Passing up on $40m Laird Superfood

TL;DR

- Quick Thoughts on Fed Rate Cuts

- Passing on Micro-cap Laird Superfood

- Have a Profitable Holiday with these 5 AOV Hacks

🧠 The Takeaways

Today we’re passing on micro brand Laird Superfood. Their $39m market cap makes them too small to be a take-private target.

They need to cut product lines + scale their core biz.

Expand into Retail like all other CPG brands.

Flip the assets so we don’t have to death march this brand to profitability.

+ My quick thoughts on the Fed Fund rate cut

LBAB Community -  The Ice is thawing

The Fed cutting rates by 0.5% has finally happened. The action is more important than the literal interest rate movement..

The market has already started ripping up on the news.

People are feeling more confident and it feels like the groundhog is emerging (TBD whether he sees his shadow). Consumers will become more confident knowing that more cuts are coming. The feeling of exiting the tunnel is more important than the amount of cuts.

The biggest benefit will come for the housing market to get it moving again, and this will extend to other categories.  Moving is a massive purchasing event, and people will have their credit cards out again. The buying mentality is returning.

I’d expect that people are gonna get into a little “revenge shopping” this holiday season—to make up for lost time.

On the biz side the big thing is that the cost of capital will drop. Lower interest % we can get capital for cheaper.

And even more importantly, the cost of alternative investments becomes more appealing, those T-bills don't look as appetizing anymore.

So I would expect a lot more capital to go back into growth/financial assets?

All the financial players that got cut 80–90% in the downturn (blocc, Affirm), will rip back up. Anytime the flow of money increases and improves, everybody always wins.

So, if you've been battening down the hatches focusing on EBITDA profitability, now is the time to lean into holiday growth.

It’s been a low growth, tough competitive year. Costs have gone up, but the consumers will start to bounce back, spending on themselves and gifts.

They want to put the last few years behind them. So, I think it’s a good time to get ready for a big holiday and Q1.

As always, this isn’t financial, tax, legal, or investing advice. Just one guy trying to read the tea leaves.

Let’s Examine This Biz

Laird Superfood is starting to rebound after their stock was traded into the ground and almost delisted from the NYSE.

Trading at $3.85/share with a $39m market cap, it’s -91% since its 2020 IPO. This biz is too small to take private, yet doesn’t have the capital to grow.

Financial Summary

TLDR Analysis: This biz has Whiplash. Bad.

They cut hard and are feeling the pain. 🤕

Gutted COGS to lift Gross Margins from terrible -> bad. 😕

There’s too heavy of an OPEX load on such a small biz. 😰

Correcting COGS is a great trend, but even after slashing OPEX in half YoY, this biz still spends 61% of its Revenue on OPEX. It’s running a DTC biz model on a Wholesale biz, and the P&L is paying the price.

This biz has the cash to weather this storm, but if it doesn’t realign its strategy to its financials, we all know where it’s heading.

Let’s Make You Money! - sponsored section

Today, I’m going to share the way you make real money in eCommerce: Smart Merchandising. 

AKA leveraging every inch of your site experience to sell more customers more stuff.

Retail consultants get paid millions to design the optimal IRL shopping experience to get every penny out of customers.

All these CRO nerds are trying to optimize CVR to squeeze out an extra 1% ROAS, but the real value is in selling more products to each customer. Before you plow all that Holiday traffic through your site, make sure you’re making the most off of each visit.

I partnered up with Rebuy to share the 5 best exs of how top-tier brands (Olly, Aviator Nation, Momofuku, Planet Beauty, and Promix) are using these tactics to increase their profits. 

STEAL these 5 tactics:

Momofuku’s Cart Bundles (Bonus points for tying it to additional value like Free Shipping/GWP)

Aviator Nation’s Candy Aisle

Promix’s DFY Bundle

Olly’s YMAL (You May Also Like)

Planet Beauty’s Smart Home Entry

Get the Full deep dive with examples in the ebook here. (Download this and save it for later).

1) Momofuku’s Cart Bundle

This is the 1 biggest needle mover I’ve seen at every brand I’ve ever worked with. Find a high-margin, less expensive product than what the customer adds to the cart + offer a discount with it.

If 5% of customers take this offer, your company-wide profit should increase 5-10%.

2) Aviator Nation’s Candy Aisle

Maybe the most underrated tactic: as customers are entering payment info, show them impulse offers (i.e., inexpensive, easy-to-add products).

Just like a candy aisle in-store. “Oh, it’s only a few bucks.” These are the stocking stuffers. The white elephant gifts. Offer a deal and watch the cash pile up.

Everyone can do this. If you can’t pick a product, send me your hero product and your high-margin, low price point items, and I’ll send a recommendation.

3) Promix’s DFY bundle 

The more work you do for the customer, the more $$$ they’ll spend.

On PDPs and in-cart build these bundles with a 1-click add to cart. Make it insanely simple for customers to spend a little more money. You’ll thank me later.

4) Olly’s You May Also Like

This is a better tactic for bizs with big catalogs or many variants. 

This tactic encourages exploration, so if you’re looking for digital dwell time, it’s a great way to show off more of your catalog with relevant products.

5) Planet Beauty’s Smart Home Entry

Some customers will hit your home page and are just ready to buy. Don’t waste clicks making them explore collections and random pages.

Leverage the data you have on them and drop them directly to the products they’re most likely to buy.

(All of these tactics are extremely doable and built with Rebuy. You can build the logic yourself and all you need a dev for is to update the CSS.) 

Everyone reading this should be deploying tactics 1-3 on their site before your BFCM promo. It’s 9/29, so you only have 1.5 mos until BFCM.

If you aren’t using Rebuy, I’ve used them at every brand, and they’re the best tool to implement these profit boosters.

If you are already using Rebuy, get this into your final priority list now. 

Each tactic can add 5-10%+ to your store’s total profit. Now is the time to maximize $/visitor and profit/customer.

The Rebuy team did an awesome job combining all of these examples (+ how to build them) into a simple ebook to easily share with your team. 

Save it so you don’t have to copy and paste the same slack/email 15x to get everyone on the same page.

Let’s Fix This Biz!

Here are 3 plays I’d run to save this biz from bankruptcy + turn it back into a $180m biz.

1) Sell off the Snack Biz

Laird Superfood is running the right playbook at the wrong size. 

To go public, you need a growth story showing you can expand into other verticals. The problem is a $40m Coffee supplement brand shouldn’t be operating like they’re Kraft Heinz.

The global coffee market is $132B + will grow to become $169B by 2029. Why is Laird worrying about expanding into other markets like Snacks/Food?

It’ll be hard to part with 17% of their Rev at this size, but they need to bundle up their Harvest Snack line + Picky Bars (2021 acquisition right before IPO) and sell it off.

While expanding into other product lines is a classic CPG conglomerate play, you can’t be a conglomerate at $40m in topline.

They need to focus on aerodynamics. Scaling the core biz: their coffee lines. If they put the same time/energy/$$$ into scaling out their core biz: Coffee Creamers (50% of Rev and grew -6% YoY) + Coffee/Tea products (20% of Rev and +11% YoY).

The core biz should be much bigger. 

Black Rifle Coffee for ex does $395m in Topline/yr selling coffee. Yes, it is a different biz, but at their cores, these bizs are very similar. BRC just nailed their CAC more efficiently.

Is extending into snacks a good idea? Yes, but not until Laird is 10-50x the size.

Takeaway: Focus = Scale. At Scale, Diversify.

2) Heavily invest in Retail

Currently, Retail is Laird’s only growing channel (+10% YoY), at 43% of their Rev. This is the most obvious area of expansion for the brand.

The largest coffee brands in the world are still selling primarily in stores. If you go to Folgers.com and try to buy their products, they direct you to a retail partner.

But this isn’t just some slow, lazy incumbent not wanting to adapt to new trends. Black Rifle Coffee also sees 64% of their sales come from IRL Retail locations.

Most people still buy their coffee/related products IRL. This is true for most Food & Bev brands. The usual breakdown for a Food & Bev brand is:

Retail: 70% of Sales

Amazon/Marketplace: 30%

DTC: 10%

Laird doesn’t break out DTC vs. Amazon, but if they did it’d explain why a brand that should have 40-50% Gross Margins operates at a 30% Gross Margin. 

My best guess is their current sales breakdown is:

Retail: 43%

Amazon/Marketplace: 37%

DTC: ~20%

This biz is already operating like a classic Wholesale CPG brand but not leveraging “wholescale”. Laird needs to establish relationships with the top Health Retailers to hit the scale where their P&L math makes sense.

Takeaway: Crank up Wholesale volume to get scaled Sales + Marketing

3) Sell off the Assets

This biz isn’t worth taking private/scaling. The challenge with a classic CPG brand like this is how long + how much money it takes to turn into a profitable, cash flowing biz.

There’s a reason there aren’t many independent coffee brands. They require massive scale to produce meaningful cash flowing profits + require an anchor brands to fund the required scale.

That’s why: 

Keurig is owned by Dr. Pepper.

Folgers is owned by JM Smucker. 

Maxwell house is owned by Kraft Heinz.

The list goes on & on.

Offers have already been made to run this exact playbook. Laird rejected them because the offers were below their cash on hand. But that was also when Laird had $18m more on hand. Now, they only have $7m.

The challenge for any buyer (other than a strategic one) is that it takes a long time to a real payback if you run and operate this biz. I’m not saying Laird should be stripped for parts, but at this stage, currently that’s the most logical thing for a financial buyer to do.

It also makes Laird the perfect example of why going public at the right time is crucial. Going public so early has basically forced Laird into only 1 realistic outcome if they want to keep this business together, and it’s ugly:

Pounding away for decades and slogging along in the public markets with everyone commenting on what they should do as they trade Laird into the ground. 

They’re onto the right consumer trends. Healthy Coffee Supplements + Mushroom based products. But now that they’re in public and have to report everything. Will they be able to capture the market faster than an incumbent of another startup can take the same market?

This biz will have a long, slow, hard march to profitability where at every turn, someone will try to take them private/acquire them. They’ve thrown down their shield of building in private and now have their info out there for the world to see.

It’s going to be hard to find someone who wants to take this biz on.

Takeaway: You can’t grab the bag and build for the long term. Pick 1.

Final Thought

The advice that eCommerce brands receive has to be better. 

I’d love to have been sitting in the boardroom when the team at Laird had the discussion to go public in 2020 on $10m in first half Revenues, with -$6m in losses, at a $184m valuation.

Now I’m not here to Monday Morning Quarterback. 

I remember H2 2020 when we all thought eCom would grow exponentially for a decade and we were taking over the world. I can also understand how a 7-year-old biz staring down a massive payday would carpe that diem.

But at the same time, how did no one in the room ask: “How are we going to grow into this valuation?” No matter how confident the room was, that was an insanely tall order.

Now, I think Laird is a good biz after surviving what would have killed them. Their stock has been pummeled into the ~$1/share range for the past year, and after Q1 ‘24 it’s rebounded up to almost $4/share.

It appears they’ve survived the worst of it with a solid balance sheet. They have $9.9m in short-term assets with $4.6m in total Liabilities. Providing the capital to turn the ship around.

But it will be a long slow march back to a $180m market cap. They have to:

Get back to growth

Get profitable

Get to around $180m in topline to hit that valuation.

Which is no small feat. $180m topline is 5.3x their current Topline. That much growth while getting profitable is something few brands achieve.

But I’m rooting for them. If this biz was still private, it’d still be considered a high performer with a lot of upside. The only mistake they made was going public too early in their journey. They’ve been punished for that enough already.