Liquid Death’s Business Model [1/6]

Travis Page Season 2

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[00:00:06] Today we’re going to talk about a company called Liquid Death. So let’s go now with this company, Travis. 


[00:00:19] Liquid death is a sparkling and mountain canned water company started by a brand marketer. They have a very serious culture connection. That’s gonna be one of the main things that we tear down today. They’ve got a very authentic vibe to their company. They don’t really try to take a CMO approach or yelling into a boardroom and say, “hey, what are the kids drinking these days? Let’s try to make something like that.” They have a really unique approach. Essentially, all organic and health food brands are more or less the same. They wanted to break out of that. 


[00:00:53] First things first. We pulled our brand graph. This is just Google Trends data over time over the last five years. You can see that liquid death interest flights sort of around mid twenty nineteen, I believe. 


[00:01:06] And I believe that was their launch when they actually started company, which makes sense. Interesting to note, growth has been pretty flat since then, which normally we want to see this going up into the right. Of course, being that, you know, the most brand growth happened recently, but that’s not the case. They’ve been relatively flat since launch. But something really interesting that, you know, may or may not be related to how they’ve been able to evolve the brand. But a background that’s sort of the trajectory of the brand has been on lately. Quick overview of their digital landscape. Most of the followers are on Facebook and Instagram. They actually launched on Facebook before building a product. So we know a little bit about the background of the company and it makes sense that their audience is on Facebook because that was their first acquisition channel. They started it and they actually built a pre launch list there before they even had a product. 


[00:01:52] As far as their revenue, employees, and revenue for the employees, this is all pulled from online. We think this number, these numbers are a little low. 


[00:02:00] They launched in stores during quarantine. So they’re likely growing really, really quick related. 


[00:02:05] How how the fuck do I buy this? Well, yeah. Like we just said, they’d launched in whole in the beginning of quarantine and retail stores. You can buy them online. 


[00:02:13] Liquid Death You can buy them on Amazon as well. And then offline in the retail world in Whole Foods, they’re in bars and liquor stores and convenience stores, grocery stores across the country. And we know that that a key part of their strategy, is expanding into retail, which has been doing pretty well this year. Since everybody has needed to get food, since all the restaurants are closed. So this is a pretty key place where you can actually buy the products. And then aside from that, they’ve been doing some very creative sort of alternative store locations with concerts, event venues, which is partly how they got there, started and got the idea. And tattoo parlor is in sort of other on brand physical locations where you can buy retail goods. 


[00:02:54] So that said, does this business model work? 


[00:02:58] This is the 100 million dollar question. 


[00:03:01] A couple assumptions about the brand and the product before we get into some of the details here. But right now, they’re offering on their websites Twelve Pack, which has a shipping weight of an incredible fourteen point six pounds. One of the things we know in DTC and e-commerce is that shipping costs are huge and a big part of actually making your business model work and make money. They do have a subscription model where you can subscribeand save for every couple weeks or every month you get some water delivered to your house. And we do know based on the market, that the average margin for water is about 30 percent. Also a key part of this, because of their focus on brand, we’re suspecting that their acquisition costs are relatively low. But advertising is a huge part of that model. So they’re going to have some kind of a benchmark acquisition cost based off of all their advertising that also will eat into the profit margin and basically mean if this works or not, as as a viable business. 


[00:04:06] Are role models interesting? Because right now they’re going strictly brand focused. So they have a ton of people that really, really love them that’s focused around their core brand. 


[00:04:14] And then this kind of auxiliary people that hate them, which actually strengthens their core audience of the people that love them. So what they’re doing is they’re building this audience. They’re making it super, incredibly hyper targeted, which for something that is a commodity, is an interesting strategy because you’re not doing the typical race to the bottom. Okay. We have huge margins. Let’s try to get ads as low as possible through crazy merch ideas. And that’s going to get them a ton of awesome PR. It’s going to build the internal culture of the brand. And then once they start to hit economies of scale, their customer acquisition costs will drop significantly. 


[00:04:46] Sure, it’s actually pretty high right now. And I bet they’re doing a lot of loss. Leadership just eaten on their shipping because, as we said, shipping is expensive and almost a third of the entire product cost. 


[00:04:58] Yeah, yeah. And we do know, by the way, they did raise something like 11 to 12 million dollars. So it’s possible they’re completely operating at a loss right now and just going for acquisition by Coca-Cola, who can instantly, you know, drop the cost of production to basically nothing and instantly drop the cost of shipping to nothing with a distribution network. It’s entirely possible that’s the case. And, you know, it’s interesting because it means that if they were to get acquired by a much bigger company, even if they’re unprofitable, there’s a path for that sort of an exit on the business with the current owners. But maybe maybe in the future, you know, it is possible that given the way they built the brand, they can still make money, have a viable business model. 


[00:05:36] But we’ll get into more of that later on in our teardown. I’ve said this already four or five times. Solid brand voice. When you hear that, sometimes you think like, oh, it’s cool. 


[00:05:45] It’s not like they’d sell it in hot topic. That’s not it at all. 


[00:05:48] They have a very close connection to people they’re trying to sell to us. Welcome to their cult. Fuck. It’s all over their Web site. A lot of dangerous things that brands would be afraid to do. They do because they know that it will attract our core audience. Their Facebook community is hilarious. 


[00:06:03] They just have the best ads, every app. 


[00:06:06] Their mantra is that every ad that you do or every Facebook post that you would see, you would also want to just see it normally in a feed. Their whole credo is like we want to make something that’s entertaining that people buy anyways. So if you’re going to be alive in the world, you’re going to drink water. How do we make this your choice? 


[00:06:24] Yeah, I mean, just look at how hard they’re meeting on their Facebook page right now for a Canadian delivery guy who does this now that you’ve opened up delivery into Canada. I mean, this is awesome. This is fantastic. 


[00:06:34] So overall, they’re doing great. They have a great brand voice. They have a bright future as far as hitting that economies of scale. 


[00:06:45] There’s an opportunity for an acquisition, for sure, I would say, in the next two to three years, based on how they approach their growth and staying true to that brand voice, not straying from it as they grow as a company, because you can tell it’s a handful of people that are driving this brand voice and they have it really well defined. Obviously, what needs work: shipping cost is insane. If you read any reviews on the website, the negatives are either we get a dented can or “this is the dumbest thing I’ve ever seen of all time”. So we can exclude them. And then, hey, this is super expensive for me to ship. It doesn’t make sense for me at all. Which makes sense. Why they would want to expand in your retail purchasing flow kind of sucks, too. We’ll talk about that later. 


[00:07:27] Yeah. And overall, we give a score about a seven. You know, there’s a lot of stuff that needs work and there’s a lot doing really well. Their brand is incredible. 


[00:07:38] Hands down. Excellent brand. But the real question is, you know, is this a viable business? And so we’ll get into that in some of the upcoming teardown episodes. That’s all for our first take, liquid death.