November 10, 2022

2 minute read

 

It's tough out there for Amazon Aggregators…

  • Layoffs
  • Lawsuits
  • Valuation cuts

 

Pessimism has taken over….you might hear things like the model is "unworkable", "stupid", "dead".

 

But maybe not.

 

Roll up models (i.e. "aggregators") exist all over.

  • Car washes
  • Physician offices
  • Even cemeteries!

 

It's a common way PE firms go about their business.

 

Another example - big CPG companies that are a combination of many brands, often in related categories. One might call them the OG aggregator

 

That's not news- Thrasio set out to be the next P&G. It didn't (hasn't?) made it there, but the model was meant to be analogous.

 

Take Church & Dwight. It bought Hero Cosmetics, a brand that came to dominate its category on Amazon. It "aggregated" (aka rolled-up, aka integrated) Hero into its portfolio of brands.

 

This doesn't seem unworkable, stupid or dead.

 

It seems like a big CPG brand acquiring a fast growing disruptor in an important channel.

 

Now, importantly, what's the difference between Church & Dwight and aggregators?

 

Why didn't financial markets kill Church & Dwight for this?

 

Expertise and price:

  • Expertise: Church & Dwight knew it could leverage its existing wholesale relationships and distribution channels to rapidly grow Hero. It also has the brand management and eCommerce savvy to run Hero.
  • Price: Whether it paid a fair price for Hero is TBD (too early). But, it wasn't competing in a fever-pitch market fueled by cheap capital.

 

Pandemic-aggregators did not have new distribution channels lined up, many did not have 1%-type Amazon expertise, and the growth premium they bought at has vanished. It's the exact opposite of the Church & Dwight/Hero deal…

 

That's a problem!

 

Where are we today?

 

Capital has left the market creating much more rational valuations - no more aggregators giving out Tesla's for leads. That helps resolve the "price" component important to the model.

 

Expertise is still a question. Hard lessons have been learned that it's tough to run an Amazon business…you need more than sponsored search software. But everyone knows and appreciates this. No new aggregator will launch without Amazon expertise in spades.

 

We're very much in a valley right now with aggregators.

 

But, a fundable opportunity exists for new aggregators that won't need to overpay, understand the complexity of Amazon, and have the ability to expand distribution quickly.

 

And by the way, we should be rooting for this as it's a great way for small and medium businesses to exit…a positive for the industry and the economy as a whole.