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Zeien: Gillette is back
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January 28, 1999: 11:04 p.m. ET
Culture of innovation demanded development of Mach 3, chairman says
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NEW YORK (CNNfn) - Gillette, the consumer-products giant battered by the global market slump last summer, is back, and new products such as its Mach 3 shaving system are growing the entire razor market, the company's chairman said Thursday.
Gillette (G) could have simply revamped the market for its successful, prior-generation Sensor razor, but the corporate culture required the development of the new product, even if it cannibalized the sister product's market, Alfred Zeien, chairman and chief executive, said on "Moneyline News Hour with Lou Dobbs."
The company's fourth-quarter earnings, reported Thursday after the bell, came in at 39 cents per share, in line with analysts' expectations.
Here are highlights of Zeien's interview with "Moneyline" host Lou Dobbs:
LOU DOBBS: Congratulations on those results. I know those aren't easy results given the market conditions that you compete in.
ALFRED ZEIEN, CHAIRMAN AND CEO, GILLETTE: No, we were hurt back in last summer and fall with the international crisis, and at that time, -- this was back in September -- I said we're going to have a kind of bumpy third quarter. But we'll be back; the engine will be rolling again in the fourth quarter. And I think that that's what happened. And that's why the stock's recovered.
DOBBS: You've had to restructure. You've had to make some tough decisions -- close some plants, lay some people off. You've also introduced a huge, in whatever terms -- even in Gillette terms, it is a huge investment, a big product announcement in the Mach III.
How big is it going to be? You said gang-busters. How big is it going to be?
ZEIEN: Well, sometime absolute numbers don't mean a lot to people. But if I compare that with the Sensor product, which was the largest and most successful product in the history of the company, six months after introduction, the Mach III is running at about three times what Sensor did.
And to give you a frame of reference, the total sales of the razor side of the business, which always precedes the blades -- we have sold cumulatively in the first six months of Mach III, more than Sensor sold in its first two years. And on the blade side, we're now up to about a 15 percent share, and Sensor didn't reach that 15 percent share until about 18 months.
So we're running well ahead of what Sensor did.
DOBBS: I gather you're pleased by that. At the same time, you put a billion dollars into it. How much more did you spend on the development of this than Sensor?
ZEIEN: Oh, about 2-1/2 times.
DOBBS: About 2-1/2 times. And with this kind of investment, a lot of people have said why in the world didn't Al just simply say to the marketing department: We're going to redo Sensormatic; we'll make it up in marketing, and go get them.
ZEIEN: Well, I think it's part of the basic culture of the company. It's brought our success. Our job is to cannibalize our own products, because I would say here with Mach III we would expect that 75 percent of our customers for Mach III will come from Gillette users. So -- and if we had just done a makeover on the Sensor, I don't think we would have converted anywhere near the numbers we're converting today.
I think the most important thing that we accomplished by this method is that we lift the whole market. It's kind of interesting. In the last four months -- September, October, November, December -- the total sales of Gillette products in the United States are up 30 percent vs. last year, which means that the amount that Mach III is up is much more than the cannibalization of the other products is down. And that's a very positive factor.
DOBBS: Al, we've got just a few seconds left, quite literally. You've gone through some difficult times in terms of the world economy. Do you see signs of it stabilizing? What's your outlook, very quickly? Is it a positive one for both the U.S. and the world economy?
ZEIEN: Yes. I think we'll see ourselves rolling back area of the world after area of the world. We expect that Asia-Pacific will be in positive ground here in the first quarter. It'll take a little longer to catch up with the Russias of this world. But no, I'm very positive about it.
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