We have long held that the biggest winners in NextGen Commerce are those direct-to-consumer startups that go up against monopolistic brands in huge markets, and provide an exponentially better experience for the consumer. Traces of this are evident across the industry, with Dollar Shave Club and Harry’s making headway against Gillette, The Honest Company gaining market share from Procter & Gamble (Pampers) and Kimberly Clark (Huggies), and Warby Parker gaining ground on Luxotica. While the larger, more established players have more shelf space in CVS and a generations-old brand presence, these younger players have the agility, pricing flexibility and innovative spirit to capture consumer attention in nontraditional ways. In this David vs. Goliath scenario, we’re increasingly seeing the Davids win out.
The David, in this case, is Ollie, which delivers freshly made human-grade pet food direct to your doorstep, complete with nutritional information and a tailored feeding plan for your dog. When we conceptualized and incubated the idea for Ollie with founders Alex Douzet, Gabby Slome and Randy Jimenez, it not only checked off all the boxes in what we look for in our investments, but it comes on the heels of some powerful market forces that set it up for great success.
- Pet food is a huge market opportunity: The $30 billion US pet food market ($70 billion worldwide) has nearly doubled since 2000, up 22.5% from 2014 to 2015. That growth is driven in large part by pet owners demanding higher-quality ingredients and upgrading to premium and organic food options, which now account for close to half of the entire market nationwide.
- Large players continue to dominate the market: Among the 11 top-growing large brands of dry dog food in the US mass market channel in 2015, seven belonged to Mars or Nestle - domination that diminishes transparency and maintains focus on profit maximization, often at the expense of product quality. This monopolization is likely to continue, as large conglomerates continue to gobble up smaller players. The market is primed for disruptive entrants who aim to beat out the big players by writing their own rules.
- The industry lacks innovation: While specialty brands under the umbrella of the largest players continue to introduce new products, including freeze-dried options, the existing infrastructure for pet food does not allow for fresh food production with human-grade ingredients. For instance, manufacturing plants are not USDA-standard, distributors don’t have refrigerated warehouses or trucks, and retailers don’t have the refrigeration in pet aisles that fresh food necessitates. The result is an overly processed, nutrient-devoid product with a shelf life of over two years - something you would never even consider ingesting yourself. Ollie is not encumbered by the existing model; it has built its entire operations to accommodate fresh, human-grade food production, and its recipes are vet-formulated and gently cooked to preserve the right amount of nutrients. And yes, we’ve actually eaten it!
- Pet food brands don’t sell direct to consumers: Large pet food brands are primarily concerned with maintaining their third-party retail relationships, leaving the D2C channel relatively untapped. Ollie takes advantage of this opportunity, developing relationships with customers so that it can learn their dog’s behavior, weight and health status, and provide a tailored nutrition program for each dog. The result is a healthier, more nutritious and custom product wrapped into a highly convenient service that lands on your doorstep every two weeks.
From a timing perspective, there are a number of factors working in Ollie’s favor. We started studying the pet food space after seeing meal kit delivery companies prove out the economics of shipping fresh food. Blue Apron and Hello Fresh, for instance, have demonstrated a cost-effective model for providing this in-demand convenience, but the pet food market remained untapped.
But perhaps more important is the increasing trend of humanization of pets. Consumer surveys by market researcher Mintel found 72 percent of US pet owners said they considered their pets “part of the family,” and 79 percent said the quality of their pets’ food is as important as their own. It’s no surprise, then, that as people have become more aware of their own nutrition over the last 10 years, they’re paying much more attention to what they should be feeding their pets.
Layer that love on top of latest statistics showing increasing rates of canine obesity (54%!), diabetes and cancer, up to 40% of which can be prevented by implementing dietary changes. As wellness becomes increasingly top of mind for pet owners, it’s brought heightened awareness to the growing number of recalls, lawsuits and exposés about traditional pet food’s...ahem...unsavory ingredients. It’s not surprising, then, that people are willing to shell out for premium dog food, which now accounts for almost half of the market.
Dog lovers, unite!
To build the next great David vs. Goliath story, we needed exceptional founders who were as passionate about pet health as they were about building a successful D2C company. It’s a rare breed, but when we sat down with Alex Douzet, co-founder and former CEO of TheLadders, Gabby Slome, who had run operations and marketing at Primary.com, and former SinglePlatform CTO Randy Jimenez, we knew we’d met the crew who would be able carry this idea to fruition. The team shares a passion for health and wellness - both Alex and Gabby are competitive athletes - and, after rescuing dogs of their own, saw firsthand the deleterious health effects of overly processed dog food. With their collective entrepreneurial experience running successful subscription businesses, their deep-rooted competitive drive and - most importantly - their commitment to improving pet health through proper, sustainable nutrition, we have the utmost confidence that Alex, Gabby and Randy can take down the Goliaths of the pet food industry and make Ollie the raging success that we envisioned for it from Day One.
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It’s not often that we get to invest in a company in which we see the potential for such disruption and the earliest glimmers of unicorn sparkle. From a purely investment standpoint, Ollie is poised to capitalize on an immense market opportunity dominated by monopolistic players stuck in a traditional infrastructure with no room for innovation. But Ollie isn’t merely an investment for us; having incubated the company from the earliest stages of its conception, we are as passionate about the product as we are about its founding team, and we are proud to be a part of Ollie’s long, promising journey.