The Nuggs Business Model, Strategy, & Logistics [2/7]

Travis Page Season 2

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[00:00:08] We are back with marketing teardown. In this episode, we’re going to take a look at their business model and see if it works, if it’s a viable business model, especially a direct consumer, to see e-commerce context. But, overall, if it’s something that’s a sustainable business long term. [00:00:23][15.6]

[00:00:25] Well, we got a lot going on here, but let’s let’s unpack this. So first things first: strategy. You want to take a crack at these fundamentals? Look at our assumptions here, then we can go from there. [00:00:36][10.1]

[00:00:37] What we always try to take a look at is: what’s their customer lifetime value? Can they get those customers to continuously extend that lifetime value from even just time? How long will that person continuously repurchase? And then comparing that to their acquisition costs,. Their acquisition costs would be a bit high. Just simply because look at the annual looking at the price. Even if you acquire a customer like right. Right beforehand, you’re going to get hit with that. Shipping costs to that shipping rate is really high. You have frozen shipping. That’s just going to come with a lot of items. And generally you’re going to have a ton of returns. It’s going to be heavy because you have water weight from whatever you’re cooling it with. So the CACs to LTV is going to be a little bit tricky. But they’re saving grace is their estimated margin. [00:01:19][42.6]

[00:01:20] From our opinion, that is roughly 20 to 30 percent. [00:01:22][2.4]

[00:01:23] So unit economics of the business could work out. What they need to do is they need to have fulfillment centers that are closer or more fulfillment centers around where they’re trying to ship to just some clever shipping options and just getting that acquisition cost down. [00:01:37][13.9]

[00:01:43] There’s one thing that superimportant with their shipping as well, which is the insulated containers that are absolutely required to ship something frozen. I believe the way they’re doing frozen is with dry ice in the package. And I’m not exactly sure the price of dry ice. I mean, it’s certainly going to be more expensive than buying some packing peanuts, for example. But it’s also key to note that that requires an insulated container because that ice has to stay as cold as possible during transit. And we’re actually looking right now. This is confidential. We’re working with a company. We cant say the name right now that we might do some of refrigerated shipping. And so we’ve been actually looking into logistics model for that. And it is kind of a pain in the ass, really. The only way this works, if you have a super high average order value AOV or if you have a super high lifetime value. And for sure, lifetime is where ever you recoup most of that cost, because if your margin on every order is going to be a lot lower, baking that in. So we are estimating this has about 20 to 30 percent margin. But that could change a lot depending on the cost of that container. So that’s the one thing that we don’t exactly know how they’re shipping as far as that container goes that could make or break this model. [00:02:49][65.9]

[00:02:51] Yeah, I’d be curious to hear how they logistically sort out dry ice. Are they having a third party fulfillment center where they’re going through and they’re saying, like, OK, we’re going to bulk purchase dry ice because we have so many frozen goods across so many different customers that we’re able to make that purchase. And it’s really simple. Or is it like a one-off? Yeah, well, this is incredibly complicated because most people that deal with 3PLs are not dealing with a not only a physical product, but a physical product that’s food and a physical product that needs to be cold. [00:03:23][31.8]

[00:03:24] Yeah. Yeah. Not a lot of 3PLs will accommodate that. I mean, you can’t use Amazon FBA for this, for example. It’s not it’s not going to work. And like, not only that, but it’s not shelf stable. You’ve got to keep it frozen from the factory, from production. So, you know, this is a complicated logistics situation. Very curious how they’re actually managing this. [00:03:44][19.9]

[00:03:46] Yeah, it’s it’s interesting because when you first looked at this, I actually thought that because it was plant based, it didn’t need to freeze or refrigerate the product. And I was thinking, hey, this is actually great. [00:03:56][10.0]

[00:03:57] This is going to save so much money on shipping. [00:03:59][2.3]

[00:03:59] D2C is going to be awesome because you can’t do this with incumbent real chicken nuggets, but not the case, which is very interesting, very interesting twist. [00:04:08][8.9]

[00:04:10] But all of that said, that brings us into the ROI model, which essentially they have a very simple D2C strategy at the moment. To be honest, this sense, the retail strategy as well, really as build a brand, but a strong in your face, powerful brand, close subscriptions, repeat customers on top of that brand awareness. Then just try not to lose money on all of the logistics and then make profit. It’s kind of textbook, I would say, like modern D2C playbook. And I mean, it’s working for them. They’re growing like crazy. They’ve raised a ton of money. They’re getting traction. [00:04:42][31.6]

[00:04:43] I suspect getting into retail, actual retail stores is going to be huge for them just because of those frozen shipping costs. But I think it’s working for them right now, at least where they’re going. I don’t know. What do you think? [00:04:57][13.8]

[00:04:59] So I was just I just looked up a bunch of like 3PL frozen and shipping companies and it looks like they’re all. You don’t get into that until they’re at scale. Right. So you have a Hansel logistics. You have Rider, you have like, which is literally just like a list of like frozen 3PLs. But it looks like it’s really, really hard to break into. And you’re a smaller company. [00:05:19][20.6]

[00:05:20] And if we say they’re doing like roughly one to two million dollars year revenue, it can be difficult to make deals with those larger frozen 3PLs. [00:05:27][7.4]

[00:05:29] Yeah. That’s tough. That’s tough. And and also, a lot of these guys, I imagine, do support volume like they want to ship a full FDL truckload into retail store. They don’t want to ship like a couple of boxes here and there.. I mean, that’s basically what’s and what’s going on in the business. And, you know, overall, for these reasons, we both gave him a Hopkins score of a seven. I think that’s about right. Just because the business is solid on on the pure product. If you don’t look at logistics is a great business model with logistics built in. [00:06:03][34.3]

[00:06:04] It becomes a huge pain in the ass. And to me, that’s that’s a seven. [00:06:07][3.3]

[00:06:08] I’m definitely optimistic for this business model because it works really, really well at scale. But right now, they’re not doing that yet. That’s right. That’s me judging the business about right now. [00:06:17][9.4]

[00:06:18] If they were to try to continue this battle, obviously they’re trying to grow and they like backed by a parent company if it’s going to have a diversity of SKUs. But right now I give them a 7. [00:06:27][8.4]

[00:06:28] Yeah. Yeah. Honestly, it lends a lot of credibility to them being venture backed. You first look at that and it kind of seems a little absurd, like, oh, you raise all this venture capital for chicken nuggets. Like, what do you mean? You know, this is not a tech company. What are you doing here? But it makes a ton of sense if you look at it that way, because, yeah, I know some some much larger food conglomerate will acquire them eventually and just instantly upgrade their logistics, by plugging them into their infrastructure and that could be profitability right there, even even if they’re not profitable now. [00:06:55][27.6]