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The sweet smell of retail success…or failure

Online retail start-ups often begin romantically, with dreams of a sweet future, but when romance gives way to the realities of business, a rocky road can lie ahead.

One retailer whose business started from a world of ‘pure imagination’ is the US-based Sugarfina. After co-founders Josh Resnick and Rosie O’Neill met online, they made their third date a trip to the movies to see Willy Wonka and the Chocolate Factory which left them asking “Why should kids have all the fun?” This realisation bathed in sweet nostalgia was the catalyst for a gourmet candy business aimed at adults.

Between them, the pair had lots of experience in getting companies off the ground and developing iconic brands. Resnick had been the co-founder and President of Pandemic Studios, a video game developer acquired by Electronic Arts in 2008. O’Neill was the former Director of Marketing on Mattel’s legendary Barbie. They each chipped in $30K to get started then spent two years taste-testing thousands of candies from all around the world in order to find the best of the best.

After gathering a stock collection of roughly 125 different candies, they launched online in 2012, attracting big customers like Facebook, Virgin Atlantic and Tiffany & Co with their gift sets designed as corporate rewards. By November 2013 they had opened their first physical store in Beverly Hills.

In September 2019 the chain of chic boutiques numbered 44, including two in Hong Kong with plans to open in South Korea, Taiwan, Singapore, Japan and mainland China. They could also be found in department stores with 15 Nordstrom sites sporting shop-in-shops, and both Harrods and Harvey Nichols stocking the brand.

Lovely to look at, delightful to taste

Intended to resemble a jewellery or cosmetics store with very clean layouts to allow the candy and its packaging to sing, the elegant, upscale and importantly ‘grammable’ Sugarfina outlets were designed to create beautiful photo backdrops. Offering sweets well beyond anything found in a conventional candy store, the lollies are sold in clear plastic cubes that can be combined in various ways, like a Japanese bento box, making perfect gifts and creating Sugarfina’s unique selling point.

Despite the wide variety of flavours on offer, Sugarfina kept its focus on their adult target market as they developed the range.  Rosé gummy bears sold out in two hours when they were first introduced, leaving a waiting list of customers thousands long.  You name the booze and they’ve got a gummy bear flavour inspired by it. From fat-free champagne bears from Germany made with Dom Perignon, to Aviation Gin Fizz Bears and Dark Chocolate Bourbon Bears.

Those who prefer their sweets unspiked can indulge in flavours inspired by LA coffee house Alfred (cold brew and iced vanilla latte bears), Pressed Juicery (vitamin infused juice gummies) and breakfast treats (cinnamon cereal crunchies and fruity cereal chocolate bars).

The plastic cubes start at USD $8.95 for a small, $20 for the large, with discounts when sold in ‘bento boxes’. A 20-piece ‘candy trunk’ will set you back USD $195!

If they don’t buy it, it all goes to waste

Then on September 11 this year, the business went into hyperglycaemic shock, filing for Chapter 11 bankruptcy and immediately closing six of its stores. Sugarfina cited shifts in the retail sector, uncertainty in its international partnerships and difficulty in controlling margins as reasons for not being profitable, with reports of a USD $26.65 million debt.

Clearly the rapid expansion of storefronts and ‘international efforts’ meant the brand bit off more than it could chew.

What’s to be learnt?

From our point of view, the causes of Sugarfina’s blowout show similarities to one issue that contributed to the collapse of Darrell Lea in Australia back in 2012. At its height, the world-renowned maker of liquorice and Rocklea Road sold no fewer than 800 different product lines through its stores, the maintenance of which contributed to the business’ poor profit margin. Sugarfina’s wide range of sweets and flavours served in premium packaging, combined with their numerous collaborations with other brands, surely struggle to return a profit to the business. Super Mario Bros themed candy cubes in a Nintendo Entertainment System console shaped box that plays music from the game being one example. Despite the high price tags, when sold through bricks and mortar stores, the margin on these items must be curtailed.

Further, the global move towards reduced sugar consumption and healthier treats has been acknowledged by the brand’s offering of sugar-free candy, but given little credence with just the three flavours to choose from. Likewise, a small range of vegan and vegetarian sweets (that’s right, the gelatin in most of those gummies is of the animal variety), seems like a tokenistic attempt to address the growing trend of consumers moving towards more ethical eating. You also have to wonder if eco-friendly consumers are concerned by the sheer weight of packaging, albeit beautiful and charming, that surrounds these tiny drops of sweetness.

But in the end perhaps the luxury price tag has been just as difficult for consumers to swallow when it comes to gummy sweets. While the premium presentation attracts a high-end customer and fits well to the corporate market, it’s a bit beyond the reach of the average shopper looking to treat themselves in a Westfield centre, where Sugarfina were starting to branch out.

Sweet times ahead?

More positively, on October 31 private equity firm The Bristol Luxury Group purchased all of Sugarfina’s assets in a deal valued at about $15.1 million. Hopefully, like Darrell Lea’s saviours, the new operating company will revise Sugarfina’s expansion plans, distribution network and product range in a way that sees the luxury candy experience flourish, so that more grown-ups can enjoy reliving their ‘Willy Wonka-style’ childhood fantasies.

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