Issue #32: Is Blank Street Pivoting?

Before hoping into the newsletter today, I wanted to take a moment to acknowledge the devastating fires going on in the Los Angeles area. My thoughts are with everyone who has been affected. Thank you to all the first responders and healthcare personnel who have been working around the clock to fight these fires. I am praying for everyones safety and that these fires are put out as soon as possible.

In 2020, a new player burst onto the coffee scene in New York. Founded by a couple of local university alumni (Columbia University and NYU), the founders set out to change the coffee experience in NYC. Similar to how other countries in Asia and Europe approach beverages, the model was focused on high-growth, small-format, and mobile-first experiences in a cart (image above). While the cart didn’t last too long, the principles of the cart stuck. Soon after, 40+ locations were opened across Brooklyn and Manhattan. Then, much funding ($100M+) was raised from General Catalyst, Tiger Global, and others. After the funding, the company rapidly grew to Boston, London, Manchester, Birmingham, and DC. Now, after opening 17 locations this year, the total is up to 85 locations.

However, what stood out to me this year was the launch of the new location in Brooklyn pictured above. This location is slated to open on January 15th. Unlike many of their other locations, it is significantly larger than the average NYC coffee shop location at 1,700 square feet. This additional square footage allows for a lot of seating, 20 seats, which is atypical for a Blank Street location. According to Blank Street, the goal is to attract students, office workers, and commuters - seemingly to encourage them to hang around for a while. It is very exciting to see this development to focus on experiences from Blank Street.

With the Brian Niccol’s takeover at Starbucks, he also has been prioritizing experiences and a reversion back to how Starbucks used to be. It makes sense that both startups and large companies are focusing on experiences and IRL. This strategy is something consumers value, and something that I am very bullish about. There are many coffee shops where you can find a good cup of coffee, but not many you can stay around to hang out to enjoy that cup. Going forward, it will be interesting to see how the coffee retail space continues to shift. A big advantage for Blank Street - the fact that they are a startup and can move super swiftly. Finally, to answer the question posed up front, no I would not say this is a major pivot, but instead tuning into what consumers want.

Toys “R” Us Partners With WHSmith to Launch Stores-Within-Stores

Founded in 1948, and renamed to its iconic name in 1957, Toys “R” Us dominated the children’s toy market for decades. However, due to its failure to adapt to eCommerce and poor capital management with too much debt, bankruptcy was declared. That was in 2017. Since then, the United States locations have all closed. Still, that wasn’t the end for the company. Instead, the brand was bought by a PE firm, as it still holds great value. The strategy thus far has been to open 400 stores within Macy’s - great idea, maybe not the best retailer choice and open up to locations in iconic malls (Mall of America, American Dream). Recently, the store with in a store concept has continued to grow. It was announced that Toys R Us is partnering with British retailer WHSmith to open stores within their stores. Given the success of the Macy’s partnership, it makes sense. However, I am concerned about the retailer selection - I think these partnerships would be stronger with a Walmart/Target/etc.

Lack of Funding for NYC Retail/Consumer Startups

Primary Ventures is one of the leading early-stage VC firms in NYC. Some of the successes from their portfolio include Coupang, Jet.com, and Latch. They also do a great job leading the NYC ecosystem from a thought leadership and events perspective. As part of that thought leadership, each quarter they write a recap of the NYC seed ecosystem, not just their firm. This quarter’s was fascinating to me. The NYC seed fundraising landscape rebounded in Q4 2024, with total deals surging by 38% quarter over quarter to 146 rounds. Total funding also climbed by 21%. As expected, AI and Fintech dominate the report. However, I was definitely surprised by the lack of funding for Consumer and Retail startups, especially for a city like NYC that has led the way for consumer for a while. Hopefully, with the turnaround retail has been seeing over the past couple of quarters, it will lead to further investment. Curious to ask the community, who are some of the most active early stage investors you are seeing in the consumer and retail space (not CPG)?

CPGs Shifting Products For Retailers

Two brands I follow closely for what they are doing innovating in the retail space are Oats Overnight, a ready-to-eat overnight oats packet, and Mid-Day Squares, a better-for-you chocolate bar. In particular, Mid-Day Squares has some awesome content to promote their launches in certain retailers. However, despite the success both brands have on social media, I want to highlight the work they have done with their Costco retailer launch. What they did was super interesting by launching special products for Costco. Here is what it looks like:

As highlighted in both of the images, both of these brands tweaked their pack sizes to be more bulk size to cater to the Costco audience. What this allows them to do is offer more value to the customer while also getting more margin per unit sold. On top of that, by creating a product only available at Costco, it allows them to make sure they are in compliance with Costco’s pricing guidelines. For any brand looking to enter Costco, or other retailers that have a very specific value proposition, I highly encourage exploring very specific products tailored to their audience.

REI Shuts Down Experiences Business

REI, the outdoor gear and apparel retailer, has long been known for their products you can purchase. In tandem with that, one of the areas they have targeted was having an experiences division. This division led day tours, classes on how to use equipment, and adventure travel. It was announced this week that they decided to shut down the division since it was unprofitable. However, I strongly believe shutting this division down because it is unprofitable is a huge mistake. On paper, I believe the statement that this division is isolated is unprofitable. But, you have to look beyond that to what this division brings to the entire company. It helps boost the brand and engage with customers. I would be very skeptical if some of the best cohorts from customers are not from people who use these experiences. This division gives you a reason not to buy online and instead go into the store. Another issue cited was the lack of penetration into the number of customers that use it. Still, that seems like an issue of reach and knowledge among the customer base, not an issue with the division itself. As a retailer, you have to invest in things like this otherwise what is the reason to shop in store, instead of eCommerce. I hope I am wrong, as I love shopping at REI, but I am very worried that this move will have a negative impact on REI.

• Summary: Honeybrains is a restaurant and cafe focused on healthy items. On staff, they have a neurologist and nutritionist to keep up with the latest trends. Additionally, the cafe is available all day, allowing them to reach many different dayparts.

• My Take: Someone is going to emerge in the bowl/salad space to be Cava and Chipotle level and I am on a quest to find them. I really like the health angle with actual medical research on staff, as well as the full-day offering. It will be very exciting to watch.

• Founder(s): undisclosed

• Funding: No publicly available funding

• Number of Locations: 3 Open (NoHo, in Saks Fifth Avenue Flagship, and Flatiron) and 1 UWS location opening soon

• Social Media Following: 11k on Instagram and 300 on TikTok

Additional Links:

1. NYT shared some interesting predictions for how restaurants will fare in 2025 (read more here)

2. Barnes and Noble is quietly making a comeback since being purchased by Waterstones (read more here)

3. Gopuff shares trends that drive purchases in 2024, like social and TV (read more here)

4. Emerging Brands are spending big on TV ads (check out here some during the Golden Globes)

5. Kohl’s is closing an additional 27 stores in the next year and a half (read more here)

6. Instacart shares some of the fastest growing brands on its platform in 2024 (read more here)

7. McDonald’s launches new value menu (read more here)

8. Toast now expands to not just restaurants, but now the POS is available for convenience stores, bottle shops, and grocers (read more here)

9. Macy’s announces 66 locations will close, which will have broader effects on mall anchors (read more here)

10. Ulta is now available on Instacart (read more here)

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