#258 - How Dossier Disrupted the Fragrance Industry

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1:19The perfume world is still a pretty opaque one. You still have to work with perfumers. There's not a lot of them out there that are high quality. And we wanted to find a perfume in France because that's really the birthplace of great perfume. It wasn't easy for us to find the right partner off the bat. That's the part where we struggled. If you want to create a perfume that's going to smell pretty close to something that you like, you can get there relatively easily. you can get like 60-70 % there pretty easily. It's that last 30 % that we feel make all the difference. And also, if you want the great ingredients and the great quality, you need to find a partner that you trust.

2:01Welcome to the Startup CPG Podcast. Today is our first episode in the fragrance space. And as you'll probably be able to tell, I don't really know a lot about it, but I've been tracking the story of my friend Sergio Tash, who went from hand-filling bottles in a Brooklyn basement in 2019 to today absolutely dominating retail shelves. They've hit$150 million in sales, including holding the number one perfume brand spot at Walmart and number three at Target. And they recently conducted a successful sale of the business. I am so excited for you to hear this story about how they identified a huge market gap, which was high-quality fragrances at affordable pricing, and then just executed so well.

2:42There's so much in here that will make even our food and beverage founder audience think a little bit differently and imagine all sorts of possibilities. And it's just a really great listen. All right, here we go.

2:57Sergio, welcome. I saw all this news lately about your sale, and it was so interesting to me, I think mainly because I've known you for a long time. We haven't really kept up properly, but I just had no idea about this absolute rocket ship that you were on. And it's also funny because I think for me and having built a brand, I would use things like LinkedIn so much. Every time we got an account, I would celebrate that milestone and try to get the next one going through a lot of FOMO excitement. And I don't think I really ever saw this stuff from you. And then all of a sudden, I learned that you're doing like 150 million in retail sales and have done this really successful sale.

3:36So I'm just so interested to learn more about this. But first of all, did everyone know about it but me? Or were you just one of those really responsible operators, like actually just keeping your head down and building the business? So first of all, it's so good to reconnect after all these years. And thank you for having me. No, you're not the only one. don't worry. I think we're purposely more under the radar. And yes, part of it was to build the brand and focus on that. But also part of it was we just didn't want to expose our growth and our success from the get-go. And we were just focused on executing.

4:10But I think now looking back into it, I think there's a happy middle that's somewhere there. I think we should have been maybe a little bit more forceful in communicating our success. And because I do think it does help the brand to some extent. You don't have to overdo it. But I remember having some comments from potential buyers. For example, in Europe, we went to a trade show and one of the comments that we got from that person was, she saw the booth, the booth was super busy and she saw the success. And she said to us, look, I know you guys reached out to us about a year or two ago. I didn't realize how big the brand was.

4:46So I do think there's some happy middle there that we should try to find. And that's something that we probably will be working on more in the near future. Okay, so just tell me a story, Sergio, because I don't know the story of the brand. Obviously, you guys have had such massive success. And just so everyone knows, Sergio and I know each other because we went to business school together. We played rugby together at business school. The good old days. Yeah, the good old days. I mean, at that time, though, I think you really don't know a lot about people professionally. I think you know a lot about what it's like to play a sport with people and have fun with people.

5:19And you're being competitive. And really, some people, I would say, show their leadership skills and other traits. But I mean, really, we're having a good time and really just kind of bonding more on a personal level. And yeah, I just hadn't kept up so much. And then all of a sudden, you've got this fragrance business. And I didn't even know you had a background in this whole area. So just super interesting to me. So do you mind just tell us the story, start at the beginning, and tell us how this whole thing got started? A hundred percent. So after those two amazing years in business school together, we did bond, play rugby, have a couple beers, all that good stuff.

5:51I was in banking for a couple of years. And then after a couple of years, decided to switch to entrepreneurship and started in the DC beauty world. So the first brand that I had was a hair care company and specifically a hair extensions company. And let me tell you, when I told my parents that I wasn't in banking anymore and I was selling hair online. Their reaction was quite interesting. But that's how I got my first success. It was a small business. We started off with 20k on our bank accounts. My friend of mine, who was my mentor, and we made something out of nothing, which was cool. He had a lingerie business that was very successful and it was a side project for him.

6:32And I was running the day-to-day. And after a couple of years, that business was making about 4 million of sales a year. So we you're happy, literally made something unbending, which was cool. That gave me the appetite of doing some other stuff. So after that, I sold my shares to my partner. I had a skincare company, which also self-funded, which went absolutely nowhere. And then after that, when I finally decided to shut down that skincare company, I had a phone call with the person who became our first investor. And we're just discussing various things around the e-com world and the beauty world.

7:04And the topic of perfume came up and it was really the proverbial aha moment. And we both said to ourselves, there's got to be a better way of doing this. How does it make sense that to go out on a date and smell nice, you have to fork out, I don't know,$150,$200 plus at Sephora? There's got to be a way of creating high quality fragrances at an affordable price, especially when you know the margins in the perfume industry, which are absolutely bananas. Insane. So just to give you example, Daniel, when you buy a bottle of perfume and you pay whatever the price is,$150,$200, the cost of making that liquid inside the bottle is like a buck, literally$1.

7:45So the margins are insane. So what we did is we decided, why don't we create a product, take all the great things that make a luxury perfume fantastic, which are great ingredients, great craftsmanship, made in France, and just remove all the fluff. So we had, when we started, a simple packaging, nothing super ornate. We had a simple bottle, nothing fancy. And we really tried to make perfume what we think perfume should be about, which is the actual liquid inside the bottle. And that's how the business started. We made great perfumery made in France, same high quality ingredients as all the great brands that you know and love, but priced at $29,$39,$49.

8:24So much more affordable for everybody and not just the lucky few who can spend that kind of money in the big stores. Okay, let me ask you this. Actually, last night had a really great discussion with Professor David Bell, who was a Wharton professor when we were there. He's a legendary guy because he was one of the early investors and advisors for some of the most epic DTC brands out there, including Warby Parker and Harry's and Cotopaxi, all these different brands. And we were talking about the Warby model and everyone I think is pretty familiar with that story now, but these are the very early days of e-commerce and the idea of, hey, we're going to just really reinvent a broken industry here by selling glasses online.

9:07And of course, the question at the time, which is not a question today, is will people do that online? Don't they want to just go into the store and try this? So I guess then my question to you would be, were you concerned about that at all? Because the way that I would buy a fragrance, which I recently have done, actually, I was like, I should start smelling nice. Everyone's doing the self care revolution and i would just honestly i don't know if this is the most responsible thing to do but i would go to the airport because i am always in the airport and i have a lot of time to kill and try pretty much every single fragrance there find the one that i like and then buy it on amazon because of course it's way cheaper but i would have to go through that process because i would try a hundred and literally only like one of them just the way it smelled if that it felt right for me that wasn't too much and so did you feel like that was good because i know you started d2c but did you worry about people doing that or because you have reference skews where you can tell people what it's going to be compared to you felt like you could get over that hurdle so first of all absolutely in beauty you can buy online it's relatively easy but when it comes to fragrance to your point you actually it's important to try the product because it might not match what you like it might not match your skin so what helped us in the beginning to your point is that the initial 20 fragrances that we launched were impressions of scents that you know and love.

10:25And when I see impressions, there's no dupes. So they smell exactly the same as the fragrance that you know and love. So that gave us a huge leg up in terms of getting those first conversions in and getting those first sales in. That was big for us. So that obviously helped. The second point was the price point was very accessible. So you weren't committing a huge budget to this. If you take perfume companies that have more expensive perfumes, they'll have discovery sets, and then you buy the discovery sets. And then once you find a perfume that you like, you come back, you buy the whatever,$200 perfume, you get a refund for your discovery sets.

11:00We didn't have that issue because the price point was very affordable. And three, we made the return process super, super simple. So we said, look, you're going to buy a perfume for$29. If you like it, amazing. If you don't, try it on. If you don't like it, send it back to us. No questions asked. So it doesn't matter if you didn't use it. It doesn't matter if you finish half the bottle. It's okay. Just send it back to us and we'll refine to you. So those are the things that we thought about in terms of getting those initial conversions in. And that's how we did it. But not to your point. I always like to say we did fragrance the hard way, which is to sell online.

11:36But that's how we got over the hurdle is getting those orders in. And you know what? Returns rate's actually pretty low, like sub 5%, so very manageable. That is so interesting. And a lot of the questions I'm going to ask you are going to expose that I don't know a lot about the fragrance industry. By the way, I think that makes it for more interesting conversation because you get to ask questions that I don't necessarily get, and I find them fascinating. All right, cool. Well, thank you because a lot of our listeners will be in the same boat as me. So can you just tell me a little bit about how does the product development process work?

12:08Like, is it pretty easy to dial up what we would call a co-man and just feel like, hey, you know, our formulator, like I just want 20 copies of this stuff that's out there get as close as possible. And I mean, because I've been through product development process, I know you can send them reference stuff. And if they're pretty good, they're going to have the right tools to emulate something pretty well. Is that process pretty simple? Or was that really complex to actually get the fragrances where you wanted them to be? So let's stop by actually telling your listeners what perfume is. If you think about what perfume is, perfume is a chemical reaction that happens to smell nice.

12:43I mean, that's really it. It is a mix of ingredients that you put together and that creates a smell that smells nice. So it's really at the intersection of chemistry and art, in a way, science and art. Number two, no, it's not that easy. The perfume world is still a pretty opaque one. You still have to work with perfumers. There's not a lot of them out there that are high quality and we wanted to find a perfume in France because that's really the birthplace of great perfume. It wasn't easy for us to find the right partner off the bat. That's the part where we struggled. If you want to create a perfume that's going to smell pretty close to something that you like, you can get there relatively easily.

13:24You can get like 60-70 % there pretty easily. It's that last 30 % that we feel make all the difference. And also if If you want the great ingredients and the great quality, you need to find a partner that you trust. So to answer your question, no, that process was not easy. That's something that we kind of struggled with in the beginning. And thankfully, we found our partner pretty quickly. We kind of lucked out, to be honest with you. We reached out to a lot of them. But I feel that process was a key moment in our success. Well, that's good to hear. I don't want to hear that it was too easy for you, just given all this incredible success.

13:58So I'm glad to know that you had to put some real... Yeah, that was understandable. Yeah, good. Okay. You'll be happy to learn. Okay. And then can you just talk to me a little bit about the economics of growing this kind of a business direct to consumer? Because you've got then the lower price points than some of your competitors. Probably your cost of goods would be, I don't think you're investing as much as some of them might be into just the fanciest bottle that you can find out there, right? Because you have to differentiate it somehow. But how do those D2C economics work for you as you're growing?

14:26Where are you investing to really get that early traction? So the first thing is we wanted to make sure that we could produce, first of all, a bunch of perfumes, not just one, and make it high quality, but cheap enough to produce that we can actually make a margin. So we use a couple of strategies that we thought were going to help us. So as I mentioned to you, part of the brand is that we don't use fancy bottles, but we have a simple, elegant bottle. and what we did both from a branding perspective but also from a cost perspective is that we use the same bottles the same pumps the same caps for all our SKUs so that way you can order in bulk you don't have to worry about managing a huge amount of bottles and raw materials which can be tricky so that's both the brand because the look and feel we felt was good but it also served us economically and then when you start growing a business like that I always go back to basics I think if you have a good product, basics work.

15:23So this will sound very familiar to you. Raise a focus on price margins, contribution margins, making sure that you make a buck. And you were mentioning the Warby Parker example, where it was the heyday of DDC, and we're going to cut the middleman, and that's how we're going to make money. We're going to propose that it's expensive. Well, you know what? Somebody told me this recently I find it fascinating. It's like he goes, hack is a new rent. And I find that fascinating because at the end of the day, you're still paying somebody. It's just that you're not paying a landlord, but you're paying Mark Zuckerberg and Sergey Brin.

15:56So at the end of the day, super focused on margin and making sure that you sell orders profitably. That was really, really key for us beyond obviously the quality of the product. But that's how we launched. And our first ads were extremely direct response. I always feel like when you launch a business, your number one priority beyond the brand, beyond anything is make sure that somebody is going to take out their credit card and pay for your product. So do whatever it takes to get to that in getting your first client in. So our first ads on Meta were extremely direct response. So we did a bunch of comparison ads.

16:33So very brick to forehead stuff. But that's how we started. That's how we got our initial traction. And then after that, the interesting thing that we discovered, I wonder how that applies to the universe that you've evolved in, is that people wanted to discover fragrances. And what I mean by that is the concept of signature scent, that you have one perfume that's your perfume that you use all the time, is kind of gone. People want to discover new fragrance, explore and use certain fragrances in function of their mood, where they're going, are they going to work, are they going on a date? And that served us well because knowing that, we expanded our collection of perfumes quite dramatically.

17:09So we started off with 20 perfumes and now we have over 150. So I always say, we will have something for you that you will like. And the final thing that I want to mention, which I think is really important for DDC, is at the end of the day, our price point is pretty low. And if you think about unit economics, you want a high enough AOV to cover your CAC and to cover your acquisition costs. At the end of the day, you can have the best margin of the world. If you sell a product for 10 bucks, you don't have that much room for acquisition. So we were really focused on trying to make sure that people buy multiple products in one go.

17:44So when people would buy with us, they would tend to buy two to three perfumes in one go and not just one. And that helped us tremendously get enough dollars in to be able to pay more for acquisition costs. Okay, so it's very interesting. I really, especially when you're going to have that many SKUs, what a great plan to just have a pretty simple bottle that almost looks like nail polish bottle, like very simple, and then you have a label on it. So obviously you can hold a lot more of the bottles and inventory without worrying about exactly the fluctuations across the different SKUs. So that really makes sense.

18:17How are people shopping, by the way? Are they responding to the ads because you hit exactly the perfume that they're using and you're saying this is inspired by that perfume and it's a lot cheaper and it's going to be really similar and that's why they buy? Or are they just really familiar with all the different perfumes out there and so they're open to getting a couple different ones from you? Both. What typically happens is that, at least in the beginning, when our only line of perfumers were the impressions, and we can talk about the originals now and afterwards, so those are our own creations.

18:47But in the very beginning, that was it. They were intrigued by the price points, and then they would click, the thumb would stop the scroll, but they were convinced by the perception of quality and the easiness of returns. And the key factor was, yes, you would get them in through either price or because they saw a thing they liked, but then they realized, holy shit, I've always wanted to try Baccarat Rouge. Turns out I don't have$350 to pay at Sephora, so Darcy's version is$49. Let me try that one. So that's how the process worked. you would be intrigued by the price point and maybe you see a perfume that you liked but then you realize that there's a bunch of things that you always want to try and just couldn't do it and through our process the price point and the easiest returns that's how you got into it and were you finding a big boost from people then getting it and then telling their friends because that feels like the kind of thing people would share like do you know about this really cool deal you can get that perfume like oh you smell nice do you know that there's a place you can get the perfume is actually much cheaper 100 we do a post-purchase survey and about 30 we ask the question where do you hear about us and 30 response is from a friend from the family so just like you said it's one of those i just made this huge unlock i just discovered this amazing company you'll never believe what i've paid for this nice sunny perfume so you're 100 right that is very interesting and then if i can just ask you a question about the impressions or the kind of dupes.

20:15Can you just do that? It would be very scary to me to do that. Be like, are they going to get mad? Are they going to do something to me? Like what's going to happen? What can you do? Okay. Legally, 100%. There's no trademark on perfume. Also in the US, you can communicate to the consumer around that. So you can say to consumer, you know what? This is the general direction of what it's going to smell like. So you can say stuff like inspired by, or maybe a version of it, pick your vocabulary, you can see these things. What you cannot say, because it's not true, I cannot say I'm selling Chanel No.

20:485 for$29. That's not true. I don't have the formula. I can tell you that that perfume is going to smell awful. It's going to be very similar to Chanel No. 5, but I cannot say that. So to answer your question, absolutely legal. You know, that's also part of the, one of the reasons why, very beginning, we didn't want to make too big of a splash because we were concerned about the market reaction. Turns out nobody cares. By the way, This industry has been around forever. We're not the first ones to have seen this loophole in the trademark industry. But I think the reason for our success is that we're one of the first brands to have created an actually high quality product out of it.

21:24Typically, the companies before us were very focused on price and not high quality. We really focused on quality first, even if we have to sell at a slightly higher price point than other previous dupe companies. Yeah, I mean, it makes like private label has existed for so long. and obviously has had lots of success. And there are some extremely strong brands in private label, obviously Kirkland and Whole Foods 365, a lot of stuff that's out there. And it just seems like you would have such an extreme advantage because of the massive price difference, not just on a percentage basis, which maybe you would see in some of the other private label categories, but just on a dollar perspective.

22:03So just the absolute, like you can save$100 if you're just okay with the bottle not looking exactly the same, right? That is exciting. There is some sacrifice there where, I mean, gosh, a lot of like it is cool to have a cool looking bottle. I don't know if I would buy a men's cologne where I thought the bottle didn't look cool because it's going to live on your counter and some instances on your dresser or wherever. But you seem to have done that very well where it is. It's a simple, elegant design. And I think the other thing that is just so appealing about this is for me, it is a feat to finish a bottle of cologne.

22:38I mean, maybe I don't wear it as much, but it's almost like chapstick. Like if you would make it to the end of your chapstick, you should win a prize because it's so likely you're going to lose it before then or something. Right. Yes. Especially with cologne. I don't know if it's the same for women, but I can just only speak to myself like, yeah, I'm probably going to, I don't know, change my habit or forget about it or I don't know, get bored or switch to something else before I make it to the end of the bottle. So like, I feel like the extreme price savings that you're giving people is really important in that context where they may also have had a history of like, oh, I didn't finish that last one also.

23:09So this is an extra good deal because I really don't want to pay an extra hundred bucks for something that I may not finish or it may take me years to finish. Let me ask you this, though. When you had your bottle of perfume, which cost you, I'm guessing, a pretty penny because you're a man of taste and you probably buy some nice stuff. Did you ever think that when you were about to wear it, do you ever think, is this moment or occasion special enough for me to wear my special fragrance? Did you ever think about that? I'm curious. Well, I'm a special boy, so everything at the moment is special.

23:36If you want to know my fragrance history, I actually would love to tell it, which is the first time I ever learned about cologne, I think I must have been 13 or something, and my older sister's date came to pick her up, And he did a very cool thing, which he had a car, which was a big deal. I was just a kid then. First of all, huge. Yeah. And he came to pick her up. And then for some reason, he invited me to come sit in the car. He's like, what's up, dude? Yeah, come hang out. And I get in the car and he pulls out a bottle of cologne. I'm like, this dude's awesome. This is amazing. And I'm like, what's the secret, bro?

24:11And he pulls out this black bottle of cologne. He's like, got to start with this, dude. And it was Drakkar Noir. Oh, the old school stuff. Yeah. I think he had probably just come from CVS where he bought it. But yes. Anyways, in my 13-year-old eyes, this was the coolest thing that ever happened. And not a day went by before I went and bought some Drakkar to obviously get on his level. That's hysterical. Couldn't get the car. So at least I can get that Drakkar. And then I think from there, probably just made my way through high school into some mid-range ones. Nothing expensive, obviously. but maybe some Calvin Klein, like obsession, or I remember Hugo Boss.

24:52I liked that was just, you know, not too expensive, but seemed to smell pretty nice. And then, yeah, I just occasionally would get into it, but then kind of forget to wear it all the time. But yeah, I mean, just seeing a lot of the data coming out about self-care and I live in the West Village and like half the stores on Bleecker Street here are perfume companies. And so I just was like, Like, yeah, maybe it's time for me to try to smell nice. I don't know. I think also I was always taught this way of putting it on, which like you spray it and then you walk through it. But then I don't even think anyone could ever smell it.