Dead in the tank

See you later, aggregator, Amazon bursts the bubble

Benitago's bankruptcy marks the end of the aggregator bubble - companies that raised debt for the frantic purchase of successful businesses on Amazon. They just forgot that Amazon is not a lax regulator but a business monster that will not tolerate threats

Benitago, which raised $325 million in 2021, has declared bankruptcy. Although not many may know the name of the company founded in 2016, it was one of the leading aggregators (companies that buy successful small businesses) that operated on Amazon's platform. It, like a handful of others backed by a lot of capital and a flattering valuation, believed that it could become the next "Procter & Gamble" by frantically buying up small, independent businesses that operate only on Amazon. Its depressing end marks the end of a bubble that few have noticed, revealing that centralization can be exploited in the open market, but not in Amazon's tight-knit ecosystem. In its world there is only room for one giant.
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איור ציור  יונתן פופר
איור ציור  יונתן פופר
Dead in the tank
(Illustration: Yonatan Popper)
Benitago was founded by two students who met at Dartmouth University, and like all entrepreneurs they tell a romantic story: they did not enjoy studying computer science, and a shared backache led them to design a unique pillow. Their private invention was so successful that family members and others requested it as well. Quickly, they write, they began selling on Amazon with great success while harnessing their knowledge and creating a data-driven approach to development, logistics and marketing. They decided to turn the skill into a business in itself, the purpose of which would be to purchase successful small businesses like theirs and leverage them into thriving international brands. Benitago arose and received a name that represented the combining of their names - Benedict Dohman and Santiago Nesteros.
They weren't the only ones who thought of this idea. In the last four years, a unique segment arose, became established, inflated into a bubble and burst: the Amazon aggregator market, consolidators or e-commerce acquirers. These are companies that raise capital (usually debt) to purchase successful small businesses on Amazon. After the purchase, which is usually encouraged by the aggregators with purchase grants for the business owners, they work to expand the businesses, promote the brands at the international level and significantly increase the revenues and profits for them and the investors. All of these companies assume that they possess the knowledge and skill to not only identify the best buys, but also the means to increase the top and bottom lines of these businesses.
The interest was especially intense during the Corona period against the background of the sharp jump in online consumerism. According to the research company Marketplace Pulse, which specializes in retail consumerism, this market today includes 93 companies, of which 55 have announced fundraising rounds, and of which 31 have raised at least $100 million. In total, these companies have raised $16.2 billion in the last three years, much of it in debt from giants such as BlackRock, Goldman Sachs and Bain Capital. At the peak in 2021, the companies raised a total of $12 billion.
1. It's the ecosystem, stupid
Although most of the companies operating in the field are American, there are also several European ones, one from the United Arab Emirates, several from China, Japan, Turkey, Singapore, and even two Israeli ones: TCM belonging to the couple Gabi & Shani Bar, who according to reports raised a total of $28 million, but declared the business defunct at the end of 2022; and Atomic Growth, which was established two years ago and is in the Seed stage. Each of these companies imagines the possibility of establishing a group with a series of strong and well-known brands that can become successful on an international level, each on its own and only within the Amazon ecosystem. The working assumption is that holding a large number of brands and products will benefit from the advantage of scale, including consolidation of shipments in China and advertising expenses, to generate growing profits in Amazon's large market.
Each company has a dedicated strategy for its acquisition purposes, but the differences are not particularly large. Thrasio, the largest player in the field, raised $3.4 billion, and acquired about 200 brands that generate revenues of about $1 billion a year. It was established only in 2018 and focuses on businesses that generate over a million dollars in annual revenue, and uses a data-driven approach to analyze product ratings and reviews to identify interesting brands to purchase. The competitor Perch has so far raised $308 million, uses the same index and already owns 80 brands and focuses on their globalization. Unybrands raised $325 million, acquiring only fitness, health, care and supplement brands.
At Benitago, the threshold for purchase was at least $3 million in annual revenue, and at its peak it offered more than 350 different brands across 15 categories. At a certain point of distress, it tried to sell some of the brands, but ultimately stopped doing so. Berlin-based SellerX has so far raised $1.4 billion, and it acquires businesses whose products have a rating of at least 4.3 stars, focuses on non-seasonal products and has shown growth of over 30% per year. In total, it has 40 brands in its portfolio that offer 25,000 products.
They all see these as desirable businesses that are in Amazon's FBA (Fulfillment by Amazon) category, which means that Amazon itself supplies them, and therefore are often included under Prime, a particularly attractive category for customers that allows free shipping within 24 hours.
From this business structure, it is possible to understand that, in fact, many times what appears to be competition within Amazon's platform is actually a highly concentrated market. Thrasio or Benitago can offer different brands, at different prices, in different delivery categories to Amazon customers, without the customer knowing that they are actually purchasing a product from the same company. If this reality sounds familiar, it is because it has been our experience for years in both large and small supermarkets. Consumers seemingly enjoy a choice and variety of products that compete with each other, but, in fact, are controlled by a handful of companies, including Strauss, Unilever, Nestle, and, of course, Procter & Gamble.
But unlike the mergers and acquisitions that these huge corporations have carried out in the open market and under the eyes of the regulators who act very loosely in the face of anti-competitive business activity, the aggregators in the e-commerce market operate under the eyes of one - Amazon, which is also the direct competitor of many of the brands owned by the aggregators. In this way, the new and pretentious segment has been trying in recent years to build itself up as centralized and strong within a business and economic framework that is all designed to serve Amazon.
It should therefore come as no surprise that working within such a limited ecosystem would prove problematic. At the height of the pandemic online purchases soared and aggregators flourished, raising capital and a lot of debt and buying hundreds of brands for billions of dollars, but once the effects of the pandemic subsided, so did the aggregators. With the return to purchasing in physical stores, inflation and rising interest rates around the world, the world of online retail has slowed down significantly. It is true that these are difficulties that all the companies in the field have faced, but instead of being able to behave in an uncompetitive manner as large and traditional companies could behave like Unilever and Nestlé, through price increases, the aggregators of the Amazon market did not have similar power. Not only were they competing directly against the giant Amazon, which has far greater breathing space, but at the same time it dealt them another blow and raised the commission rate from third-party sellers by 30%, effectively reducing their profitability even more.
2. A lesson for the regulator
The aggregators therefore suffered from macroeconomic conditions like everyone else, from the specific market conditions dictated by the giant Amazon, and also from the general slowdown in the technology sector and the drying up of funding. According to CB Insights, after the sector recorded a record funding in 2021, recruitments fell by 88% in 2022. Only five financing deals were closed in the first five months of 2023. Unfortunately, about 75% of the capital raised in these years was intended for acquisitions and not for ongoing activities that could go to support the activities of the companies in times of crisis.
The pressure on business operations has pushed Thrasio to cancel its IPO, replace its CEO and make undisclosed layoffs. Berlin Brands Group, which raised $1.3 billion, announced layoffs of 10% of its workforce, while the smaller Boosted Commerce, which raised $380 million, laid off 20% of its team.
In recent months, a consolidation of the consolidators has also begun. In May, SellerX acquired Elevate Brands, in the same month Suma merged with D1 Brands to create a new brand called The Ambr Group, and in April Razor Group acquired competitor Stryze just months after acquiring the South American aggregators Valoreo and the European Factory14. Benitago has now declared bankruptcy, becoming the first major company to have no choice but to give up. This is another lesson that Amazon can teach regulators - when you really want to, you can do it.