Unilever and L'Oreal are no doubt still reeling following rival Procter & Gamble's announcement that it is acquiring Gillette for $57bn (拢30.2bn). The deal will see P&G add five billion-dollar brands - Gillette, Mach3, Duracell, Oral B and Braun - to its portfolio.
The merger means P&G, which owns Olay and Crest, will oust L'Oreal as the biggest player in the global cosmetics and toiletries industry. In the UK it will take the top spot for the same categories from Unilever.
According to Euromonitor's most recent market share figures for 2003, P&G will take about a 13% global market share of cosmetics and toiletries compared with L'Oreal's 10.1%. In the 拢6.1bn UK market, it will hold 14%, easily leapfrogging Unilever's 8.8% share.
The most significant marketing development is P&G's turbo-charged entry into the male-grooming and deodorant market. Until now, its presence has been almost non-existent, outside of the US and its Old Spice brand.
Gillette's Right Guard and Gillette deodorant brands have been struggling to make an impact on the global market in the face of Unilever's dominance with its Rexona/Sure and Axe/Lynx brands. In 2003, Unilever had a 59% share of the 拢475m UK market, compared with Gillette's 15%, according to Euromonitor.
Industry observers expect P&G to address this with a major boost to marketing spend in this area. P&G will also take comfort from Unilever's two unsuccessful attempts to launch Lynx shaving products against Gillette in the 90s.
Complementary brands
Looking at the two companies' portfolios there are no significant clashes, so it it is hard to understand why the deal had not been speculated about sooner.
'The combination of Gillette's products with P&G's existing brands makes enormous sense to consumers looking for a total package,' says John Mathers, chief executive of brand design agency Enterprise IG London. By acquiring Braun, he adds, P&G also gains entry into the electrical grooming product market.
Alan Lafley, chief executive of P&G, says: 'Gillette and P&G have similar cultures and complementary core strengths in branding, innovation, scale and go-to-market capabilities.' However, Mathers points out that not all the products being acquired fit with P&G's global strategy. Duracell, the world's biggest battery brand, has been leveraged by Gillette across its razor brands, but it is not a logical fit for P&G and could be sold off.
Both companies focus on product innovation, but Gillette's centralised marketing strategy could hang in the balance as P&G favours a local approach with an overarching global strategy.
The scale of the Gillette deal dwarfs P&G's acquisition of Clairol in 2001 and its $5.5bn (拢3.5bn) Wella deal in 2003. Lafley has pledged to draw management from Gillette and P&G, but the previous buyouts resulted in full-scale shake-ups of marketing staff and advertising agency relationships.
Clairol was moved from FCB and Mediavest in favour of P&G roster agencies Leo Burnett and Grey, while Leo Burnett also benefited from the $100m (拢63.8m) Wella business when P&G moved it out of Bates.
Workforce cuts
It will be no comfort to Gillette's marketers to know that in November Wella UK marketing chief Robert Bartlett became the latest casualty of what had been a 2000-strong global marketing and sales team. This time P&G is looking to cut 6000 jobs from a combined workforce of 140,000.
Savings from economies of scale will be $16bn (拢8.5bn).
This puts the spotlight on the repercussions for Gillette agencies Abbott Mead Vickers BBDO and MindShare. P&G's past behaviour suggests that the chances of BBDO holding Gillette's 拢39m UK business (according to figures from Nielsen) are bleak. However, Rupert Howell, chairman of McCann-Erickson, is not convinced the deal is bad news. 'Five years ago it would have been curtains for BBDO, but now P&G is more flexible about conflicts, agency diversity and the search for creativity.'
TV trade-up
The deal will add clout to P&G's TV negotiations. It already spends about 拢154m on TV in the UK. In 2004 Gillette spent 拢15m of its 拢25m media budget on TV, a 拢1.5m increase year on year.
P&G is expected to move Gillette's media account out of MindShare, which recently won Unilever's pan-European media business, although it could keep the work within the WPP stable by moving it into MediaCom, which handles P&G's press buying. Its main media agency, Starcom Motive, buys TV, radio and cinema. P&G's 拢162m planning business is split between ZenithOptimedia and Starcom Mediavest.
Subject to shareholder approval and regulatory approval in the US and Europe, the companies expect the acquisition to be completed by September.
Marketing departments and agencies will be bracing themselves for a massive end-of-year shake-up.
DATA FILE - AFFECTED BRANDS
PROCTER & GAMBLE
Haircare: Pantene, Clairol, Head & Shoulders, Wella, Vidal Sassoon
Detergents: Ariel, Bold, Daz, Flash, Lenor, Fairy, Febreze
Paper: Charmin, Bounty, Pampers
Oral care: Crest
Women's skincare: Olay, SK-II
Perfumes: Hugo Boss, Valentino
Feminine care: Tampax
GILLETTE
Razors: Mach3, Sensor, Venus
Batteries: Duracell
Small appliances: Braun
Oral care: Oral B
Men's skincare: Right Guard, Complete skincare range
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