Memo: ButcherBox’s Arbitrage with Instacart

This is a story about a pioneering direct-to-consumer leader with a capable team and the humility to take a 2PM insight, collaborate on a strategy, and achieve a positive outcome. This partnership will influence the CPG industry.

I’ve never viewed 2PM’s work as pure journalism. I am not trained as a master of the art. Rather, the essays published here is operator-driven, steeped in practical experience. I am tasked with taking overarching perspectives and condensing them into useful insights that can direct top leaders in their decision-making processes. Rather than outsider observations, many of the essays are published from an insider’s perspective. In some cases, the successes and failures in commerce or media are deeply personal. The 2PM process is a cycle of sorts: study concepts and news, produce content, implement ideas in operational environments, assess the impact, and then use it to develop more insights for the larger public. It’s a virtuous cycle.

The theory is that the more operationally-driven the content, the more useful it is to our industry of peers and competitors. One way that I fortify the content production process is through operational partnerships with enterprise level brands, software companies, and logistics firms. ButcherBox is a combination of the three, 2PM served as a long-time Growth Partner.

With over 160 employees, a broadcast television advertising budget, and revenues estimated to be in the hundreds of millions, the six-year-old direct-to-consumer butcher company has accomplished what few others have. Led by founder and CEO Mike Salguero, the company achieved a “unicorn” trajectory solely through direct channels, and they did so without a dime of institutional capital. A rarity, Salguero and his organization achieved enterprise scale by bootstrapping the business to sustained profits.

In a previous 2PM essay on early-stage influencer marketing, I explained how his early influencer arbitrage opportunity helped the company grow from $0 to $20 million in annual revenue in under two years. With any arbitrage, the key is to get there as close to first as possible. By using influential fitness and nutrition professionals, Salguero identified an inexpensive and low-risk method of capturing demand.

In 2015, Instagram wasn’t a core sales driver, with limited link sharing. Instead, partnerships with bloggers who had large lists of email subscribers became the strategy that led to early growth. As Salguero learned, many of these influential health bloggers wrote often in support of grass-fed beef, but they lacked a call to action – there was no place online for readers to then stock up. ButcherBox filled the void. [1]

Though this particular channel has since been saturated, the spirit of arbitrage-seeking remains at ButcherBox. At the company’s current scale, this format no longer achieves the desired outcome. In this way, there comes a point when the size of the company begins to work against it. The pressure is always on to find a better way to drive demand. In 2021, the data analyzed by 2PM suggested that growth slowed thanks to a combination of factors: the reopening of the physical economy, meat alternatives taking center stage (Beyond, Nuggs, Impossible), supply chain concerns, and the difficulty of maintaining a lightning pace without third-party marketplace distribution of their goods. Salguero, his Chief of Staff Reba Hatcher, and 2PM leaned on Linear Commerce principles to find the solution. The question:

Where is a large and engaged audience for ButcherBox? And can we sell to them?

This announcement is the result of answering the above questions, as well as a tremendous amount of work by Chief of Staff Reba Hatcher. 2PM is announcing the marketplace partnership between Instacart and ButcherBox. Founded in 2015 by Mike Salguero, ButcherBox is the leading digitally-native meat company in America. Founded in 2012, Instacart is riding a new wave of interest and an impending IPO after successfully navigating the pandemic.

On the heels of a mid-2021 initial public offering, Instacart has instituted a novel concept for digitally-native brands. ButcherBox will be the second digitally-native brand to be integrated into Instacart’s nascent marketplace of third-party goods. Instacart shoppers can now order ButcherBox directly from the app and the order will be delivered one to four days later through FedEx, UPS, or a regional carrier. Chris Rogers, Vice President of Retail at Instacart: 

Instacart is committed to offering customers a wide selection of items and more ways to get exactly what they need from the retailers they know and love. With the addition of ButcherBox to the Instacart marketplace, we’re making their curated, high-quality proteins even more accessible to customers nationwide. 

ButcherBox identified an audience arbitrage; Instacart identified a way to sell in-demand products without the costs associated with logistics. A mutually-beneficial partnership was born.

Early 2021: The Proposed Concept

Over the trailing 12 months, ButcherBox’s advertising load increased 431% while website traffic dropped over the same period. While this isn’t surprising, it was an indication of negative market forces working against it. The reality is that few retailers can continue growing at such a pace with an operation that consists, exclusively, of first-party direct commerce.

The months-long growth partnership between 2PM and ButcherBox was maturing around the January week that I proposed the solution that could begin to address the DTC brand’s three objectives. To Salguero’s credit, he was willing to listen. One of the hallmarks of our growth partnership is that he recognized the time and intensity of my study in this space. Salguero trusted my executable ideas. At this point, neither of us knew for sure that Instacart was experimenting with becoming a third-party marketplace.

What we did know is that Instacart successfully navigated the pandemic to breathe air into a business that was deflating prior to 2020, thanks to Amazon Prime’s commandeering of Whole Foods’ delivery business. We both believed that the partnership could be fruitful. We were right. Instacart will serve as a marketing and distribution partner as ButcherBox’s distribution continues to grow into physical retail spaces. Eventually, same day delivery will be introduced once the brand is carried in retailers like Walmart or Target. Until then, Instacart’s partnership is mostly marketing-driven.

Mid 2021: The Executed Concept

For non-perishable foods and consumer packaged goods (think Siete Foods or Olipop), the timelines for wholesale partnerships are relatively short. But for perishable foods, it can require 18-24 months to land on store shelves. With this type of partnership, ButcherBox may accelerate the timeline by demonstrating its anticipated sales volume. The microsite hosted on launched today:

The Instacart x ButcherBox strategy was the result of a need to expand audience and improve sales distribution. In participating in this marketplace strategy, ButcherBox established a new top funnel marketing format for CPG brands.

This outcome is a testament to a Salguero and Hatcher’s ability to think outside of the box, accept new ideas, and execute on the ones that have promise. Growth is often unpredictable and arbitrage opportunities are rarely found in obvious places. Sometimes, it’s as simple as taking a generalist view of adjacent industries, assessing how they can positively interact, and suggesting a path to partnership.

I was thinking through the concept of Linear Commerce when the idea of marketplace amplification came about. That same idea developed into a strategy employed by Reba Hatcher and ButcherBox’s team. The strategy was approved and implemented by Instacart, an inventive partnership that will be lucrative for both partners. But most importantly, ButcherBox laid the groundwork for like-minded brands to build through Instacart’s channels. And Instacart has a new way to grow revenues without the associated costs of logistics.

Arbitrage opportunities are often win-win outcomes disguised as outlandish ideas – but only outlandish at first. As with arbitrage, we will likely see dozens of digitally-native, perishable food companies – from Daily Harvest to Primal Kitchen – take advantage of an opportunity that was a long shot idea just six months prior.

By Web Smith | Editor: Hilary Milnes | Art: Alex Remy 

Member Practical: ButcherBox’s Growth Arbitrage

Between 2010 and 2016, a number of CPG retailers and digitally native vertical brands came of age with the help of a licensed gym movement that shaped a decade of influencers in health, nutrition, and fitness. That list includes fixtures like NoBull, FITAID, Rogue, Mizzen + Main, Zevia, Siete Foods, and RXBar. Built within or on the periphery of the CrossFit movement, these brands have gone on to amass mainstream followings and notable physical distribution. A few are now household names. One quieter brand has made an impact on a market long overdue with modern challengers.

In 2015, ButcherBox founder and CEO Mike Salguero began a hunt for high-quality, grass-fed beef. His wife Karlene, diagnosed with an autoimmune issue, was told to follow a diet of grass-fed animal protein. But after an exhaustive search in the Boston area, Salguero found limited options. Rather than give up, he sought out a direct source, connecting with a New York-based farmer.

ButcherBox launched after Salguero recognized a market for claims-based meat sold from farm to customers online. The company, which now employs 160 people, aims to help boost farmers’ businesses while expanding access to best-in-class, grass-fed meats.

Today, ButcherBox is one standout in a class of DTC brands working the mechanisms of influencer marketing to rally customers around a common goal, in this case, to bring high-quality produce to direct-to-consumer channels. In 2020, the company saw revenue increase by 110%, with growth driven by effective influencer work. Over the past five years, ButcherBox built a business carried by a coordinated community of influencer partnerships.

Early days: Partnering with influencers

In 2015, Instagram wasn’t a core sales driver, with limited link sharing. Instead, partnerships with bloggers who had large lists of email subscribers became the strategy that led to early growth. As Salguero learned, many of these influential health bloggers wrote often in support of grass-fed beef, but they lacked a call to action – there was no place online for readers to then stock up. ButcherBox filled the void. Salguero:

These people commanded huge audiences, had very authentic approaches, and had vast amounts of trust and ethos with readers. Plus, the content was already there. ButcherBox was a natural fit within the conversation.

As a startup with no outside funding, ButcherBox couldn’t pay an up front, lump sum to partners. Instead, they deployed an affiliate revenue-sharing model where influencers would earn a cut of sales made using unique coupon codes. The approach turned into a powerful marketing machine that drove MRR for both parties.

DTC suffers from the misconception that you need to raise VC to be successful. This is a transactional approach wherein companies often end up throwing money at influencers rather than truly viewing them as partners. At ButcherBox, we decided to only partner with influencers who were truly aligned with our values and mission instead. That created partnerships that were truly valuable; there was buy-in from both parties.

In the early days, ButcherBox’s affiliate model operated so that partners were paid on a recurring per-box model, with a $20 commission per box sold.

When we started, affiliates made up about 50% of the marketing mix. This gave us time to drive sales, but also to experiment with other channels. As we’ve grown and expanded into other marketing channels, we’ve supplemented this channel to make up a smaller portion of the overall mix.

Today, ButcherBox’s affiliate program operates through ShareASale, offering different payment models depending on the partnership. While most of their affiliate partners are individuals, they do work with a few agencies and deal sites. Affiliates earn commissions for sales driven within a 30-day window based on tracking cookies and earnings are paid out once per month on a designated day. According to Salguero, ButcherBox has paid out more than $1,000,000 in affiliate commission revenue to its more than 3,000 US-based partners.

Landing notable influencer partnerships

The flywheel of influencer marketing took off for ButcherBox when they landed partnerships with notable figures in the Paleo nutrition space. Chris Kresser, author of The Paleo Cure, became an evangelist of the brand. Kresser’s fact-based blogging, large email list, and easy path to purchase made for a strong partnership, but Kresser’s validation and “seal of approval” put ButcherBox on the map. Having Kresser on board as a partner drove sales and helped reinforce trust, ethos and value in the ButcherBox product.

Popular nutrition coach Thomas DeLauer also came on board as a notable influencer partner. As social platforms became places for shopping discovery, DeLauer’s YouTube videos and social media content became a powerful referral engine for the company.

ButcherBox now has more than 600 influencer partners with audiences of varying sizes that reach well beyond the Paleo realm and help extend the company into adjacent spaces, like the diet and nutrition spaces of The Whole30 and Keto. Beyond marketing, these influencer partnerships have helped shape the trajectory of the company. A 2015 Kickstarter benefitted from word-of-mouth. More than 1,000 individuals pledged over $210,000, fully funding the campaign to launch the brand, validating the interest around quality grass-fed beef.

Adapting to the current influencer environment

According to eMarketer, there are now more than 500,000 active influencers on Instagram. Statista reports indicate affiliate marketing spending in the US is projected to reach $8.2 billion by 2022. Affiliate marketing accounts for around 16% of all online sales globally, while affiliate marketing platforms like Refersion saw more than $21 million in conversion revenue during BF/CM 2020. Worldwide, global affiliate marketing spending is growing at 27% CAGR. With 81% of brands now leveraging affiliate marketing and 38% of marketers using this tactic, competition to partner with the best creators is fierce.

At the same time, many influencers have begun pursuing their own branded product lines, prioritizing these lucrative ventures over affiliate relationships and revenue-sharing models. While ButcherBox now has the capital to pay influencers upfront, rather than via affiliate payouts, the brand’s strategy has evolved as well.

ButcherBox’s future-facing influencer marketing play

ButcherBox is currently shifting beyond the health and nutrition space to reach a wider market that includes chefs, fitness experts, and other types of influencers with health-adjacent interests.

While its products are still only available through the brand’s website, expansion through other physical and digital marketplaces is in the plans. The company is also leaning into owned marketing channels on platforms like YouTube, where they’re producing branded content and educational material around their products. CEO Mike Salguero on those plans:

In 2021 and beyond, we’re planning to become more of a brand rather than just a ‘meat in the mail’ company. We’re also looking for opportunities to expand into partnerships with restaurants and grocery stores to reach that next stage of growth.

The influencer marketing game has changed, but because they started five years ago, ButcherBox has the early advantage. “We’re glad to have been early to the trend and maximized the potential when it was still a fairly novel concept,” Salguero said. As ButcherBox leaps from digitally-native brand to enterprise retailer, the strategy has reflected as much. No longer is Salguero and team focused on the model that helped them arrive atop the 2PM DTC Power List. The soft spoken brand now has eight television ads in circulation, reaching millions of top of funnel customers who are well beyond the niche that brought them from relative obscurity to relied upon by hundreds of thousands of customers.

But the influencer model that brought them from zero to one remains an important chapter that new brands should emulate. In six short years, ButcherBox has become a household name by owning the meat drawers of countless discerning customers. Salguero expects growth to continue.

Research by Kaleigh Moore and Web Smith | Editor: Hilary Milnes | Art: Alex Remy

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