Daily Consumer #9 - How Form Factor Innovation and Subscription Enabled Pretty Litter to Become the Latest Billion Dollar Brand
Plus new developments around connected TV platforms and new investments led by us at Index Ventures.
My Work
How Form Factor Innovation and Subscription Enabled Pretty Litter to Become the Latest Billion Dollar Brand
Yesterday, news emerged that Mars is acquiring Pretty Litter for between $500M-$1B. I can’t confirm the acquisition price but can say I’m not surprised by the size. Daniel Rotman, the founder and CEO of Pretty Litter, is an amazing entrepreneur and someone I’ve gotten to know over the past few years. The founding story of the company ties into a personal experience of Daniel’s when his cat suddenly passed away. He wished there was a way to better understand the health of cats and embarked on building Pretty Litter.
For those unfamiliar, some background on both businesses:
Pretty Litter. Is a brand of cat litter. What’s unique about the product is that the crystal-based litter houses diagnostic capabilities and will change color based on the health of your cat. This is a big unlock as cats are quite non-expressive and can hide their sickness. With the product being crystal-based, it is very lightweight to ship. Lastly, the product is subscription-based which adds additional convenience for customers.
Mars. Is a conglomerate that is split between its petcare business and its confectionary/food business (think M&Ms). The petcare business accounts for the largest share of revenue and encapsulates:
Vetcare clinics - Mars owns VCA and Banfield, which are the largest vet clinic franchises in the US. Both are also growing quickly via the acquisition of other vet clinics.
Pet food - Mars owns several dog and cat food brands like IAMs, Whiskas, and Pedigree.
So why is Mars acquiring this brand?
Pet ownership is booming. The pandemic drove up pet adoption rates significantly, and pets are becoming increasingly ingrained in family life. This is driving up willingness to spend on their wellbeing. More specific to Pretty Litter, cat ownership in the US is growing extremely quickly and is more common than dog ownership. 30% of US households, 36M in total, have cats!
Exposure to a premium consumer. Pretty Litter is a premium litter product that retails at a higher price point than most other brands. What does Mars get with Pretty Litter? A customer base of cat owners, slightly concentrated in urban markets, who are likely to be great vet clinic customers and cat food buyers. Let the cross-selling begin.
A great business. Pretty Litter is a pioneer of subscription commerce online. Their product category is well suited to it - cats need cat litter to go to the bathroom and going to the bathroom is habitual. They have also shaped their product’s form factor in a way that makes it pleasant to stay on subscription. It’s easy to estimate how much product you need per shipment, and it easily arrives at your doorstep unlike most litter. The high lifetime value of customers, enabled by the subscription model, and the innovation around the core product unlocked scalable marketing channels for Pretty Litter. Performance channels like Facebook, where Pretty Litter could target pet owners, scaled very well. This business model equation resulted in a company that didn’t need much external capital to grow to extremely impressive revenue scale. I can’t share the revenue trajectory, but it’s impressive, especially given the company raised <$2M of external capital in its lifetime.
All in all, this is a startup story worth recognizing and celebrating. Daniel and the Pretty Litter team built an innovative, mission-driven brand that solved a real pain point for cat owners and did it without relying on venture capital to scale. Big kudos and excited to see Pretty Litter grow from here with the support of Mars!
Community
Anonymous - A DTC brand is looking for recommendations on good creative agencies to consider to set creative direction and produce video ads for digital channels.
News
Affiliate Marketing.
Wirecutter, the popular online publication that reviews and recommends products and is owned by The New York Times, is moving behind a subscription paywall. Existing NYT subscribers will get access for free.
Walmart partners closely with Meredith Corp, owners of People Magazine, Allrecipes, and Health Magazine. Will allow customers to directly add recipe ingredients from meal plans shown on Meredith articles or TikTok videos to their online Walmart shopping carts for convenient pickup or delivery.
Agencies. Techcrunch profiles Mutesix, a leading creative agency for ecommerce brands. “The main difference is that we have a 70-person in-house video creative team; and what we’re really good at doing is shooting and coming up with performance content. Not just content that looks and feels great, but video that is reverse-engineered to sell product.”
Augmented Reality Glasses. Facebook and Ray-Ban are partnering on smart glasses which will cost $299. “The frames feature 2 front-facing cameras for capturing video and photos. They sync with a companion camera roll app called Facebook View, where clips can be edited and shared to other apps on your phone (not just Facebook’s own).” Will AR and AR-based shopping go mainstream? You can buy them here.
BNPL. Great Twitter thread on why BNPL is catching on so much.
Checkout. Shopify Pay’s new checkout links capabilities allow merchants to send customers directly to checkout across email, QR code, SMS, and web.
Consumer to Manufacturer (C2M). A good look into the growing C2M trend pioneered by Pinduoduo in China and companies like Italic in the US. Connecting consumers directly to manufacturers is enabling lower priced goods to be sold online.
Customer Experience. Forerunner shares survey results around customer experience (shipping, touch points, checkout, discounts, subscriptions)
Earnings.
Brands
American Eagle Outfitters saw Q2 2021 revenue grow 35% YoY to $1.2B and net income grew to $122M, up for -$14M in the same period last year. “Digital sales fell 5% from the year-ago period, a time when many consumers chose to shop online rather than in stores amid the pandemic. Digital revenue rose 66% on a two-year basis.” Also acquired AirTerra, a logistics startup that aggregates packages from multiple shippers through its own network in major metropolitan areas.
Lululemon saw Q2 revenue grow 61% YoY to $1.5B, which beat expectations. D2C ecommerce revenue was 41% of total revenue.
Omni-Channel Retailers
Williams Sonoma saw Q2 2021 revenues grow >30% YoY to $1.95B, with 2/3 generated through ecommerce channels. “Looking ahead, the home goods retailer is expanding into new products, while consolidating its brick and mortar footprint in a bid to reduce operating costs. At the same time, it’s expected to benefit from pandemic-induced tailwinds including the shift to hybrid work and the suburbanization trend.”
Fintech
Adyen reported payment volumes of $252B in H1 2021, 67% YoY growth. Revenue was $519M and EBITDA was $318M (!). “Companies were already talking about integrating their online and in-store technology systems before the pandemic. But COVID-19 persuaded many businesses to radically accelerate this merger.” Has added LVMH and the Body Shop to its roster of customers in 2021.
Affirm saw Q2 GMV grow 108% YoY to $2.5B and Q2 revenue grow 71% YoY to $262M. GMV seems to be re-accelerating as BNPL catches on. Affirm estimates they will drive $12.5B GMV in full year 2021, and this estimate excludes any impact of their recent partnership with Amazon.
Ecommerce Platform. Amazon is building an omni-channel point of sale to compete with Shopify and Square. “The new POS system can handle in-store and online transactions, add Amazon checkout options, and provide inventory and business analytics.”
Emerging Trends.
Harley Finkelstein, the President at Shopify, shares a thread on retail trends he expects to see during the 2021 holiday season. Including are things like QR codes and gaming commerce.
A great report on ecommerce trends in China including the rise of seniors as internet users and the growth of “taste driven “ categories like beauty and fashion. The Chinese middle class is emerging and buying behavior is changing. I recommend starting at slide 37. I also really liked this graphic which is similar to how I structured my market map.
A great recap of learnings across ecommerce and advertising from Q2 by Ram from Octahedron Capital.
Fitness. Peloton is expanding its private label apparel line. The connected hardware player is scaling its brand from hardware and content to fashion. Meanwhile, Lulu is doing the reverse by starting with fashion and pushing into hardware and content. An exciting space to watch.
Gaming. A study by Deloitte suggests that gaming is Gen Z’s favorite form of entertainment (26% of respondents) compared to music (14%), social media (11%) and TV/movies (10%). Will advertising/commerce follow the attention?
Influencer-Driven Commerce.
Glossy summarizes the trend of influencers/celebrities launching their own brands, calling it “the new merch.”
Jennifer Aniston is launching her own beauty line. Is called LolaVie and will focus on skin and hair care products.
International Ecommerce. Amazon is expanding to Korea in partnership with Korean online retailer 11st. “The new online store offers what Amazon says is one of the largest international selections available for online shopping in Korea.”
Logistics.
More than 70% of US residents now live within a few hours’ drive from an Amazon Air facility, up from 54% in May 2020. One-day delivery will become the new expectation and Amazon is using planes to accomplish it.
Finding warehouse labor right now is tough. Amazon is reacting by offering more than 750K US hourly employees the chance to enroll in a fully paid bachelor’s degree program after 90 days of employment. Amazon will fully subsidize the cost.
A look into how Target revamped its logistics flows for online orders. “In the model, store associates pick and pack the orders and the linehaul truck transports the boxes — in the Minneapolis case, it is from 45 area stores — to the sortation center where technology firms Target has acquired work to ensure the boxes are routed to the correct carrier for delivery.”
Native Apps. Nike’s native apps are core to their ecommerce strategy. Ecommerce will soon be >50% of total revenue.
Neobanks. Affirm is launching a debit card in an effort to grow wallet share with their consumer base. Is likely also a response to Square’s acquisition of Afterpay which will see Square Cash and Afterpay integrate closely.
Resale. JD.com launches Jing Zhi, a new resale platform. Sellers can use the platform to list second-hand products and pay a 6 percent commission.
Restaurants.
A summary of all the notable chains that have launched “virtual food brands” which are new brands only available on food delivery apps.
Sweetgreen saw 68% of total sales come from online channels in May 2021.
The New York Times profiles the adoption of QR code menus by restaurants. “Half of all full-service restaurant operators in the US have added QR code menus since the start of the pandemic.”
A great read into Olo, a leading ecommerce platform for large-chain restaurants. Olo services roughly 1.8M digital restaurant orders per day.
Retention Marketing. Shopify invests $30M in and more closely partners with Yotpo, a company that has various marketing apps in the Shopify ecosystem. More specifics to be shared Sep 15th. “Through a deeper integration between our two technologies, we’re working to innovate on the marketing tech stack and create new features that help brands own direct relationships with their customers.”
Same-Day Delivery.
Target is scaling up Shipt, it’s same-day grocery delivery service, rapidly. Will expand to an additional 1K Target stores, which will add 2M households to its delivery area.
Walmart and Instacart are expanding their same-day grocery delivery partnership to include parts of New York City.
Buyk, yet another 15-minute grocery delivery service, launches in New York City.
Drizly launches White Glove Weddings, a service that helps customers plan and order large quantity alcohol orders for weddings.
A look into Getir’s micro-warehouses which are enabling 15 minute delivery in Europe.
Social Media.
Instagram is hosting “10+ Days of Live Shopping” to promote live shopping on the platform. Will feature brands like Outdoor Voices, Aveda, Hologear, Peloton, and Rare Beauty and celebrities like Kacey Musgraves and Lil Yachty.
TikTok is hosting “TikTok World” on 9/28. Is a partner-focused event where TikTok will likely share platform updates.
A look into Twitter’s early experiments around commerce.
Epic Games will shut down Houseparty in October despite the app briefly re-surging in 2020 during Covid.
Tinder is rolling out Explore, a new tab in the app that will house interactive, social features aimed at helping users meet new people. Trying to become a social app, not just a dating app.
Trust and Safety.
The VP of Data Governance at The New Your Times shares his views on web-based privacy. “I believe that a good starting point for a default that works for most sites that perform a relatively small set of related services is the Vegas Rule: what happens on the site stays on the site.” Privacy is having its moment as the large platforms like Apple and Google are changing their privacy rules, generally in the direction of less third-party tracking.
Organized crime rings are stealing from stores like CVS and re-selling the products on Amazon. “Amazon may be the largest unregulated pawnshop on the face of the planet.” Retailers are now increasing their investment in security.
TV Marketing.
Vizio saw >$100M of advertising commitments during their annual auction, up 4x YoY. Consumers are shifting their watching to connected TV platforms like Vizio, Roku, Fire TV, etc. and with that, these platforms are building ad formats that they control.
The TV marketing landscape is getting noisier by the day. A good market map of the space.
Amazon is releasing its own line of smart TVs that will have Alexa built in. The TVs will also support TikTok.
Funding and Exits
Brands
Apparel. Solo Brands, an outdoor-focused portfolio of brands, acquires Chubbies, the popular brand of men’s shorts.
Beauty. Beauty Pie raises $100M from us at Index Ventures and Insight for its membership-based beauty and wellness products. “The key to Beauty Pie’s model is that it sources and buys in high-end products from a range of producers and sells them under its own private label. The CEO claims that its customer retention rates are currently higher than Spotify’s and Netflix’s and 20x higher than other D2C beauty companies, partly a result of the buyers’ club model. Members more than doubled in the last year, with revenues growing by more than 100%, and the company turned profitable last year for the first time, too.”
Footwear. On Running set its IPO terms which should give it a market cap of $5.5B. Will trade on the NYSE with the ticket ONON and reported $315M revenue and $4M net income in H1 2021. A good analysis here.
Petcare.
Mars, the petcare + confectionary conglomerate that owns the most veterinary clinics in the US, acquires Pretty Litter, a subscription cat litter brand. More on Pretty Litter in the “My Work” section.
Wild Earth raises $23M from Mark Cuban and At One Ventures for its plant-based pet food brand.
Supplements. Teatis, a plant-based sugar-blocking superfood powder for diabetic consumers, raises $700K from Genesia Ventures and others.
Watches. Breitling, the luxury watch brand, is potentially up for sale by its owner CVC Capital Partners. Is known for its aviation-themed timepieces and traces its roots back to the work of watchmaker Leon Breitling in 1884. Is one of the larger Swiss watch brands that’s still independent.
Women’s Health. Elvie raises $17.5M for its connected women’s health products including a breast pump and smart pelvic floor exerciser. Claims its breast pump business has doubled in the U.S. over the last 12 months and that they are the highest single breast pump SKU revenue driver on Amazon in the US.
Marketplaces
B2B Commerce. Novi raises $10M from Greylock for its chemicals marketplace. Allows brands, especially in beauty, to get the data they need to source cleaner ingredients. “Demand for the service should grow as consumers increasingly want more transparent sustainable products and companies will need to comply to keep up.”
Brand Rollups.
Rainforest raises $20M from Monk Hill Ventures for its Asia- focused rollup of ecommerce brands. “Since launching in Jan 2021, Rainforest has acquired 6 brands and plans to triple its brand portfolio by the end of this year.”
Telos Brands raises $2M from Picus Capital for its business rolling up brands operating on Amazon.
Custom Inventory. Printify raises $45M from us at Index Ventures. Is a B2B marketplace connecting 2M merchants with print providers all over the world. Is now shipping 1M units per month through this marketplace and allows merchants to produce 370+ different kinds of products.
Food and Beverage. CookUnity raises $47M from Insight Partners for its subscription-based meal kit service. “In the last 12 months, CookUnity saw over 550% growth and to date has over 50 chefs on its roster, with plans to increase to 150 across all of its kitchens by mid-2022”
Food Waste. Olio raises $43M from VNV Global for its mobile marketplace that lets its >5M users post a photo of unwanted food and share it with the local neighborhood. Plans to accelerate its international expansion. Tesco, the UK’s largest grocer put 2.7K stores on the platform last year - is redistributing surplus food nearing its sell-by date via Olio’s network.
Health and Beauty. Packable, the parent company of Pharmapacks which is one of the largest third-party retailers in the United States selling mostly health and beauty products through large online marketplaces, including Amazon, eBay, Google, Walmart and Target, agrees to go public via SPAC which will value the company at $1.6B.
Office Supplies. ShopperPlus raises $13M from Celtic House Asia Partners for its Canada-focused online marketplace offering ink and toner cartridges, printers and office supplies, cables and adapters, and cellphone and camera accessories.
Same-Day Delivery.
Delhivery raises $75M from Addition for its same-day logistics service in India. Has delivered over 1B orders and works with all of India’s largest e-commerce companies and leading enterprises.
OneRail raises $9M from Ironspring Ventures for its last-mile platform that connects point-of-sale order information directly to a network of 7.5M couriers. “OneRail has closed deals with its customers that will scale the business to 2M deliveries per week in the first quarter of 2022. Current major customers include GoPuff, Menards, and American Tire Distributors.”
Social Media. Gamestry raises $5M from Goodwater Capital, Target Global and others for its UGC video platform for gaming. Claims it has 4M MAU and 2K active creators in Spain and Latin America. Is essentially a “Youtube for gaming clips”.
Software
Omni-Channel.
ShopUp raises $75M from Valar Ventures and Prosus Ventures for its B2B commerce platform serving the 4.5M small retailers in Bangladesh that want to establish a digital presence. Provides services including a wholesale marketplace to secure inventory, logistics (including last-mile delivery to customers) and working capital.
Dukaan raises $11M from 640 Oxford Ventures for its commerce platform that enables India-based SMB merchants to set up online stores and sell products digitally. Has facilitated over 1.5M transactions to date and is targeting having 2-3M monthly active stores within the next 12 months.
Bikayi raises $11M from Sequoia Capital for its software platform that allows offline businesses in India to set up a digital storefront. Their merchant base has grown 5x in the last 8 months. “India is home to over 75M SMBs, which account for over 30% of India's GDP.”
TV Marketing. Amagi raises $100M from Accel, Avataar Ventures, and Norwest for ots advertising software that allows customers to create and monetize content on broadcast TV and streaming TV platforms like The Roku Channel, Samsung TV Plus and Pluto TV. The company already supports more than 2K channels on its platform across over 40 countries.
Fintech
BNPL.
PayPal acquires Paidy, the leading BNPL player in Japan, for $2.7B cash. Japan is the 3rd-largest ecommerce market in the world.
Scalapay raises $155M from Tiger Global at a $700M valuation. Is focused on merchants (has 3K of them) and consumers in Europe and in categories like fashion. “In luxury fashion we’re accounting for 30%-50% of all transactions, and in some cases more than half.”
Addi raises $75M from Greycroft for its BNPL service focused on Brazil and Colombia. “The company allows customers to pay for their purchases over 3 months at no cost. For bigger purchases, Addi lets them pay for up to 24 months at competitive and fair rates. Latin America is a region where an estimated fewer than 25% of people have a credit card.”
Checkout. OurPass raises $1M from Tekedia Capital for its one-click checkout product for Nigeria-based merchants.
Neobanks. Varo raises $510M from Lone Pine at a $2.5B valuation. “In the 13 months since obtaining its bank charter, the company has 2xed its number of opened accounts to 4M and 3xed its revenue.”
Payments.
Wave raises $200M from Sequoia Heritage, Founders Fund, Stripe, and others at a $1.7B valuation for its mobile payments service. cClaims to be the largest mobile money player in Senegal and that over half of the country’s adults are active users.
Zebedee raises $11.5M from Lakestar for its Bitcoin-based payment system for games. Wants to power economies for virtual worlds with near-zero fees. One to watch as commerce within games becomes more commonplace.
Ryd raises $12M from BP Ventures to digitize gas station transactions. Allows consumers to access fuel services and pay via an app. “Ryd is already accepted today at 3K partner service stations across 7 countries and has 1.4M direct customers.”
Rewards Management. MaxRewards raises $3M from Dundee Venture Capital and Calano Ventures for its app that tells users what credit card to use for what purchase to maximize rewards.
Product of the Week
I have show Pretty Litter some more love. If you’re a cat owner, you may want to look into their product. Buy it here.
Hi, do you know how long customers stay subscribed to the pretty litter brand on average?