30/07/2024, 20:49 DrinkAid Mail - What’s going on at AG1? Ryan Foo <ryan@drinkaid.co> What’s going on at AG1? 1 message Dan Frommer <dan@newconsumer.com> Reply-To: Dan Frommer <dan@newconsumer.com> To: Foo kai <ryan@drinkaid.co> 30 July 2024 at 20:00 EXECUTIVE BRIEFING What’s going on at AG1? As its founder steps back — and Kat Cole takes over as CEO — has Athletic Greens hit its DTC growth ceiling? This post will also available be as a podcast. To get The New Consumer Audio Edition in your podcast player, visit this page. Thanks for being a member! Hello hello! It’s Dan Frommer, back with The New Consumer. One of the most successful consumer brand startups is AG1, the supplement business previously called Athletic Greens. Founded in 2010, it has grown dramatically over the past few years: The company expects to pass $600 million in revenue this year, profitably, it tells me — up ~4x from $160 million in sales in 2021. AG1 has been able to grow this much despite having essentially only one product — a daily supplement powder — that it sells almost entirely in one place, its website. https://mail.google.com/mail/u/3/?ik=2c1dfa6296&view=pt&search=all&permthid=thread-f:1806005425895389725&simpl=msg-f:1806005425895389725 1/8 30/07/2024, 20:49 DrinkAid Mail - What’s going on at AG1? I wrote about this a couple of years ago — How to make your brand feel alive when you only have one product — and little has changed. It’s still selling one kind of green powder for $79 a month, still boosted by performanceoptimization podcasters like Tim Ferriss and Dr. Andrew Huberman. Neither delicious nor repulsive, AG1 is weirdly habit-forming: After buying my first month’s supply while working on that article in early 2022, I haven’t skipped a day since. (More on that in a minute.) But I noticed something a couple of weeks ago while I was researching supplement powder brands: AG1’s growth in the US seems to have rapidly decelerated over the past year. Here’s what AG1’s quarterly year-overyear sales growth curve looks like according to Earnest Analytics, which tracks US consumer credit and debit card spending. CHART OF THE DAY AG1’s growth accelerated rapidly throughout 2020 and 2021 — peak Covid, peak Peloton — and then started to fall back to Earth. A year ago, sales were still growing ~75% year over year. But more recently, it appears growth has collapsed: Last quarter, AG1 sales in the US were effectively flat from the same period a year ago, according to Earnest. Usual disclaimer: This is one data feed from one third-party source — not from the company. So it’s especially interesting that last week the company announced that Kat Cole was taking over as AG1 CEO, replacing Chris Ashenden, who founded the company and bootstrapped it for its first decade. Cole joined AG1 in late 2021 as president and COO, and “has effectively operated as co-CEO in everything but name,” Ashenden said in the press release. Cole is a respected operator — before joining AG1, she was the longtime president and COO at Focus Brands, which owns a bunch of restaurant brands including Jamba, Auntie Anne’s, and Cinnabon — and I’m curious to see what she changes as CEO. https://mail.google.com/mail/u/3/?ik=2c1dfa6296&view=pt&search=all&permthid=thread-f:1806005425895389725&simpl=msg-f:1806005425895389725 2/8 30/07/2024, 20:49 DrinkAid Mail - What’s going on at AG1? (Ashenden will stay on the company’s board, according to the release, but no mention of day-to-day involvement. Take Glassdoor reviews for what they’re worth, especially at a fast-growing startup, but there are multiple reviews noting burnout, culture and bureaucracy issues, unexpected team cuts, etc.) I sent Cole a copy of the Earnest chart for any explanation, rebuttal, or feedback — has the company pulled back hard on advertising? — and didn’t get much in the way of confirmation or denial. “Our category is growing and AG1 is well positioned to capture that opportunity with more channels, large scale strategic partnerships, and innovation,” a rep emails. “We have also evolved our marketing strategy each year, becoming more diversified, and continue to be disciplined in our approach.” I would not be surprised if AG1 is simply running out of easy, one-product, direct e-commerce-only, cost-conscious, mature-market, post-Apple-targetingprivacy-changes growth. (If there’s more here, I’d love to hear it — anonymity guaranteed.) One opportunity is a large-scale expansion into physical retail. While direct-to-consumer e-commerce offers many benefits — and AG1 has done very well there — you’re missing a large surface for discovery and sales that happen in grocery, convenience, and big-box stores. AG1 has dabbled with distribution partnerships — it’s in the minibar at the 1Hotel in Brooklyn — and field marketing, but it’s past the time to start a serious ground game. This requires investment and a certain margin profile, but there’s no reason AG1 shouldn’t be able to do this. The company tells me it’s “in discussions and planning for retail and large-scale partnerships we’re excited to introduce over the next few months.” AG1 should also sell more products. I very much appreciate the minimalist approach, and it’s helped define the brand. But once you’re into the hundreds of thousands of customers, there’s an opportunity to sell them more stuff, whether it’s other add-on supplements, different types of beverage mixes (hydration? energy?), or snacks. When I spoke with Cole in early 2022, she promised more SKUs. “At least one will come out in the next 24 months. But it will be in a thoughtful, disciplined, AG kind of way.” That now feels overdue. https://mail.google.com/mail/u/3/?ik=2c1dfa6296&view=pt&search=all&permthid=thread-f:1806005425895389725&simpl=msg-f:1806005425895389725 3/8 30/07/2024, 20:49 DrinkAid Mail - What’s going on at AG1? Another thing I’ve noticed lately is an uptick in skepticism about AG1 — that it might not really be doing much for its users. Here, for instance, is an article from McGill University’s Office for Science and Society — “You Probably Don’t Need that Green AG1 Smoothie” — arguing that most people probably wouldn’t benefit much from it, or could get a multivitamin for a lot less money, and that a lot of its ingredients are “unproven.” This is hardly a new challenge for the supplement industry, which is built as much on emotion as it is on science. AG1 has done a nice job building out a website that looks very sophisticated and science-backed. But as it continues to grow, the skepticism will intensify — providing both a product-development and marketing challenge. A bigger question: What’s the end game for AG1? This, like most food and CPG businesses, was built to be sold. (It’s clear that Ashenden wasn’t / isn’t planning on running this thing forever.) And at $600 million in sales — implying a desired takeout price approaching the billions — there are few strategic buyers that could even afford it. This isn’t necessarily an immediate concern, but is part of the longer game for Cole to figure out. Perhaps AG1 could go public, but with one product and what appears to be a major growth slowdown in its largest market, that’s not ideal. Oatly made it to the public markets at a smaller scale, but it had a stronger “platform” pitch — something AG1 will want to build a narrative around. And, anyway, Oatly stock is down ~97% from its mid-2021 peak — not a great comp. What got me hooked on AG1 was the simple ritual: A scoop in my first cup of water every morning while I’m making coffee. I am hardly the kind of person to use — let alone promote — life-hacky supplements. For the previous couple of decades, I was the person who aspirationally purchased multivitamin pills on Amazon every once in a while and then never remembered to take them. But there was something different about AG1 that made it a fast habit. Maybe the modestly pleasant, very specific taste? Maybe the clever advice to store its branded canister in the fridge, so it was visible, cold, and seemed like a “fresh” drink of greens? Maybe the luxurious cost? Maybe the highly compensated Tim Ferriss endorsement in a moment of vulnerable curiosity? Maybe the Covid-era urgency to do anything remotely immunity-boosting? I stuck with it, at first, because I noticed (or thought I noticed) a modest but helpful increase in my baseline health and energy — 20% or so, I told friends. In surveys cited by the company, almost all AG1 users say they feel something better. https://mail.google.com/mail/u/3/?ik=2c1dfa6296&view=pt&search=all&permthid=thread-f:1806005425895389725&simpl=msg-f:1806005425895389725 4/8 30/07/2024, 20:49 DrinkAid Mail - What’s going on at AG1? But there’s no easy way to prove that. Was it the AG1 or was it in my head? You can’t really A/B test. Anyway, I’d never been told I was deficient in any vitamins or minerals. I still got very sick once last year — it’s not magic. Yet the habit has stuck for a long time. And now calculating my lifetime spend on the stuff — almost $2,800 over the years; two MacBooks! — I am unexpectedly questioning my commitment to that feeling, if it’s even real. The beauty of subscription DTC services is that it’s easy to just keep going. But one little bit of friction or counterintelligence — like the McGill article, and other things that have come up in conversation — also makes it easy to flip the switch off. Without real, personalized data, the tricky part with any of these supplements is that there’s just no way to prove anything. The “wellness” business is one of strong opinions, weakly held. So as for my ongoing incremental lifetime customer value for the AG1 corporation, we’ll see! Meanwhile, thanks to a conference gift bag, I’ve slipped into another goofy immunity boosting superstition — Amazon’s no. 1 best-selling “cough and cold medicine,” bee propolis throat spray. (You better believe that’s an affiliate link.) Please, don’t tell me yet. On my radar: An exciting luxe hospitality startup in Japan: Not A Hotel is building stunning, one-of-one vacation homes in Japan using a fractional ownership model, with the ability to stay in your “home” property or others in the network. It just announced two new, ambitious projects with renderings: One near Tokyo with Nigo, founder of the streetwear brands A Bathing Ape and Human Made, and a Hokkaido ski lodge by the cool Scandi architecture firm Snøhetta. It’s also opening new sales for an island property designed by Bjarke Ingels Group: Six of 36 ownership slots are available, starting at $2.3 million each. https://mail.google.com/mail/u/3/?ik=2c1dfa6296&view=pt&search=all&permthid=thread-f:1806005425895389725&simpl=msg-f:1806005425895389725 5/8 30/07/2024, 20:49 DrinkAid Mail - What’s going on at AG1? Three lessons from Chipotle’s Bowlgate: 1) Packaging real-world experiences — in this case, the inconsistency of Chipotle burrito bowl portions — as structured data, as the Wells Fargo sell-side research team did, can go extremely viral, and is often a great business storytelling stunt. 2) Portion consistency, portion size versus what’s promised, and portion size versus what’s desired, are three separate things, and when you’re an upper-tier “value” brand, each matters for a different reason. 3) You can get a second, more positive news cycle by getting your CEO to commit to what the population wants to hear: “Generous” portions are the standard. Let’s check back someday… How Nike burned itself: A LinkedIn post from Massimo Giunco, a former 20+ year company marketing vet based in Europe, is going around, summarizing many of Nike’s moves under CEO John Donahoe that eroded its lead in product, brand, and distribution, and now market cap. These are only possible to write in hindsight, and there’s more to it — Nike’s competition is innovative, small brands are particularly cool these days, etc. — but this seems like a useful summary. One thing that always stuck out to me was when Nike would talk up its “membership” on earnings calls as if it were something drastically more than just a database of customers, with the idea that it would be creating unique, personalized experiences for “members” throughout the Nike ecosystem. But every marketing email I get from Nike still feels like it knows absolutely nothing about me. I liked former PillPack CEO TJ Parker’s take: “That Nike post is the perfect articulation of the fact that as soon as all the corporations learned how to be ‘data driven’, all the leverage had already shifted back to those able to make decisions based on taste, insight, and intuition.” (You really want to be able to do both.) The EV culture wars are so dumb. The most polarizing factor in whether an American would seriously consider purchasing an electric vehicle is, apparently, if they’re a Republican: Only 13% would very or somewhat seriously consider one, according to new Pew research; 77% say they wouldn’t. Rural consumers are also highly unlikely buyers; current EV owners are the strongest group. This can change, but the bigger issue is that even as someone who is very EVcurious and has the right needs, it’s not even clear to me that it’s the obvious right move. I’m excited about the smaller, better looking Rivians and Volvos, but they’re not happening any time soon. Also: A new CivicScience study on how Tesla favorability has plunged, especially among Democrats, in part because of Elon Musk’s personal conduct. Hodinkee, the watch site, is pulling way back on e-commerce. Founder Ben Clymer writes “it’s time to get back to basics” — the company won’t add more SKUs to its online store, beyond occasional limited editions. Ecommerce has long represented most of its revenue, and was what led/allowed it to raise tens of millions of dollars, so I assume there’s more to come here. Content to commerce can work, but it’s still not easy. Previously: Hodinkee and the new luxury. https://mail.google.com/mail/u/3/?ik=2c1dfa6296&view=pt&search=all&permthid=thread-f:1806005425895389725&simpl=msg-f:1806005425895389725 6/8 30/07/2024, 20:49 DrinkAid Mail - What’s going on at AG1? “Why can’t candy have nutrition and taste?” The RXBAR founders — Jared Smith and Peter Rahal, along with former supply chain chief Tom Melcher — are going after “Candy 3.0” with a new company and are hiring in Chicago for a fall start. Rahal is hiring in New York for his protein bar startup, David, too. How art merch became menswear: The latest from Asher Salik. The financial consequences of legalized sports gambling: Excerpt from new academic research: “Our main finding is that overall, consumers’ financial health is modestly deteriorating as the average credit score in states that legalize sports gambling decreases by roughly 0.3%. The decline in credit score is associated with changes in indicators of excessive debt. We find a substantial increase in bankruptcy rates, debt collections, debt consolidation loans, and auto loan delinquencies.” Liquid IV, the hydration brand, was a bright spot in Unilever’s Q2 earnings report, growing “strong” double-digits. Unilever bought the brand in late 2020. Good reminder from investor Kiva Dickinson: “It’s incredibly important for our industry to have strategic acquisitions that go well for the acquirer post-acquisition.” Share this issue on the web The New Consumer is a publication about how and why people spend their time and money, by me, Dan Frommer. 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You can update your preferences or unsubscribe from this list. https://mail.google.com/mail/u/3/?ik=2c1dfa6296&view=pt&search=all&permthid=thread-f:1806005425895389725&simpl=msg-f:1806005425895389725 7/8 30/07/2024, 20:49 DrinkAid Mail - What’s going on at AG1? https://mail.google.com/mail/u/3/?ik=2c1dfa6296&view=pt&search=all&permthid=thread-f:1806005425895389725&simpl=msg-f:1806005425895389725 8/8
