Why the Dollar Shave Club Dream Faded: Inside Unilever's D2C Strategy Reassessment

Rob Sellers
March 25, 2024

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LONDON - Last month, Unilever offloaded the Dollar Shave Club business to US private equity firm, Nexus Capital Management, for an undisclosed amount. Given Unilever can trace a storied history back over 100 years, building and nurturing brands that are still with us today, the 7 years or so it owned Dollar Shave seems like a mere fling. Is this the totemic move that tells us that the promised mega-disruption of shoppers buying directly from brand-owners was a false dawn? And if not, what are the big barriers to success that still stand in the way of these agitators to realise the potential that some commentators (and investors) had been convinced was going to reshape buying behaviour and the balance of power between brands and retailers?

Dollar Shave Club was the ultimate Start-Up-Bros story. Two guys met at a party, and chatted about the cost of razors (“I KNOW, right?”). A bit of personal cash and some rounds of investor funding, and they were off. Within a year they created THAT YouTube ad featuring founder Michael Dubin, and suddenly the whole FMCG world was in a flap. 

This was it. Someone had found us all out. Cut out all the middle men (the retailers, the packaging designers, the consumer researchers, the ad agencies, the sales guys, the wholesalers), strip out all that cost and just sell great products directly to people who need them. Who needs shops when you’ve got a website, right? Classic challenger positioning, with crystal clarity of a brand defined by who they were not, not who they are. 

These murmurings clearly reached the board of Unilever. In a classic corporate attempt to stem an existential strategic threat, they put their hands in their pockets. And a mere 5 years after that chance party chat, Dollar Shave Club became the one billion dollar shave club. 

And this was just one of many similar stories. The big CPG houses blinking and buying businesses that were barely established for big money. Nestle bought the majority of Tails.com in 2018. In the same year, PepsiCo spent over $3bn on Sodastream - which had been rebooted as a direct and subscription brand. Much of the argument wasn’t necessarily at the time about sales, or even potential sales for some of these decisions. It was the allure of the fabled marketing Eldorado of ‘first party data’, an elixir that was going to allow marketers to exist cheek-by-jowl with their customers, and wrestle strategic control away from the big digital platforms and the dominant retailers.

But then the big bets seemed to stop. In more recent times, the moves seem more subtle than seismic. Corporate experiments to keep a chip in the game, and spin a progressive story to a City hungry for tech promise versus good fundamentals. And outside the FMCG behemoths, very few D2C brands have established a meaningful foothold in any category, let alone broken into culture and become a household name. So what’s happened, and what next?

What happened has been largely shaped by this business generation’s greatest disruption - the Covid pandemic. For those of us in retail and commerce, it was like running a huge future-facing simulation. What happens when you HAVE to shop online, what happens when you make omnichannel shopping as easy as possible, and then what happens when you open everything back in again. Since the end of 2021, what we have broadly seen is an energised return to physical shops - one of the biggest factors that has fuelled inflation and the rising prices we have all had to deal with.

Share of ecommerce in overall retail sales, last 10 years.

In some ways, those price rises, and the way that consumers have reacted to them, have been the real shift. Still finding ways to spend money on the things they love, but working harder to find value in the essentials. This has led to huge amounts of price competition in grocery retail - price matching, volume discounting, personalised offers on anything and everything (there’s the real power of first-party data) - to fight against the discount retailers eating up market share. And as Sainsbury’s told us earlier this year, shoppers feel they are going to find more ways to spread their total household budgets by browsing and buying, not just defaulting to the same brands directly, over and over again.

On the other side of the inflation - the cost of manufacturing, and especially, delivering products. Demand for delivery solutions went through the roof during the pandemic, whilst the supply of some cheaper labour went home during the pandemic, so wages went up and ultimately stayed there. Companies reliant on delivery drivers, like Domino’s Pizza, made statements to the city explaining how this was effecting pricing models. And you can guarantee that the D2C brands, many of whom are still growing and yet to benefit from associated economies of scale, were suddenly forced to recalibrate their cost models which forced them to increase prices. If they were challenging on price like Dollar Shave, that changed the game.

And then perhaps the final cost factor, less attributable to Covid, but maybe a longer trend. What was Dollar Shave’s catalyst is now the stodgy treacle trapping literally thousands of brands attempting to reach an audience on the cheap. Social Media platforms have become all-pervasive and deeply sophisticated in the way they entice money from variably-funded entrepreneurs. The reality is, there is no cheap way to build a mass market. True ‘viralness’ is a dream that has been stuffed by monetisation. Of course there’s a handful of successful examples, used as ‘whataboutery’ by social fundamentalists. And perhaps in the high consideration, high margin categories of fashion and beauty, there’s a way of making that model work. But to achieve true fame; salience strong enough to get shoppers to open up a browser and consciously look for an alternative to something they buy sleepwalking through a supermarket, the budgets required are beyond all but the boldest investors.

So it turns out the most efficient and effective way of getting FMCG brands into the brains, baskets and homes of modern shoppers is to return to the reliance on retailers. They have the scale, logistical efficiency and mass reach to ensure that, even with thinner margins and less customer closeness, your brand will actually be bought. But it hasn’t been a simple return to the static ubiquity of years past. One of the great things about the D2C model has been the fact that truly innovative brands, even those without mass-market ambitions, have been able to prove true demand for their products. This has encouraged the big supermarkets to dedicate more of their shelf space to innovators and disruptors - and for the traditional ‘big 4’, this has given them the opportunity to offer variety and experience to shoppers who are looking for something beyond the lowest price. 

Perhaps the future for FMCG brands isn’t simply to put all our bets on either the direct or indirect model. Ultimately, brands need options that give them flexibility, and to pivot quickly towards shifts in consumer demand. Given that both big FMCG houses, and the retailers they rely on, are both battling similar enemies of consumers looking to trade down or out of their categories, maybe we’ll see closer working relationships to find the innovations that will ultimately turn the tide away from discounting. 

Rob Sellers
Contributing Retail Writer