Naked Market Raises $27.5M, Will Launch New Confection Brand
Platform CPG company Naked Market announced last week it had raised an additional $27.5 million in capital to fund the growth of its slate of food and beverage brands.
The round was led by Integrated Capital with participation from Great Oaks Venture Capital, Pacific Tiger Group, Sope Creek Capital and Clearco. Naked Market had previously raised $6 million in seed funding. Co-founder and CEO Harrison Fugman said the capital was needed to add more brands to the roster, both through internal development and M&A efforts, and to help its existing brands scale. Fugman added that the company currently has over eight figures in revenue and is “close to break even” in terms of profitability, with the majority of sales coming from its own brands’ websites.
Naked Market’s onboarding process begins by launching brands via their own storefronts. If certain metrics are met, the company expands to further ecommerce platforms and, finally, into brick and mortar retailers. Fugman said that, though the company can quickly determine a brand’s possible success fairly early on, actually launching the products (versus just conducting consumer research) is vital because it allows the company to not only evaluate the product concept, but also its velocities and repeat purchasing rates.
“We’ve been blown away by how [clear] the data is between the brands that work out of the gate versus the brands that don’t,” Fugman said. “The delineation of product, market, and fit has been very obvious with the first five brands that we brought to market.”
Fugman said the company has found the most success by identifying a “big category that is owned by a stale incumbent” and then offering a new shelf-stable product that either is superior in taste or nutritional value, or both.
In addition to consumer research, the company also uses its proprietary data tool, which has been dubbed “The Machine.” The algorithm uses 15 million data points from sources including Shopify, Amazon, internet search engines, and retail POS systems to help determine what categories the company should enter next.
Naked Market has launched five companies thus far: acai smoothie bowl Beach House Bowls, puff brand Avocrazy, ready-to-drink shake Project Breakfast, Flock chicken chips and, most recently, Rob’s Backstage Popcorn, a snack brand developed with the Jonas Brothers. Of these brands, Beach House and Avocrazy have been discontinued. Fugman said Beach House Bowls struggled with cold chain distribution, while Avocrazy overestimated consumers’ willingness to choose an avocado-based puff over other alternative puffs already on the market. The direct-to-consumer model helps Naked to cross-sell its brands, Fugman said, all of which are developed to appeal to a millennial, health conscious consumer.
“We’re very transparent with our customers around the cross selling component and we’re very pleased with the adoption rate that we see between brands,” he shared. “It’s a very powerful part of the model: being direct-to-consumer, owning that relationship with the customer and being able to indicate when we have new brands and give them the option to buy into those new brands and communities.”
The Naked Market plans to launch five new brands in 2022, Fugman said, with the first being a new confectionery item in a “vertical that has been overlooked.” While he declined to elaborate as to the product type, The Naked Market has already quietly launched a line of keto licorice rope called Lip Service. Though the brand has a website and ecommerce store, it is not currently listed on the Naked Company’s website. With ingredients including allulose and pea and rice proteins, each serving has 45 calories, 2 grams of protein, 1 gram of sugar and 4 grams of net carbs. The line retails for $27.99 for five 5 oz bags, on Lip Service’s own website.
When asked about Lip Service, Fugman said the brand was currently testing the viability of the product concept, with other candy items being considered as well.
In addition to Lip Service, the company also considered a new marketplace for meat-based snacks called Tomorrow Ranch. When asked about the platform, Fugman said it had never been promoted to consumers and, later that day, the website was offline. However, the storefront included images of several still unreleased snack brands including Piggy Smalls (pork chips and a pork rind panko bread crumb replacement) and Hatch (chicken skin chips).
On the heels of the success of Rob’s Backstage popcorn, which was launched with the Jonas Brothers, the company also plans to explore more celebrity partnerships in the upcoming year, Fugman said. Though, he maintains that celebrity partnerships are not at the heart of The Naked Market’s model, noting that “the reason for the outsized raise is the opportunistic M&A component.” Launching celebrity products does require adjusting the company’s “fail fast” model, he added, with more investment needed upfront to ensure the product’s success.
“If you can find a brand that has a really authentic sounding story behind it, where the product that you’re selling is very good… in a category that has compelling competitive dynamics. And then you overlay that with the magnifying effect of a celebrity partner, it can really optimize the chance for success,” Fugman said of the strategy. “Being D2C first, listening to customer feedback, and making adjustments accordingly is staying true to our [process.]
