The humanization of pets: Fresh dog food delivery innovator scores US$19m investment
30 Apr 2019 --- Butternut Box, a London-based fresh dog food business, has raised £15 million (US$19.4 million) of new investment in a round led by European venture capital firms Five Seasons Ventures and White Star Capital. Existing backers Passion Capital and Literacy Capital have also participated alongside debt financier Kreos Capital. As well as news of the funding, it was also announced that former SkyBet chief executive Richard Flint would join the Butternut board.
The investment in Butternut Box marks the fast-growing company’s intention to launch into Europe and build a leading pet wellness business. Since launching in 2016, the company has produced more than 8 million meals for dogs across the UK and last year saw revenues grow by 700 percent. Current growth is 15-20 percent month-on-month. Dishes are cooked with fresh ingredients and portioned according to a dog’s breed, weight, sex and exercise regime before they are delivered to customers.
The investment in Butternut Box marks the fast-growing company’s intention to launch into Europe and build a leading pet wellness business. “This round will be used to help us broaden our offering to our existing customer base and also give us the platform to begin testing new international markets,” Co-Founder David Nolan tells FoodIngredientsFirst.
It will, therefore, mark the start of the company’s transition from a dog food company to a “pet-wellness” company. “Right now our customers trust us to deliver high-quality, safe product and great service. Now they want us to add more value by providing more of the products and services that they demand as dog owners. Next up for us will be snacks and treats, with other wellness products not too far behind,” he adds.
Alongside this product expansion, Butternut Box is also making plans for geographic expansion. “We feel like we have a replicable, scalable platform that can care for dog owners across geographic boundaries and we are excited about starting to open up new markets,” he adds.
Ivan Farneti, Partner at Five Seasons Ventures, notes that in 2018 the company began actively searching for a pet food investment opportunity around two key trends: the humanization of pets and the increasing shift towards natural food, with the connected premiumization of the overall experience. Butternut Box met the demands in terms of product positioning, their direct-to-consumer model and strong commercial traction.
He listed three main reasons for their investment:
a. Big markets: “People spend up to €45 per month on pet food alone, with higher spending for urban dogs.”
b. Highly innovative products: “The whole experience around pet food is poor and the model is ready for being redesigned with the help of technology.”
c. Strong management teams: “Kevin and Dave are the best food-tech founders we have met in Europe and in the top 1 percent of all founding teams I have seen in 20 years as a venture capitalist.”
“This company is redesigning the entire pet food experience, in terms of both the type of food that is produced, the way the portioning and personalization is done and the way the consumer interacts with the service,” Farneti tells FoodIngredientsFirst.
Alongside this product expansion, Butternut Box is also making plans for geographic expansion. The Paris-based venture capital firm focuses on the food and agricultural technology space, but in an interview earlier this year pet food was highlighted as an area for expansion platform.
“Pet food is a very exciting market, as it is so big. But while it is worth some US$90 billion a year [North America and Europe combined], it is not innovative at all,” Farneti says. Before selecting Butternut Box for investment, the company spoke to 30 companies in Europe within the pet food space in their due diligence process of 6 months. “This was by far the best one,” he adds. As a result of the investment, Five Seasons now holds an unspecified “large minority share” in the company.
Farneti notes that the pet nutrition space is ripe for disruption, with an “abysmal experience” for the owners (shopping for big bags of dry food in supermarkets or heavy cans) and poor experience for the dog (poor ingredients, over-portioning, etc.). Butternut redesigned the whole experience of premium pet food: fresh “home-cooked,” portioned dog food, from quality ingredients (sustainable and not in conflict with human supply chain, like non-supermarket grade vegetable), with no preservatives because the products are frozen and delivered at home in the right quantity and frequency.
When the dog likes the dog food they stay on it for a long time: as measured by high retention and very low churn rates, making the model financially attractive and enabling fast growth month on month.
“The good thing is that once you hook up a dog on specific food and likes it, it doesn’t need to change like a human. They are very happy to eat the same food over and over again,” Farneti points out. “When we looked at the data in terms of palatability test, they scored phenomenally well against everyone else because the smell of the food was more appealing for dogs in terms of palatability and chewability was perfect. Butternut really worked hard on both the food and technology side,” he adds.
Technology is the key for powering a DNVB (digital native vertical brand). Since Butternut only sells online they had to develop technology by adapting learnings made by the digital industry. The algorithm that determines the right amount of food to be sent to each dog (depending on the dog profile) are not dissimilar in this way. For example, while a streaming service like Spotify determines what music fits consumer’s profile, and the way the subscription software works for a food product is not dissimilar to the way a digital service subscription works. However, since the technology is not off the shelf, the food industry has no way to develop it faster or better than start-ups like this.
“The food industry distributes through supermarkets, specialty stores and the reason why we are so excited about these guys is that they are taking a page out of companies like Netflix and Spotify on how personalization and subscription can be put together,” Farnetti comments. “This is not digital. It is real food, with a shelf-life, logistic supply chain. They are learning very quickly how to adapt some of the tools that made subscription commerce very successful for digital products and making that adaptable to food,” he adds.
The simplicity of the concept is also key. “You start with a questionnaire, which asks the pet owner about the breed, age, size and level of activity. The seven questions only take a minute to fill in. Their service portions the amount of food by the recipe and calculates how often you want to get it, for example, every two weeks or four weeks,” Farneti explains. “It is super safe and super healthy because it is frozen. It is naturally cooked and made with no preservatives and comes from sustainable ingredients. It is a completely different experience, both for the pet’s owners and for the pets themselves,” he adds.
Kevin Glynn and David Nolan of Butternut Box.This sustainability angle will be key for the company’s positioning moving forward too. “Sustainability is a huge issue for all of us, and we see all consumers, ourselves included, placing a higher degree of importance on the environmental credentials of the brands we choose to support,” says Nolan. “Lowering our environmental impact per meal will be a key focus for us and a responsibility we don't take lightly. In the last year or so, we have reduced the amount of packaging we use by a factor of three, only delivered via carbon-neutral carriers and ensured that all of our packaging is recyclable or biodegradable. This challenge will bring with it lots of opportunities (particularly on the ingredient/recipe side) as we address the key consumer demands of our time,” he adds.
So can the service be optimized to cats as well as to dogs? Both Farneti and Nolan agree that there is an opportunity but that some practicalities will need to be addressed. Cats are notoriously more difficult in their food choices than dogs and the quantities are smaller too. “One-third of people who own a dog also own a cat, which means that there is a high probability that soon there will be a cat recipe too,” says Farneti.
Nolan points out that many of their existing customers have both dogs and cats under the same roof. “The expansion into cat food is something that is on our radar, and we have already done a lot of the development work necessary to facilitate such a launch. We are an extremely ‘dog-centric’ company and any broadening of our offering into cat food would need to come at the right time for both our customers and us,” he concludes.
By Robin Wyers
