Investing in Consumer Products
Kim Kardashian, Logan Paul, and Mr Beast are showing us how to build consumer product brands, today.
To Investors,
A few months ago it was announced that Mr Beast’s Feastables chocolate brand would be a jersey sponsor for the Charlotte Hornets. More recently, Skims was announced as an underwear partner for the NBA, and over the past year or so, PRIME Energy has made a bunch of brand alignments that have seen it compete with Gatorade on the global sports scene.
What we're seeing here is that traditionally, social media platforms like Facebook and Instagram would leverage their monthly active users to create enterprise value for the company. Over time, as social media became more popular and accessible, content creators on these platforms would become brand ambassadors and marketing agents for exciting companies, taking a pay check for a post, or exchanging a post on their page for a free product.
More and more however, we’re beginning to see content creators leverage their monthly active users (read: followers + views) to create enterprise value that all belongs to them.
Given all of the hundreds of chocolate brands that exist today, who in their right mind would try to introduce a new brand in such a saturated market?
That said, I would describe what Mr Beast is doing as a genius move.
Here’s why…
Feastables
Most of the chocolate brands we’ve grown up with (Kit-Kat, Cadbury, Reese’s, etc) and have come to love are about a hundred years old if not older.
You could interpret that as “strong brands with longevity” to still be bringing us joy after all these years, which would be true, but I think they’re now largely outdated, and are set up to lose market share - and Mr Beast’s chocolate brand, Feastables, will be the taker.
What sells a consumer product is whether the brand resonates with people’s values on some level, so much so that we prefer that brand over another brand even though there exists a bunch of perfect substitutes.
The preference could be because of price, or perceived quality (because most of us aren’t manufacturing experts), or because we feel the brand has a set of values that we can align with. Generally, this means the brand brings about a sense of community and sticks with consumers.
As an investor/builder, how can you see and grab an opportunity to invest in a new consumer brand today?
A framework to understand the answer to that question is the story of Warren Buffet buying See’s Candies in 1972.
See’s was a relatively small but popular chocolate producer and brand, with a relatively small market share. The legend goes that Buffet saw that See’s had 3 distinct advantages:
It possessed a strong built-in customer loyalty moat
Its product was so good that customers would tolerate price hikes
It required very little operating capital.
Here’s a look at how See’s grew in the 12 years after Warren Buffet bought the company for $25 million.
The loyal consumers of See’s preferred See’s no matter what happened to the price, and in fact that community continued to grow, generating growth for See’s on a per unit price basis, as well as on a volume sold basis.
Today more than ever, the best way to invest in a consumer product is to create a community first, servicing a niche, before branching out to a wider consumer base. A great way to think about it is how Facebook was originally a university social platform first, before becoming accessible to a wider audience years later. That means that starting out as a niche meant that Facebook went viral at Harvard because it immediately logged thousands of brand impressions from the Harvard students, then grew in a similar manner as Facebook spread to other institutions.
Mr Beast, with 500 million social media followers across Youtube, X, Instagram, Facebook, and Tik, Tok is running a similar playbook. His views for his posts average in the hundreds of millions, and the #mrbeast hashtag on Tik Tok alone has billions of views. Anything he does has hundreds of millions of impressions almost instantly.
In one interview, he described: “Our views are crazy. Our videos get 200 million views. For me to get paid a fair price on that video…it’s like literally half of [a company’s] entire yearly spend on YouTube…I’m not just going to give a discount [because they can’t afford it].”
It's been reported that Feastables is on track to sell 100 million chocolate bars this year alone. In 2019, the average price of a private label chocolate was $2.75. If a Feastables chocolate is priced near that average, that's ∼$275 million in revenues for Feastables this year alone.
Mr Beast is already an international presence, but parlay that with a Feastables brand alignment with the NBA, and now you have the following:
Increased viewership: throughout the season, supporters will see the Feastables logo in every Charlotte Hornets game, stadium board, highlight reel, and the individual stars will showout for Feastables.
Prestige: being a jersey sponsor with a prime spot on the jersey carries a certain level of prestige - instantly boosting a company’s reputation.
Concession sales: Feastables will likely have preference at the Hornets’s home stadium concession stands.
International exposure: the NBA has a global following = increased international exposure for Feastables.
As a comparison, Hershey’s (The Hershey Company) - which holds the largest market share for chocolate companies in the United States, made $10 billion in sales in 2022, across 100 brand names globally, and hundreds of confectionery options across all of those brands.
Feastbales is just one brand with 6 chocolate options, an upcoming gummies option, and one flavour of cookies which is already sold out everywhere.
Will Feastables become as big as The Hershey Company?
Well, Hershey’s was founded in 1894, and it's taken the company over a century to reach $10 billion dollars in sales and a 34% market share in the US. It's quite possible, leveraging exponential growth brought about by digital, social, and cultural presence that Feastables approaches that size.
Going back to Buffet’s framework for what makes a great investment for a consumer product:
Feastables have a strong built in moat. Regular viewers of Mr Beast’s videos love what he's about: spreading joy and excitement in different ways.
I predict he won’t raise prices too much, aiming to box out the competition by keeping his healthier snacks at a low price. However sales volumes are set to skyrocket
Feastables focuses on providing snacks that are good for you, in that they have less sugar, less harmful ingredients, and less ingredients generally, compared to most other similar snacks. It's unclear, but I would suspect it costs less to produce a Feastables chocolate because there would be less work involved in the mixing process, all else equal.
SKKY Partners
In a similar manner, although through a different approach, Kim Kardashian has a unique opportunity to build a large consumer brand powerhouse. She has an opportunity to leverage her years of know-how from building her own products (KKW Fragrance, SKKN by Kim, and Skims) to build a platform to enable different consumer products to thrive through private equity, similar to the approach that Bernard Arnault took/is taking as he’s built out LVMH.
Taking away all the noise, when done right, a great private equity investor can offer tremendous value to an existing brand, offering not just capital, but operational expertise and unique opportunities for growth.
I wrote about the value that LVMH offers its brands here.
Kim’s new private equity company SKKY Partners will likely take a similar platform approach - which would offer the following benefits for SKYY Partners:
Diversification: reducing the risk of relying on a single brand
Market domination: a strategic approach would allow her to steal large market share through SKKY Partners, enabling her to compete with the likes of Estee Lauder and L’Oréal
Cross selling: for example if you regularly buy Louis Vuitton products, you live a certain lifestyle, and you would most likely turn to another LVMH brand to buy your other products, such as Moet champagne, or Dior fragrances. SKKY could become a similar tastemaker
Synergies and Cost Efficiency: the brands under SKKY could benefit from information sharing, using the same manufacturers, or the same selling, marketing and admin teams to save on costs
Innovation and creativity: again, information sharing for the brands to help each other become better
Global reach: Kim herself is a global figure. Her aligning herself with a product results in instant global impressions for the brand
Strong distribution network: leveraging Kim’s network for distribution
Competitive advantage: Kim Kardashian is now one of the most popular business builders in the world. Skims landing a deal with the NBA is a stamp of approval most brands would dream of. At the same time, aligning yourself as a brand with Kim Kardashian is a power move.
PRIME
Continuing the theme of the institution aligning themselves with the content creator, PRIME, the brainchild of Logan Paul and KSI has reportedly made over $350 million in sales this year alone, apparently already capturing a 5.8% market share in the US Sports Drink industry.
For context BodyArmor, which was bought by Coca-Cola at an $8 billion valuation in Nov. 2021, has a 14.4% share, and Powerade is at 11%.
In this video Logan Paul asks an interesting question: “...we made a better-for-you drink that tastes better, so why…would we not overtake Gatorade?”
The interest in PRIME has attracted brand deals with Erling Haaland, Arsenal, FC Barcelona, Bayern Munich, and the UFC to name a few. These brand alignments with international institutions translate into exponential growth for PRIME, and vice versa, in a similar manner as with Feastables and Skims.
For a while most people have underestimated the value of social media followers, however it's becoming more apparent that the best way to build a consumer brand now, is to capitalise on the creator economy and build through a community, learning from examples set by Kim Kardashian, Mr Beast, and Logan Paul.
Sources:
https://www.fcbarcelona.com/en/club/news/3562365/fc-barcelona-signs-partnership-with-isotonic-drinks-brand-prime
https://www.statista.com/statistics/243871/revenue-of-the-leading-10-beauty-manufacturers-worldwide/
https://explodingtopics.com/blog/beauty-industry-stats#beauty-industry-stats
https://skims.com/
https://skknbykim.com/collections/shop-all
https://help.feastables.com/en_us/categories/product-info-HyzMriAx9
https://www.statista.com/statistics/643582/average-unit-price-candy-and-chocolate-us-by-segment/
https://www.linkedin.com/posts/boardroom1_logan-paulandksis-prime-is-up-a-whopping-activity-7107387081982681089-oMof/?trk=public_profile_like_view
https://www.sportspromedia.com/news/barcelona-prime-ksi-logan-paul-sponsorship-drinks-hydration-partner/
https://www.youtube.com/@MrBeast/channels
https://www.cadbury.com.au/our-history#:~:text=It%20was%20in%201824%20that,pioneer%20of%20good%20business%20practices.
https://www.hersheyland.com/home
https://www.statista.com/statistics/1118232/us-chocolate-market-size/
https://www.statista.com/statistics/238794/market-share-of-the-leading-chocolate-companies-in-the-us/
https://thehustle.co/how-a-small-candy-company-became-warren-buffetts-dream-investment/
https://www.nba.com/news/skims-underwear-partner-nba-wnba-usab-official-release
https://www.nba.com/hornets/news/a-sweet-deal-hornets-sign-groundbreaking-jersey-patch-partnership-with-youtube-icon-mrbeasts-feastables-brand
