Unilever And Dollar Shave Club: What Forced The Giant Market To Buy The Startup For $1 Billion

“This week it became known that the company Unilever acquires a five-year project Dollar Shave Club for $1 billion. Earlier about buying natural products producer WhiteWave Foods has announced a giant with a hundred years of history Danone. Probably in the near future we will see many more such acquisitions. Personal care products, foods, beverages — all sectors the situation is the same,” — writes the edition TechCrunch.

This model (in which the giants prefer not to do research independently, and to purchase a finished product), says the author notes, previously widely used in the pharmaceutical industry. Now it comes in all of these areas. Edition gathered the main reasons for the transition of the industry giants on a similar strategy. As a visual illustration of how the company works to reduce costs, editor of TechCrunch cites a deal 2013. Brazilian private investment firm 3G Capital Partners has acquired a manufacturer of sauces, Heinz, and in March 2015, Heinz acquired another grocery company — Kraft Foods — $49 billion.

From the date of purchase Kraft had cut more than 5,000 employees and closed several plants, and the costs of the company decreased by $1.5 billion. According to TechCrunch, now 3G Capital Partners is looking to buy a General Mills company which is a Fortune 500. The firm tries to increase the value of their assets with the help of cost cuts, not growth companies in the portfolio. “Undoubtedly, such a merger can increase the value of the stocks in the short term. But what the shareholders will end up.

Due to the lack of innovation share of companies in the market will be reduced and the problem that was intended to solve the transaction, and will remain unresolved. The cost reduction has a limit. Innovations have no limit,” writes the author of the note. As noted by the editors of TechCrunch, the confrontation between the two largest U.S. shopping — Amazon and Walmart — is clearly demonstrated by the inability of the major retail players to create a new. “While Amazon rushes forward, doing everything for the convenience of the user (for example, developing for buyers of services through which you can order washing powder or coffee with just one push of a button), Walmart is trying hard not to lose positions — but the company only cut costs and consolidate processes.

Another alternative to the spending cuts — the acquisition of young companies that are creating new products show rapid growth. Innovation is given to small companies that can afford to take risks, they are also testing new products on the market and come up with interesting ideas for the promotion and distribution of the brand. “The big brands just cant afford to take that risk — any action to bring shareholders a profit in the short term. So they are looking for alternatives — in particular, investing in a young team at an early stage,” explains the editors of TechCrunch.

This path chose American manufacturer of Breakfast cereals and convenience foods Kellogg company organized its own venture capital Fund eighteen94, which invests in young companies. Thus, the company gets access to new talent and innovative solutions. On the market there are other examples. So, Coca-Cola invested in a manufacturer of dairy products Fair Oaks Farms, Campbell acquired a manufacturer of organic baby foods Plum Organics, a holding Post bought out the manufacturer of protein products, Premier Nutrition, and so on.

“Because of their inability to innovate the big brands started to lose positions in the markets in 42 of the 52 retail category large companies lost ground to more small businesses,” writes TechCrunch. According to the Boston Consulting Group, in the period from 2009 to 2013, a major consumer goods manufacturers lost about 2.3% of the market. Share they “take” small startups who, in the opinion of the editor of TechCrunch, is able to adjust to the buyer and to offer the market what it needs. “One after another the retail industry transformirovalsya under the influence of new brands, and consumers are demanding more personalized approach — they need fodder, which would be not harmful to eat and man, organic food, snacks for healthy snacking.

For example, large manufacturers of yogurts in the period from 2008 to 2013 lost 19% of its market and its place was taken by younger brands such as Chobani, producer of curds,” explains the author of the note. During the same period, continues the edition, large coffee producers have lost about 7% of the market, and they were replaced by companies like Blue Bottle and Artis. In the field of products for the bath and shower share of brands-the giants fell to 3% — in their place came such projects as the manufacturer of bath products from marine algae The Seaweed Bath Co and manufacturer of hair care products from Rock Your Hair. Another example. The project for the production of sponges for the shower Scrub Daddy for the year reached a revenue of $35 million.

“The numbers speak for themselves. In 2015, Pepsico has spent $2.4 billion on marketing and only $754 million on research activities. Unilever in the 2015, spent $8 billion on marketing and $1 billion on various studies. On the promotion of old products spent 8 times more than the creation of new. Innovation is just not worth the priority,” concludes TechCrunch.

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