Zara's Supply Chain, Dino Polska, Spotify, Fever Tree, Keywords, CACC, Essentra

Content Published Last Week

1. IP Research: Zara's Supply Chain

2. Zara Buying & Merchandising Strategies

3. Dino Polska: Challenges to Replicate the Model

4. Spotify Podcasting: An Agency Buyer's Perspective

5. Fever Tree: US History and Opportunity

6. Keywords Studios: Cross-selling, M&A, & AI Risks

7. Essentra PLC: Moss Express and Richco

8. IP Podcast: Credit Acceptance

Zara Buying & Merchandising Strategies

At IP, one hypothesis we are continuously testing is whether pure-play internet retailers have a structural advantage over offline incumbents. The fact Shein has scaled to over $30bn revenue in ~4 years has sparked our interest to revisit this hypothesis in fast fashion.

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Over 20 years ago, Zara pioneered 'fast fashion' with its integrated supply chain and 4-week lead times. But this 4-week lead time hasn't changed in 20 years. Shein is running at 2-week lead times with lower inventory risk and lower prices.

The faster the supply chain, the less fashion risk. At a high level, this is what investors want: fashion retail without the fashion.

To test our hypothesis, we've been interviewing former Zara, Shein, ASOS, and Boohoo executives and current suppliers in Turkey of each company. This piece of analysis is the first in a series we’re conducting to understand the differences between Zara’s best-in-class offline supply chain to Shein’s model.

This value chain analysis explores each stage in Zara’s supply chain. We walk through each step in the process for short-lead time products using summer dresses as an example. We also share operating KPI’s often overlooked by investors such as landed and intake margins, full price sales, and pre-production and production lead times. Such metrics illustrate a fashion retailer's philosophy clearer than any annual report.

The next piece of research in this series will walk through Shein’s supply chain in a similar manner.

Dino Polska: Challenges to Replicate the Model

A pillar of Dino’s competitive advantage stems from its fresh meat offering. Being the only vertically integrated player in this category, Dino offers fresh meat at prices that render their competitors' meat offering unprofitable.

The meat offering is not profitable. The company (Biedronka) incurs losses in this category in order to compete. This practice, although not legal according to the law as we cannot sell products below cost price, is still being carried out by Biedronka. - Former COO of Biedronka

This interview with the former COO of Biedronka sheds light on how challenging it is to replicate Dino's model.

Spotify Podcasting: An Agency Buyer's Perspective

This interview is part of our work to understand SPOT’s podcast advertising opportunity. We interviewed a media buyer with an annual audio budget of ~$150m and 15 years of experience buying podcast ads. In the interview, we compare podcasting to other audio media, barriers to spending on podcasts, and what Spotify is doing to address the problems. Brand safety is one issue:

This lack of control can lead to brand safety and suitability concerns. Just because you're reaching a demographic it doesn't necessarily mean they are the audience you want to reach, or that they are consuming the content you want to be associated with. - National Audio Investment Executive at Publicis Media

iHeart seems to have a reputational advantage over SPAN simply because of the content on the network.

Megaphone, on the other hand, is available to any publisher who wants to opt into it. For example, iHeart still uses it. All the concerns I mentioned earlier about brand safety are greatly reduced when you're working with a podcast like iHeart, which is a very brand-safe publisher. - National Audio Investment Executive at Publicis Media

The interview goes on to explore how Spotify can address barriers to podcast adoption and an outlook for podcast advertising growth.

Fever Tree: US History and Opportunity

In 2020, FEVR decreased its price per litre in the US to close the price gap with Schweppes.

The decision was made before my arrival, but it was based on a price index comparison with Schweppes. I don't recall the exact figure, but the Fever-Tree to Schweppes index was around six, whereas globally it was closer to two and a half or three…This is an average based on Nielsen reporting. We certainly weren't six times higher in many in the West. On average, we implemented a 15% to 18% price decrease at the start of 2020. - Former Vice President of Fever Tree

The price cut fuelled FEVR’s US sales to double from 2019-22. This interview with a Former VP of Sales at FEVR explores the history of FEVR in the US, the pricing change impact, positioning vs Q and Goslings, and the future growth opportunity.

I believe Fever-Tree has definitely gained a larger share of the shelf against Q Mixers over the last couple of years due to Fever-Tree's strong market growth. Many chain customers have recognized this and realized that they need to improve their mixer category. Keep in mind that the growth story I mentioned with Southern Glazer's is also true for retailers. If you're Kroger and wine sales are down, and beer and spirits are softening, but mixers are growing by 20% to 30%, they start paying attention to whether they are carrying the right items and how they are displayed on the shelf. This is a significant way in which Fever-Tree was able to gain more space. - Former Vice President of Fever Tree

Keywords Studios

This interview with the Former COO of KWS explores how the company approaches cross-selling, M&A and how the organization should approach the threat of AI.

"In the current state, you would probably have three or four different studios, sometimes even six, bidding for the same work, sometimes in the same geography. I would propose a different structure, with a clear entry point and solution to increase your win rate for that piece of business, like for Electronic Arts, for example. - Former COO at Keyword Studios

While investor materials focus on the cross-selling opportunities M&A brings, the executive shares a more practical light on how this works:

"On the surface, yes, Keywords is increasing the addressable spend of our top customers. But from a Keywords perspective, these suppliers are still operating separately. So, while we can claim in investor meetings that over 70% of our customers buy more than three of our service lines, if you delve deeper and ask how these services are delivered or if there are cross-sell opportunities, you'll find that we've actually acquired more bolt-ons, which means that we own more of the addressable spend. - Former COO at Keyword Studios

This interview is worth exploring for a more operational insight into how KWS works.

Essentra PLC: Moss Express and Richco

This interview shares the history of Essentra, the UK-listed industrial component manufacturer and distributor. It has a wider, more differentiated range than RS but seems to have a weaker GTM model:

While it's not particularly difficult to be an injection molder and produce a pack like an M pack, what sets Moss apart is its established brand and broad range. There aren't many places where you can get as many industrial plastic components as you can from Moss. For instance, Anixter Fasteners is a competitor of Moss, but they're now on the RS Components website. So, there are many who could do this, but the key question is, what is your distribution channel? RS has a wide online distribution business, but they're not manufacturing. The European business of Essentra components is predominantly distributing itself, which is evident from its margins. Moss could choose to distribute its products through RS Components, but they would be giving away margin to them. They have sufficient scale, so they haven't needed to do that. - Former Finance Director at Essentra

This interview explores the operations and positioning of Moss and Richco, two core Essentra opcos.

Credit Acceptance

In this podcast, we discuss the process and hypotheses we tested in our recent survey with CACC dealers. Listen on Spotify, Apple, or your podcast player of choice. We also explore:

1. The two core questions we explore in the CACC survey and why they are important

2. How we approached sourcing auto dealers to complete the survey

3. Why sourcing quality executives is difficult and techniques to improve sourcing

4. Our approach to conducting quality surveys and upcoming work on Wayfair, XPEL, and more