The price of a G. razor blade

As seen in Trends-Tendances of last week.
Are you ready to pay more and more?

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The MATHS of shaving (5)

Why you should absolutely use pre-shave oil!

Time is coming up now to end up with “The MATHS of shaving” series:  this is the 5th and last issue. Next week, I will start with “The PLEASURE of shaving” series. Today, I would like to prove that if you use the correct shaving accessories, you can further reduce your annual shaving bill.  There is one key accessory that I strongly advise for the amateur of wetshaving, who is in quest of the perfect shave: Shaving Oil. I will be honest with you: when founding Raz*War to answer to the (shocking) shaving market oligopoly situation, I didn’t know that shaving oils were so efficient and useful. I know, now, everything about them! And I am completely amazed!

Why do the “shaving giants”, “BigRazCo” and the other, do not promote them?  I think that part of the answer lies… in the proof of today (But let’s be honest, BigRazCo is not so malicious. Oils are also perceived –unjustly- as old generation product, and that’s the second part of the answer). If you would like to dive a little deeper into the subject, I suggest you search on the web and look for some electronic microscope photographs of razor edges affected by foams and gels… You will quickly understand that these products really do not help extend the life of your razor blades.

Instead, I strongly advise to use shaving oil (as pre-shave product, in combination with a semi-synthetic shaving brush and a mild shaving soap). Since I started using shaving oil, I have no more issue of ingrown hairs.  The shaving oil allows me to get the “Baby Butt Shave” level (…as we, as “shaving specialists” use to say).  Another interesting collateral effect: my spouse never complaint anymore about my “itchy beard”. Also, due to the lathering and moisturizer effect, the typical “burning skin” effect disappears. These, already, are arguments that are powerful enough to motivate you to buy shaving oil (Hence: do so, before finishing reading this blog-post, and click on the following hyperlink ;-)).

But, today, as I am in our weekly MATHS of shaving exercise, I will no longer examine these “comfort” arguments further (I will do that my next series of blogs post: “The PLEASURE of shaving”). Here, I just would like to assess the impact of using shaving oil on your annual shaving bill.  It will be quite easy to do, though.

What happen is that shaving oil, due to its lubricating characteristics, will strongly enhance the extent of usage of your blades. This due to the fact that oil will help the blade to enter in the hair to be cut, as lubricating mineral oil would help a “chainsaw” to enter in wood. A good shaving oil could double the lifetime of your razor blades. That’s enough to take your calculator and start yourself the calculation.  Consider now the graph I prepared for you:

The graph shows the impact on your wallet of using shaving oil. For making the graph, I made the comparison of our “EL Fidel” 5blades per razor head   (premium razor) with a premium razor of BigRazCo. For the stake of simplicity, I considered that you change your blades a little less than every week (what you should normally do if you are not using shaving oil, even with highly qualitative 5blades/razor: our own model and the one from BigRazCo). The first column correspond to the price of buying 48 BigRazCo razor heads per year (With average unit price: 4,2 Euros). The second column corresponds to the price of a 48 razors heads/year “El Fidel” subscription plan (Raz*War premium razor). The third column features the annual cost of your blades by using a highly qualitative oil (I included the price of the oil (3 bottles). 3 to 4 bottles of Raz*War shaving oil, used as pre-shave oil, should be enough). Finally, the fourth column features the annual cost of your blades using a 24 razors heads per year subscription plan (With, also, the price of the oil included).  Of course, you need to add the price of the other accessories (Gels, Foams, soaps, after-shave balm): I did not include them here for facilitating the calculations (which would have been very favorable to Raz*War).

One day, after completing my “PLEASURE of shaving” and my “SCIENCE of shaving” series, I will return back to a new “MATHS of shaving” series. Then, I will calculate the TOTAL COST of your annual shaving bill. You will be amazed. And I will prove that the “perfect shave” is not necessarily costly. The thing is that you need to do clever and well informed choices. And that is what I will help you to do.  At this time, I would like to really deeply insist on something: A pre-shave oil clearly impacts the quality of your shave! Hence, do not hesitate and buy it now.

But to conclude today’s shaving math’s exercise, I wanted to prove that shaving oil can strongly reduce your annual shaving bill.  It appeared quite clearly from the graphs featured today.

CQFD. Next week, I will start with the “PLEASURE of shaving” series.

Pierre

PS: do not forget our Raz*War Xmas giftboxes. There are some with our amazing shaving oil…

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The MATHS of shaving (4)

Looking at the production costs…

As I explained in my last blog post, the too high margins that BigRazCo takes on its premium razors impacts the operational profit of BigRazCo itself and is the rationale behind the incredibly high price that BigShark paid for acquiring BigRazCo in 2005.

In today’s blog post, I would like to dive with you in the production costs of a Razor Blade and prove, from there, that profit margins are too high. Not anyone can produce qualitative razor blades. In total we have identified 5 major players. Three of them produce razor blades for “private labels” and two produces their razors and razors blades under the very well known shaving brands. One of these two is: BigRazCo.

Many years before it has been acquired, BigRazCo was convinced of infringing competition law in EU, by creating, tough buying shares of its main competitor in Europe, a real razor and razor blades monopoly. In the explanation of the judgment, some hints about production costs were revealed: at that time, the minimum investment to produce a de novo model was estimated to 150 million Euros, creating a huge barrier to entry. (Judgment said that given to the high barriers to entry, BigRazCo would have gained an inexpugnable monopoly position if investment in competitor was accepted under EU law).

It is indeed quite difficult to produce razor blades. You need special steel, for example. The “razor edge” is difficult to obtain (The razor egde reaches 300 angstrom in thickness, making it just 30 times larger than atoms size only…) and you need a special quality of steel (with more carbon in it), that, apparently, only one steel producer produces (see on on my next blog post). But, is it so expensive that it explains the price?

Certainly not. The barrier to entry explains the prices. The recent very good news issued by BigShark (A news that I will –honestly-celebrate in a next blog post), the owner of BigRazCo, to launch a razor at 11 cents (45 times lower price than the price of a premium razor in Europe) as retail price in India provides you also with some hints.

But let’s dive into the maths. Imagine a new razor blades producing plant aimed at serving Europe and that costs 150 million Euros (With share of production costs included). Consider now that this factory produces 1 billion razor heads per year. This would not be enough to cover market needs for BigRazCo blades in Europe; as a “Back of the envelope” calculation suggests: Based on EU population, and considering the market share of BigRazCo in Europe and the frequency cardrige refills, a least 1,3 billion blades are needed. But, let’s keep my figures: by using them, we get to an investment cost per blade of 15 cents, just for the first year after opening the plant.  Keep now this figure in mind: you could use to check if we can believe the figures I am presenting now:

Last year, the Dailymail online issued an article where the production costs of blades were revealed. Thanks to this article, I was able to produce the graph here-below:

This graph is adapted from an analysis published by Sean Poulter. (No hyperlink is provided as the true name of BigRazCo is mentioned in the original article. But, you can still search Google if you want: “Sharp practice”? The razor heads that cost just 5p to make”).  Here is how I established the graph: The retail price in UK of the premium razor I have in mind is 2,43 GBP, which, converted in Euros, makes 2,91 EUR. But, in continental Europe, razor heads are costlier (less competitive market). It can reach up to 4,50 EUR per razor head (The new model coming soon is even more expensive). I took the average price in Belgium - 4.05 EUR per razor head- based on our store checks, and applied the UK cost structure. Hence, the figures featured in the graph should be considered as approximate figures only as, for example, VAT differs from one country to the other. 

What to learn from this graph? At first, you should ask yourself: Should I believe these figures? That’s what I asked myself: Is Sean Poulter not exaggerating? I am afraid not…but I am not sure. Hence, I will continue my quest for the truth… (I promise you!). But, and that’s what you have to learn from such kind of “Maths of shaving” exercise: Even if Sean Poulter or I was wrong by a factor of 2, profit margins would still be extremely high!

And now, let’s calculate the margins in percentages. The figures on the graph means that BigRazCo takes a 65% profit margin (with which you still need to pay the marketing costs, part of the salaries of football, tennis and golf stars, etc…). Even half of this sum would already be a large number! Let’s now make the reasoning in “mark up”: divide the profit margin by the sum of “production costs” and “packaging costs”. What do you get? A mark-up of 2245%! Good business to be in, no?  

Margins on razor blades are much too high. That’s what I wanted to show.

CQFD.

More shaving maths later (Don’t miss the last “Maths of shaving” episode…).

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The MATHS of Shaving (3)

Where does the money go?

In my last blog-posts, I showed that our very big (and respectful) competitor, “BigRazCo” clearly was making a fool of you by claiming extremely high margins for their Razor and Razor blades.  

But, in these time of social protest and implementation of austerity measures, where too high profits taken on the back of the consumers puts the culprit company in the spot light, it might be useful to tell you where the money, taken out of YOUR pocket, goes. No surprise: in the pocket of the shareholders. 

Let’s be clear: I have no problem with that, as I am also myself a shareholder and as all employees and my partners at Raz*War are shareholders too. But, you would certainly agree that, sometimes, company profits could be too large and, in some case, even indecent. On my side, instead, I feel being a “social” shareholder (This is very “Raz*War” :-)) and... I have my doubt about "BigRazCo” being it too...

You, dear readers, are the sole judge of how we could qualify BigRazCo profits. The Shaving MATHS exercise of today will help you.

BigRazCo was swallowed by a well known (and well respected. FYI, I am an alumni of this company) bigger fish that we will call “BigShark” for the stake of facility (we have the policy to not name our competitors). This deal was made for 57 billion USD, in 2005, placing this deal in the top 10 among biggest ever mega purchasing deal at this time. Looking at BigRazCo, in 2004 (the year before the acquisition), the company Razor and Razor Blades division made 4,43  billion USD in sales, with an unbelievably high 1,63 billion USD in operating profit (A 38% profit margin:by itself, already  a message).  BigRazCo had (and still have) two other division; one for cell batteries and one for electrical toothbrushes. But, in 2004 and 2005, the two others divisions were operating moderately well: Hence, The Razor and Razor blades division made 68% of the operating profit. It was notorious, also, that BigShark was interested by BigRazCo for the Razor & Razor blades business, and not by the other divisions (that they intended to sell).

Let’s start the math:

We could assume (despite I just said it is somewhat false) that 68% of the purchase price concerned the Razor and Razor blade business, as this division accounted for 68% of the operating profits (Hence, I undervalue the Razor and Razor blade business). This would mean that the Razor and Razor blade business was worth 37 billion USD. At this time, BigRazCo had 415 million razor and razor blades consumer.This means that BigShark paid 93 USD per consumer. You can now compare that to other deals. Take, for example, the purchase of “Alberto Culver” by Unilever, just finalized last week, on Sept 27. Unilever paid 3,5 billion USD for a company active in hair & skin care (hence: comparable to BigRazCo). And the company had an estimate 200 million consumers (Just for information: the stock-exchange analyst Morningstar said Unilever overpaid Alberto Culver..). This means that Unilever paid an estimate 17 USD per consumer.

It is clear that Big Shark paid an incredibly high sum for BigRazCo, just because BigRazCo captures incredibly high margins on their razors and razors blades. Now imagine what BigRazCo is worth in the hands of BigShark: since the retail prices of the blades further increased, by at least 35% (vs 2005), and since the brand claims (in its advertising leaflets) having now 600 million consumers… Probably, with the same valuation metrics, BigRazCo would be valued in the 100 billion dollars range...

It is quite clear, when you buy a BigRazCo razor or razor blades, that a large part of the price is, simply, profit. Hence, if you buy a razor of, say, 20 USD, be aware that 8 USD will go into the wallet of the shareholder (before taxes). One advise, if you would like to keep buying BigRazCo blades: buy “Big Shark” stock shares too, at least you would have the feeling to recuperate some of the money taken out from your consumer wallet. Another, better, advise: switch to Raz*War…And do it now, by clicking on this link http://www.razwar.com

CQFD. More shaving maths later. 

 

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The MATHS of Shaving (2)

Are the well known two Razor and Razor Blades industry players making a fool of you? Are they making fun of you?  Of course, they do! And I will prove it now in this new "MATH of shaving" episode. 

The well-acquainted with the Razor and Razor Blades industry is probably aware of the major new product launch currently organized by the most renowned worldwide leader (we never quote the name of our competitors) for its brand-new, even more expensive, “system razor” (i.e. razor with refill cartridges). For the stake of facility, let's name "BigRazCo" the dominant player we have in mind. The new target market envisioned by "BigRazCo" is UK, where the launch is foreseen...in end of September; hence now or in a few days.  As the UK market is a very competitive market (“white labels” brands have more power, for example) and as the major competitor of the worldwide leader is also planning to launch a new model, “BigRazCo” recently announced "The biggest FMCG launch in UK ever".  Something that might be key also in their decision to prepare a “big launch”:  in UK, there is a small company that produces Razor and Razor blades which also wants to fight against giants. This prominent colleague -and we greet him here- clearly announced that "The War of Razors will soon happen in UK”. It might be in the plan of “BigRazCo”, and the other company, to crush him… Whatever, in his blog, the founder of this small UK Company also quoted some figures, which I will use for my MATH shaving exercise of today (I cross checked the figure, and they seems to be true).

Apparently, the #1 player, "BigRazCo", plans to spend 100 million GBP in marketing for this new launch. The #2 player will be happy with a modest 20 million GBP marketing budget for its own new model. Translated in Euros, this will mean approx 120 million Euros (September exchange rate). Let's now start our calculations: According to World Bank, there are approx. 62 million people in UK. Per capita, the marketing budget of the new razor model is, thus, close to 2 Euros.  Let's now assume that 50% of the population are males: thus, per male, “BigRazCo” expects to invest 4 Euros.  According to thorough market surveys, 23.4 millions UK males use razor blades and electric shavers, with electric shavers used by 25% of this population. Hence, 17.5 millions UK males are adept of "wetshaving" (Shaving with razor blades).  According to another study, disposable razors accounts for 19% of the value of razors& razor blades sold (Good news, as disposable razors are extremely polluting). Considering that shaving with disposable razors is at least twice cheaper, we get to the point that 60% of male "wetshavers" use system razors. Hence, this means that “BigRazCo” wants to spend 12 Euros per “system razors” user:  a quite high figure already (as would any Fast Moving Consumer Goods expert notice). But, the reasoning is not finished… Let’s now turn to the graph I prepared for you:

 

 

Did you get the graph correctly?

Ok, so let’s continue the calculations. For doing so, I need to dive into my market surveys figures. According to them, “BigRazCo” has a 70% market share in UK and its latest product has got a 25% market share. As you saw on the graph here above, dividing the 120 million Euros expected to be spent by the number of “BigRazCo” clients will mean 17 Euros per customer. Let's now consider, based on these market survey figures, that “BigRazCo” would like to reach a 20% overall market share: The total budget per maximum number of customers would reach an astounding 58 Euros per customer (=expected maximum number of customers for “BigRazCo” new model).  And, now, to conclude, let’s consider that “BigRazCo” would only succeed to get one third of its maximum objective - which is a realistic objective, at least in the medium term-  then, it would have paid …175 Euros per customer (See graph: “id.” means “idem”. “Id.1.” refers to column 1 and means “same as column 1 but male only”. “Id.5.” refers to the 5th column. Etc.).   

Let's be honest, even If I was wrong by a factor of 10, this would have been a huge budget. Why can such huge advertising budgets been spent? Because the two worldwide giants takes, on the back of the customer, extremely high profit margins (These high margins will be the subject of a one my next blog posts). Hence, it is clear that the razor and razor blades players are making a fool of you.

CQFD. More shavings news later...

P,

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