Unilever said Tuesday evening it will acquire men’s grooming startup Dollar Shave Club. While the amount was undisclosed, news outlets have reported that Unilever paid about $1 billion in cash.
Dollar Shave Club, fixture in direct-to-consumer sales, was founded in 2012 as a subscription razor blade service. It then expanded to sell other men's grooming products, including hand cream, shaving cream, and soap.
Dollar Shave Club founder and CEO Michael Dubin will continue on as CEO. The deal is expected to close in the third quarter this year.
Consumer products giants like Unilever and Procter & Gamble have seen startups like Dollar Shave Club grab market share, and both companies are seeking ways to mitigate this disruption. Procter & Gamble is responding with its own laundry-based subscriptions and services, and now Unilever has joined in via the acquisition route.
“In addition to its unique consumer and data insights, Dollar Shave Club is the category leader in its direct-to-consumer space," Unilever North America president Kees Kruythoff said in a statement. "We plan to leverage the global strength of Unilever to support Dollar Shave Club in achieving its full potential in terms of offering and reach.”
The subscription-based model has exploded, leaving individual startups to scramble for further investment funding in order to build scale. Many of those startups, surging at first by disrupting the established market and grabbing customers, now see their models taken over by the stalwarts they hoped to trip up.
Beauty subscription company Birchbox is facing that problem, as rival Sephora (and many others) has launched its own subscription service while also enjoying the advantages of its brick-and-mortar network and successful concession partnership with J.C. Penney. Birchbox this year has already instituted two rounds of layoffs, halted plans for a Canadian expansion and an initial public offering, and scaled back its plans for more physical stores.
Unilever’s buyout of Dollar Shave Club saves the startup from that scramble for funding. Unilever noted in a press release that Dollar Shave Club enjoyed $152 million in sales last year, and expects more than $200 million in revenue this year. But a venture capitalist that invested in Dollar Shave Club in its first rounds did admit to the New York Times that it had run into the same struggles as other subscription services.
“It was hard to raise capital for this company,” David Pakman, venture capitalist at Venrock Partners, told the Times. “Many leading firms passed multiple times.”
Unlike similar subscription-based men’s grooming startup Harry’s, Dollar Shave Club doesn’t make its own products, but rather reportedly sources its razors from Korean company Dorco.
The disruption and competition has been be good for consumers and entering the space should boost Unilever and P&G, but retailers will likely suffer as their suppliers build their own direct-to-consumer operations.