The Gillette Company

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The Gillette Company

founded: 1901

Contact Information:

headquarters: prudential tower bldg. boston, ma 02199 phone: (617)421-7000 fax: (617)421-7123 toll free: url: http://www.gillette.com

OVERVIEW

The Gillette name is synonymous with a wide range of personal care products for men and women. It is the world's leading manufacturer of razor blades, razors (Gillette), alkaline batteries (Duracell), writing instruments (Parker, Paper Mate, and Waterman), and toothbrushes (Oral B). Shaving products account for more than 50 percent of Gillette's profits. Gillette's business also includes toiletries (Right Guard and Soft & Dri), hair removal products and household appliances (Braun).

More than 1.2 million people around the world use one or more of Gillette's products every day. Gillette is the world leader in 13 major consumer product categories. The company has a very extensive global presence and is credited with a strong program of new product development.

COMPANY FINANCES

In a study of the top 50 consumer packaged goods companies reported in Business Week, Gillette was 1 of only 17 that managed to achieve above-industry average growth in both sales and profits from 1985 to 1990. Gillette also was numbered among the 7 of these 17 companies that were able to maintain this excellence during the following 5 years.

Although due in part to the acquisition of Duracell, sales have more than doubled since 1991 to $10.1 billion in 1997, a 4-percent increase over 1996. Net income improved at a 16-percent rate to $1.4 billion. Earnings per share were $2.55. Gillette stock's price/earnings ratio was 41 times expected 1997 profits. Fiscal 1997 marked the twentieth consecutive annual increase in dividends per common share paid to Gillette stockholders. It was also the ninety-second consecutive year the company paid cash dividends on its common stock. In calendar year 1997, Gillette stock ranged from a low of $72.00 to a high of $106.38. The annual dividend was $.86. In June 1998 a two-for-one stock split became effective for stockholders.

Financial goals for the company are to increase total spending on research and development, capital spending, and advertising (in combination) at least as fast as sales to assure continued growth.

ANALYSTS' OPINIONS

The January 1998 Value Line Investment Survey reported that the climb in Gillette's profits should continue in 1998, with an almost 18-percent rise in earnings. According to Business Week, Wall Street analysts expect this 18-percent rise to continue over the next five years, slightly more than double the rate for the S&P 500. Value Line calls Gillette a good quality stock and ranks it as an average year-ahead selection. However, for the long term Value Line indicates, "Gillette shares offer lackluster appreciation potential through 2000-2002, due, in part, to a solid uptick in the stock's quotation since our October report."

HISTORY

In 1895 King C. Gillette, an ambitious traveling salesman, had two problems. One was his dulled razor and the other was his lack of a "right" product to market. Gillette envisioned an inexpensive, double-edged blade that could be clamped over a handle, used until it was dull, and then discarded. Gillette spent about six years trying to perfect his safety razor, despite pessimistic views of scientists and tool-makers.

In 1901 Gillette joined forces with William Nicker-son, a Massachusetts Institute of Technology-educated machinist, who helped Gillette form the American Safety Razor Company. While Gillette raised the $5,000 they needed, Nickerson developed production processes to make Gillette's idea a reality. In 1903, with Gillette as the president of a three-person directorate, the company began production of razors.

In October 1903 the company was renamed the Gillette Safety Razor Company. Product advertising began that year. In 1904 Gillette received a patent on the safety razor and bought a six-story building in Boston. The company paid its first cash dividend in 1906. While earnings increased steadily due to print advertising, Gillette also concentrated on international expansion. In 1905 a London sales branch was established; followed in 1909 by a small manufacturing plant in Paris; and offices in Germany, Austria, Scandinavia, and Russia. Foreign business accounted for 30 percent of Gillette's profits by 1923.

King Gillette fought off challenges for control of the company from John Joyce, a major investor in the company. Gillette bowed out in 1910 after selling a substantial portion of his controlling share to Joyce. Even though Gillette retained the title of president, Joyce took charge of the active management of the company until he died in 1916. Edward Aldred, Joyce's long-time friend and an investment banker, bought Joyce's interest in the company, retained Joyce's management team, and took control.

Gillette supplied 3.5 million razors and 36 million blades to troops during World War I, earning a large number of new loyal customers. Five hundred new employees were hired. In 1921 when Gillette's patent expired, a new and improved safety razor, which sold at the price of the old one, was introduced. Growth and expansion, both domestic and foreign, continued. The company received favorable publicity when it became royal purveyor to the Prince of Wales in 1922 and to King Gustav V of Sweden in 1924, and when the Paris office gave Charles Lindbergh a Gillette Gold Traveler set the day after he completed the first transatlantic flight.

At the end of the 1920s Gillette faced two major problems that led to a loss of confidence in the company and lower stock prices. In 1929 Stock prices fell from a high of $125 to $18. This crisis led to a management reorganization. Gillette made a bold advertising move when it admitted that the blade it had introduced in 1930 was of poor quality. The company then introduced what became its most recognizable product, the Blue Blade. Even though the Blue Blade kept Gillette a leader in the field, profits remained disappointing through the Depression.

In 1939 Gillette restored the company's advertising budget, relying successfully on heavy broadcast sports advertising. During World War II almost all of Gillette's production went to the military. Even though foreign production and sales declined, domestic production more than made up for it. The backlog of civilian demand led to record sales until 1957. During this time Gillette started broadening its product line by introducing brushless shaving cream; ball-point pens and home permanents were added to the product line through acquisitions.

Gillette reorganized in 1964 as a diversified consumer products company. It pursued the strategy of internal development of new product lines and acquisition of other companies to add to its product lines. This strategy brought mixed results. New products, which included Toni hair-color products, Earth Born shampoos, luxury perfumes, and small electronic items (smoke alarms, watches, and calculators) all failed. The acquisition of the West German Braun Company gained the company entry into the European electric-shaver market, but a Justice Department antitrust suit prevented Gillette from introducing the Braun shaver in the U.S. market until 1984. Other companies acquired in this period, including Eve of Roma perfume, Buxton leather goods, Welcome Wagon, and Hydroponic Chemical Company never found the right fit with the company and were later sold.

Colman M. Mockler Jr., who came to Gillette in 1957, took charge of the company in 1975. Mockler sorted through all the new acquisitions, sold off the least successful ones, and retained those that either were successful or had a good line of products that needed to be marketed more efficiently. Mockler also increased Gillette's advertising budget and undertook company-wide cost cutting measures. In 1984 Gillette acquired Oral-B, enabling it to branch into dental-care products.

The growing fear of fluorocarbons was one of the biggest problems faced by Mockler. He eventually replaced the propellant in Gillette's aerosol cans. This move was followed by new product launches, which recovered a quarter of the deodorant market for Gillette.

Bic was a French competitor that threatened Gillette's pen and Cricket lighter products. Once again Gillette countered by competing with Bic on price while emphasizing the higher quality of its pens and lighters. By 1980 Gillette had improved profitably despite Bic's challenge.

FAST FACTS: About The Gillette Company

Ownership: The Gillette company is a publicly held company traded on the New York Stock Exchange, as well as the Boston, Midwest, Pacific, London, Frankfurt, and Zurich Stock Exchanges.

Ticker symbol: G

Officers: Alfred M. Zeien, Chmn. & CEO, 68, $3,416,667; Michael C. Hawley, Pres. & COO, 60, $1,358,333

Employees: 44,000

Principal Subsidiary Companies: Gillette's subsidiaries include: The Gillette Company Andover Manufacturing Center, The Gillette Company Personal Care Division, Oral-B Laboratories, Paper Mate, Braun AG, and Duracell.

Chief Competitors: Due to the diversity of its products, Gillette competes with multinational companies in a variety of industries, including manufacturers of razors, toiletries, stationery products, alkaline batteries, and oral-care products. Chief among the company's competitors are: BIC; Ralston Purina; Bristol- Myers Squibb; Colgate-Palmolive; Johnson & Johnson; Procter & Gamble; Remington Products; Sunbeam; and Warner-Lambert.

Mockler's policies proved very successful for Gillette, producing a higher profit margin and a surplus of cash. This resulted in a takeover threat from Revlon in 1986. In 1987 two unsolicited requests from Revlon to buy the company were rejected by Gillette's Board of Directors. In response to these takeover threats, Gillette reorganized top management, laid off workers to thin out its workforce, modernized its plants, shifted some production to low-cost facilities, and sold many smaller and less profitable operations.

In early 1988 Gillette experienced one of its biggest takeover threats. Coniston Partners sought representation on Gillette's board in an effort to sell or dismantle the company. In 1989, $600 million shares of Gillette convertible preferred stock were purchased by Berkshire Hathaway, of which Warren Buffet owns 9 percent. Buffet agreed to give Gillette the right of first refusal, which lessened the threat of a takeover. With its restructuring completed, Gillette returned to emphasizing its powerful brand names.

In early 1990 Gillette tried to expand its shaving operation by acquiring Wilkinson Sword. However, the Justice Department blocked the sale of Wilkinson's U.S. interests since Wilkinson was number four in the market and Gillette already controlled about half the U.S. market. Since 1990 firm's earnings grew an average of 20 percent annually.

Throughout the 1990s Gillette continued acquiring companies with popular brand products. In May 1993 Gillette acquired Parker Pen Holdings Ltd. Thermoscan was acquired in 1995. In 1996 Gillette merged with Duracell International. Duracell is the world's leading producer of alkaline batteries, with nearly 50 percent of the U.S. market. The Knight Ridder/Tribune Business News stated, "The consumer giant spawned by the merger will create a marketing powerhouse selling everything from copper-topped batteries to Right Guard deodorant - and play an increasingly dominant role in the world's supermarkets and drugstores."

STRATEGY

Gillette's strategy is a three-pronged focus. Simply put, its mission is to achieve or enhance clear leadership, worldwide, in the core consumer product categories in which it chooses to compete. The company hopes to achieve this through a continuing process of new product introductions. Maintaining a new-product ratio above 40 percent of sales is the objective. A record 49 percent of Gillette sales in 1997 came from products new to the market in the last five years. This is twice the level of innovation at the average consumer-products company.

A vast research and development program is at the core of Gillette's success with its new product introductions. According to Business Week, Gillette religiously devotes 2.2 percent of its annual sales, or over $200 million, to research and development (R&D)—roughly twice the average for consumer products. The company aims to prove that consumers can be induced to pay a premium for innovative products that deliver superior performance. The company goal is to increase spending on R&D, capital expenses, and advertising—all combined—at least as fast as sales to assure continued company growth.

CHRONOLOGY: Key Dates for The Gillette Company

1901:: Traveling salesman King Gillette starts the American Safety Razor Company to manufacture disposable razors
1903:: The company is renamed Gillette Safety Razor Company
1904:: Gillette receives a patent on the safety razor
1910:: King Gillette sells his controlling share
1929:: Gillette merges with Auto Strop Safety Razor Company
1936:: Gillette Brushless shaving cream, the company's first non-razor product, is introduced
1948:: Expands its product line even further by purchasing the Toni Company home permanent maker
1955:: Gillette acquires the Paper Mate pen company
1963:: Gillette patents a coated, stainless-steel blade
1971:: The Trac II, the world's first twin blade system, is introduced
1984:: Gillette acquires Oral-B
1990:: The Sensor is launched in 16 countries, marking the company's first international launch
1996:: Duracell International merges with Gillette

INFLUENCES

Several factors influenced Gillette's sales performance in 1997. The strength of the U.S. dollar relative to most foreign currencies reduced sales growth by 4 percentage points. The company faces the challenge of making its other businesses as profitable as its blade business. Shaving had been the business that powered Gillette since early this century. Batteries, toiletries, writing instruments, and toothbrushes, for example, must now account for at least half of Gillette's growth.

CURRENT TRENDS

Gillette's plan for the next five years is continued expansion in global markets including Asia, Russia, and Latin America. It will also continue with increased emphasis on new products.

PRODUCTS

The Gillette Company's brands are organized into six major business segments: blades and razors, toiletries, stationery products, Braun products, Oral-B products, and Duracell products. More than 20 new products were launched in 1997.

Gillette's Sensor brand is its top-of-the-line shaving product. Sensor includes the SensorExcel shaving system for men (introduced in 1993) and for women (introduced three years later). The Atra and Trac II twin-blade shaving systems have been major brands for more than 20 years. Agility, the new women's disposable razor, was introduced in North America in late 1997. Gillette's Good News brand is the best-selling disposable razor in the United States.

In April 1998 Gillette introduced its first triple-blade razor, the Mach3. This razor stars in the company's biggest product launch ever, complete with a multimil-lion dollar global marketing campaign supported by six years of research and development.

Deodorants/antiperspirants, shave preparations, after-shave products, and skin care products make up Gillette's toiletries line. Gillette Series, Right Guard, Soft & Dri, and Dry Idea are part of the largest toiletries category, deodorants. The Gillette Series and Satin Care for women are two major brands in the shave preparation business. In early 1988 Gillette divested the Jafra line of skin care and color cosmetics. According to the company, Jafra "no longer fit Gillette's business strategy."

Parker, Paper Mate, and Waterman writing instruments and the Liquid Paper line of correction fluids, pens, and DryLine correction film comprise Gillette's stationery products.

The Braun line of hair-removal products is the largest Braun business, led by the Flex Integral shaver and the Silk-epil electric hair epilator for women. Braun's oral care products include the Oral-B plaque removers. Food processors, hand blenders, steam irons, hair dryers, and the Thermoscan infrared ear thermometer are among Braun's household and hair-care appliances.

The Oral-B toothbrush is used by more dentists and consumers than any other brand in the world. Toothpastes, mouth rinses, dental floss, and professional dental products are also manufactured under the Oral-B brand.

Alkaline batteries are Duracell's principle line of business. It also makes specialty and high-power rechargeable batteries. In May 1988 Duracell introduced its new Duracell Ultra high-tech battery. It lasts up to 50 percent longer than ordinary batteries and claims to be the world's longest-lasting alkaline battery for high-technology consumer devices, such as cellular phones and camcorders. In 1997 the company announced that it would discontinue manufacturing rechargeable batteries.

CORPORATE CITIZENSHIP

For Gillette, fulfilling the traditional value of good citizenship has meant "reaching beyond the workplace, through corporate contributions and employee involvement to improve our communities." In the company's headquarters city of Boston, Gillette supports organizations and community programs that help improve education, aid the less fortunate, revitalize inner city neighborhoods, and increase community spirit.

Gillette was a founding corporate sponsor of the YMCA of Greater Boston's Black Achievers program. It also sponsored teams of young men and women as part of City Year Boston, a full-time community service program for youth. A number of internship programs for high school and college students are also offered by Gillette. Also in Boston, Gillette provides financial support for organizations such as the United Way, Dimock Community Health Center, South Boston Neighborhood House, and The Museum of Afro-American History, as well as for mentoring programs at local elementary and middle schools.

In the medical field Gillette contributes significantly to women's cancers research at the Women's Cancer Program of Boston's Dana-Farber/Partners CancerCare. In 1997 Gillette awarded $5 million to this program.

In addition to its strong involvement in community service, Gillette is also committed to its responsibility to the environment. With the company's acquisition of Duracell batteries, the company has placed renewed emphasis on environmental initiatives. Since 1990 Gillette has spent more than $60 million on environmental projects around the globe. In the last eight years, Gillette cut worldwide emissions by 80 percent, reduced packaging by 12 percent, and realized energy efficiency gains of 10 percent.

GLOBAL PRESENCE

Gillette is one of the most globalized companies among Fortune 500 multinational organizations. Foreign operations account for 63 percent of Gillette's total sales and operating profits. Gillette has maintained a vast international market base and is growing its business in emerging markets around the world. Gillette operates 64 manufacturing facilities in 26 countries, and Gillette products are distributed in more than 200 countries around the world. The most promising new markets for Gillette are in what the company calls its AMEE region—an acronym for Africa, Middle East, and eastern Europe. The company maintains 16 manufacturing facilities and more than 5,500 employees in this region. Gillette attributes its flourishing growth there to its strategy of training local nationals for the highest positions as soon as possible. Among the emerging markets where Gillette is making its presence known are Poland, Russia, the Czech Republic, Turkey, India, Pakistan, and South Africa.

One of the reasons for Gillette's global success is the fact that its product offerings, marketing strategies, and messages are the same for all markets. The global view also extends to the company's hiring and training of managers, as well as to its technology policy—proof of which is Gillette's research and development facilities worldwide. In an article in Chief Executive, CEO Alfred Zeien claimed that the organization's global focus is the glue that holds its disparate businesses together.

EMPLOYMENT

Gillette employs 44,000 people, nearly three-quarters of them outside the United States. Bringing out the finest in each of its employees is the foundation of the company's human resources philosophy, policies, and practices. The company invests about $125 million annually in worldwide training and development programs.

THE SPACE-AGE RAZOR

"One day soon," writes humorist Dave Barry, "the Gillette Co. will announce the development of a razor that, thanks to a computer microchip, can actually travel ahead in time and shave beard hairs that don't exist yet." Gillette hasn't reached this point yet, but it wouldn't be a surprise to find out that the shaving company is feverishly working on such a project in its laboratories. One doesn't usually associate "high-tech" with "shaving," but Gillette works every day to do just that. What do you expect from a company run by a former naval engineer? According to the Knight Ridder/Tribune Business News, Gillette CEO Alfred Zeien "talks about 'shaving systems' with the same sort of technical gusto one expects from a Boeing or Hughes engineer." Zeien's attitude permeates Gillette. It's a company that spends huge amounts on R&D and that refuses to release a new product until the next generation is already in development. Gillette has four laboratories devoted just for research, eight for the development of new products, and three engineering centers that work on improving processes and equipment.

This is best exemplified in the story behind the razor that Gillette released in the spring of 1998—the Mach3, the first triple-blade razor. The razor was developed over a seven-year period at a cost of over $750 million. Gillette then spent over $300 million promoting it—meaning over $1 billion was spent on the development and marketing of a razor.

To develop this high-tech razor, Gillette put over 500 top-notch engineers on it—some with degrees from universities such as Stanford and M.I.T. The engineers ended up using technology from the semiconductor industry to help build a better blade. They discovered that they could make the blades stronger by dipping them in carbon—the same process used for computer chips. By the time the research and development was complete, Gillette had applied for 35 patents. The stakes involved in the development of the Mach3 were made apparent when it was discovered that one engineer had handed shaver secrets over to the competition. He plead guilty and was sentenced to 27 months in federal prison and ordered to pay $1.2 million in restitution.

Reviews of the new razor were mostly favorable, many commenting on the closer, smoother shave the Mach3 gave. Although some thought it a little pricey, the Mach3 was the top-selling razor during its first full week on the market and, according to Gillette, outsold the closest competition by a two-to-one margin.

Oh, and by the way, the next generation razor was, of course, already in development before the Mach3 was released. It should be out somewhere between 2006 and 2008.

Fortune magazine ranked Gillette number 46 in its 1998 list of the "100 Best Companies to Work for in America." Of the Gillette employees who were randomly chosen to participate in the magazine's survey, 85 percent felt so positively about the company that they indicated their intent to remain with the company until retirement. The company was also cited for its practice of promotion from within.

SOURCES OF INFORMATION

Bibliography

canedy, dana. "gillette, long a favorite of investors, finds itself walking an edge as thin as one of its razor blades." the new york times, 28 january 1998.

donlon, j.p. "an iconoclast in a cutthroat world." chief executive (u.s.), march 1996.

"the gillette company." hoover's handbook of american business 1998. austin, tx: reference press, 1997.

"the gillette company." hoover's online, 30 july 1998. available at http://www.hoovers.com.

hast, adele. international directory of company histories, vol. iii. detroit, mi: st. james press, 1997.

moody's company data report. moody's investor service, 1996.

symonds, william c. "gillette's edge: the secret of a great innovation machine? never relax." business week, 19 january 1998.