The Next Brand, Episode #7
Food quality, the future of retail (and what that means for brands), and psychedelic medicine
Hi there, and welcome to The Next Brand - my take on health, wellness and brand building.
In the last 4 years I’ve founded 2 health brands (Kettle & Fire and Perfect Keto), which did nearly $100mm in revenue in 2019. I’ve raised ~$20mm to build Kettle & Fire, gotten into 10k+ retail stores, bootstrapped Perfect Keto, launched 80+ SKUs… and have a small portfolio of Shopify apps I run on the side. Previously, I worked in tech and had no experience in CPG, DTC or any other 3-letter industries.
If you missed past episodes, you can catch up here (Episode 01, 02, 03, 04, 05, 06). Otherwise, let’s dive in.
🆕 What’s new
I'm not overly political. I generally avoid the news, would consider myself independent and generally believe that today, America’s best are firmly planted in the private sector. This newsletter is not, and will not be, about politics.
But man, politics is getting harder to ignore. In the last ~10 days or so, we've had protests, riots, cities burning… all while a private American citizen (ELON!) sent the first humans to space in over a decade. Wild.
I'm not optimistic that this stuff sorts itself out anytime soon. I view the latest unrest as just another step in the decades-long institutional unraveling we're going through, and expect that a lot more of it won't be pretty.
That said, I'm also hopeful some good comes out of all this, as messed up as that may seem. Already we're seeing politicians introduce legislation that seemingly could be helpful - allowing citizens to legally hold police officers accountable when they violate constitutional rights.
Who knows, maybe this makes things worse. Maybe now so many cops get sued that they are even less likely to patrol or bring order to the places that need it most - I've no idea. But we're all along for the ride, let's hope some good at least comes out of the tragedy.
💪 Health stuff
Probably the largest shift I’ve made over the last decade health-wise is a shift towards prioritizing food quality over almost anything else. When I started going paleo, I’d go HAM on terrible quality stuff that fit my macros (hello low-grade store bought beef!). After all, it was Paleo - I’m doing something good for myself!
As I’ve understood more of the impact food has on our health, environment and community, I’m now more likely to enjoy a farm to table pizza (really, really does not fit my macros) than I am a burger made with factory farmed beef.
This year, I’ve started to think more and more about what a food system focused on quality would look like. And have come to the conclusion that a decentralized food system - one that doesn’t rely on 8 food companies for 80%+ of America’s caloric intake - would be a big step in the right direction.
One of the largest issues with our food system today is the lack of accounting for negative externalities. Big Food creates products that make people sick, and externalize that cost onto the US healthcare system (and thus the US taxpayer). Big Food harms the environment, and makes the government + populace pay for it. Big Food lobbies to influence school lunch guidelines, and pizza is now a vegetable. Big Food doesn’t know you or the communities it sells products into, and it doesn’t care.
This math changes when you have a more decentralized food system. When farmers are growing food in the same community to which they sell, there’s a tighter feedback loop between farmer, consumer, environment and health. Some things work well at scale: others don’t. At this point, I’m fairly convinced the modern-day food system is completely broken at scale.
Not only does a highly centralized food system make us sicker and our environment worse, but it introduces fragility into our food system. Never has this been more clear than during the recent meatpacking COVID-19 issues. From TNB reader Ben Williamson’s inaugural newsletter:
Four companies control processing of over 80% of the country’s beef, and four control about two-thirds of the country’s pork. Even though only 23 meatpacking plants out of the almost 1,000 in this country closed (some of which have reopened), the nation is experiencing meat shortages and will continue to do so.
Not only does our food system carry extremely high rates of centralization, but many things (buying raw milk for example) are actively illegal. Today’s laws and regulations are designed for a highly centralized food system that I’m sure does not help the health of most American’s, and hopefully will begin to unwind in light of all things COVID-19. More farmers growing more food that’s processed and sold locally. Fewer multinational corporations selling products that make people sick. Ben again:
The solution is simple, though it won’t be easy. We need to institute a resilient and sustainable decentralized food system – one where food can be processed and connected to the local economies in which it was raised. One potential solution is the PRIME ACT, which would repeal the ban on sale of meat processed by custom slaughterhouses that meet state regulations and basic federal requirements. This would result in drastically increased DTC (direct-to-consumer) sales of meat, which is how many people (especially younger generations) prefer to shop today. A system like this would resemble the one this country had decades ago and would be vastly better for consumers and local producers alike and would help drive local business and the economies of these states in the middle of the country.
Like Ben, I see creating a more decentralized food system as one of the keys to unlocking a healthier, more environmentally-friendly, more resilient future. I’ll talk more in my next newsletter about how you can help bring about this future while also upgrading the quality of food you eat.
🤑 Brand stuff
Something I've been thinking quite a lot about lately is on the future of grocery, and how grocery and retail change in a post-COVID world.
Grocery chains have invested millions of dollars into making their stores places you want to shop. When you buy a head of organic lettuce from Erewhon, you're not just paying for the head of lettuce: you're also paying for the feeling of being in Erewhon - the feeling of class, cleanliness that comes with walking past $27 vegan yogurts.
Erewhon vs Costco
This is decidedly not the feeling you get when you shop at a Costco. In a sense, Erewhon's ability to charge you more for a head of lettuce is directly related to the feels they give you when you shop.
That feeling matters. However, it matters a whole lot less in a world dominated by concerns about COVID. No matter how good the Erewhon feels, if each trip to the grocery store contains non-zero risk that you get sick and die for picking up salad dressing, stores will get seriously squeezed.
All of a sudden, stores that have invested millions into their in-store presentation and experience will find themselves stuck. They’re roughly in the same position as my Hollister collection - they’ve invested lots of their time and energy into something that’s no longer valuable.
We’re already starting to see the impact. In-store foot traffic is down 30-50% in many locations, while curbside pickup and grocery delivery are at all time highs. I suspect COVID-19 has only accelerated the retail future many of us suspected was coming: one characterized by less foot traffic and more pickup + delivery.
With this will come a whole host of changes for the retailer, and in turn the consumer brands that sell to them.
For one, brand discovery will shift tremendously. It's a LOT harder to get people to try a new brand when they can't pick it up, see + taste the product, or read the ingredient statement while googling who started the brand (just me?). Instead, for the 30% of new people who now do most of their grocery shopping on their phones, your brand is just a tiny photo impediment to adding what they want to their cart. Shopping is now (more of) a chore, not something that someone just might enjoy as they discover new products they love.
As discovery gets harder, trade spend (money brands spend to get placement shelves at the end of aisles, and in certain high-traffic parts of the store) ROI changes. Imagine you were paying $1000 to reach 10k people on Facebook, 100 who convert - a $10 CPA, not bad! Now, slash the reach of that ad by 30% - your CPA has now gone up 42% (from $10 to $1.42), harming your ROI by 42%.
Historically, you know what brands do when their ROI decreases by 40%? They spend less in that channel. And given that this trade spend bucket accounts for 80%+ of the average retailer’s profitability, this will really hurt smaller brands and retailers. One way this could play out:
Retailers will have fewer brands that can afford to advertise in stores.
Since those brands can’t afford much retail marketing, they’ll have fewer consumers buying on shelves.
With fewer consumers buying, retailers remove newer brands from their shelves as they’re underperforming other brands that want that shelf space.
Retailers end up carrying a more commoditized assortment of products, mostly from larger brands.
That’s one way this could play out, as both retailers and smaller brands struggle to survive.
However, there’s another side to this. The pickup and delivery apps (Instacart and the like) are likely to outperform as they capture the high-margin consumer brand marketing dollars, but without the physical retail infrastructure. Building your own distribution via DTC marketing and relationships also gets more important, with Facebook and Shopify being the big winners there. Software eats the world, again.
Have an idea as to how consumer brands can cheaply acquire new customers at scale? Let me know - if it’s good, I’d love to invest.
😌 Dope stuff on the internet
Some of my favorite things since the last newsletter (note: I don’t get paid to recommend anything here):
📰 Article - This read on the future of psychedelic medicine is well worth it. I could not be more bullish on psychedelic medicine. The current state of our mental health treatments are abysmal. Many drugs plain don’t work, or come with ridiculous side effects. Oh, and for many of them you’ll have to stay on them practically for life. Psychedelics are not a panacea, but I would sure as hell rather someone try a few months of ketamine-assisted therapy to see if it works for them before signing up for a lifetime of Wellbutrin. I believe in this space so much that I’ve been a donor to MAPS for years, and made my largest angel investment to date in Mindbloom. I think legalized psychedelic medicine could truly be one of the greatest things for health in general over the next 20 years, and am excited for the wave.
📚Book rec - Rarely do I read a book on health that makes my head low-key explode. That changed recently as I finished Food Fix. I’m going to write a lot more about it in my next newsletter, but wow - the book really brings home how food is at the center of many of our climate, health and economic issues. If you’re looking to understand more about how the food system is so messed up, and concrete steps you can take to fix it (and your health), I’d highly recommend the book. I personally got even more fired up to work on problems at the intersection of health and food for the rest of my life.
⌚Cool product - I’ve been interested for the last ~6ish months on the history of innovation: specifically, the branch of Progress Studies mentioned by Patrick Collison and Tyler Cowen. Well, if you know any intellectually curious high school kids, Jason Crawford from Roots of Progress just launched Progress Studies School - an online course covering the history of technology and progress, geared towards high school students. I got my high school brother to sign up, and man do I wish this is something that existed when I was younger. I think a core issue underlying lots of current social unrest is that many feel like things have stopped getting better. Progress isn’t something that happens, it’s something people do. The more people understood this, the more people we’d have doing things rather than sitting back and mocking the latest “techbro founder”.
🎵Music - I straight up love this set from Burning Man. A bit more dance-y and active than I normally listen to, but still a killer.
🏀 Random - If you want to lose a few minutes of your day, playing with the ISS SpaceX simulator is fascinating. There are some incredible humans on this planet (and now 2 off this planet) doing incredible, inspiring things. This simulator game showed me just how far away I am from doing those incredible, inspiring things.
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I also have an ask for you. Do you like the current format of the newsletter? Or would you prefer 1 longer essay (ie no new / health / brand breakup) along with links + some general commentary?
Just reply and let me know - thanks for reading!
Justin
Like this current breakup format!
Yes, this current format is great, because its structured and not too long