FTC Action Has Razor Workers on Edge
A group of spirited employees at the American Safety Razor Company (ASR) plant in Staunton, Va., are honing a political action strategy against the Federal Trade Commission. At issue are hundreds of jobs and the kind of antitrust dilemma that most government lawyers would rather not have to resolve. Here are the facts at their simplest. Philip Morris, Inc., the owner of ASR since 1960, wants to get out of the blade business. The Staunton plant had gross sales of over $35 million last year but only reported net profits of just over $1 million. Philip Morris does not want to challenge the Gillette Company which has 60 per cent of the entire U.S. blade market.
Philip Morris thought it found an acceptable suitor — the French multinational Bic Pen Corporation for a price of $20 million for the Staunton factory. Since Bic Pen was already importing disposable blades from its plant in Greece and could become a domestic blade producer, the FTC’s staff reasoned that letting the sale go through would lessen competition in the already concentrated blade industry. Taking ASR out of the competitive pool of six razor blade companies would constitute, in the staff’s judgment, a violation of the Clayton antitrust law.
Bic, Philip Morris and ARC employees see it differently. The proposed Bic acquisition, they assert, will enhance competition by consolidating Bic’s aggressive promotional resources with ASR’s existing 10 per cent of the market. Also, Philip Morris claims it will shut down the Staunton plant if the Bic deal falls through. It has already announced the layoff of some 300 out of the 800 employees there.
THE FTC STAFF does not oppose the acquisition per se. They want Bic to agree to certain conditions, like selling off ASR’s brand name razors within two years. Bic refuses to accept all these terms and has made soundings about building a blade plant at Milford, Conn.
The ASR plant employees have formed a lobby to get Congress to act in their favor. One of their claims is that the Bic acquisition would be good for consumers because it would create a competitor formidable enough to challenge the giant Gillette company to reduce its high prices.
The razor blade market offers opportunities for big savings, once consumers realize that much of the price they are paying is for advertising and promotion that has little, if anything, to do with blade quality. Gillette is by far the heaviest advertiser. Its package of 10 blades retails for $2.60. ASR sells a packet of 10 blades of similar quality under brand name for $1.99. ASR also sells to chain drug stores the same blades which are sold under private brand names for as little as a dollar.
Why, then, should any consumer buy Gillette? Good question. The answer is that people seeing all that Gillette TV advertising are led to believe that they are buying better blades. But there is no impartial evidence to support such claims.
It costs Gillette about 3 cents to make and send to market each razor blade which retails for about 26 cents. Advertising and promotion absorb more Gillette dollars than does making the product. If you compare the advertising and promotion costs of automobiles, which run under 5 per cent of the auto’s retail price, you can get an idea of the marketing waste in the razor blade hoopla.
ASR EMPLOYES say that even though they sell at least as good a razor as Gillette’s at a cheaper retail price, their company doesn’t have the promotional muscle. “You need 20 per cent of the market in order to compete with Gillette, and Bic could give us that share,” said one company spokesman. That is quite a commentary on the old business thesis that if you build a better mousetrap, the world will beat a path to your door. Nowadays, the qualification is only if millions can be spent via TV to beat a path to the world.
Bic’s intent is to go heavy on disposable razors. Presently, for example, it is importing a disposable razor that retails for 25 cents. Is the “use it for a few days and then throw it away” philosophy good for consumers and the environment?
And what about the matter that is on every shaver’s mind. Do manufacturers deliberately make blades that don’t last as long as they should? Can a company make a blade that shaves very well the first time but doesn’t last as long as a blade which is more durable but doesn’t provide quite as good a first shave? Some Gillette competitors say the former is Gillette’s practice and most of the other companies follow the promotion leader.
Bic and ASR would make their case to the consumer stronger if either one would put out a consumers report on razor blades that answered these price and quality questions forthrightly.
But the best solution would be to find a way for these spirited employees to finance the purchase of the plant themselves. Then by aggressive promotion of the truth about razor blades they could find a preferred path around the two lesser alternatives of shut down or a multinational Bic takeover.