$350 mln. in 6 Months — The Cost of the 2019 Gillette Advertising Fiasco?

Back in late January 2019 I wrote “The Gillette Advertising Fiasco: Paying for Competitor’s Brands Popularity?” going over the early data suggesting that the outrage sparked among Gillette’s core demographic by their “toxic masculinity” ad is likely to result in significant damages to the sales of the brand. I supplemented the fact that the YouTube video with the ad had over 750,000 downvotes at the time (currently 1.5M) and the general social media outrage with detailed search trends data for competitive brands. Based on all this I argued that P&G, Gillette’s owner, was practically paying for their competitor’s advertising.

I like to check my predictions and so I said I’ll make a follow-up article once P&G publish their Annual Reports in which we can see both their blades and razors market share numbers and their net sales numbers for the grooming category of their product portfolio. This category for them consists primarily of the Gillette brand (Braun and Venus are some of their brands includes in it) so if the ad fiasco had the effect I predicted earlier this year, then we would expect to see some decline in one or both of these metrics.

The Annual Report numbers are now available and the picture is looking grim for P&G, Gillette’s owner since 2005.

Necessary Caveats

As with any other analysis based on observational data and not on data from a randomized controlled experiment, I need to preface the rest of the article by saying that no matter what the numbers show, the causes for any changes (or lack thereof) is likely not any singular event. There are most certainly countless factors influencing the change in market share and net sales, each with a different weight and direction of effect. Some of these are mentioned in the report, others are not, yet countless others are not even measured by anyone. In short — correlation does not necessitate causation.

Another caveat is that the report too often uses phrases like “around”, “over”, “below”, etc. around numbers. E.g. it will say “our market share is over 70%” without specifying if what is meant is 70.1%, 71% or 75%. However, given the precision I observed in the reports across the years, I believe it is fair to assume that it is almost certain that numbers are very close to the cited one, e.g. “above 70%” most likely means 70.1% and almost certainly means no larger than 70.5%.

All data used below is from the official P&G Annual Reports (available here) covering fiscal years 2005 through 2019. The last of these was published Aug 23, 2019 and had I been watching the company more closely, I would have written this piece much sooner. I am no specialist in analyzing company financials, but the P&G Annual Reports are written in an accessible enough manner that I feel confident I did not make mistakes in my reading of them.

That said, let us proceed to the juicy part below.

Gillette’s Market Share Plummets

The blades and razors category, of which Gillette is a primary component plummets in market share to its lowest point since the company was acquired by P&G in 2005:

As we can see, the P&G market share in the blades and razors category has been quite stable since the acquisition of Gillette in 2005 — about 70%, up until 2016 when it took a 5 p.p. dive (7% relative decline year over year) and remained at 65% until 2019 when it saw its biggest change ever by declining another 5 p.p. (7.7% relative decline year over year). Well, one of the major Gillette related stories of fiscal 2019 was the toxic masculinity TV spot and the related YouTube and social media reaction.

Here is a graph of the relative yearly change of their market share percentage over the years:

Note that the 2019 numbers are for the 2019 fiscal year, which started on Jul 1, 2018 and ended on Jun 30, 2019. Since the ad only happened mid-FY2019, in January, its impact was only felt for roughly 1/2 of the fiscal year. This means that the actual impact over a whole year, say FY2020, might actually be twice as big: 10 p.p. and roughly 15% relative decline.

No explanation is given in the annual report for this decline from 65% to 60% share year over year, which is also the biggest since the acquisition. No explanation was given back in 2016 for the significant decline experienced back then, so this is not a precedent. However, it is clear that whatever Gillette did during these six months since launching the ad and the end of FY2019, it didn’t work in alleviating the speculated negative effects of the ad, or it might have worsened the situation. Not so long they announced they are ““Shifting the spotlight from social issues to local heroes” like firefighters and personal trainers is the company’s new focus.” but any effects from that will only register in fiscal year 2020.

Is the “toxic masculinity” ad fiasco definitely to blame for some or all of this decline in market share for Gillette? One would need a much more in-depth analysis of the blades and razors market over time to give any kind of reliable answer, but for my purposes as a simple outside observer, the above data is enough for me to have high confidence that my predictions have been validated and Gillette did, in fact, pay for promoting its competitors. Ad execs should definitely take note.

Grooming Net Sales Take a Hit

Net sales for the grooming segment of P&G fell from $6,551 mln. in fiscal 2018 to $6,199 mln. in fiscal 2019. That is a decline of 352 million US dollars. That’s a relative year over year decline of 6.5%. Given that the ad only happened mid-FY2019, it can be speculated that if the trend remains the results in FY2020 might be even worse.

Net sales decline is not as sharp as the market share decline, since grooming net sales of P&G have been on the decline for a number of years. For example, in 2015 net sales were $7,441 mln. while in 2016 net sales were $6,815 mln. (down 8.4%), coinciding with the 7% loss of market share. In 2017 and 2018 the decline continued, but much slower: $6,642 mln. and $6,551 mln. respectively. So while the 2019 number is definitely significant, it is not standing out as much as the market share drop following 3 flat years.

The decrease in unit volume 2019 v. 2018 was 1% and “unfavorable foreign exchange impacts” are cited as a main reason for the decline in net sales in the report. The available information is too little to make any statements about

Since the grooming category includes more than blades and razors, it is less clear how much the decline in net sales here speaks of the effect of the Gillette ad which was mainly aimed at the blades and razors segment of the market, but under the hypothesis of the ad affecting negatively the attitude of consumers towards anything Gillette, it could be expected that it would also negatively affect their shaving creams and other shave care products. In this sense, a 6.5% decline in grooming net sales is in line with the hypothesized impact of the advertising fiasco.

P.S. Interestingly, net earnings remained on par with 2018 levels — due to favorable income tax changes in the US. That, however, has no bearing on the main point of the article.

Did the Toxic Masculinity Blunder Cost Gillette US$350 in Sales in Just 6 Months?

And did it cause them to lose nearly 8% of their relative market share (5 percent points of market share) in the blades and razors market over the same period? As already mentioned, it is near-impossible to say for sure with observational data alone, given the multitude of known and unknown factors influencing these numbers in both directions. One might say that it would be unfair to attribute the whole of these losses to the ad fiasco as it could have very well been the foreign exchange rates and other factors which contributed to most of it. However, one could also say that perhaps after seeing the early fallout of the ad campaign Gillette dialed up on their attempts to recover and thus the average impact we see is better than the actual.

I don’t think we’ll ever know for sure and based on public statements given so far by the company it seem like Gillette is denying any negative impacts on sales. As a ‘hobby time’ analysis the above is sufficient confirmation for my initial estimation that the Gillette brand was hurt significantly by its own advertising. What do you think?

Update 2020:

The 2020 P&G fiscal year report has been published now. In it we see that the market share remains depressed versus the pre-ad fiasco levels and is still at just above 60%. We also read that in 2020 fiscal year “Grooming net sales decreased single digits” for a second year in a row. More specifically, net sales are down 2%, and net earnings are down 13%, accompanied by a 1% decrease in volume. While some of these continuing declines might be attributable to the destructive ad campaign, it is probably a far reach to attribute the drop to it. However, if that is the case, and not accounting for counterbalancing acts, that would increase the losses suffered to around a billion US dollars.