Issue #56: Bodega’s Product Assortment

Why Do Bodegas Sell So Many International or Emerging Brands?

Bodegas. The infamous corner store that is found in most cities, but is especially prevalent in New York City. One estimate has over 13,000 of this type of store in New York City alone. The specific definition is a bit amalgamous, however, as a current NYC resident, here are the traits I would posit a store needs to be a bodega:

• Product Mix - hot food prepared fresh on the grill, cold food ready to be heated up right away or consumed cold, grocery staples, household staples, pharmacy staples, and a selection of snacks

• Bodega Employees - Super friendly with the customers, build relationships with frequent locals

• Space Utilization - Maximized

To sum it up, part deli, part sandwich shop, part bakery, part convenience store, part pharmacy. All in a cramped space. However, diving a layer deeper, while the categories of products the bodegas sell might be familiar, the specific products within those categories may not be. Let’s look at the chocolate aisle at my local bodega. You will not see the Hershey’s, Mars Wrigley, etc. that typically dominate a chocolate aisle in most retailers. Instead, you will see a mix of international products, like Cadbury, or emerging brands, like Raaka Chocolate and Hu.

This assortment is typically very different than 99% of most other retailers. Why is that?

• Higher Margin - For these types of brands, in particular the emerging ones, they don’t have as much power to demand a certain margin structure. Instead, the bodegas have the upper hand. Bodegas are able to get better wholesale pricing on a Raaka, for instance, rather than a Hershey’s, and the Raaka’s of the world are more willing to partner on sampling, marketing materials, tastings, etc., because the bodega will be a meaningful part of their business. Whereas many large CPG companies completely ignore this channel.

• Differentiation From Competition - As aforementioned in the previous section, the assortment is different than 99% of retailers, which gives you a reason to shop at the bodega. Within two blocks of my bodega are a grocery store, CVS, and Duane Reade. By stocking different products, it gives you a reason to go to the bodega, in addition to the prepared food.

• Easier Procurement Process - Bodegas typically do not purchase from the same distributors that most other stores buy from. Instead, they partner with local, independent, often cash-only (no credit) distributors. At these distributors, they are able to stock up on everything their store needs, which helps reduce costs. In a mutually beneficial partnership, these distributors have found that international or emerging brands work best with their customers

• Flexible Shelf Space - Walk into a Whole Foods, and chances are the person deciding what products are on the shelf is in Austin, thousands of miles away. Walk into a Bodega, interact with one of the employees, and chances are they are one of the people deciding what products are on the shelf. Since the bodega is that localized, often only with one location, they can move more dynamically to add new trending products.

• Limited Access to National Brand Distributors - On the flip side of bodegas working with different distributors, part of that reason is that National Brands will not work with them, as they prioritize the larger chain accounts.

For emerging brands looking into retail, bodegas, and their distributors represent a great opportunity to build a business. Chances are, most of the emerging brands you see today, one of their first retail clients was a bodega.

Grocery Store Of The Future?

Brought to you by Pipedream Labs, an autonomous underground rail/goods transportation system startup in Austin, a new type of Grocery store is here. To take a step back, the grand vision for Goods is that one day, like how you get water and electricity to your house via pipes/cabling, you will be able to get food, groceries, parcels, and more delivered to your house via a network of underground pipes. This network will be serviced by a Rapid Fulfillment Center (RFC), optimized for picking and packing autonomously, to be delivered via the pipes. Currently, the RFC is slated to be connected to 40 miles of pipes and 100 pickup boxes, under construction right now. However, in the interim, and maybe even in perpetuity, as customers like pickup AND delivery, a grocery store is being built within the RFC. Customers will be able to order and pick it up in a pickup box outside the RFC. Pretty neat. However, I am skeptical that, long-term, it will be easy to build this network of pipes at a reasonable price. Similar to drone delivery, which hasn’t exactly taken off like some people expected, I am not sure the feasibility is there. I am more partial to the small robotic food delivery robots you see.

Chipotle Stock Down 32% Post Q2 Earnings Call

Chipotle, once a darling of the future of the restaurant and retail industries, is starting to come back down to earth a little bit. Despite ushering in the future of the (slop) bowl that revolutionized the fast casual industry, it is having many issues. Here are some of the financial issues that came to light in the latest earnings call:

• Revenue of $3.1B was below expectations

• Same-store sales fell 4% YoY

• Foot traffic (really number of transactions, but Chipotle uses the terms interchangeably 🤷‍♂️) fell ~5%

Not great overall, but I think this is a case where a startup was overvalued, and now is being undervalued. Chipotle has over 3,000 locations and is growing at a steady 300 locations per year. It has the opportunity to expand internationally and boost its AUV (currently at $3.1M), by adding more flavors, LTOs, and possibly even breakfast. On top of all that, the margins are super healthy at ~27%. There are definitely serious issues they need to address around combating food traffic decline, but I definitely feel those calling that this is the end for Chipotle are slightly hyperbolizing.

Mondelez Partners With Selena Gomez To Debut New Oreo Flavor

I have written extensively about retail as a partnership advertising platform. For retailers, in particular emerging ones, I do believe this is an excellent strategy. However, for the CPG side of the house, I think it is much more difficult to execute this as an advertising revenue driver. Instead, I believe the best partnership strategy is to flip it on its head, go on offense, and partner with celebrities, influencers, etc. to create products. If you are a small company, that partnership probably manifests itself as a partnership on every product, albeit ensuring there is true brand alignment and buy-in from a celebrity (no alcoholic products launched by people who don’t drink alcohol). If you are a large company, like Oreo (part of the CPG giant Mondelez), then it makes more sense to launch on a per-flavor basis. One run, get some buzz, maybe the flavor is worthy of sticking around, and on to the next. The latest in a long line of partnerships is a chocolate cinnamon Oreo with Selena Gomez. Past collaborations have included Post Malone, Lady Gaga, Super Mario, Star Wars, and more. A great way to stay relevant and test out new flavors!

McDonald’s Tests CosMcs Menu In McDonald’s Store

As discussed in Issue #50, CosMc’s, the McDonald’s Gen Z breakfast/beverage concept spin-off aimed at competing with the likes of Dutch Bros and Swig, is being shut down. However, as I discussed at the time, when the news first broke, it seemed likely, and a good idea, that facets of the menu could be folded into the broader McDonald’s menu in its locations. Sure enough, that is exactly what is going to happen. This week, McDonald's will test 10 CosMc's-inspired drinks at 500 McDonald's restaurants across Wisconsin and Colorado. The drinks will be more flavorful and sweeter to account for the demands from customers, like Creamy Vanilla Cold Brew, Strawberry Watermelon Refresher, and Sprite Lunar Splash. It will be exciting to follow along and see how they do. Will we see more rollouts? Maybe even nationwide?

• Summary: As highlighted in the trends section, Pipedream Labs is building the future of how items get to you as a consumer. Instead of utilizing current delivery infrastructure, new pipes would be built underground to transport tote-sized goods. Some initial use cases are food, groceries, and packages.

• My Take: I am skeptical that the costs of installing the pipes outweigh the benefits of this solution, the tradeoffs of alternative solutions, and that customer demand will be there. I think the smaller solutions, like the pilot with Wendy’s, and being built into new neighborhoods, are more feasible. However, I am very excited to follow along and see the progress of the pilots.

• Founder(s): Garrett McCurrach

• Funding: $13M from Starship Ventures, Cortado Ventures, and Myelin Ventures

Additional Links:

1. What are consumers feeling/thinking this year so far? (Find out more from Dan Frommer and Coefficient Capital here)

2. Tesla opened a new diner at one of its super chargers.. is this the future of gas stations? (read more here)

3. UK retail sales boosted by hot weather in June (read more here)

4. Walmart hires Instacart Chief Product Officer to run all AI (read more here)

5. How malls survive by turning themselves into lifestyle destinations (read more here)

6. Chipotle is working to grow via catering - building new processes around it (read more here)

7. Guitar Center is leveraging AI for customers to compare products in real time on their own personal devices (read more here)

8. Hoka is doing most of its full-price sales through its own retail stores (read more here)

9. Domino’s is seeing huge growth in its take-out business (read more here)

10. UNFI's President and CEO of Retail, in charge of their distribution to many grocery stores, is departing the company (read more here)

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