Episode 46: Guzman Pops, The Importance of Loyalty, Adam's Celeb Encounter, Prezzee's Challenges and the Bizarre World of Gift Cards, and The Incredible bellabox Story
The guys discuss the huge Guzman y Gomez IPO, why a loyalty is so important, Prezzee's mounting losses, the amazing business that rose from the ashes of bellabox and Adam encounters Hollywood royalty.
The Contrarians catchup
Adam is in London and has been battling Lime bikes with dead batteries - “probably 40 to 50% of the bikes I'm using are broken. So you get on the bike and you pedal and there's no battery power.”
The guys agreed that Australia is where the tech labour shortage is most problematic. Adam’s Luxury Escapes is based in Sydney, where they compete for talent with Atlassian and Canva. Adir says that if Australia wants to be a leader in tech, its tech councils should be focused on talent development.
Adam thinks one of the coolest roles you can have in a tech business is a Product Manager. “You get the commercial link between the business part of the business and the engineering products. It's a really cool role, a really important role, and a really underrated role. They're super smart, usually super commercial, often very good technically, and really important.”
Are Mondays and Fridays now an extension of the weekend? Adam found no one goes into the office those days in London, which Australian cities are also trending towards. Adam says employees are only human - “It's natural to end your day at 3pm on a Friday if you’re not in the office. And I don't blame people for this, but managers and owners for allowing this and for being so weak not wanting to bother them on Fridays.”
Adam was working in Soho House in Mayfair and discovered he was sitting behind Ashton Kutcher. Adir said that’s a rung below Brad Pitt, who he sat next to on a plane recently.
Pret a Manger’s loyalty scheme
Adam thinks the loyalty program at Pret a Manger (“ready to eat” in French), is one of the most generous he’s seen. For £30 a month (around AUD $700 a year), you get five barista-made drinks, hot or iced, a day, plus 20% off the entire menu. You have to wait 30 minutes between redemptions (so you can’t purchase on behalf of others), and you order through a QR code so you can’t bounce between Prets (they’re everywhere).
The guys think Pret’s contribution margin, or margin before fixed costs, would be very arcane. Adam estimates around 70-80% margin, depending on whether the food is made off-site first.
Pret’s revenue grew 20% since launching this loyalty program and their profits hit £50.6B, the first time the company had made profits since 2018.
Adir: “I would have launched a points program that was a bit shitty, but it would get a lot of data on my customers and then I would have launched this and I would have been very interested to know what this does to the buying habits of customers, because fundamentally what you don't want do is get your most profitable customers and make them less profitable.
“What you want to do is get some people that don't buy that regularly and get them into some sunk costs so they start buying regularly. Then get your most profitable customers and say, ‘we know we're not the only place you buy from for lunch. But we think that after you buy 30 quid, we might be’.”
Adam likens this strategy to Costco's successful subscription model, emphasising the importance of providing value directly to customers instead of paying third-party marketing channels.
Guzman y Gomez IPO pops off
The Contrarians have discussed Guzman y Gomez at length in previous episodes, but they made big news when their stock popped to $30, up 30% within seconds of going public.
Founder Steven Marks saw his wealth grow by $60M, up to $300M, in a matter of minutes. With a $3B valuation, they’re sitting at a “mind-boggling” 500x, outperforming Nvidia’s multiples.
Adir: “There's a business that starts with C that you talk about a lot that is going to be a bellwether of a bulls versus bears. I don't think the bears on Gomez think that in any way it's anything other than a great business - that's the difference. The bears of Gomez say this a great business, it's just a price and engineering bearishness. and so We won't know the answer to this for one and a half years people can get out if they want to.”
No time like the Prezzee
Rich Lister Shaun Bonett’s troubled gift card company Prezzee, which he has previously claimed is worth $1 billion, has reported a $79 million loss due to fraud (buying gift cards with stolen credit cards) in the US.
Prezzee operates an app and website allowing customers to buy, send and store digital gift cards for retailers around the world, and made news recently when it was determined they had to stop selling Amazon vouchers in the US, undermining a key revenue stream, after damaging its relationship with the tech giant.
Adir: “It's an unusual industry because a lot of profitability from gift cards comes from breakage, which basically means people not using the gift cards in time. Now, there are new laws around that, but that is still a significant issue that they just expire and then the company that sells them gets the revenue. And so the reason I make that point because the ways that companies make money is not the ways that it looks like they would make money from the outside.”
This brought the conversation back to loyalty programs (again).
Adir: “This idea of providing such an overwhelming array of benefits for a paid-up loyalty program that you would never contemplate canceling. I think that's what everyone is trying to do. As a customer, you think ‘I'd be crazy to cancel this thing’”.
The bellabox story
bellabox, a skincare and beauty product subscription service that pioneered the model in Australia, says it will cease operations this month, with the founders blaming a tough retail landscape. The company raised $1.3M in 2013 from an impressive group of investors and sold half the business to Allure Media for $3M.
The beauty subscription business was largely pioneeered by Birchbox, a US brand once valued at US $500M and ended up selling for $45M in 2021.
Adam: “The reason it doesn't work in Australia, I think, is two reasons. One is that originally the beauty businesses used this as a customer acquisition tool, so they give free samples to these businesses. And then you get a bit of data. And the other reason is postage is too high here so it just doesn't work because you paying so much for postage that you pay like 15 bucks to ship a box”.
Adir: “Just because something went really badly, that doesn't mean anyone was a crook or it doesn't mean anyone is a bad person. It can just mean we did our best but made a mistake and alright, so don't lie about it and don't hide it or whatever. There is no success without taking a risk. There is no success without putting yourself out there and having a go. And just because it goes badly doesn't mean anything was more wrong than it was the wrong decision or the circumstance just conspired against you”.
Five other stories worth following:
Apple is reportedly in talks with Meta to integrate the social media giant’s generative AI models into Apple Intelligence, signalling a potential thaw in the two rival’s previously icy relationship.
Researchers just developed an AI-powered blood test that can predict Parkinson's disease up to seven years before symptoms appear, potentially revolutionising early diagnosis and treatment.
President Biden and former President Trump will take the debate stage on Friday morning AU time, but under different rules than their last verbal duel in 2020: no live audience, muted microphones when the other candidate is speaking, and no props or written notes allowed on stage.
Several countries, including Australia, are planning to bring air conditioners to next month’s Olympics amid concerns that France’s plans to use eco-friendly cooling pipes in the athletes’ village would hinder their performance.
Days after acquiring database tech firm Rockset, OpenAI has purchased Multi (previously Remotion), a startup developing an enterprise-focused, video-first collaboration platform.