A couple of buzzy consumer brands were in the news this week, and I’m going to one of their hometowns this week on a business trip, so I decided to dive in to see what might be generalizable about investing in fast-growing (bird-related) consumer brands.

First, the good news: La Colombe (fun fact – French for “the dove”), the ready-to-drink coffee brand with a few dozen retail cafes, announced a partnership with Keurig Dr. Pepper [link]. The fine folks who brought you Justin Guarini’s continued cultural relevance (yeah, he’s the guy who plays Lil’ Sweet in those Dr. Pepper commercials) and your office coffee machine are investing $300 million for a 33% stake in La Colombe, at a valuation multiple 3x estimated 2024 net sales. This implies a $900 million valuation and $300 million in net sales next year. The companies signed a distribution agreement as part of the tie-up, presumably shelving La Colombe next to the Snapple and 7Up in grocery and c-store coolers around the US, as well as a manufacturing and licensing agreement that will create La Colombe branded K-Cups. Majority owner Hamdi Ulukaya (of Chobani fame) is retaining his control stake in the business.

Next, the bad news: Allbirds is on the ropes. The stock is down nearly 95% since initial post-IPO trading in November 2021, which prompted a WSJ article diving deep into the brand’s myriad issues [link]. The company continues to lose money, with Q1 2023 results showing negative Adjusted EBITDA of $22 million and only $22 million of gross profit. Effectively, Allbirds is spending $2 on marketing and overhead to make $1 in gross profit on a pair of shoes, and it excludes the capital being spent on opening new stores. That doesn’t suggest a brand that is efficiently scaling. And the brand isn’t even scaling anymore – revenue declined 13% year over year in Q1.

According to the article, the founders / co-CEOs didn’t fully agree on who their core customer was, they expanded into adjacent categories and styles more quickly than that core customer accepted, including ill-fated forays into more technical running shoes and apparel. Lastly – while the brand’s environmental commitments are something they’ve leaned hard on, most consumers aren’t willing accept cost or quality tradeoffs for sustainability benefits. With Allbirds’ numerous product durability issues, they were effectively asking consumers to make this decision, and it sounds like they haven’t liked the answer. No wonder they brought in my former employer (BCG) for a transformation project.

What might we be able to generalize from this?

1. Storytelling matters, but product and TAM matter more. When Allbirds IPO’ed, it was being compared to brands like Sweetgreen, which also entered the public markets in late 2021. Both initially traded at valuations orders of magnitude ahead of its “legacy” peers.  While nearly all growth consumer companies have been negatively impacted by inflation and a tough macro environment, Allbirds growth has gone negative, whereas Sweetgreen has still shown positive same-store sales and the ability to open new locations, even at a reduced rate. Sweetgreen is valued at roughly half its IPO price of $28/share, whereas Allbirds is about 10% of its $15/share IPO price.
2. Assortment expansion is risky – it can confuse loyal customers and lead to unsold inventory. Both brands are roughly the same size (Allbirds reported $298 million in 2022 revenue, KDP expects La Colombe to reach $300 million in 2024). But Allbirds has moved well beyond its core Tree Runner shoe in order to get there, with forays into performance shoes and apparel. Consumers weren’t looking for Allbirds to play that role. La Colombe has kept the brand focused on premium lattes and draft cold brew – as far as I can tell, they haven’t needed to expand into a bunch of ancillary flavors with lower SKU velocity in order to get there.  
3. Distribution synergies are great, and more common in CPG than apparel. It’s unclear whether any benefit from KDP distribution synergies are baked into the $300 million revenue number for next year, but I can see a ton of upside from $3.50 draft latte cans in 7-11s and Kroger’s around the country, providing a higher-quality alternative to bottled Dunkin’ and Starbucks drinks in those channels. Building DSD networks for refrigerated products is incredibly expensive – and players with these networks hold the keys to many a display case. La Colombe was never going to build a network rivaling KDP’s on its own, so this partnership eliminates an impediment to the brand’s growth in higher price-per-can single serve. Allbirds started 100% DTC but has been partnering with retailers like Nordstrom and REI to expand – there’s no reason it needed to sell to a strategic buyer to access these retailers.

As a growth investor, you’re eventually banking on a liquidity event / exit. IPOs are relatively rare and subject investors to risk over time (given shares are often not fully tradable for a period of time post IPO), and financial buyers are generally known for paying lower multiples, a strategic buyer is often hailed as the best outcome. Strategic buyers like KDP value La Colombe for its growth and premium brand positioning / pricing, and they can underwrite revenue synergies. Large footwear and apparel companies like VF Corporation wouldn’t provide brands like Allbirds with additional market access – therefore reducing their ability to underwrite revenue growth above what they brand has already demonstrated it can do.

If you want to find me in Philly this week, look for the guy not wearing Allbirds, double-fisting cold brew.