Grove Shouldn't be Public

TLDR:

Connecticut goals
Grove Should have never went public

Coming late to you on a Sunday night

Because I just got back from my friends wedding in New Canaan. For those of you not familiar with the suburbs around the city that’s where the people with real money live.

The wedding was a ton of fun. 175 of us were in someone’s backyard partying all night with a live band. It was good to step away and celebrate a major life moment of someone I’ve known since I was 6.

The party was incredible and we all had a great time. It was also reminder of the nicer things in life and what you can accomplish if you are REALLY successful.

For 983 joining us this week let’s dive into what the heck is going on with Grove Collaborative and how to turn this biz around!

Grove shouldn’t be a public company

If you aren’t familiar Grove was an early DTC darling that’s a sustainable marketplace focused on selling sustainable products. Their big goal is to be 0 impact plastics across all of their sales by 2025.

They operate as a marketplace and sell their own products. Basically they want to be the green Jet.com. They were VC backed and went all in on unprofitable growth at all costs framework into going public through a SPAC during COVID..

If they’ve ended up here you know they haven’t been doing well. Currently $GROV is trading at $0.41/share with a $80.6m market cap. It’s down -95% all-time from the $412.5m market cap when it went public.

Considering the company did $312m in Revenue last year let’s see what we can do to turn this business around. Let’s say I still have a PE fund at my disposal, and we can acquire this for $90m. Here’s how I would turn around Grove.

The most concerning part is SGA + Marketing is 95% os sales and 2x gross profits. They aren’t a VC backed private company anymore but are still acting like one. In today’s market that isn’t going to fly.

The other major challenge is that they aren’t big enough to be a public company. $312m in annual revenue is too small for a brand to be public. I know it sounds crazy, but the costs, restrictions and reporting/filing is too strenuous for a brand of this size.

Despite securing $32m in fresh debt this company I’m not confident that will give them the time to counteract this trend. They really need to be private company.

Heres my 3 step plan get Grove to a public company level:

1) Make the tough choice: Are they a Marketplace or Brand?

The company is stuck between 2 business models and it shows in their numbers.

• They don’t have a large enough catalog diversity to be a marketplace.

• They don’t prioritize their brands enough to be a real brand.

They’ve launched their own soaps and paper towels, but still sell competitors right next to them on their website. You can’t effectively be both a brand expanding your retail sales presence and gaining more distribution for their own products, while playing seller and negotiated margin for the other companies’ product you sell on their website.

It presents too many conflict of interests and lack of focus. What should they be pushing onsite? Where should their focus be? How many internal resources do they need to have to support 5-6 different functions.

They’re falling Gross margins and increasing SG&A (up $20m YoY) while slashing their Marketing budget 41m to offset the increases is showing how this strategy is failing the company.

Solution: Make the hard choice of picking a favorite child and run with it. At this scale the lack of focus drives up costs, reduces the impact of scale, and gets costly quickly.

2) Get SG&A under control

SG&A jumped $20m in 2022 (+11% YoY).For a company that saw their sales decline by $72m (-19%), a $20m increase in SG&A is too high. They didn’t break out exactly where this comes from but if I had to guess headcount.

They mentioned multiple times in their earnings that they’re on the path to profitability, but with an 11% jump in SG&A in this market it’s hard to believe they’re diligently following that model.

This is made even worse when you consider they cut $41m in Marketing to offset it to become more profitable. This could lead to a cutting death spiral. A decrease in Marketing drives less sales. Lower sales hit the point where there isn’t enough sales to support OPEX. Then the business will have to shut down.

You can already see the beginnings of this occur. Sales fell $72m YoY and SG&A + Marketing was 95% os sales. That’s wildly unsustainable for a brand. Now they are in the dangerously difficult place of needing to cut costs and increase top line, after already gutting their marketing budget.

Solution: Streamline the business around one focus that the brand will undertake for the next decade. No matter wish washy we’re a brand + Marketplace. Cut all the unrelated costs and march forward with clear orders.

3) Expand the catalog in easy to ship high repeat categories.

Grove’s major sales positioning is getting plastics out of household products. They’re really selling commodities (paper towels, hand soaps) to eco-conscious customers through the removing plastics angle. They’re only in 3 categories so far: Soaps, Paper towels and Cleaning products.

Grove’s real missions today is to get as many eco-friendly products into the monthly box they ship customers as possible. The more products they produce in that box the more margin they make.

There are so many more easy to ship commodity products they could expand into with a similar playbook to capture more margin.

• Supplements

• Kitchen products (paper products, trash bags, utensils)

• Bath products

• The list goes on.

These types of products are already being sold on Grove, just produced by other companies By producing the product themselves they could reclaim that margin by making it themselves and expand their retail footprint.

As wholesale becomes a bigger channel for the brand this is where that focus matters. If they’re a brand focused on selling their product than they have massive channel expansion opportunities by getting on more pegs at their retail partners.

Solution: Capture more margin by expanding into other related categories and expand the catalog to get more Grove products into people’s homes and expand through their retail partners.

All in all this is a good business with a bit of an identity issue. Ironically it’s the inverse of Honest Co. Here it’s a marketplace that’s kind of a brand also and that in between state is dragging down growth and profits.

With more focus and streamlined operations Margins and SG&A will get better they’ll also grow faster with clearer branding and positioning. This might not be as much of a steal as Tupperware, but there’s some good meat on the bone left to build this to be a great sustainable company.

🧠 The Takeaway

Grove is lost between a marketplace or a brand and it’s killing their growth and profitability.

1. SG&A + Marketing at 95% of Revenue is ludicrous.

2. 200 brands to sell isn’t large enough to sustain a marketplace

3. $312m for a DTC brand is too small to be public.

👷 What can you do about this?

1. Ruthlessly watch and keep your SG&A down.

2. Really. Really focus on the one driver for your business.

3. Be careful cutting Marketing when cutting other costs. It can lead to a death spiral.

As always. Stay confident, connect with your customers, and keep crushing it.

Jeremy Horowitz

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