Edge and Gillette “Series”Overall expected market share of approximately 2% retail sales to start
  • Key Points Shaving gel can uses a “bladder” system to be installed inside of the can. The bladder contains the gel and keeps it separated from the isobutane propellant gas which would turn it into a foam. Currently, foam is mixed together without a separate bladder.During the production process, while in a pressurized tank, liquid butane is added to the formula (along with coloring) to create the familiar “gel” consistency that you see come out. It then turns to foam once exposed to air and/or agitated.Perio Inc. already has the expertise to produce gel shaving products because of their women’s shaving gel brand, Pure Silk.The Barbasol production and operating division will be responsible for producing the Barbasol Gel product line.R&D source: Interview with Tom Gallerani - former VP of Shaving Technology Lab, Gillette Company
  • Key Points: Gel will be a much more profitable product per unit, because no need for CapEx
  • We are assuming no capital expenditures since the current facility as only at 50% capacity.
  • Points to noteThree key variables were simulated:First Year Sales (Varied between 0 and $ 2.55M) Subsequent Sales growth rates (Varied form a min. of -0.11% to a max. of 37%)WACC (Varied between 3.84% and 7.58%)The year 1 sales estimate of $2.53M are based off the Espn.com marketing plan. The base year gel growth rate of 7.15% is based off of the gel industry growth estimate. Subsequent growth rates are simulated.With an average NPV of $21.58M and an extremely narrow margin of error, the economy gel option is financially strong.
  • Thanks Molly.So with a $52.7M initial valuation, and adding an estimated $2.5M from a price increase and $21.5M from the gel launch, we see Barbasol at $78.1M in value
  • Recent personal grooming industry acquisitions, i.e. Energizer’s acquisition of Edge and Skintimate were valued at 2.2x forward revenues. We’d therefore cap our offer at $68.8M - 2.2x Perio’s forward revenues. We’d therefore offer Perio between $45M to $68.8M for the acquisition, giving us an ROI ranging from 73.5% to 13.5%
  • What would the impact of this acquisition be on our stakeholders?ConsumersThe “Classic American brand” Barbasol earlier appealed only to the 35+ US male population. With the gel we would now bring Barbasol’s appeal also to the 18-34 segmentTargeted ad campaigns on ESPN.com and promotional allowances would increase awareness and ensure successful demographic segmentation.The elasticity curve and consumer surveys support our recommendation of raising foam prices to gain untapped value.EmployeesPerio’s family-values, core culture will stay.Senior marketing professionals to be hired to drive the new product launch while maintaining quality – this has been accounted for in the financialsCompensation and benefits would remainCompensations and benefits need to be in line with DPC’s existing salary structure with a net increase of 5% across the board.CollaboratorsRook Consulting suggests to leverage Perio’s existing channel partnerships in gel distribution. In order to strengthen partnership the new product will provide partners higher margins than competition and provide distributors with 10% promotional allowances.
  • In conclusion,Perio is a good strong brand and company. We benefit from a potentially high ROI and for Perio provide an attractive all cash deal to time its exit from the foam industry while virtually leaving its core management, organization structure and core values untouched.In the next five years, we look to maintain our economy positioning in the foam market, grow strongly as an economy gel and diversify our range of shaving foam and gel products – adding approx. $21M to the classic American brand – Barbasol!

Transcript

  • 1. Barbasol Acquisition Final Presentation
    For: Diversified Products Corp.
    Prepared by: Rook Consulting
    Cohort C – Team 2
    December 15, 2010
    Team Members:
    Hythem Abdelwahab
    Tejas Atawane
    Eszter Hamori
    Kevin Harder
    Molly Plimpton
    Carl Uttaro
  • 2. Introduction
    • Why Shaving Cream?
    • 3. Why Barbasol and who is Perio Inc.?
    • 4. Estimated Current Value = $52.7M
    • 5. Under DPC Management = $78.1M
  • Agenda
    • Company Profile
    • 6. Industry Overview
    • 7. Current Valuation
    • 8. Recommendation #1
    • 9. Recommendation #2
    • 10. Acquisition Summary
  • Company Profile
  • 11. Company Profile - History
    2001: Bought by:
    1949:
    Created Aerosol Shaving Cans
    1919:
    Barbasol Invented
    2007: Launch Barbasol Ultra
    1923:
    Babe Ruth endorses Barbosal
    1962: Bought by:
    2010: Barbasol Ultra Pulled
    1910
    1920
    1930
    1940
    1950
    1960
    1970
    1980
    1990
    2000
    2010
    2020
  • 12. Company Profile - Products
    Men’s Shaving Product Portfolio:
    Barbasol Soothing Aloe:
    #1 Retail SKU of any men’s shaving cream
    Perio Inc. Revenue by Brand:
  • 13. Company Profile: Strengths and Weaknesses
    Strengths
    Weaknesses
    Strategy
    • Maintaining position in foam economy segment
    • 14. Not thinking big
    Systems
    • Lean manufacturing
    • 15. Hiring software
    Staff
    • Many new employees
    Shared Values
    • Conservative, family oriented culture
  • Summary of Company Performance
    High
    Performance,
    Strong Team
    High
    Performance,
    Bad Team
    Weak
    Performance,
    Bad Team
    Weak
    Performance,
    Strong Team
  • 16. Industry Overview
  • 17. Men’s Shaving Cream Industry Overview
    Shaving Cream Market
    LTM Retail Sales by Product Category
    Total Retail Sales = $ 338M
    Shaving Cream Market
    Historical & Projected Market Growth
    Source: Nielsen Data adjusted for Wal-Mart
    Source: Mintel Data
    Foam = 54% of units
    Gel = 41% of units
  • 18. Breakdown of Foam & Gel Market Segments
    Foam
    Total retail sales $99M
    Gel
    Total Retail Sales $221M
    Source: Nielsen Data Adjusted for Wlmart
  • 19. Price Analysis of the Foam and Gel Segments
    Foam Unit Market Share by Price Point
    Gel Unit Market Share by Price Point
  • 20. Brand Perceptions
    Foamy
    Gel
    Barbasol:
    • Second highest Net Promoter Score
    • 21. Good value for price
    • 22. Brand stand for values
    Source:Rook Consulting Shaving Cream Survey 2010
  • 23. Current Valuation
  • 24. Income Statement Projections
    Perio Company Projected Revenues
    ($ millions)
  • 25. Valuation of Perio Company
    Projected Unlevered Free Cash Flows
    ($ millions)
    Assumptions:
    • Beta: 0.79
    • 26. Post-tax WACC = 5.7%
    18.9% CAGR
    NPV of Future Cash Flows = $52.7 million
  • 27. DPC willing to pay a premium
    • Leverage DPC’s resources
    Future access to capital
    Channel synergies
    Negotiating Power
    • Favorable market timing for Perio
    Why Perio Would be Interested in Sale
  • 28. Recommendation #1 – Adjust Pricing
  • 29. Re-pricing Barbasol Foam
    Foam
    Units Sold – Economy Price Point
    • Barbasol dominates economy foam
    • 30. No major substitute product in economy segment
    • 31. 86% Net Promoter Score
    • 32. $0.76 (51%) gap in retail price per can between Barbasol and next major competitor
    All Others
    3.3%
    96.7%
  • 33. Price Elasticity
    Channel-Weighted Average MSP: $0.92
    47.8% Contribution Margin Ratio
    Channel-Weighted Average MSP: $0.97
    50.2% Contribution Margin Ratio
    • The price elasticity suggests a price increase of 15 cents on retail price
    • 34. Expected 1% lower sales volume
    Barbasol Foam – Before Price Adjustment
    Barbasol Foam – After Price Adjustment
    5%
    INCREASE IN CONTRIBUTION MARGIN
  • 35. Scenario Analysis of Foam Price Raise
    Median NPV = $1.9M
    Avg. NPV = $2.3M
    Std. Dev = $3.5M
    Margin of Error = $ 0.07M
    Monte Carlo Variables:
    • Range of Sales unit growth rate: -0.13% to 13.35%
    • 36. Range of WACC: 3.74% to 7.45%
    Results:
    • Average NPV of Price Increase = $2.3 million
    • 37. 24.51% probability of loss
  • Recommendation #2 – Launch Gel
  • 38. Why is Gel an attractive product option?
    • Gel products:
    • 39. 66% retail sales dollars
    • 40. 41% units sold
    • 41. Gel preferred among 18-34 year olds
    • 42. Low competition at the economy price point
    • 43. Opportunity for Barbasol to target new consumers
    n = 69
    Gel vs. Foam Usage by Age
    Note: Data for responses other than gel or foam preferences (such as cream, oil or water) are not shown on chart.
    Source: Rook Consulting Shaving Cream Survey 2010
  • 44. Mis-alignment with core strategy and values
    “Barbasol is a value brand”
    – New Barbasol VP of Product Management
  • 45. Gel Pricing & Channel Distribution
    INDUSTRY
    BARBASOL GEL
    Supermarket &
    Chain Drug
    Wal-Mart
    Distributors
    Channel-Weighted Average Retail Prices:
    Gillette Series: $2.73
    Edge: $2.62
    Barbasol Gel: $2.09
    Average Mass-Retail Margins:
    Gillette Series: 47%
    Edge: 33%
    Barbasol Gel: 39%
  • 46. Introducing Barbasol Gel
    • 7-oz packaging
    • 47. Two SKUs – “Original” and “Soothing Aloe”
    Alternative Colors:
    Images Copyright José Luis GarcíaEguiguren
  • 48. Advertising Strategy
    • Most effective method of advertising for Barbasol is ESPN.com because of its strong 18-34 year old male demographics
    • 49. Online advertising is more cost-effective than TV commercials
    • 50. ESPN.com is the #1 site for male sports fans
  • Market Share Projections
  • 51. Production of Barbasol Gel
    Necessary Costs & Logistics
    • Inventory of gel “bladder” and 7-ounce cans
    • 52. Additional step of injecting gas to the formula during line production
    • 53. Variable COGS per unit increase 15%
    Valve
    Gas
    Pressure
    Overall Benefits
    • Very few differences with ingredients
    • 54. Both products are easily and commonly made in the same factories
    • 55. New factory is still only at 50% capacity
    Dip Tube
    Shaving Cream Ingredients
  • 56. Product Contributions
    Channel-Weighted Average MSP: $1.46
    Channel-Weighted Average MSP: $0.97
    Original Barbasol
    50.2% Contribution Margin Ratio
    Barbasol Gel
    62.3% Contribution Margin Ratio
    $0.48 Variable Costs/Unit
    $0.55 Variable Costs/Unit
    $0.49 Barbasol Contribution
    $0.91 Barbasol Contribution
  • 57. As we enter the gel segment, we anticipate potential competitor responses:
    Heavy counter-advertising to Barbasol Gel’s target age group, building on brand name
    Increase spending on promotions:
    Couponing
    Bundling: razor package deals
    Lower prices
    Competitor Responses
  • 58. Valuation of Gel Option
    Gel Product Free Cash Flows
    ($ millions)
    Assumptions:
    • Beta: 0.79
    • 59. Post-tax WACC = 5.7%
    • 60. PV of Perpetuity: $18.2 M
    NPV of Future Cash Flows from Gel option = $21.5 million
  • 61. Scenario Analysis of Gel Launch
    Median NPV = $21.1M
    Avg. NPV = $21.5M
    Std. Dev = $7.6M
    Margin of Error = $ 0.15M
    Results:
    • Expected company revenues of $2.5M in year 1
    • 62. Year 1 sales variation ranged from 0 to $4.8M
    • 63. Sales growth rate varied based on average for gel industry: 7.15%
    • 64. Post-tax WACC of 5.7% was varied from 3.84% to 7.58%
  • Acquisition Summary
  • 65. Valuation of Company With Gel and Price
  • 66. Recent industry acquisitions value shaving companies at an average of 2.2x forward revenues
    Rook Consulting suggests that DPC offer between $45M and $68.8M
    ROI estimates based off of future selling price of full $78.1M Rook Consulting valuation
    Range of Offers
    Initial Offer
    $45M
    Maximum Offer
    $68.8M
    Current Valuation
    $52.7M
    Future Valuation
    $78.1M
    ROI: 73.5%
    ROI: 13.5%
  • 67. Effect of Acquisition and New Product Launch
  • 68. Conclusion
  • 69.
  • 70. References
    Documents:
    Perio Inc. Linked Company Profile. Accessed 12th December 2010: http://www.linkedin.com/companies/perio-inc.-barbasol-brands
    Indianapolis Motor Speedway, Indianapolis 500 official website historical box scores. Accessed 12th December 2010. 1938: http://www.indy500.com/stats/view/boxscore/year/1938, - 1939: http://www.indy500.com/stats/view/boxscore/year/1939
    Perio Inc. Company homepage; Accessed 12th December 2010, http://www.perio-inc.com/ourstory/history
    Barbasolbreaks ground; Christ, Ginger, Ashland Times-Gazette, August 13th, 2009. http://www.times-gazette.com/news/article/4646958
    Barbasolhas grand opening for Ashland facility; Christ, Ginger, Ashland Times-Gazette, May 20th 2010. http://www.timesgazette.com/news/article/4830421
    Barbasol gives Syracuse the brush-off, picks Ohio for new plant, By Marie Morelli Syracuse.com - The Post-Standard, Published: Friday, August 07, 2009. http://www.syracuse.com/news/index.ssf/2009/08/barbasol_gives_syracuse_the_br.html
    Barbasol coming to Ohio, News Home Executive Team, Vindy.com, A service of The Vindicator Published: Tue, May 26, 2009. http://www.vindy.com/news/2009/may/26/barbasol-coming-to-ohio
    Mintel Reports USA “Shaving and Hair Removal products – US – May 2008”, Accessed 12th December 2010. http://academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/my_reports/display/id=482893&anchor=atom/display/id=548163
    Mintel Reports USA “Men’s Grooming – US – September 2010”. Accessed 12th December 2010. http://academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/my_reports/display/id=296601&anchor=atom/display/id=343845
    AC Nielsen database, The Nielsen Company - United States, Accessed 12th December 2010.
    Barbasol press release: May 25, 2010. http://perfectshave.blogspot.com/2010/05/new-barbasol-plant-opens-in-ashland
    THE "GREAT RECESSION" AND SHIFTS IN CONSUMER BEHAVIOR, BERNSTEIN RESEARCH; 2009.
    Mckinsey & Co., Compustat: MckinseyTeam Analysis.
    Today's Facility Manage, August 2009 issue, By Anne Vazquez http://www.todaysfacilitymanager.com/articles/manufacturing-case-study-room-to-grow.php
    Industry profile; Personal Care Products Manufacturing, quarterly update; 8.9.2010 SIC CODES: 2844 - NAICS CODES: 325620, First Research, a D&B company.
    Professor Aimin Yan, OB 713 Lecture notes, MBA Class 2012 - Boston University School of Management – Cohort (C).
    Tom Gallerani, Former VP of Shaving Technology Lab, Gillette Company, Personal Interview.
    Select International Announces Benchmarks, Successes with New Client Barbasol, May 17, 2010 . http://www.free-press-release.com/news-select-international-announces-benchmarks-successes-with-new-client-barbasol-1274109461.html
    A Framework for Marketing Management 4th ed. (2009), by Philip Kotler and Kevin Keller
    Westervin.com, A Fine Design: Old Stuff, Posted: February 19th, 2010 Author: Brian | Filed under: A Fine Design | Tags: 50's, 60's, advertisement, past, shaving, time travel, vintage | http://www.westervin.com/blog/tag/past
    Town and Country Hobbies, Billboards; Barbasol Shaving Cream (2602-36). www.towncountryhobbies.com/Billboard_pictures/2602-36
    Barbasol home page; Accessed 12th December 2010. www.barbasol.coms
    Ashland Times-Gazette “Barbasol breaks ground”; Christ, Ginger, August 13th, 2009. http://www.times-gazette.com/news/article/4646958
    Barbasol gel can designed by José Luis GarcíaEguiguren | Jan 20, 2010 | Country: Spain©2010 | Published by Lovely Package® http://lovelypackage.com/student-work-jose-luis-garcia-eguiguren/#more-10446
    Images: