Rundown: Reddit's IPO, Beyond Meat gets healthier & Macy's proxy fight continues

0:05Hello, everyone, and welcome to the Modern Retail Rundown, where we break down the most interesting retail headlines of the week. I'm senior reporter Gabby Barco and I'm here with editor-in-chief Kale Guthrie-Weissman. Good morning, Kale. Good morning, Gabby. How are you doing? I'm doing great. How are you? I'm doing so great. Excited to talk about all things retail as we always do. Yeah, we have so many fun stories I'm excited about this week. Okay, so first up, this is a story years in the making. This week we had, I mean, literally this week we had a Reddit drop their S1. So that means that they are going public finally after years of reports and speculation.

0:50Then we're going to be getting into Beyond Meat's new plan to turn around week sales. And mostly that will involve basically refreshing their meat recipes or ingredients and all that. And then last segment, we're going to be talking about the Macy's proxy fight that's happening in an effort to take it private. And that's been a saga that's been going on for a while now. So we'll break that down. But yeah, first up, let's get started with Reddit. So yeah, to answer the question, what is the company doing? So on Thursday, we got an S1 filing. So it means that pretty much soon Reddit will IPO. This is coming almost two decades after launching.

1:37So founded in 2005 and going public soon. So why don't we get into where Reddit is at right now? Because this comes at an interesting time. Did you see any fun numbers in there? There are so many fun numbers. Whenever you get an S1, you're just swimming in fun numbers. So Reddit, you know, they're the basics. Reddit said it brought in$804 million in annual revenue in 2023, which was a 20 % increase from what it brought in in 2022. So revenue is going up great. It is not profitable yet. And this is something that a lot of people are talking about, which is, you know, it's a, I don't want to say bare bones, but it looks like a bare bones platform.

2:22And so one would think that it should be able to post a profit relatively soon, but its losses are going down. So it posted$90.8 million in losses compared to a loss of$158.6 million the year before. So that's good. The company says there are 100 ,000 communities with 73 million average daily active uniques. So people are going there. That's not that shocking. And then, you know, there's always the question of what will its valuation be on the stock market? Its private valuation was around$10 billion after it raised$1.3 billion to date. Of course, Reddit has been around since 2005. So raising$1.3 billion is a lot of money, but it's been around for a long time.

3:11So that's raised that money over decades. So those are the main numbers that we've been looking at. And then, of course, in many S1s, we do get also an outline of what long-term growth plans, or at least the next phase, will look like. So one thing we talk about a lot on the show is advertising business and how it's essentially become the main source of revenue for a lot of these platforms. but with Reddit in particular, it is unique in the sense that it does have an ad business, but it's never really reached the levels that Meta or Google or even Pinterest in the last few years has. With this, they are proposing that they are going to be increasing their ad market.

3:55But I thought it was interesting because they do rely a lot on international business too, in that sense. So yeah, what are your thoughts on that? Because there's really not that many ways to advertise on Reddit. I mean, I'm on there a lot. And other than just sponsored posts is essentially the main way for brands to surface there. Like I'm looking at a skincare subreddit. There's usually an Alta ad right in the middle, but that's mostly it for now. but they are proposing more tools and integrations coming in the next couple of years. Yeah, I mean, that's the major thing that Reddit has proposed to do for years and is trying to do.

4:36And it's following in the footsteps of every other platform out there. You know, Reddit has a few things that the other platforms don't have or don't have in the same manner that it does, which is, you know, it has a pretty fervent base of people who use it every day. And one of the things it said in its S1 is that it's really leaning on contextual targeting for advertising. And so pretty much the idea is that there are communities within Reddit who love products or love something and talk about it ad nauseum on Reddit. And ideally, the company should be able to advertise to those people. It's tried thus far, but it hasn't been very robust.

5:14And probably one of the reasons why it hasn't posted a profit recently is because it's been investing and trying to build that out specifically with AI. So it really wants to be able to analyze what people are doing and then have a more intelligent way of showcasing ads to them. And it's been really beefing up that unit, which costs a lot of money. And so with that, that's why it's probably still posting a loss. The idea is that it might be able to make something that is a little bit more robust, has different types of units. The real question that I have is, you know, when you look at other platforms, like Reddit is not really, Reddit has people talking about things, but they're not buying things on Reddit, where as you know, you see platforms like Meta, you know, obviously Amazon and Pinterest too, where they're focusing on trying to get add that conversion, which is what brands really want is being able to advertise and get people to buy.

6:11Reddit is not there yet. And I don't know if it really wants to get there in that same way. And so the types of advertising it can do are different than what other platforms have been ramping up toward. Right. And I think part of that, which is really interesting, is it has this partnership with Google where it's essentially trying to monetize all of the rich data that is on Reddit. There's such a strong user base, like you said. that it's such a no-brainer. But until now, I think maybe partnering with someone like Google will help move that needle. But yeah, there's an expansion of the partnership that they announced same day, actually, this week, where Google announced this new cloud partnership that's going to enable Reddit to integrate new AI-powered capabilities using Google's cloud tech.

7:05So it's on the way. But as we know, this is going to take a couple of years until we really see the effects of it. Absolutely. And one thing that I always think about with Reddit and I think is important to know when you're talking about the advertising is that Reddit, the entire point is that it's very more bare bones, web 1.0, 2.0 sort of thing. And a lot of that is pseudonymous. So like, you know, anyone can make a Reddit account and then post in something. And I don't know about you, but sometimes I do a Google search for something. A Reddit thread comes up from a couple of years ago, and many of the comments have been deleted because someone made an account, posted something potentially interesting, and then deleted it because it was no longer useful to them.

7:47And so when you're trying to advertise to a base that is predominantly pseudonymous, that's much more difficult and why a lot of players like Facebook have been pushing to have people's identities be associated with their accounts. And that way, it's much easier to do advertising and create a better profile of who they are. And I feel like that is one of the pitfalls that remains is that, you know, Reddit is more about the content and not the users, right? Yeah, I mean, that anonymity, and this goes, this is like a philosophical question about internet use, but people will argue that that's actually the, you know, upside of Reddit.

8:25Exactly. That's where the magic is contained. This actually brings me to my next point. I thought this was a really fun aspect of the IPO announcement, which is that, well, first of all, I mean, an IPO right now, we've talked about them recently, and they are very, very far and few in between in 2024. This will make Reddit the first social platform to go public since 2019, and that was Pinterest. Wow. Sort of like that heyday of that bull market when all the platforms and startups were going public. So it's an interesting time. What do you think about that? It's an interesting time. And I think a lot of people who may not even have a real stake in Reddit will be watching it just to see what it means about the overall public markets and other companies to be IPO-ing.

9:12I think what's interesting about Reddit is that it has been around for so long and it has a solid base. this was never a question of if the company would go public, but when. I guess my ultimate point is that it'll clearly be sticking around for at least the time being. It'll be interesting to see how it does on the public markets and whether it'll be able to reach the revenue growth and ideally profitability that it needs to to make investors happy. But it's also very difficult for every platform out there. I always think about Snap, which Snap was in a different place when it went public. It was popular, but not as ingrained in usership as Reddit.

9:54But everyone said it's really hot, it should go public now, and it did. And it has been struggling for the past few years because it was never really able to reach that velocity it needed with users using it every day and grow those other things. And Snap has pivoted to many other types of uses or explaining how people use it or what it can do for the companies it works with or the advertisers. As such, I think Reddit's in a different place. And it'll be it'll just be interesting to see how investors react to it, because it is such I mean, it's such a more legacy platform to go on the public markets.

10:26And so I don't know, it's kind of exciting, in my opinion. Yeah, which so the fun bit I had mentioned is that Reddit says that it's non employed moderators, Redditors, of course, they're known, are going to be also participating in the IPO. So it's going to be offering them directed share programs. So that breakdown of the shares is going to look pretty different than what we typically see classes wise. But I think that's really interesting because there's like 60 ,000 daily active moderators right now. The fact that they are bringing them into the fold is interesting because of course, you know, they do like they have a really heavy lift and they are part of why Reddit runs on a daily basis, right?

11:07They do this job for free. So I thought that was interesting. Although, I mean, are they getting an email? It's going to be interesting to see these anonymous accounts being like, here's some shares, I guess. And, you know, I would be interested to see what the board thinks of that because, you know, it'll make for an interesting sort of round of first investors. I mean, again, the long-term growth plans are just largely dependent on the way the company is going to monetize its user base that we're talking about. And a lot of it is obviously going to be through digital offerings. People are likening this model to what Roblox has done with these gaming, digital offerings, all of that.

11:51And so if Reddit is able to actually sell those, that's kind of maybe where they crack the code. But it is going to take a while. And we know advertising is pretty volatile right now with everybody constantly changing their budgets. So we'll see. Yeah, and it'll be interesting to see what types of new units and ways Reddit figures out to grow its advertising platform. Because as you said earlier, it's at least from a consumer's standpoint, from me using Reddit, it's pretty bare bones. And it's probably more difficult for a brand to figure out a way to directly interact with the people they want to interact with.

12:30And so that'll be the real question is, what does a more robust advertising platform look like on Reddit? And how does it accomplish that? All right. Well, let's move on to fake meat next. I love fake meat. Yes. Kale has a lot to say. I mean, you eat faux meat. I do. I grew up eating it, which I just learned something. Sorry, this is a digression, but I'm not eating dairy right now. And Morningstar Farm, I learned after I'd already made it, has dairy in it, which is crazy to me. Okay. Well, I'm so sorry. But I mean, it's probably a little drop. I think you'll be okay. We'll see. Yeah. So Beyond Meat, it just announced that it's revamping its recipes to, I mean, it didn't say to boost struggling sales, but I think we can read between the lines.

13:21So yeah, what are the changes that they announced? It's essentially just relaunching a lot of, I mean, some of the same SKUs that they already have, but in healthier versions. I mean, I looked at what they are doing. It's obviously a lot of it is cutting the fats. And one thing that they've always been criticized for is that they can't really replicate one to one what animal protein can provide nutrient wise. It's not there yet, of course, but this is part of their constant, you know, rejigging of the recipe. I mean, so pretty much what they're doing, there's a new Beyond Burger patty and Beyond Beef grounds that will have 60 % less saturated fat.

14:00This is done by switching from canola and coconut oils to avocado oil. So it's essentially a one ingredient switch, but will have a big impact on the overall nutritional value of it. I think what's interesting from a branding perspective is that Beyond Bee and Impossible, Those are usually set in the same breath because they're part of the same generation, the newer generation of fake meat products. Their focus when they came to market was on replicating the meat experience and not talking about really. The secondary was the health things. The first was that we taste like beef. And now it seems Beyond is realizing that it needs to actually talk about the health benefits in order for it to reach the mass market that it wants to go with.

14:45And I think that that's really what's going on here. Yeah, and this is not a coincidence given, you know, what we see daily with, I write obviously a lot about food and beverage and better for you is what the consumer and investors seem to want right now. So it makes sense that they are going in that direction. And this is actually the biggest change they've made since 2016, which was kind of, you know, that was before they went public. It was just kind of when they were still a darling startup. But yeah, the founder and CEO, Ethan Brown, said that health is one of the top drivers to the plant-based meat category.

15:24We feel responsible to deliver on that expectation for the consumer. So let's get into why these are probably being changed beyond just looking out for our health. Yeah, it's not all pure altruism. No? Okay, well, let's get into the sales then. I mean, like, the sales are not good, and they've not been good for a little bit now. In the first nine months of 2023, Beyond's U.S. revenue dropped 34 % due to weak consumer demand. In November, the company said it was laying off, I believe, 19 % of its workforce. And it also said it was cutting unsuccessful products such as jerky and scaling back in China.

16:05The China thing is really interesting because one of its main, you know, things that it was really focused on, both Beyond and Impossible, I'm pretty sure, was on international expansion, like trying to not only being a U.S.-based fake meat product, but taking it globally because vegetarianism or plant-based diets are big elsewhere. And if you've ever been to like I've been to Europe and I know they weren't talking about Europe, but like it's a very different market of fake meat products there, as I'm sure is the same in Asia and China, etc. And so the fact that they're saying this didn't work and we're scaling back on China, I think is super interesting.

16:41Yeah. Well, speaking of Europe, that region is actually doing better because Europe has embraced the food service aspect of Beyond's Business, where McDonald's sells their burgers and nuggets. Whereas here, I remember a few years ago, they tested it out. This is when all the fast food places were partnering with these companies, but they didn't stick with it. It was sort of a limited time pilot. it. So we'll see. I think maybe some of these promising spotlights like Europe may be able to step in, but it's just not enough. So in the first nine months of 2023, the international revenue went up by 17%.

17:22But of course, because the US is the biggest chunk of that, it really wasn't able to offset the losses here. So there's still some time to go. And I do wonder whether changing up the recipes. I mean, there's, you know, there's going to have to be a big marketing push behind it for people to even know it's happening. You know, when we talk about it, we usually were talking about it in the grocery sense. And so people who aren't regular purchasers of Beyond, like maybe that you are, aren't maybe paying attention to what the company's doing or what this category is doing constantly. And so that's maybe going to be the trick.

17:58Whenever I talk to an analyst, it's like, you have to constantly remind people you're there and why they should pick you when you're sitting next to me when actually this brings me to my next point. They're typically within the same price point. So they're not really saving that much, if not more expensive, actually, to be completely honest. And I think it's like one of the things that Beyond and Impossible did was they wanted to be in the meat aisle and not in the fake meat aisle, which is very different. And so, you know, it's about getting a different type of consumer. And I don't think that grocery thesis has yet played out.

18:30And we're seeing something interesting, which I wanted to bring up, which we have a story that came out a few weeks ago about another fake meat company that has been around for decades. Like it's one of the old players, Dr. Prager's. It makes those veggie burgers that have actual pieces of peas and carrots in it. And its entire thing is that it's not trying to taste like a beef burger. It is its own veggie burger. And they're rebranding and they say that their big focus is on the health aspects and saying that our products are made with vegetables. We're a vegetable product. And I think that that is where the trend is going for the branding.

19:05If you're a fake meat product, you should say we're made with vegetables. It's real ingredients. It's not some unknown molecule that will look like blood if you cook it. And I think that Beyond is realizing that it needs to sort of focus on these better for you, as you said earlier, aspects, the health aspects, and actually the real ingredients that are in it to get people's eyes, to catch people's eyes, rather than just being like, we're a one-to-one proxy of meat without actually being meat. Yeah. And that seems to be where the general category is going. I did a story a few months ago about that.

19:41And one founder I spoke to said they tried to make a fake beef patty, but realized very soon they need to go back to the drawing board and just focus on vegetables because that's not trendy. People are always going to want to eat more vegetables probably. It's just that you're not offering them that proposition that Beyond made at the beginning, and especially Impossible, because Impossible is really trying to mimic the fake beef, or beef, I should say. So yeah, it's just a completely different eating experience, as I'm sure you know. Yes, I do. Let's move on from meat talk, getting us hungry now, to the proxy war that's happening at Macy's.

20:23So, Kayla, you can start us off. Why don't you tell us what's going on at Macy's? There's always something. There's always something. We've talked about this a bit. So this is an extension of past week's episodes, to be completely honest. But this past week, investment firm Ark House Management, who we've talked about before, launched an official proxy fight at Macy's by nominating nine directors for election to the retailer's board. On the same day, Macy's confirmed receiving the notice of the nomination from Ark House. So the backstory is that Ark House tried to do a takeout bid. It offered$5.8 billion to take Macy's private.

20:58Macy's rejected that due to a variety of things. So in a statement, Ark House managing partners said they had provided Macy's board with more details on financing and saying they're backed by equity partners with a combined assets of over$75 billion. Macy's said it wasn't sure that Ark House actually had the finances. And it also said something, and we'll talk about this maybe in a few minutes, but it also said it didn't really like the demands that Ark House had for Macy's. Anyway, according to Ark House's managing partners, Jonathan Blackwell and Gabrielle Kahane, we urge the board to specifically identify any information that they are seeking regarding our financing so that they may alleviate any of their outstanding concerns, they said.

21:40So pretty much Ark House wants to own Macy's. It's going a variety of ways to do this. And yeah, that's what's going on. I mean, I think it's just for me, it's always hard to imagine Macy's as a private company. But this is also coming at an interesting time where there is a CEO that's transitioning. And we talked about this, I think, when the announcement was made. But the Bloomingdale's CEO, Tony Spring, is coming over to Macy's. Of course, this is the same company, but Bloomingdale's has always been one that's part of the business that was doing a little bit better than the flagship part of the department store business.

22:21But he's coming over. He just took over the job a few weeks ago. And so to be at the receiving end of all of this is a lot. And one thing we should stress is that this is all supposed to be worked out during the next shareholder meeting, but that's not been announced yet. And we don't know when it's happening. So I feel like choices are we're going to keep seeing these headlines and these ARC house management proposals that keep going back and forth between the board. Yeah, there are a few things that I find interesting. One, and this has been said in earlier reporting about the company, is that there's a chance that Macy's is just trying to get more suitors to come and make bids on it so that there might be other investors or firms or groups of firms that want to come and take it private so that they can get a better return.

23:08we don't know the details or at least I haven't seen the details. If you have the details, send them to me. But like the ARC house supposedly has a list of demands that it wants as part of taking over the Macy's. And, you know, pretty much Macy's when it initially declined, the initial takeover bid said, we don't want to do that. And so I think that there's a lot that we don't know in terms of what's actually happening, what people want from the company, what the turnaround planned would be, et cetera. And so it'll be interesting to see how this plays out once we get a date for when the actual investor meeting happens, then we'll get a little bit more visibility into what might transpire.

23:48Any last thoughts on what you're expecting from this? I mean, like I said, probably just more of the same in the next few weeks or months. But as far as Macy's goes, of course, as we know, they have not been doing too great lately, but, you know, like a lot of retailers. But this seems like a pretty big, I guess, PR saga that is happening on the outside. Yeah, no, it'll be interesting to see. One thing I'll be interested to know is, is Macy's going to continue to do counter-programming to try and focus people away from this? So like Macy's recently launched its new iteration of its if its owned brand, some new private labels.

24:27Is it going to continue to try and change the narrative away from the fact that there are activist investors trying to take it over because of its ailing finances and prove that it is, you know, in a state of of reenergizing the brand? Or is it going to do something else? I don't know. It'll be interesting to watch just to see what announcements are made and what other moves Ark House or some other firms might make. Yeah. All right. Well, that is all from us this week. You can come back on Saturdays to hear more weekly rundowns of the big retail news of the week. You can write and give us a review anywhere you get your podcasts.

25:04You can also listen to the Modern Retail Interview Show on Thursdays with Kale. Kale, do you have a preview for us for next week? Sure. I'm talking with the company Wing, which does drone delivery. So we're going to talk about all things drone delivery and whether that's the future of delivery and retail more soon. Great. And thank you, as always, for listening. And we hope you'll come back next week.