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The Brand Aggregation Industry: An Outlook

The current outlook of the brand aggregator industry

‍The brand aggregator industry has really taken off in the last couple of years. Brand aggregating companies – firms that specialize in buying brands to scale them up and make them more profitable – have raised close to $16 billion in capital since 2020. And it’s no wonder banks and institutional investors are lining up to fund these companies: the industry’s expanding rapidly thanks to the post-pandemic boost in online shopping. Global ecommerce made up only 19% of total retail sales in 2021, up from just 7% in 2015 – and it shows no sign of slowing down.Brand aggregators flock to Amazon when they’re trying to find good brands to acquire: it’s the leading online retailer in the US, after all, accounting for close to 40% of the US online retail market. Amazon’s huge success has enabled thousands of third-party sellers to scale quickly. And as of the third quarter of 2022, 58% of goods on Amazon were sold by third-party sellers – a fair chunk more than the 26% from back in 2007.The rapid adoption of online shopping – and the resulting proliferation of small online brands – has helped the brand aggregator industry grow at high speed. And because it’s still early days, there’s no single frontrunner – in fact, close to 98 Amazon aggregators are currently competing for the top spot. It’s a good time to be competing too: a higher interest rate environment means it’s harder for small online brands to fund their growth alone, paving the way for well-funded brand aggregators to step in. It’s expected that a few leading companies will emerge as the industry matures, and that’ll depend on the different long-term strategies and competitive advantages of the competing firms, not to mention how they cope with the near-term threats of inflation and higher rates.

‍Competitive advantages of brand aggregators

‍Competing brand aggregators need to have a sustainable competitive advantage and long-term strategy in order to stand out and survive. Some may adopt a cost leadership approach, focusing on having the lowest cost product and budget-friendly brands. Others might focus on product differentiation, with less emphasis on cost-cutting and more on providing quality. Naturally, those different approaches impact the way the companies operate: a company that adopts the cost-leadership approach will operate more on the basis of streamlining costs, and scale up in a particular region or category, while a company that prioritizes quality will likely spend more on marketing and be open to buying brands in different categories and markets.Brand aggregators also vary in the following ways: the type and size of brands they acquire, the type of funding (debt, equity, or cash flows) they rely on, the channels and platforms their acquired brands operate on, and their reliance on in-house or outsourced functional teams.A major part of brand aggregators’ value creation depends on the company’s ability to consistently make returns-focused brand acquisitions. This means being able to spot good brands, not overpay for them, and then growing the business profitably. That often also means having a good plug-and-play operational and logistical network in place to integrate the brands, and to scale them quickly and affordably. And when growth eventually slows down, companies should be able to reign in costs to keep profitability high.Now, let’s look at three examples of brand aggregating companies.

‍Case study 1: Upexi (NASDAQ: UPXI)

‍Upexi is a Nasdaq-listed brand aggregator company that owns and acquires brands across a wide variety of categories in the health, wellness, pet, beauty, and other growing markets. It focuses primarily on acquiring direct-to-consumer and Amazon brands.The company is data-driven and relies on its in-house, software-as-a-service (SaaS) programmatic advertising technology to keep its acquisition costs down. Plus, it uses consumer data to increase cross-selling between its growing portfolio of brands.Upexi posted sales of $45 million for the year of 2022, up more than 600% from $7.4 million in 2020.That’s mainly down to its acquisitions. The company made its first foray into the pet care industry when it purchased LuckyTail in August 2022. It has also made acquisitions in other verticals like toys and advertising technology, including E-Core and Interactive Offers. Upexi’s main aim is to slowly increase its marketing capabilities.Competing across a variety of categories and markets requires expert operational and logistical know-how. Upexi believes the company’s CEO Allan Marshall brings a lot of that expertise to the table, having previously founded XPO Logistics (NYSE:XPO), a multi-billion-listed freight transportation and logistics company. Upexi is looking to grow by increasingly focusing on building up its in-house capabilities, in a bid to scale their portfolio of brands.

‍Case study 2: UTZ Brands (NYSE: UTZ)

‍UTZ brands is a NYSE-listed snack food company that manufactures and owns a whole host of popular snack brands like Good Health, Snikiddy, Boulder Canyon, and TGI Fridays Snacks, among others. While the company may not be a pure-play brand aggregator company, its business model closely resembles one: it started off as a potato chips manufacturer more than a century ago, and soon grew by acquiring a portfolio of snack brands over time. Although it might not claim to be in the brand aggregator industry, UTZ’s business model and historical growth is proof that acquiring good brands in a niche segment, and scaling them up well is not a new fad, but rather a sustainable one.

‍Case study 3: Thrasio

‍Thrasio is a privately-held brand aggregator company and one of the biggest players in the industry. The company’s raised over $3.4 billion in funding since its founding in 2018. The company primarily operates by acquiring and scaling up third-party seller brands on Amazon, and focuses on consumer-facing brands in categories ranging from home, cleaning, culinary, to fitness. Thrasio employs a data-driven approach to analyze Amazon rankings, ratings, and reviews when considering the next brand acquisition.Thrasio has now acquired more than 200 brands, and has established a global presence in less than five years. However, the company’s huge growth came with a few hiccups: Thrasio’s had to delay its plan to list and lay off staff, and that was during significant turnover in its management. While Thrasio proves the huge growth potential for brand-aggregating companies, its rapid expansion also tests the rate of sustainable growth for them.

1 https://www.marketplacepulse.com/aggregators

‍2 https://www.statista.com/statistics/534123/e-commerce-share-of-retail-sales-worldwide/

‍3 https://www.statista.com/statistics/274255/market-share-of-the-leading-retailers-in-us-e-commerce/

‍4 https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/

‍5 https://www.marketplacepulse.com/aggregators

‍6 https://www.marketplacepulse.com/aggregators