About two weeks ago, I met with a partner at a venture capital firm who had flown down from the US at the Four Seasons Hotel in Mumbai. As we munched on the Indo-Western fusion choice of Pav Bhaji Tortillas, we spoke about a wide range of things: how Amazon Prime will be a huge fillip to Amazon India, the media’s obsession with Indian e-commerce, how fintech is the next big thing for Indian start-ups and so on.
As someone tracking investments, I popped the question, “What do you think about the Unilever Dollar Shave acquisition?” He said, “It can’t get more benign than this, right,” essentially alluding to the simplicity of Dollar Shave Club—a start-up that’s a little over four years old and offers a blades-by-subscription service for as little as $3 a month (including shipping and handling).
“Perhaps that is what makes it so compelling too,” he was quick to add. There is some merit to that comment. After all, a buttoned-down Unilever, which gives you an impression of an uptight, global biggie, snapped up a scrappy Dollar Shave that feels more like it belongs in the tech sector than the consumer products industry.
The announcement of the billion-dollar acquisition, in fact, raised hopes for a lot of venture capitalists back home, with some of them giving themselves a pat on the back as if their thesis of backing niche e-commerce start-ups had just received validation. Some of them also took to Twitter and LinkedIn to voice their enthusiasm.
But what makes Dollar Shave so appealing is not a testament to the attraction of e-commerce so much as it is about building a formidable online brand, says a Bloomberg report.
Going through media reports will tell you what Dollar Shave achieved in such a short span of time: it actually created a market for razor blades. A report in Harvard Business Review said the online market for razor blades has grown from virtually zero to $263 million, citing estimates from Slice Intelligence, a market research firm, owing to the momentum of Dollar Shave Club.
The company turned out to be a disruptive rival and actually snatched market share from incumbents like Gillette, still the No. 1 razor brand, which saw its market share fall from 71% in 2010 to 59% in 2015. (And for the record, Gillette, owned by Procter and Gamble, sued Dollar Shave Club late last year for patent infringement. Dollar Shave Club filed a counter-suit in February.).
Also, Dollar Shave turned the industry upside-down with its direct-to-consumer marketing tactics: the day it started selling subscriptions in March 2012, the company released a YouTube video starring founder Michael Dubin. He tells viewers the product is f***ing great, “so gentle a toddler could use it”. The website crashed, but the blades sold out in six hours.
So, my question is, do we have a Dollar Shave Club in India? I asked quite a few venture capitalists. The answer ranged from “None” to “We will get there” to “Oh yes! We do.” Predictably, the third bunch pointed to a new phenomenon—vertical e-commerce start-ups emerging in India. The names thrown around included niche plays building in jewellery segments, apparel and so on.
Really? Are these assets unique? Has any of them built a direct-to-consumer engine where a large traditional company can come tomorrow to bolt its other brands on and pay such a huge strategic premium? Have any of them actually created a new market to grow at a lightning speed and snatched market share from incumbents?
Coming specifically to vertical e-commerce plays in India dubbed as “brands”, it is more like a mixed bag. We already know that many online apparel firms are in trouble. However, the good news is that some players are taking a full stack approach and realizing that the era of lead-generation is over. A few like Bluestone come to mind.
Looking at the Unilever-Dollar Shave Club deal, involving the acquisition of a disruptive rival for a five-times revenue multiple, as snapping up just another e-commerce start-up is a puerile way of looking at things. The key here is that Dollar Shave built a unique, formidable, and disruptive digital brand, which pretty much upended the industry’s traditional business model. Also, if one reads the blog of early investor David Pakman , he never saw Dollar Shave Club as an e-commerce firm from the very beginning.
Venture capitalists trying to build another Dollar Shave Club in India should start with such a thesis. There is a huge macro opportunity out there—any report from a large consulting firm will tell you that the consumer market in India is exploding. The fact is that this market is right now being driven a lot by pricing and a little by convenience.
There is a huge potential to build a habit-forming product such as Dollar Shave and make it addictive. “If I open the drawer of my son, it is stacked up with razor blades of Dollar Shave. One, he is too lazy to (cancel the subscription service), and second, he just loves the offering,” said another US-based venture capital investor.
Dollar Shave became addictive by learning about its audience; it curates messages specifically meant to keep them engaged. With each delivery, customers get a Bathroom Minutes magazine.
So before you club it with all the other e-commerce companies, think twice. And just so you know, there is a report today which says that the desi version of Dollar Shave Club—Bombay Shave Club—has raised money from angel investors.
It shouldn’t be a mere copy of Dollar Shave Club but a desi version that works in India. Just like Pav Bhaji Tortillas.
Shrija Agrawal is Mint’s deals editor. Due Diligence will run every week and cover issues in India’s venture capital, private equity and deals space.