The Next Dollar Shave Club

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The idea of subscription based services is not a new one. Before viral YouTube videos featuring bears, chainsaws, and millennial-targeted catch phrases, America was flush with subscription based consumer packaged goods.

Way back in 1937, two fruit proprietors, Harry & David, introduced the fruit of the month club; one of the original subscription based consumer goods services (of which is still in existence today). Throughout the 50’s and 60’s America became obsessed with mail-order subscription services, as goods found at limited local outlets (markets, malls, periodic gatherings) were the only access consumers had to these products.

As the internet revolutionized how we purchase goods, the need for recurring subscriptions fell out of favor with the American consumer. We can now buy goods at any time and at any price, so the need to lock oneself into a guaranteed delivery of a good or service seems daunting, intimidating, and down right ancient.

That isn’t to say that subscription based companies are bad; they have a wealth of financial benefits for the company and the consumer.

From a cash flow perspective, recurring revenues are a CFO/Investors dream. Subscription based companies that are established have greater purchasing power with their suppliers, can make capital investments into their business, and streamline their operations earlier than their competitors. Finally, if they are young and looking for investment, they have real revenue to show to investors.

For young companies looking for investors, promises of user acquisition, hitting the backside of the curve on the hockey stick, and even the best go-to-market strategy you’ve ever heard of, all pales in comparison to the strength that subscription based companies have. With a subscription, a user is making a long-term commitment to a product that goes a step beyond “buy it and try it” for one-off products.

Playful and viral marketing strategies aside, who is next to become the best subscription based company out there? We looked into PrivCo’s private company financial data-base to target subscription based companies that had real and consistent revenue growth. Each company on the list sells a variety of different consumer packaged goods and we highlighted those with the best prospects to become the next Dollar Shave Club (DSC). These companies have consistent revenue growth, a dedicated and returning customer base, and some are on target to meet or exceed DSC’s revenues before a potential exit for the company.

(For comparison, DSC achieved revenue of $150MM, selling for just under $1 billion or a 6X TTM revenue multiple)

Nature Delivered (DBA Graze)

fruit

Source: Graze.com
Product: Healthy & Organic Subscription Snack Delivery
2015 Revenue: £57,092,261 ($111,352,000)
3 Yr CAGR: 12.4%
Subscribers: n/a
Year Founded: 2007

Nature Delivered (Dba Graze) is a subscription based snack service that offers customers the option of receiving snacks in a box on a weekly, bi-weekly, or monthly basis. The company was founded by 7 corporate professionals in the UK who decided to leave their jobs to pursue Graze full time and their efforts have landed them a “healthy” operation in the UK with dedicated offices in the US. The company’s products include over 90 snacks that are composed of a variety of different healthy ingredients (over 1,000 as of 2016), sourcing the ingredients from over 40 countries worldwide.

While Graze’s product is unique to the market and targets the health-conscious US and UK consumer, it also pulls directly from DSC’s marketing playbook. Each box is packaged with an informative and playful info sheet that includes coupons, fitness ideas, nutritional information, and a letter from their in-house nutritionist Jess, who further engages their customers to keep them coming back for more.

From a growth perspective, the company has steadily increased revenues year over year, moving from $84MM in 2011 to $111MM in 2015. As the company’s focus on the US market continues to be its greatest source of growth, it plans to continue to grow with individual users, while also targeting corporate institutions for bulk purchase orders.

graze

Dollar Beard Club

beard

Source: DollarBeardClub.com
Product: Beard Maintenance Products Subscription Delivery
2015 Revenue: $10,600,000
3 Yr CAGR: n/a
Subscribers: 70,000
Year Founded: 2015

The easiest comparable, and in all actuality, the greatest threat to DSC, as they promote you to do the opposite of shaving, would be the aptly titled Dollar Beard Club. Dollar Beard Club exploited the same strategy as DSC when it garnered a wealth of attention via its promotional videos on YouTube. The company first made a name for itself in 2015 with a number of videos that have now racked up nearly 20 million hits on YouTube. While the market for their products is significantly smaller than the shaving population, they have little to no competition from corporate behemoths that DSC faced from Gillette in the earliest days of its history.

Dollar Beard Club is just getting off the ground and 2016 will be their first full year of revenues. That being said, the company is already on pace to surpass $10MM before year end and is reportedly pulling in roughly $1.5MM a month. The recurring revenue is certainly a point of promise for investors. The company has over 70,000 active subscribers, a number that outpaced DSC in their first few months. The company also made waves with a nationally broadcasted TV commercial that aired on CNBC’s Shark Tank right after founder Chris Stoikos finished his pitch for another one of his companies, “Coolbox,” on the show.

NatureBox

box

Source: NatureBox.com
Product: Healthy & Organic Subscription Snack Delivery
2015 Revenue: $57,525,000
3 Yr CAGR: 79.2%
Subscribers: n/a
Year Founded: 2008

NatureBox, essentially the California version of Graze, is also a subscription based snack company. Their caveat is their ability to engage with their customers through technology in a way that allows the customers to truly curate each and every snack option. Based in San Carlos, California, NatureBox currently offers over 120 snack options and allows the customer to prioritize 20 items in their cart. NatureBox sends the customer the top 5 items each month. After the customer receives them, there is an intricate rating system that follows the order. The company currently receives over 20,000 new ratings every day. The rating data is then analyzed, and new snack recommendations are given to a customer based on what similar customers gave for similarly rated snacks. (Some have compared this to Netflix’s, “because you viewed this, you may also be interested in this” ranking system).

The company has grown revenues at a solid pace, nearly increasing revenues by a factor of 6 from ($10MM in 2012) to $57MM in 2015. NatureBox’s price point is higher than Graze, pricing at $20 or $33 per box depending on size. The company recently partnered with Target in the summer of 2016 and hopes that this partnership will be a great introductory point for new users to first try and eventually become loyal customers of NatureBox.

box2

Trunk Club

trunk

Source: TrunkClub.com
Product: Delivered High-End Clothing and Apparel
2014 Revenue: 101,000,000
3 Yr CAGR: 163.8%
Subscribers: 75,000 (2014)
Year Founded: 2012

Trunk Club was introduced to customers back in 2012. In two short years, its revenue skyrocketed, and this feat garnered the attention of some serious buyers. One of those buyers, Nordstrom, eventually pulled the trigger on acquiring the company in late 2014. Since then there have been a bevy of competitors including Stich Fix, Bombfell, Five Four Club, and Frank and Oak. None of those have come close to the revenues achieved by Trunk Club.

Trunk Club can thank the tactics of another e-tailer, Zappos, for its success in the early days. The company offers free shipping in both directions, which is critical to its entire business model. Trunk Club works by shipping customers a box of apparel and accessories based on a digital profile the customer creates. Customers then try what they like, and return what they don’t, eliminating the pressure a consumer has to face when deciding in-store what to purchase and what to leave. The company also does not force users to opt into a subscription but as their figures show, it has done well to keep recurring revenue at the forefront of their business model.

As for their DSC comparison, the company was sold for roughly 3.5X TTM revenue, almost half as much as DSC. The purchase was made in the earlier days, just before investors and the market became comfortable with the idea of subscription based consumer goods companies as a viable business model.

These companies, along with a number of other competitors, are proving that the subscription based models are far from over and are more than just a financially sound investment. When Unilever acquired DSC for nearly $1bln, it opened the door for other large consumer companies to start looking at the new group of subscription based companies in a completely different light.

trunk2

Special to 24/7 Wall St. From PrivCo