Butternut Box defies DTC doom-mongers with its near-unicorn valuation

The ‘new normal’ isn’t new any more. Nor has it turned out to be the norm. Online grocery’s share of total sales has slipped back from pandemic peaks of around 15% to 10%, according to NIQ data.

It’s bad news for DTC businesses, worsened by a cost of living crisis that is seeing consumers consign artisan gin clubs and monthly delivered cheese selections to the ‘can live without’ bin. That’s resulted in slumping valuations, or worse, for the likes of Gousto, Parsley Box, Naked Wines and Allplants.

As DTC sales fall, few can afford to ignore in-store any more. Allplants, which slashed its valuation by 94% to £9.5m in June, is hoping retail launches in Ocado, Planet Organic, Budgens and others start to pay off. Likewise, Virgin Wines and its deal with WH Smith supplying its travel stores. Trip, one of the original DTC darlings, says supermarket sales now make up a fifth of its sales. And with Mindful Chef ready meals now for sale in Waitrose, Nestlé has followed Unilever’s move with Graze in securing in-store listings to make its investment pay.

It’s not just DTC operators that are pivoting into grocery, either. Specialist online spirits retailer Master of Malt is now working with Sainsbury’s to bring a rotating selection of craft gin to consumers in-store. A sort of in-aisle gin club….

But Butternut Box, which this week raised a further £280m – valuing the fresh dogfood subscription service at over £500m – is the exception that proves the rule, showing the DTC model still has legs, even if it’s the four-legged variety.

It’s easy to rationalise this. It’s not just a DTC, it’s a petfood DTC, so it’s protected from macro economic pressures. But that’s lazy. Never mind physical supermarkets and pet shops, there’s lots of online petfood businesses out there, including Tails.com, another DTC darling that was snapped up by Nestlé pre-Covid.

Yet somehow Butternut Box has found a secret sauce to warrant more money at a near-unicorn valuation. Maybe it’s the ‘fresh’ dogfood formula (that’s delivered frozen). Or the bespoke recipes for each breed. Or the natural ingredients, including ‘human-quality meat & fish’, vegetables as well as herbs and spices like turmeric and rosemary. Whatever it is, it’s working.