1) Harry’s moves beyond shaving as it tries to become a platform and holding company for digitally-native brands.

What happened

  • Harry’s, a direct-to-consumer shaving brand, has raised $112 million in a new round of financing, which it plans to use to expand the brand’s products into personal care for men and women, household items and baby products, while also making investments and acquisitions in other brands.  

Why it matters

  • Harry’s has raised over $475 million in financing, which makes it the most funded digitally-native brand ever. Now the company has to produce returns for its investors. It’s very possible that being just a razor and skincare brand was not going to cut it with such a large amount of financing, requiring the company to diversify into other markets and brands. It seems that this decision to expand was both a forced decision and a conscious choice.
  • Becoming a platform can help grow Harry’s beyond a shaving brand, which, coupled with the factory it bought in 2014, may give Harry’s a competitive advantage as it continues scaling. The outcome is dependent on whether this potential integration will deliver fundamental advantages for the brands that it works with, or if Harry’s is turning into a fund-of-funds for its original investors.

2) Amazon Prime credit card holders will receive 5% back on Whole Foods purchases, on top of 5% cash back on Amazon purchases.

What happened

  • Shoppers who hold an Amazon Prime Rewards Visa card will now receive 5% back on their purchases at Whole Foods—non-Prime members who pay with an Amazon Rewards Visa Signature Card at the grocery chain will receive 3% back. This is the first addition to Amazon’s cash back program, which previously offered 5% back on Amazon.com purchases—one of the most aggressive cash back offers in the industry.

Why it matters

  • This is a serious new extension of cash back offers that the two Amazon credit cards already allow on Amazon.com, and the first that exists offline. It is also yet another benefit to Whole Foods shoppers who happen to be Prime members. The cash back program at Whole Foods not only further enhances Amazon’s acquisition of the grocery retailer, but will convert more Whole Foods shoppers to Amazon Prime membership—just think of how many consumers already spend most of their money on Amazon and food.
  • This is yet another iteration of Amazon’s unique loyalty program—predicated on changing consumer behavior and defaulting purchases to Amazon, thereby further reducing friction. As with Prime, there are no barriers to signing up for the credit card, such as the typical annual fee—it just incentivizes customers to buy more from Amazon and Whole Foods.  
  • Amazon has a unique ability to turn standalone businesses into frictionless lead generators for the company’s main retail business. The credit card program is a collaboration with Visa, an external institution—further proof of the viability of Amazon’s horizontal business model. The company can make money off of what its customers buy from Amazon and Whole Foods, rather than the credit card itself.

3) Instacart bounces back with a growing network of grocery partners after Amazon’s Whole Foods acquisition, but the race is on.

What happened

  • While Amazon was Instacart’s biggest partner, the Whole Foods acquisition in August 2017 changed the fate of the grocery-delivery startup. Since then, grocery chains have flocked to Instacart, which is now partnered with 190 grocery retailers—seven of which are some of the biggest in the U.S. by sales, including Costco, SuperValu Inc. and Kroger.

Why it matters

  • After Amazon’s acquisition of Whole Foods, Instacart’s prospects seemed bleak. But now the company is positioning itself as a way for traditional grocers to fight back against Amazon.
  • The question that remains is how effectively Instacart can help the other grocery chains under its belt modernize faster than all of Amazon’s resources can propel Whole Foods to greater prominence—in particular, Amazon Prime and its delivery network. Another advantage for Amazon is that it controls Whole Foods and can push for much deeper changes and integrations than Instacart, which has no control over its partners’ businesses.   

4) Kraft Heinz streamlined operations under cost-cutting owner, but now must grow sales as consumers shift away from processed foods.

What happened

  • Since the Kraft-Heinz merger in 2015, spurred by the Brazilian investment firm 3G Capital’s acquisition of both companies, seven Kraft facilities have closed, others have been modernized, and thousands of employees have been fired.
  • While Kraft Heinz now has the highest operating profit margin among its peers in the food-processing industry, consumer tastes have shifted away from processed food in favor of natural products, posing future growth challenges.

Why it matters

  • 3G is known for its zero-based budgeting, which deliberately—and effectively—keeps costs low. The strategy works best if sales are growing industry-wide, but coupled with the net drop in buying processed foods, short-term savings at Kraft Heinz come at the expense of long-term sales growth. This is compared to a company like Nestlé, which is beginning to reinvent itself, expanding the health products it sells in response to rising taxes and changing perceptions of its traditional sugary goods.
  • General Mills and Pepsico, two of the biggest food and beverage brands, spent approximately 1.4% and 1.2% of their revenue on research and development in 2017, respectively. In contrast, Kraft Heinz spent only 0.3%—a number which has decreased since 3G capital took over the company. If Kraft Heinz wants to keep growing, it will need to drastically increase this number, as well as the capital it deploys toward acquisitions of emerging brands. If not, all of these improvements will be short-term fixes that will not make a difference in the years to come.

5) Amazon Lending partners with Bank of America as the platform navigates a complicated loan program.

What happened

  • Amazon Lending, which provides loans ranging from $1,000 to $750,000 to small businesses that sell on Amazon’s websites, has partnered with Bank of America. However, the program’s growth rate is mostly flat compared to the previous year, hovering just under $700 million in outstanding loans in 2016 and 2017.

Why it matters

  • Capital is one of the biggest constraints for physical goods companies, which need to manufacture products months before they get paid for selling them. This is where Amazon Lending, the under-the-radar financing program founded in 2011, comes in. The relatively low-interest loans that the initiative offers Amazon sellers allows them to buy more inventory to sell on Amazon, which, in turn, means more products for people to buy on the platform, fueling the company’s flywheel.
  • The low-interest loans Lending provides also means that Amazon wants to make money when products are sold, rather than on debt. This is the power of its horizontal business model, which allows it to make little or no money on some programs, while it makes large sums elsewhere.
  • But with little growth last year, Amazon is trying to figure out how to scale a complicated program. The partnership with Bank of America de-risks some aspects of the offering, but there is still plenty to figure out if it wants to open the program to even more of its seller base.