Issue #110: Moatmaxxing

This week, the CPG world was abuzz with Costco’s latest drop. It is not often that a retailer’s private label is the talk of the town, but Costco and Trader Joe’s tend to find a way to dominate the headlines here and there. After launching a sports drink targeting Gatorade and an energy drink targeting Celsius, Costco has its next large CPG in its sights: Unilever’s Liquid IV. As you can see in the image above, Costco is launching a hydration stick pack, akin to Liquid IV, LMNT, Waterboy, etc. Since the acquisition in 2020, Liquid IV has exploded. It went from ~$100M in annual revenue to now over $1B. It has also expanded to over 15 countries now. The irony here is that for all three of these brands, Costco was a major lever for brand growth and retail success. However, that is business, and the partnership risk, especially with a retailer who can make private label products with the best of them. In Liquid IV’s case, a product at a third of the cost with less sodium and immunity boosts. Cheaper and better benefits.

So what is a large CPG to do? Let alone a small brand. How do you protect yourself? In order to do that, it is time to put on our legal hats and examine Albie's Foods, Inc. v. Menusaver, Inc. (Menusaver was a part of JM Smucker), a court case from 2001. Check out this excerpt of what happened:

All this time, Uncrustables has not had a patent. It has had a trademark, which it is currently in dispute with Trader Joe’s over, but in some ways the product is not very defensible beyond the brand and the product. Still, the brand is now over $1B in sales and is growing ~16% YoY. People have tried to copy and rip it off, to little avail. Uncrustables is a case study of a product that should have been/sort of has been copied to death and wasn't. It is thriving. Here are some of the takeaways I have found from Uncrustables that brands can learn.

How would you defend against Costco entering your turf?

On the grocery scene in NYC, there have been many new entrants into the grocery space over the past couple of years. Meadow Lane, PopUp Grocer, to name a few. However, these are not necessarily full grocery trips; instead, they are more shoppy shop/prepared foods destinations. Out of this new wave, only one has tried to become the full grocery destination: Happier Grocery. Founded in 2023 in SoHo, it carries a wide variety of products. Enough to do your weekly shop, albeit at premium prices. Clearly, that location is going well, as it announced a second location, at 210 East 86th Street in Manhattan, during the second half of 2027. The location used to be a movie theater. A third location may be in the works for Brooklyn, as one of the founders just bought a mixed-use building in Caroll Gardens. It will be interesting to see how fast they try to expand. In terms of new grocers in NYC, them, Aldi, and Whole Foods’ Daily Shop certainly have my attention.

This week, Instacart announced a new technology that allows brands and retailers to see live inventory at select grocery stores. Live inventory in grocery has long been one of the biggest challenges that grocers have had to face. How do you account for inventory that is in a customer’s cart? Not as easy as it seems. Between shoppers scanning shelves, it’s Caper Smart shopping carts, and computer vision technology from Arpalus, the data is enough to get live inventory. That requires a lot of tech to be combined to get the answer, but if it is there, that will be a huge unlock. I am still a little skeptical that is enough data, but it will be exciting to follow along nonetheless.

For those who aren’t aware, a NYC bakery went viral for selling a $60 loaf of bread. Like many things, it isn’t really about the bread that makes it so expensive. Instead, it is the vibes and experience. However, doesn’t mean there isn’t backlash and opportunities for brands to highlight their strengths. I love what Lidl did here.

Andrew Benin and Allen Dushi launched Graza in late 2020. The innovative olive oil brand combined higher-quality olive oil with a convenient squeeze bottle. Since then, everyone under the sun has tried to copy their packaging, but the brand has still been able to grow. Graza reportedly generates $30M of EBITDA. In the event of a possible sale, it is seeking a 15-20x multiple. That would put its enterprise value as high as $600M. Interestingly, they just launched two new products: mayo and chips. Similarly, right before being acquired, Gruns ramped up the new product launches. It is a great way to show potential acquirers the upside of the brand and de-risk the acquisition. All around, I think this is super smart from Graza. More brands should follow this playbook. At a certain point, you have a great opportunity to sell when you have the momentum. On the flip side, since the purchase price is lower, there is actual upside for the acquirer too, so they may pay higher multiples. To grow further, the math may just not be there.

Just a quick reminder. One of the most frequent questions I get asked is what events I go to. I went ahead and took that a step further by creating a calendar on Luma. Be sure to follow along so you can easily see the top events in NYC. Be sure to subscribe to that calendar as well! I will still post the top ones here!

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