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BFD Expert Voices - Retail Deals

BFD Expert Voices

Recess, a maker of functional beverages and supplements centered on relaxation, will raise a Series B of at least $20 million later this year, CEO Ben Witte tells Richard exclusively.

Why it matters: The functional beverage category is expected to grow in value to almost $280 billion by 2030 from nearly $130 billion in 2021, according to Precedence Research.

Driving the news: Recess has recently expanded distribution into 5,000 new locations with retailers, including Target, Albertsons, CVS, H-E-B, Sprouts and Winn-Dixie.

That brings the brand's total to 14,000 retail doors with 2,000 more expected by year-end.

Details: "Recess is a unique asset," Witte says, adding that the brand wants to replicate the success Red Bull has had in energy, but in relaxation.

Recess is seeking long-term investors, not those looking to flip, and wants an option for the company to remain independent, Witte says.

Of note: The beverage and supplement startup has not formally retained an investment bank, but it is something the company could consider, Witte says.

He says he speaks to advisers on a frequent basis and receives a lot of outreach.

By the numbers: The company's sales are around the $10 million to $20 million range and will grow 2x this year, Witte says, declining to be more specific.

Its sales on a monthly basis are 2.5x what they were in Q4 of last year.

About 60% of the company's products are still sold online.

It has a slow cash burn rate as it invests in growth.

Zoom in: Recess makes three products, including functional beverages, powders and mocktails.

Magnesium, which helps muscles relax, is a key ingredient.

The company considers Calm, owned by Clorox, as a key competitor.

What's next: The startup is focused on entering new retailers and expanding nationally with existing retailers, Witte says.

1 big thing: Recess in a fundraise mood

Femsa, the Mexican Coca-Cola bottler, is in discussions to sell Envoy Solutions, its U.S. packaging and food services unit, to Warburg Pincus and Kelso & Co. for a value of about $5 billion, Bloomberg reports, citing sources familiar.

Why it's the BFD: The potential size of the deal signals the credit markets may be rebounding and making way for LBOs again, Kimberly writes.

Catch up fast: The company said in February it was launching a strategic review of its non-core assets, which would include the divestiture of its Heineken NV stake and options for the packaging business.

Flashback: The company, based in Monterrey, Mexico, acquired Valora, a Swiss operator of around 2,700 cafes and convenience stores for $1.2 billion, last year.

Femsa could not be reached for comment. Warburg Pincus and Kelso & Co. declined to comment.

2. The BFD: Femsa’s packaging unit could fetch $5B

Buoyed by spending from affluent consumers, luxury retailers are leveraging M&A to scale and expand their capabilities, Boston Consulting Group's global head of luxury, Sarah Willersdorf, tells Kimberly.

Driving the news: Coach owner Tapestry agreed to acquire Versace parent Capri for a whopping $8.5 billion last week.

What's happening: "Scale matters more than ever in luxury," she says — whether that means retail space, purchasing media, or negotiating with department stores on concession arrangements.

What's next: Willersdorf expects to see more acquisitions focused on capabilities, like advanced analytics and artificial intelligence.

Luxury retailers need new ways of doing reverse logistics, authentication, content generation, and tailored customer services.

Luxury brands have also begun partnering or investing in resale platforms, which Willersdorf expects to continue.

Zoom in: When vetting technology platforms and systems, luxury brands are seeking platforms that deliver a smooth and luxurious consumer experience.

Beyond the functional basics like product availability and payment options, there's also "the emotional labor needs, like human reassurance," making the customer feel pampered and creating more one-to-one conversations, Willersdorf says.

The need to provide a human touch is what makes luxury retailers laggards when it comes to tech investments, and because of that, "many brands have probably underinvested in that area for a while," Willersdorf says.

Zoom out: When it comes to luxury retailers' omnichannel experience, "less than half of luxury consumers are truly satisfied with their overall experience," according to a BCG-Altagamma report.

"Luxury consumers are looking for the same level of exclusivity, human touch [and] pampering when online (as they receive offline) — and the lack of these is heavily impacting their satisfaction with online experience," the report says.

3. Luxury retailers eye scale and capabilities in M&A

an illustration of a high heel shoe with a dollar sign formed on the heel

Retailers are facing increasing pressure regarding their monitoring of human rights issues in their supply chains.

Fast-fashion giant H&M said it is investigating around two dozen alleged instances of labor abuse at Myanmar's garment factories, Reuters reports.

This comes weeks after Zara parent Inditex said it will pull out from the Southeast Asian country by phasing out purchases.

Meanwhile, Ralph Lauren's Canada unit is being investigated by the country's corporate ethics watchdog around allegations that parts of its supply chain and operations in China were tied to the use of Uyghur forced labor.

Headline risk around human rights and environmental issues are key considerations for investors, as indicated by Shein's attempts to revamp its image.

4. Retail therapy

Illustration of a silhouette of head with a brain made out of price stickers.

Looking for a deal story? Search the Axios Pro Deals Tracker beta.

• Native Pet, a St. Louis-based maker of "clean label ingredient" pet supplements, raised $11m in Series B funding led by CAVU Consumer Partners. www.nativepet.com

• Silver Lake has hired an investment bank and is mulling a sale of Global Blue Group Holdings, a provider of tax-free shopping for retailers, Reuters reports. https://axios.link/3OBcj4b

5. Retail transactions

• Massimo "Max" Magni was named chief customer and digital officer of Macy's. https://axios.link/45xSX71

• Ahmed Naiem, a former eShopWorld chief commercial officer, has been named president of the retail tech platform LilyAI. https://axios.link/3E4EG5L

• CPG vet Rita Hudetz was tapped by Jersey City, N.J.-based luxury berry grower Oishii to become its CCO. https://axios.link/3DXNKcJ

6. It's Personnel

🧳 Situational awareness: Luggage maker Samsonite is exploring the possibility of a second listing in the U.S., Bloomberg reports.

🎭 What we're doing: Richard saw the musicals "Hamilton" and "Six" here in New York City with his sister and niece who came to visit. He highly recommends both.

✏️ Many thanks to newsletter editor Claire Rychlewski and copy editor Mickey Meece for today's edits.

August 16, 2023

1 big thing: Recess in a fundraise mood