On the surface, Procter & Gamble’s recent acquisition of Walker & Co., Tristan Walker’s health/beauty startup, appears to plug an obvious gap in P&G’s brand portfolio when it comes to authentically catering to the hair and beauty needs of people of color. And while terms of the deal have not been released, one has to ask themselves:

Why does arguably the world’s leading CPG company with 181 years of experience, $66B+ in sales, and success across at least 10 different product categories need to use M&A to grow into a niche of product categories already served versus just developing the product themselves?

An obvious answer would be improve “speed to market.” But while M&A may seem like a magic bullet when we read about the announcement, the reality is that there are many months of strategic planning, due diligence, and negotiation before a deal can be completed. Then the real work begins of integrating Walker & Co. into P&G, which involves multiple workstreams with an overall duration that’s typically tracked in years. In addition, P&G has signaled interest in this niche market strategy previously, and has category-relevant brands to build off from a product development and manufacturing standpoint. So why indeed buy versus build?

Some clues emerge in the news coverage of the deal. According to The Wall Street Journal, Walker & Co. “will operate as a separate and wholly owned subsidiary of P&G” with Walker remaining as CEO (as opposed to P&G simply absorbing Walker & Co. products outright). In addition, Walker & Co. is relocating from Silicon Valley to Atlanta, the cultural mecca for its customer base. These clues point to a CPG giant seeking relevance and agility.

CPG Firms Under Fire

P&G is an undisputed leader in consumer packaged goods — but legacy CPG firms such as P&G are experiencing some major issues challenging them to adapt or die. They include:

  • Their distribution channels are being disrupted in a major way. Online and offline retailers continue to create private labels that compete with CPG products. Amazon is building a distribution/retail network by selling its own house brands through Amazon-owned brick-and-mortar stores, Amazon GO and Whole Foods.
  • Smaller, upstart CPG brands such as Harry’s razors are outflanking P&G by getting their products into the hands of consumers in more nimble fashion.

In addition, their audiences continue to evolve into diverse micro-markets that are harder to reach across fragmented media.

Seeking Relevance and Agility

For P&G and other incumbent CPG firms, addressing these issues does not mean churning out more legacy products or brand extensions. Success means:

  • Achieving brand relevance across a diversified micro-markets – the kind of relevance that gets your brand placed in rankings such as Interbrand’s Prophet’s Brand Relevance Index and Interbrand’s Best Global Brands 2018 Top 100. In Prophet’s view, the most relevant brands are customer obsessed, pragmatic, inspired, and innovative. They win customers and keep them. Firms with brand relevance figure out how to use digital to achieve authentic emotional connections with customers, sometimes by aligning themselves with causes as Unilever’s Dove does with its Self-Esteem Project. They build a cultural relevance that transcends the product.
  • Smashing through the limitations of the traditional CPG retail sales channels as Harry’s and Dollar Shave Club have done.

P&G is literally buying relevance by purchasing Walker & Co. – as well as an education on how to act like an upstart. The following passage from Fast Company’s coverage of the acquisition really stands out:

In addition to speed and innovation, Procter & Gamble is also buying Walker’s cultural cachet. Part of the work of oiling the joints of P&G’s nearly two-century-old machinery is infusing the company with relevancy and authenticity, especially among black millennial men—an audience that P&G has yet to lock down and which Walker has developed since he first launched Bevel. He accomplished that via the popular Bevel Code newsletter and blog, pop-up experiences at venues like Barclays Center and Afropunk, or Walker’s relationships with artists like Nas (an investor) and DJ Khaled (who once posted a Snapchat video of himself getting a shape-up with the Bevel Trimmer). It’s also the reason they’re allowing him to stay in Atlanta—the so-called “black mecca”—which Walker says accounts for the largest percentage of his customers by location.

This quote from Lela Coffey, brand director for multicultural marketing at P&G, also resonates: “Having [Tristan Walker] in a place where the trends are being set, where the thought leaders are, where he can recruit some great talent, I think you couldn’t ask for a much better spot than Atlanta.” Notice that Lela Coffey says nothing about the value of Atlanta as a center for selling more Tide and Crest. It’s all about cultural relevance, which means brand relevance.

A Two-Way Street

Walker & Co. builds relevance by doing more than creating products that resonate with people of color. The company creates emotional connections through word of mouth and social media, including efforts from influencers from DJ Khaled (as noted above) and investors Magic Johnson and John Legend. As Coffey told Advertising Age, “One thing we can learn from Tristan is this ability to use these authentic connections that he’s built vs. the traditional CPG approach.”

Learning how to act in a more agile fashion is also important, and a recently published McKinsey article underscores how relationships with smaller firms is so important to that end. “[When it comes to] direct-to-consumer, we have the capabilities here, but nowhere near the extent he’s mastered and leveraged,” said Coffey. “His agility is super-fast. The amount of products he’s been able to bring to market, we need to learn something about that speed.”

Walker & Company Brands can learn a lot from P&G, too, such as how to scale relationships along the value chain and how to apply integrated marketing/communications to build a brand at scale. And success is not guaranteed. Walker & Company will likely be expected to deliver more products to people of color, help P&G re-imagine crack the code for developing lovable products relevant to other micro-markets (beyond people of color), and maintain its own cultural relevance operating under P&G.

P&G and its competitors are entering a new era of rapidly testing and learning new product ideas for different audiences in a way that mitigates cost and risk. Methods such as design sprints, design thinking, and lean innovation for rapid product prototyping will become more appealing as a firm like P&G tries to scale Walker & Co.’s success. At Moonshot, we help businesses develop more customer-centric, lovable products by applying a repeatable process known as FUEL. Contact us to learn more.

Saul Delage

Saul Delage

VP Growth

Bitnami