What Dollar Shave Club Has in Common With Big Pharma
Whether it's from a subscription service or from a chronic disease treatment taken for life, recurring revenue is an investor's dream.
In this clip from crossover week on Industry Focus: Consumer Goods, Motley Fool analysts Vincent Shen and Kristine Harjes highlight this surprising commonality between retailers and pharmaceutical companies.
A full transcript follows the video.
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This podcast was recorded on Nov. 15, 2016.
Vincent Shen: This one issomething that's pretty new, and that'salso developing in the consumer space. That's with subscription business models.We've seen thesuccess with some of those. I don't know if you're familiar withDollar Shave Club, but they wererecently acquired byUnilever, a really big company in the consumer retail space, for about $1 billion. In my opinion,very much proof of concept of how lucrative this can be.
Then,some other big ones that people are familiar with, thinkBirchbox,Blue Apron. The main idea on the consumer retail side is, you canvery quickly build loyalty with customers, because they've signed up to get something every month, every two weeks,whatever it might be. And they can sample a lot of new products without being overwhelmed with the very many choices out there now. How is that playing out on the healthcare side?
Kristine Harjes:Youwouldn't think there's an obvious connection here, butI'm going to draw the parallel between a subscription business model on the CG side of things withchronic disease treatment in healthcare. It is very lucrative for theseconsumer goods companies to have customers that are signed up, and are basically signed up for life. If you sign up forSpotify, and all of the suddenthat's where all your playlists are and your friends are on there,you're not leaving. You're going to keep paying that $9.99 or however much it is indefinitely.
You can kind of see a parallel business model with chronic treatment. If you'retaking a drug for the rest of your life as a treatment rather than a cure, that money comes in day in and day out. AndI think that's actually a fairlynefarious part of the healthcare business model, but I will point out that its one saving grace is, if a disease could be treated --some people will criticize healthcare companies,saying that they are making these treatments becausethey want you to have to take the drug for the rest of your life --
Shen:Instead of making a cure?
Harjes:Yeah, that they could make a cure and it would be one-and-done. That's not the case. If that was possible -- that you could make something that could cure it -- somebody is going to do that,because as soon as you make a cure,you have stolen all of that market.
Kristine Harjes has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool recommends Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.