There’s a great story about Larry Ellison which may, or may not, be true. The story goes that at each Oracle Sales conference Larry announces the new strategy:
The strategy is to sell more!
This is essentially the Move Fresh strategy. There certainly have been occasions where business school strategists have suggested that some of the things we do lack strategic coherence and I think that Kevin and I would probably agree that they were correct.
But at heart we are traders. If there is million dollars to be made from an Indecent Proposal that is a completely departure from our strategy then we will accept the cash.
On the other hand there have been opportunities that have arisen for much smaller sums that we have turned down for being out of alignment with our strategy.
The much bigger group of possibilities we turn down are chances to increase sales without a gross margin. There are many publicly traded companies that make a similar mistake. Of course we can make sales rocket by selling below cost price but that’s easy.
A genuine business has to create value. That’s where strategy meets sales.
I am 50 this month, I have been in high technology and emerging technology for 30 years.
I am an early adopter – I buy all the new services I can, explore new ways to shop and pave the way for the mass market to follow.
I have seen this in technology first hand – usually by being around a decade too early!
In Grocery as with all retail – things are changing. Asked years ago consumers would say they were perfectly happy with shopping in supermarkets rather than fiddling around with their computers to buy online.
But online is taking a grip of grocery quicker than many can appreciate.
Americans buying Groceries online
CB Insight have produced some great information on the changes in the grocery market. Take a look here.
When we bought back Diet Chef from Piper Private Equity (who are a great investor!) in 2015 we did this to leverage the massive investment we had made in systems and infrastructure (see Andrew’s post on this).
It took us a little longer to move Diet Chef into a couple of adjacent categories and optimise our marketing but we are very pleased with the 2017 financial results which have exceeded our expectations and generated around £1m of EBITDA.
Our growth strategy wasn’t simply focused on generating cash from Diet Chef but more to invest this cash flow in adjacent categories that our infrastructure can serve.
In 2017 we invested and launched Parsley Box (www.parsleybox.com) a reimagined elderly nutrition brand that is growing very strongly against a stagnant revenue comparison of our two larger competitors.
We have achieved this by letting the management team focus almost 100% of their time on customer recruitment and building the team. Move Fresh has provided the logistics and supply chain to allow the scaling of the marketing at a rate most startups would fail to keep operational efficiency at.
So as we get into 2018 we plan to invest in other adjacent areas and to reach the consumer in different channels, one of the reasons we appointed Henrik Pade to our board of directors.
We will both look at doing this organically and through acquisitions if we can find the right ones. Let us know if you think you can help us on this journey, either as an experienced startup founder or if your company would be interested in joining our journey – its going to be fun!
We spend a lot of money every day on customer recruitment and marketing.
Sometimes I pinch myself and look at the marketing investment we are making and look at the amount we spend – then I think about mistakes we made over the year (quite a lot!).
Cost per thousand (CPT) is the single best way to evaluate the media investment. How much will it cost me to reach 1,000 consumers – something that we forget about.
So get an accurate number of the audience (readership, viewers, impressions) and then look at how much this costs. Don’t be fooled by online and offline – who cares – I want or reach an audience – how much?
We offer everyone that joins marketing this simple training and test:
Compare the following (real numbers!):
- An exhibition visited by 1,000 people at £500 + 20% VAT
- A TV advert reaching 10,000 people for £2.50 Cost per Thousand.
- £10 CPM + VAT for a magazine with 20,000 readers.
- 30,000 PD inserts at £40 per thousand.
- £1200 for online advertising at £6 CPM.
Calculate which would be the best and show workings.
Which would be the worst?
Answers on a postcard (it costs around 30p for a postcard delivered at volume) so what’s the CPT?
It is 10 years this month since we started Diet Chef with £100 of equity investment and some contacts in the food industry.
We have done quite a lot over the last 10 years and also spoken to a large number of other food tech businesses.
The history of why two guys from the technology industry got into food is a very interesting one (worth chatting over a beer about) but the seismic shift of the UK grocery retail landscape was pretty obvious to us 10 years ago.
UK shopping habits in grocery have changed dramatically in that period. We have moved away from “multiple” large box retailers (Tesco and Sainsbury’s) into buying from discounters (Aldi & Lidl) and convenience stores (Sainsbury’s local & Tesco Metro).
This is partly driven by convenience – a large number of smaller stores have popped up in every town in the UK. We therefore don’t tend to do a “weekly shop” (if we do it tends to come by Tesco.com) and pick some items up locally and more often.
Diet Chef was born pretty much out of this phenomenon – it just happened in diet earlier. We used to buy specialist diet products in store, but multiple retailers couldn’t stock over 100 items in 300-400 stores they could stock 5-10 perhaps.
Consumers have therefore used online to fill this gap, and in speciality grocery it’s a great place to do it.
There are lots of great successes over the last 10 years in FMCG direct to consumer but they all tend to be in own brand speciality grocery – definitely where we are focusing.
You might not have noticed but our shopping habits in the UK have changed quite a bit recently.
We used to go to superstores (large stores with lots of choice and SKUs) usually once per week, usually at the weekend and “did the weekly shop”.
This was a major innovation over our parents and grandparents who used to shop in their local community and make frequent trips to shop.
We have now seen our shopping habits further change with the introduction of the discounters (Aldi & Lidl) who have a limited selection of SKUs and a large percentage of own-label items. We are both shopping more frequently in these locations and they are also enticing new customers (Aldi wine is acceptable at dinner parties!) to this retail category.
This means that emerging FMCG brands have limited ability to gain consumer trial due to limited space within discount retailers (frequently using short-term promotional space). So how do you launch a challenger brand in this landscape?
We strongly believe that direct to consumer can fill this gap, building strong consumer relationships on lower cost models, encouraging trial and investing marketing spend directly in customer recruitment rather than “brand marketing”
Perhaps use online to test product/market fit and look at retail to deliver the mass market consumer once your brand is well established.
As 2017 draws to a close and we wait for 2018, I think it’s a great time to reflect on our performance and goals in 2017.
When we bought Diet Chef back in 2015 we planned to make it more of a lifestyle business, but we have really grown to appreciate the expertise, infrastructure and knowledge we have within the group.
We have accelerated the brand creation in 2017 and we are particularly excited about partnering with entrepreneurs at an early stage to provide our infrastructure, knowledge and technology platform to remove some of the hurdles in the early stages of business.
We would love to do more of this in 2018, along with equity investment in FMCG related ideas that have a strong direct to consumer model.
So in 2018, we are considering launching a more formal program for this if this would be of interest to you let us know.
In the meantime, enjoy the festive period.
Blue Apron (www.blueapron.com) one of the US leading meal kit companies filed its S-1 on Friday giving us some insight into the burgeoning meal kit delivery market.
Although we like the sector, in general, we still feel that churn is the major enemy within this area. Working on around 30% gross margin is fine but 3-year cohort data shows $939 of LTV. This offers around $280 dollars of contribution before marketing costs.
2016 marketing costs seemed to come in around $144 per customer making a post-marketing contribution (before overheads) of $136. This is spread over 3 years so the cohort is delivering $93 per annum, giving marketing payback at around 18 months.
Everyone in this sector has raised vast amounts of investment and with around $745m in revenue in 2016 Blue Apron is definitely a business of scale. Losses have narrowed but to keep the churn rates in check the business needs to keep investing heavily in marketing.
You can read the full S-1 here.
This is quite a hot topic in the sector. In general I’m not a fan of vertical integration, I much prefer a tightly focused business. However I think there are two specific instances where vertical integration makes sense:
- Customer experience – Certain processes are vital to the customer experience and are a true differentiator such as the website, mobile apps and fulfilment. However backend systems such as accountancy and warehouse management should just be bought rather than owned. Historically processes that were differentiators have become commoditised so it may be that outsourced options will emerge for the current differentiators in the future (but no doubt other differentiators will emerge).
- Using unique technology – Nespresso have (literally) hundreds of patents on their technology and use a very complex process to create their capsules. This is not something that could be outsourced as they would be risking their intellectual property and in addition the only possible customer would be Nespresso which would prevent the manufacturer from sharing costs with multiple customers.
- Provenance – Guinness or Perrier would both be good examples. Indeed Guinness did experiment with brewing outside St James’s Gate, Dublin but that beer was considered inferior and production was shifted back. Equally Perrier could not be outsourced to another water company. It is a key part of the respective brands that these products are made in a particular place under the control of the company.
I think there are some quite bad reasons for vertical integration:
- Margin/cost – Unless there is a market failure margin will typically land at cost of capital. Margin in UK food manufacturing is very low and it is almost certainly not a good use of capital for an e-commerce business. Committing to larger volume is or outsourcing to a lower cost country is nearly always a better way of reducing price than vertical integration.
- Reliability of supply – This is quite often given as a reason. I would accept that in certain locations (e.g. Tata running their own electricity supply in India) this may be valid. But with careful sourcing reliability is rarely an issue in a developed country.
Move Fresh’s core competencies are management of brands, sales, marketing and creating a great customer experience. Outside of these areas we are keen to find high quality partners to fill in the gaps.
I’ve finally got round to reading Good to Great, many years after everybody else!
One of the entertaining things about reading a business book that’s nearly a decade old is seeing how it has aged. The comments about Fanny Mae revolutionising their business through the creation of mortgage backed securities was not a high point!
The bulk of the book is all pretty obvious and solid stuff: you need to get the right people in place first, once you’ve got the right people the strategy will emerge, you should focus on one thing as much as possible, you need to have a rigorous culture, etc.
I think my favourite comment was about the importance of “To Not Do” lists which in the author’s view is more important than the traditional To Do list.
I guess the other thing that came clear from reading the case studies is that no company goes from good to great very quickly. One of the CEO’s talks about a twenty year overnight success story.
Even step one – getting the people right – generally took a couple of years to do. The businesses tended to have high staff turnover for that initial period then very low turnover from then on.
As I spend more time working with our businesses I am personally finding it much more satisfying to try to help create a great business than simply to flip the business for cash.