Interview #8: Daniel Faierman

VC investors see across many different verticals, which offers a unique perspective into what is going on in the consumer landscape. I had the pleasure of chatting with Daniel Faierman, a Partner at Habitat Partners, one of the leading early-stage CPG funds. Daniel has invested in the likes of PopUp Bagels, Ayoh Foods, Mezcla, Hetal Retail, Rooted Restaurants, and many more. Thank you so much for joining, Daniel! I am super excited to share this conversation.

This is the eighth conversation in an ongoing series with movers and shakers in the retail industry. Is there anyone you want to hear from? Please be sure to drop their names 👇

The following conversation has been lightly edited for context and clarity.

Daniel Faierman: Our fund was born in 2021 after a long history of being associated with a creative agency called Red Antler. Red Antler has been servicing the startup ecosystem as a creative agency partner since 2007. Over the years, as the brand and reputation of Red Antler grew in popularity, [Red Antler] became more sought after as a partner. We decided that it made sense to start taking equity positions in some of the most promising clients that were working with Red Antler, given that many were going on to have unicorn outcomes.

At first, that was a balance sheet investing strategy from 2019 to 2021. Then, after the success of that strategy, we raised outside capital and launched Habitat Partners at the end of 2021. Our mandate focuses on three areas. We focus on consumer brands, largely food, beauty, and four-wall. We focus on B2B software that empowers consumer brands, which we define as retail and commerce technology, marketing technology, design technology, supply chain technology, and insights technology. Then, we also have a third strategy, more [focused on] frontier tech investments, which are largely climate tech, robotics, insurance tech, and defense tech. [The frontier investments are] really opportunistic through Red Antler, [and their] client relationships.

DF: Much of what I am telling my portfolio companies to do with unstructured data involves AI. From an FP&A perspective, the process of analyzing consumption level data used to be manual, but now is doable with Claude. For anything that is your basic performance routine that you would do on a monthly basis with your sales and finance team to analyze how you're performing, how productive you are, your velocities, and various retailers, all of that [reporting] in theory [can be] automated by Claude. I do not think you need, like you might used to, a financial analyst or a trade finance-focused analyst doing all that work in Excel manually anymore. There are those types of tasks where this data exists, the files are large, and we do not need to be building models from scratch. Let's leverage AI to do the work for us and actually spit out the insights that we need to be paying attention to that'll drive our strategy moving forward within retail.

Then I think there are elements of AI that are taking this [analysis] to a new level that we have never seen before, in terms of the level of data and granularity you can get on your consumer who's buying your product. AI can search around the internet for so much first-party data now from many different sources, quickly. The thesis surrounding having a consumer passport on every consumer that might be buying your product is becoming way more real. This is more on the eCommerce side, but as an example, there are a few businesses that are taking the first-party data that you would get from a Shopify order and building these profiles of these customers that are more detailed than they ever were before. You can lean into software and AI in a way that is more powerful to get a different level of granularity on first-party data.

Beyond the data analytics, the second category is physical on-shelf execution. I think video is extremely important [for that analysis]. You can analyze data and try to retroactively figure out out-of-stocks and call up the buyer based on a velocity deviation [but that is cumbersome]. That is a big reason why we invested in a business called Hetal Retail. We feel having the physical, visual element associated with your ability to instruct a buyer that they are not doing a great job stocking your shelf is really important. Data stories are powerful, but visual stories are more powerful.

There is also a third category, which is customer experience within a four-wall retailer, and the idea that we can now use voice AI. If you are running a four-wall retailer, and you're trying to handle customer inquiries, [there are] a lot of interesting companies that are providing different models associated with voice AI and ordering AI. Between the visual element, the data enrichment, and customer experience, those are the three things we talk to our companies about quite a bit within the broader landscape. 


DF: Velocities for us are the golden metric of any retail due diligence we are doing. One [metric] we probably overindex on is dollars per week per store per SKU. If you are selling at a more premium price, because of price elasticity, even if the product is really sought after, you're gonna just have a slightly lower unit velocity. Consumers are fickle in some capacity, and they might be willing to pay a premium, but they might not be willing to pay as much of a premium at scale. If I can achieve the same unit per store per week as another brand, but I could do it at a higher price point, that means that something is going right. Sometimes we are able to get this granular, [and we love understanding the] execution KPIs. For instance, if you got into X amount of stores, how is being on time and in full with your volume? That metric is on time and in full volume.

We [also] do a pricing analysis, looking at base price compared to a competitive landscape where you're priced. If we feel like it's competitive based on the value prop you're offering compared to the competitive landscape. We are also looking to see trade spend as a percent of net revenue. If a brand is growing really nicely, but they're having to be on promo at all times to really see volume uplifts, that's not the best sign. We have also seen that trade is a huge part in driving trial, but in the long term many of our best brands aren't discounting that much and still driving strong velocities. 


DF: I think Target's an interesting case right now because they're bringing a ton of emerging brands in all of a sudden. They are doing a very good job, as simple as this is, of staffing their teams with a dedicated resource to help emerging brands succeed. You need to build within your retailer an emerging brand ecosystem, mindset, and support strategy. Otherwise, it makes it harder for brands to succeed by themselves. If you really want to be a champion of emerging brands, you need to build that culture and house. I think Target's starting to do a really nice job of doing that.

Then it comes down to your relationship strategically about who chooses endcaps and placements within the store. A lot of our most successful brands are able to get the opportunity to do that, and then after executing, the retailer is doing a good job leaning in and offering up that space for incremental months. [As a retailer,] having a really strong push within your own store and merchandising programming is a huge thing.

The other thing that a lot of retailers are trying to do is retailer media. That is such a high-margin business for them compared to selling inventory on a shelf. It makes sense for them to push brands to buy retailer media amongst their systems. I have seen mixed results so far. I know some brands who talk about retail media at certain stores with a lot of success, and they're continuing to invest heavily. But, other brands are seeing mixed results from a ROAS perspective at those same retailers. 


DF: From a targeting perspective, I feel like retailer media is a step behind. I would love to see retailer media get way more granular on the customers that are shopping within their stores and have more direct data relationships with each of those customers. Right now, you are kind of paying for a slot within their digital catalog. There may be very basic targeting parameters surrounding it; I just think the level of first-party data sophistication within retailer media is way behind the sophistication that we see on Shopify and D2C. I think there needs to be a dedicated catch-up to really enrich the level of data that these grocery stores are getting on the consumers that are shopping within their stores every day to enhance the ROAS that their brands can get by using their retailer media platforms.

DF: I will give you a weird take that I've thought about a lot lately. I think the obvious thing that a lot of investors and people have clung to is if 10% of the population is gonna be on GLP ones, then you'll see the reduction of salty snacks and the rise of protein. [Additionally,] I think what's interesting is that since these GLP-1 users have fewer calories to consume in a day, the meals that they are eating, they're cherishing a lot. They care so much about the quality of the food, because they're eating less of it every day. One thing we're seeing [GLP-1s drive] is premiumization. If you only have 40% fewer calories to eat in a day, you're gonna make those calories count more than anything. People are clinging to high-quality, small portion-size options. Stuff they can eat on a daily basis that they genuinely love and enjoy, but are pretty condensed and packaged. [In that vein,] we just invested in a liquid breakfast that is giving the consumer an on-the-go protein drink option that's like an RTD protein shake, but it's just positioned for breakfast.

We have also seen a similar pattern with oil, condiments, and sauces. Since consumers want whatever they're eating to taste so good, for those calories that they get throughout the day, they're overinvesting in oil, condiments, and sauces because they want to be able to apply the best to the portion that they have. They have to make it count. 
[The logic is] how do I augment the few meals I get a day since I have fewer calories with premium sauces. [Similarly, the logic applies] with really good-tasting, small portion desserts. People are compacting everything into smaller portion sizes, but then also wanting to overinvest in the quality, taste, and flavor more than before.

DF: I'm always bullish on in-person retail. I think at the end of the day, eCommerce is amazing, especially in highly urbanized environments. For example, living in an apartment, there's not enough time to do big grocery shops all the time. I think living in a city is very different than a lot of America, which lives in more rural areas. I don't think third-party eCommerce is as available in a lot of America, and I also think that the premium you're paying for in eCommerce compared to going to the store is something material [for third-party eCommerce]. Obviously, gas prices are really high right now, so that's something to be considered.

I am more bullish within the retail landscape on Mass and Club than I've ever been. 
I'm probably a little less bullish on premium natural. Overall, I always believe that consumers, from a majority perspective, will shop in person. They like to touch and feel products. They like to see in person. They like to discover new brands. I also think that Walmart, Costco, Sam's Club, Target, etc. are doing a much better job of assorting new brands and bringing in emerging brands. Making it more part of their strategy, which I think will just continue to fuel consumers wanting to go explore those kinds of brands and products in person. I'm bullish on in-person retail, albeit, I still think slowly, but surely, third-party eCommerce will take a little bit more share of sales on the way.

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