Corporate Venture Capital & Supplement Retailers
Did you know that the specialty supplement retailer GNC had a venture investing platform? Surprise!
I’ll get to all the details around GNC Ventures a bit later in this article, but first I want to broaden everything up a bit and properly explain this investing trend.
CVC is Red Hot
Corporate Venture Capital (CVC) is essentially a practice where a large corporate entity takes an equity stake in a small but innovative or specialist company with the objective of gaining a specific competitive advantage. As an alternative to traditional acquisitions, companies are making more of these minority investments. In fact, corporate venture capital now accounts for nearly a quarter of all venture capital investing and its deal value have increased more than tenfold over the past decade.
When most people familiar with corporate venture capital think about the concept, they tend to beeline towards large tech companies like Google or Facebook, but this type of investing is done by every sector in the economy. That includes retailers, especially those that have the financial wherewithal. These retailer-owned (or affiliated) venture funds and/or incubators formed by retailers is becoming more common as retailers are having to evolve more rapidly to meet the needs of customers.
Why CVC?
These investments usually come in a few different forms…
Customer Experience
The first common corporate venture capital reason is to improve customer experience. This type of investing can help reinforce and signal to the market a retailer’s culture of innovation.
Walmart = the biggest retailer in the world has made several investments in tech companies to develop an alternative method of delivering products. But they’ve also invested in an indoor vertical farming company, several fintech companies, and a virtual fitting room software company.
Ulta Beauty = the launch of Prisma Ventures focused on investing in creative disruptors that could help deliver forward-thinking retail experiences. Its investments have already contributed to improved personalization and diagnosis for Ulta’s digital hair and skin services.
Home Depot = its venture fund is identifying, investing in, and partnering with early-stage companies to accelerate emerging technologies that aim to improve the customer experience and shape the future of home improvement. That includes a digital platform for bathroom renovations, crowdsourced delivery platform, and a freight technology company.
Support Small
The other common corporate venture capital reason is to support smaller brands. While the deal sizes are usually smaller than the previous example, the quantity is much higher. These types of investments can indicate a retailer’s interest in gaining a trendy reputation among consumers. It’s also a popular way for retailers to broaden their assortment and keep a pulse on innovation in the segment. By having access to product developers and product managers within emerging brands, the retailer can also ask for new features ahead of everyone else. This provides a substantial competitive differentiator in the merchandising function.
It could be used as a branding tool to support a specific cause that the retailer values and create more equitable merchandising.
Victoria’s Secret = announced several initiatives in a bid to revamp its image, including an inclusive marketplace called VS&Co-Lab that amplifies a diverse set of founders who break from antiquated rules.
Target = increased its investments in Black-owned companies and suppliers by 50% compared to 2020.
Brand Incubation
Depending on the structure of these corporate venture capital deals, the retailer could form officially (or unofficially) something that more resembles an incubator.
Walmart = provides a virtual classroom series, access to a brand management consultant, consumer insights, training on Walmart Connect, mentorship, and networking opportunities.
Market-Sensing Mechanism
Beyond making the actual deal, corporate venture capital is deployed as a market-sensing mechanism. What I mean by that is, you’ll only invest in a small percentage of deals, but the critical part of the value lies in the insights collected from the non-deals. These investment conversations expose companies to trends several years ahead of competitors. Venture activity often precedes market disruption, giving in-the-know investors an opportunity to actively course correct. The learnings often are about the ideas and trends that companies did not know to expect, it’s about closing the gap of what you don’t know you don’t know.
GNC Ventures
Introduced in 2021, GNC Ventures is designed to uncover and strategically partner with companies that are leading category innovation through unique attributes, multi-touchpoints, and a consumer-centric mindset. It’s a core part of the retailer's renewed strategic focus on innovation and serves as an incubator for unique, emerging, and innovative brands.
In the last two years, I found three publicly disclosed investments by GNC Ventures:
RealEats (July 2021) = a deal that focused on merchandising extensions that lean further into the food is medicine concept.
GLAXON (October 2021) = this deals de-risks the performance nutrition brand’s core competency of developing disruptive products by fast-tracking them with the retailer’s vast distribution scale and power.
PlantFuel (August 2022) = accelerates the plant-based performance nutrition brand’s speed-to-market and gives GNC a larger assortment of merchandising in that high-growth area.
Before I talk about what could be next for GNC Ventures, I want to quickly mention why a brand might take an investment from GNC Ventures beyond those incubator-like value-adds and speed-to-market comments I made earlier. Regardless of GNC’s bankruptcy in 2020, it’s still the largest brick and mortar specialty retailer in the supplement space. That serves as a stamp of approval for young brands and helps them build their reputation that can lead to attracting more retail partners.
What’s Next For GNC Ventures?
To follow a bit of that “2030s Future of GNC” content, I think you could see them strategically investing in loyalty program value-adds like telehealth services that focus on in-home diagnostics, connected or digital fitness companies, and wearable technologies. In terms of the more typical brand investing for merchandising reasons, it won’t come in the form of popular brands like GHOST or Alani Nu because those deals are too mature for it to be fruitful. I also think it won’t come in sports nutrition, but something in general wellness or even women’s health like Womaness.
Final Thoughts
I think we’re going to continue to see retailers invest more and dedicate more resources to corporate venture capital. A hidden land mine though for these retailers is to ensure they think about structure. The most successful companies separate these venture fund entities from general operations so that they can operate independently from corporate bureaucracy and deploy a decidedly noncorporate mindset.