Issue #54: From Retail To Acquisition

This week, some big news in the CPG personal care space was broken. First, Unilever announced it is buying the men’s personal care brand Dr. Squatch for $1.5B. Currently, Unilever owns both Axe and Dove in the men’s personal care space, but those have been struggling recently. Second, Dude Wipes, the flushable wet wipes company for men, announced it has received an undisclosed amount of strategic growth investment from PE firm TSG Growth Partners. Both of these companies have a sizable eCommerce business, but what really drove the business was their current success and future potential in retail.

While this newsletter usually focuses on retail, I am excited to share more on how CPG success in retail translates to exits. Here are five takeaways from the two brands that CPG brands can use to build their businesses.

1. Viral Social Media To Drive Retail Sales

In the CPG space, social media is a major channel for people to discover products to purchase. Typically, many focus on driving towards eCommerce, especially in the personal care space that these two brands operate in. While that is important, it is also valuable to use the halo effect from viral content to drive people to purchase in stores. Take this recent post from Dr. Squatch that went semi-viral with Mike Tyson below. Not only is it great, super punchy content with a viral celebrity, but at the end of the video, it drives people to buy in-store as well as online. Dude Wipes often goes viral with toilet-related humor, but also drives people with that content to purchase in store, not just online.

On top of the viral content, if you take a look at the Dr. Squatch page, it wouldn’t look too different from a meme page. This intentional strategy helps build loyalty and affinity with the brand. Plus, it doesn’t hurt to have the easy retail details right up front in the description of the account. For brands trying to be more digitally native and have stronger social media, both Dr. Squatch and Dude Wipes are standouts.

2. In-Store Activation - Displays & Placement

Most of the retailers that drive the sales for both brands have a large store, with many products, and a plethora of competitors. Standing out is super important within the store, as shoppers often have choice paralysis in some cases from all the options. As discussed in the first section, a strong social media brand can help get this decision. But what about when a shopper doesn’t know what to buy, how can you stand out? This could probably be an essay on its own, but one way is to make sure to be featured in as many areas in the store as possible. While both these brands are very male, personal care-focused, the products also appear in natural and generic personal care aisles to get placement. Within these aisles, it is super important to stand out. End caps, sharp packaging, promotions, and smaller sizes to drive trial are some of the many tactics to leverage. For great coverage on leaders in the space, I recommend the Eye for Retail Twitter account.

3. High Margin Allows For Retail Success

As mentioned in the prior section, there are many ways to stand out within your department aisle. The unfortunate reality is that they are typically at an additional cost to just having your product on the shelf. That is where having a high margin, like both these businesses do, really sets you up for success. Part of this is due to the category these products are in, and part of this is due to these companies being super disciplined on keeping product costs down. Items can be successful in retail with a lower margin, plenty have, but that means you really have to move volume to make that up. In personal care, people buy products often and use them frequently, but it is not the type of frequent, consumable good that people go through as fast, like food. This behavior of how people use the product means that the lower margin, high unit velocity strategy to have a strong margin is harder. Plus, an acquiring company or investor is never going to be upset over a high-margin business.

4. Groundwork Laid For International Expansion

For most brands, there is a reality that in one market, there is a finite amount of business they can do. Most of them never reach the full penetration threshold in a market, but at a certain point, the incremental trade-off of another point of share in a market is worth way less than the tens of points that could be captured by expanding to a new market. In the United States, given the massive size of the market, expanding market to market is more of a regional play. An NYC brand expands to CT, Boston, and NJ. An LA brand expands to San Diego and SF. Dude Wipes is still mostly focused on the United States, but Dr. Squatch is now available in Canada, Australia, Germany, and the UK. Clearly, Unilever, which operates in over 190 countries, sees enough initial traction in the retail business to purchase Dr. Squatch and expand it to more countries.

5. Consistent Product Rollouts and Refreshes

Every year, the top brands typically launch several brand extensions for their existing products. These limited-time offers and product innovations are designed to help keep the original brand relevant. Sometimes the new product is great and sticks around. Oftentimes, though, it mostly serves to grab people’s attention for the existing brand. Maybe the crazy Mac and Cheese flavor isn’t the one for you, but you are probably going to try it and remember (even buy) the original flavor because of the halo effect, benefiting from people getting excited about some new flavor. Both of these companies excel at product innovation and keeping their portfolio fresh. For instance, Dude Wipes just launched a product focused on toddlers.

Goop Expands To Add More Retail Stores

Goop, the boutique women's clothing, beauty products, and home goods brand founded by celebrity Gwyneth Paltrow, originally was only sold via its website and in other retailers. Fast forward to today, the brand just opened its 7th retail store in Aspen, Colorado. In 2018, Goop had a successful pop-up in Aspen, which helped influence the decision to open a full-time location. Other active retail locations are in NYC, LA, the Hamptons, and Hawaii. Plans are underway to open three more stores in Greenwich, Palm Beach, and Newport Beach. Eventually, the chain plans to open 20-30 stores all in premium areas, which is where their customers are. Goop has been around for a while, but has not been chatted about much in the retail world. It will be exciting to follow along as they continue to expand!

Chick-fil-A Starts Discounting

Chick-fil-A has a rigid standard of how it operates, tracing back to its founding in 1946. One of those core tenets is that they do not engage in really any discounting of their products. However, when businesses start to struggle, and food traffic softens, one of the first tools to leverage is discounting. A couple of years ago, Chick-fil-A offered a discount on their family meals, about a 4% savings off the $40 cost of the bundle. Now, another discount aimed at families has rolled out, where kids eat free Monday nights, presumably their slowest day of the week. Seems they are hoping to utilize this discount to boost customer traffic and purchasing. As more details come out, it will be interesting to see whether this discount is in response to the general softness in the market that many other companies are seeing, which Chick-fil-A usually avoids. Alternatively, it could be signs that Chick-fil-A is oversaturated in parts of the United States, as it now has over 3,200 locations. Chick-fil-A does an AUV of over $9M, compared to an AUV of most competitors, around $3M, like McDonald’s, which does $3.5M in AUV. I lean towards this discount is in response to general market conditions causing softness, not oversaturation, but at some point, I do believe AUVs will start to decline, or new store openings will have to halt.

Momfuku Goods Raises $30M

So far in this issue, we have covered a variety of ways brands get into retail, from the more traditional path, to celebrities, to owning their own stores. There are many more pathways to get into retail, however. One of the most popular alternative methods is from a restaurant breakdown. Here is a great primer from Snaxshot on the restaurant to retail space. Most notably, Raos, the tomato sauce of the restaurant that shares the name, and the broader parent company of Sovos Brands, were bought by Campbell’s. Another player in the space is Momofuku Goods, founded by Momofuku chef David Chang. After success in the CPG space, Momofuku Goods has raised another $30M. The CPG brand recently did $67M in annual revenue and has equal revenue to the many restaurants under the Momofuku umbrella. It will be exciting to follow along as they approach the coveted $100M in revenue threshold, the revenue at which many brands get acquired.

• Summary: Lil Sweet Treat is a candy store in the United States capitalizing on the viral Swedish candy trend, selling Swedish candy and other candies. The business has products available both in its retail locations and online via its eCommerce website.

• My Take: Retail + a viral product is great until the product becomes a fad. However, I do believe the trend of candy being popular again is here to stay, so as long as they can keep sourcing candy faster than everyone else, I do believe they will succeed. I also love the small footprint of the stores, which boosts profitability.

• Founder(s): Elly Ross

• Funding: Unknown

• Number of Locations: 5 across NYC, Boston, Philly + 1 opening on the UWS in July

• Social Media Following: 19k on Insta and 3k on TikTok

Additional Links:

1. McKinsey did a great study deep diving into the future of wellness CPG products and how different generations view wellness (read more here)

2. How In-N-Out stays cool by not trying to be cool (read more here on being relevant by not being relevant)

3. Sandwell, the better-for-you sandwich shop, has opened a second NYC location (read more here)

4. Sam’s Club is relying on fresh food and digital tools like a new app to fuel growth (read more here)

5. Nike's revenue is falling and is bracing for the hits from tariffs (read more here)

6. Walmart is testing dark stores for eCommerce fulfillment again (read more here)

7. Amazon is expanding its rural delivery capabilities (read more here)

8. Taco Bell is doubling down on beverages (read more here)

9. DoorDash is now delivering via drones in Texas (read more here)

10. Mars Kellanova merger delayed by EU investigation (read more here)

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