Memo: Mount Shopify

A Youtuber and his production team ventured to Antarctica with the help of a luxury expedition service, endured temperatures so “frigid” that gloves were not needed, endured those mild conditions for 50 hours, claimed it was the most physically difficult thing he’s ever done, and then planted a Shopify flag after a four hour hike to a ridge. “This is now Shopify Mountain,” proclaimed MrBeast. The sponsored video was incredibly corny and overly-dramatic but no one can claim it didn’t have the intended effect.

Previous Report: Enter MrBeast

Jimmy “MrBeast” Donaldson is a brilliant marketer, creator, businessperson, and philanthropist. And the timing couldn’t be better for Shopify. The company could use a bit of savvy marketing, value creation, new business, and a bit of charity after a difficult year. In that way (and in only that way), the partnership made sense. Donaldson spent ample time praising Shopify in the 12 minute advertisement; it has now been viewed 61 million times since its December 24th publish. To put it in perspective, this is over 1/2 of the typical Super Bowl ad viewership for what I suspect was a fraction of the cost ($7M).

In an homage to an advertiser, after a hike up a rocky crest, the team plants a flag and proclaims the virgin peak to forever be known as Mount Shopify.

But while the MrBeast storefront is a mid-eight figure property (Charm.io estimates $45 million in annual revenue), I believe that Shopify is positioning itself for a year of emergence. 2023 will be the year of enterprise-level merchant for Shopify in its attempt to better the competition (namely Salesforce’s Commerce Cloud and Adobe’s Magento properties). Once known for appealing to consumers hoping to become the next MrBeast (merchandising-wise, at least), Shopify is becoming the go-to for major retailers, marketplaces, and brands a like. Thisi Shopify’s proverbial mountain to climb.

After a year that saw the stock tumble 74%, the Shopify is due to emphasize “quality” over quantity – a descriptor that I use, loosely, to describe its growing catalogue of those prized “larger-GMV” retailers. In the past year, a number of online-first brands have left their custom carts behind for greener pastures. One example is Supreme’s shift to Shopify:

Supreme is off to a fresh start for 2023. It has just been revealed by dropsgg that the brand has changed up its online store from its previous platform to Shopify‘s eCommerce service. This switch is said to have a better bot prevention system and will begin operation next week.

Another example is ButcherBox who is rolling out its Shopify conversion page by page, leaving its custom builds for outsourced support and more advanced tools. After announcing its $600 million year in publications like TechCrunch and How I Built This, the company also (quietly) confirmed this move. From an November 2022 Shopify Masters podcast:

To this day, ButcherBox partners with third-party farms, processing facilities, cutting facilities, distribution facilities, shipping, customer service, and tech. That’s a big reason the company uses Shopify for its online store.

So when Donaldson spent so much energy turning one of his 50 hour challenges into a Shopify advertisement, I assumed that it was an attempt to raise the temperature a bit before a much larger marketing push by the company. Time will tell what that marketing push looks like. But as a standalone, the impact has been effective enough. There’s even an attempt to name a Mount Shopify in Butwal, Nepal (at least one of the images used are from Donaldson’s Antarctica trip). Entire subreddits are devoted to the appeal (or disdain) for the video – a reaction that I imagine is rare for the notably likable Donaldson.

Shopify is overdue for its return to form. The company earned a record Black Friday and Cyber Monday, propelled by that growing catalogue of enterprise retailers. This equated to a 19% increase in sales over its 2021 marks. With $619 million in operating losses over 2022 with a $1 billion commitment to build out its Shopify Fulfillment Network, capturing larger retailers and their gross merchandising value is key to profitability moving forward. This is inline with its own forecasts for 2023.

MrBeast’s Shopify-sponsored video wasn’t his best work. But at an estimated 300,000 net new subscribers per day, I am sure that his passionate fans will forgive it. As for Shopify, the sponsored video served as a reminder that it has its own unique challenges ahead. Shopify is a financial services company as much as it is an eCommerce technologies provider. As low-brow as the native advertisement was, it brought awareness to perhaps one of the more undervalued publicly-traded companies.

For Shopify it’s all about GMV. Its approach to growing its maturing revenue streams is no longer just about the smaller merchants (to which MrBeast’s audience appeals) and the subscription revenue attributed to them. More than 30% of Shopify’s revenue was subscription-driven in 2022, according to sources. But I believe that the business model is evolving. Shopify Payments charges merchants 2.4-2.9% of the transaction, Shopify Capital is growing its lending products, and the point of sale system continues to appeal to omnichannel-friendly retailers.The more larger-GMV retailers on platform, the more that will use these higher-yield financial products.

Shopify needs a collection of nine figure online retailers to turn things around and remind investors that it will remain a large contributor to the future of commerce. That’s no small mountain to climb.

Update (1/3/2023): Shopify has launched “Commerce Components by Shopify” (CCS). Targeted to enterprise retailers, the company proclaimed via press release: “Shopify enters its next era of growth: redefining enterprise retail.” The technological stack allows for Shopify’s integration within existing systems. The ButcherBox example, mentioned above, is an example of this. The majority of the food retailer’s site remains custom while the gifting process is hosted by a third-party. Shopify adds:

Commerce Components by Shopify combines the best of both worlds for enterprise retailers: access to Shopify’s foundational, high-performing components that just work—like our checkout, which converts 72% better than a typical checkout, and 91% better on mobile—plus flexible APIs to build dynamic customer experiences that integrate seamlessly with a retailer’s preferred back office services.

A list of enterprise retailers that were just announced today include: Mattel, Glossier, JB Hi-Fi, Steve Madden, Spanx, and Staples.

By Web Smith | Art by Alex Remy

Memo: Enter MrBeast

Every industry is overdue for a digital-first reset. Even casual restaurants are beginning to adjust to a brave new world, accelerated like many other categories by the pandemic.

By and large, foot traffic slowed at shopping malls. Retailers and department stores earned the majority of the media’s attention, but in the process, tens of millions of square feet in commercial kitchens and dining rooms were going to waste. The wage workers who ran them suffered from job losses. Restaurants were sinking into bankruptcy by the dozen. Over the last year, new concepts began to take shape based on proven experiments. To better understand those experiments, I spoke with one of the foremost experts.

When Kat Cole calls to discuss the inner workings of food service, you answer the phone. There aren’t many executives with more knowledge or experience than her. Cole is stepping down after 10 years of success and innovation as President and COO at Focus Brands, the parent company to a number of mall dining fixtures that you’ve likely walked past thousands of times on shopping trips. Leading a company with billions in annual sales, Cole understands the power of placement and foot traffic. While customers aren’t walking past quite as often as they did before the pandemic, she was still incredibly optimistic about the prospects of her industry. Concepts like Nextbite and Virtual Dining Concepts (VDC) have revolutionized the casual dining industry. But the business isn’t new.

As early as 2016, UberEats tested virtual kitchens as a strategy to drive revenue for restaurants with excess production capacity. Today, there are over 5,000 virtual brands on UberEats across the country. Early on, in a partnership with a well-known casual wing chain, Uber tested a virtual brand concept within the Eats app to improve sales by rebranding their wings to reach a wider audience. It worked. When eCommerce met human resources and excess production capacity, a new vertical in dining was born. Today, this industry, also populated by GrubHub, DoorDash, and Postmates (which Uber recently acquired) is in the midst of another evolution.

A recent article on Today.com began with:

Ghost kitchen, dark kitchen, virtual kitchen, cloud kitchen, whatever you call them, they’re popping up everywhere, with estimates placing the number at 1,500 in the United States. [1]

Virtual kitchens and ghost, dark, or cloud kitchens are not all interchangeable. A “ghost” establishment, in this context, is essentially a commissary kitchen or a facility where restaurants produce food for distribution to their satellite locations. Former Uber CEO Travis Kalanick acquires real estate and converts them into food production facilities through his company CloudKitchens. Platforms like DoorDash, UberEats, and Postmates then markets the many brands that are built atop of the physical infrastructure. CloudKitchens recently raised $400 million from Goldman Sachs and the Saudi Arabia wealth fund to finance these real estate acquisitions.

Companies like Robert Earl’s Virtual Dining Concepts partners with existing restaurants to monetize excess capacity. And like many restaurants that rely on foot traffic at mall complexes, there is quite a bit of it. Earl isn’t just the owner of VDC. He has stakes in casual dining chains like Buca Di Beppo, Mixology, and Planet Hollywood. In June of 2020, Earl’s latest acquisition turned heads. The ownership  group of Bravo and Brio filed for bankruptcy just three months earlier due to a COVID-related hit to its already flailing business. Earl seemed to have another vision for them.

Earl Enterprises, the parent company of Buca di Beppo, Earl of Sandwich and Planet Hollywood, has confirmed the purchase of Bravo Cucina Italian and Brio Tuscan Grille restaurants in a deal that will bring back 4,000 employees left in “limbo” since FoodFirst filed for bankruptcy, Robert Earl, chairman of Earl Enterprises, said Thursday. [2]

Earl acquired capacity in much the same way that Kalanick’s CloudKitchens acquired real estate to build functional facilities. But in Earl’s hybrid format, he can accomplish both dining formats. Virtual Dining Concepts is driving high-margin business to this suite of causal restaurants. If they survive the pandemic, they will be able to service traditional and online customers at once. This isn’t unlike any other restaurant that delivers. What organizations like Nextbite and VDC are building adds a significant layer atop of the Olo-driven last-mile delivery network.

Companies like Olo provide the interface between restaurants, their ordering systems and the on-demand ecosystem. With excess capacity at casual dining and a need for new demand, celebrity-driven virtual dining has emerged as a new prospect for a suffering industry. It just might work.

Within the next year, Virtual Dining Concepts, a subsidiary of Earl Enterprises has a goal of reaching 20 celebrity and 20 consumer brands in its delivery portfolio. The pandemic, combined with targeted social media advertising and the omnipresence of delivery platforms have brewed the perfect storm to fill a massive supply of kitchen capacity with these new concepts. [3]

The economics favor restaurant ownership groups that can typically earn nearly 60% of the gross margin of each sale. The celebrity that generates interest for the sale can earn as much as 25% for a sale that that they had little to do with. It’s a brilliant system. And thanks to a recent partnership with a YouTube creator, it’s about to become a popular option for ailing foodservice retailers.

Linear Commerce: Enter MrBeast

I downloaded the app (currently No. 1 in the app store), manually inputted my address and billing information and then waited for the branded sandwich. Constructed within the kitchen of one of Robert Earl’s Bravo restaurants, the “I launched 300 burger restaurants nationwide” promise was met with operational efficiency. When I ordered the Beast Style burger, I was surprised that it arrived with 15 minutes of purchase. I photographed it and laughed at the fact that Jimmy “MrBeast” Donaldson was going to successfully store hundreds of thousands of new credit card numbers thanks to this promotion, including my own. And then I walked upstairs to hand it off to my teenage daughter.

Oh my god, Dad. How did you get this? I love MrBeast. Oh my god.

At 13 years old, she’s adept at understanding the world of creators and their collective impact on culture, commerce, and trends. But even I was surprised that she was excited for a burger that she wouldn’t have otherwise eaten without the branding.

Jimmy Donaldson has quite the story. In a 2019 interview with Casey Neistat, the two creators discuss his improbable rise from obscurity to nearly 50 million Youtube subscribers. The 22-year-old owns an audience larger than most multinational media companies.

Donaldson represents a new class of creator with the power to move entire retail markets. In a recent conversation with DTC titan Nik Sharma, he mentioned an eye opening figure.

Was just looking at 2PM DTC Power List and as I was looking through, I wondered if you’d ever put creator brands that crush it. I think definitely Danny Duncan’s brand. I mean he’ll do nine figures in revenue with $0 ad spend.

For the vast majority of direct-to-consumer retail, achieving a $100 million revenue mark is highly improbable. Doing so without advertising is impossible. For the top 1% of creators, commerce is just a natural progression. They will earn far more in retail sales than through advertising.

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Here’s how much the biggest YouTube stars earned this year:1. Ryan Kaji: $29.5M2. MrBeast: $24M3. Dude Perfect: $23M4. Rhett and Link: $20M5. Markiplier: $19.5M6. Preston Arsement: $19M7. Nastya: $18.5M8. Blippi: $17M9. David Dobrik: $15.5M10. Jeffree Star: $15M

Ryan Kaji, the 9-year-old toy reviewer, has an omnichannel toy empire worth over $500 million by some estimation. What began as a trend of marketing merchandise has evolved as other industries have adopted eCommerce strategies. The digital layer provided by VDC, Olo, Nextbite, and others has provided new opportunity for this class of creators.

Before year’s end, you’ll see Marques Brownies and Dobrik’s Dumplings. And while the creators will certainly line their pockets, Robert Earl’s foresight into this marketing strategy is due to revolutionize an industry crippled by the lack of foot traffic that leaders like Kat Cole once relied upon to fuel growth in the industry.

MrBeast wasn’t the first creator to put his mark on a fast casual product. But this partnership will be the most transformative for an industry in need.

When this partnership was announced, it was common to see skepticism from commerce industry veterans and advertising executives. One chimed in: “I can’t figure out what’s even really that interesting about it, but I’m new to Mr. Beast.” Another added: “I still don’t see the connection to helping restaurants and charity?” But what’s truer than ever is that commerce follows audience. And the physics of building brands the traditional way is erased by the new mechanisms of linear commerce at scale. For a creator who spends a great deal of his time performing acts of charity, there seems to be more scale on the way, and not just for a struggling restaurant industry, but for the 50 million subscribers who’ve cheered him as he’s turned sponsorships and personal earnings into viral giveaways.

Wherever 50 million fans go, industries will be disrupted. Sometimes for the better.

By Web Smith | Editor: Hilary Milnes | Art: Alex Remy | About 2PM