More than Momentum: Ritual
This is the fourth time in the past three months that I have fallen sick. I’ve always had a weak immune system, but this time feels particularly bad. Friends and family have pointed out the obvious — I’m not getting enough sleep and possibly am too stressed about work, but unfortunately these elements are unavoidable byproducts of my investment banking career.
Almost always, my loved ones then asked me if I have been taking my vitamins, to which I bewilderedly answered, no. I always believed that it was well known that multivitamins were nothing more than marketing scams, making empty promises of better health or skin or “flat tummies”. And yet, the dietary supplement industry is enormous — it is a $177bn market built on a fervent dedication to health as 68% of Americans take supplements every day.
It is also incredibly fragmented — the top 5 branded manufacturers combined account for less than 25% market share, which largely stems from a commoditized perception of supplements due to companies’ lack of emphasis on product differentiation and brand identity. Moreover, existing brands are simply not meeting consumers’ standards for delivering accurate health information and products rooted in scientific research. There is a giant opportunity to better monetize the space by creating a product with a strong brand identity that enables consumers to become well-informed stakeholders in their health decisions.
Coincidentally (or freakishly, your pick) my perceptive Instagram algorithm recently started inundating me with ads for Ritual, a direct-to-consumer, subscription-based multivitamin company targetted at women with the ultra-self-aware tagline, “For skeptics, by skeptics”. Ritual has expertly created a brand that can command premium, recurring, pricing at $30 per month by catering to affluent women who care about transparency, scientific integrity, feel-good authenticity, and Instagram design sensibilities. As a self-professed skeptic, I’m hooked — on the product and on the company, making it the perfect candidate for the More than Momentum series.
Product Offering
A Science-Led Approach
Ritual currently has two products — Essential for Women, an everyday multivitamin, and Essential Prenatal, a multivitamin for women thinking, trying, or who are pregnant. Both supplements are (allegedly) based on research and testing guided by their Scientific Advisory Board, which is comprised of an impressive roster of medical doctors, nutritionists, and scientists all with prestigious alma maters. Of course, nothing is FDA approved, so disclaimers still abound their website.
This science-first approach has yielded 3 differentiating factors between Ritual’s vitamins and its competitors:
- Ritual’s vitamins only contain nutrients that the average American woman lacks in her diet and could benefit from — 9 for the Essential for Women and 12 for the Essential Prenatal. Most multivitamins contain 20+ nutrients along with fillers and additives, most of which are unnecessary. For example, the top 5 multivitamins on Amazon, all of which have thousands of 4–5-star reviews, contain Calcium. Turns out, expansive studies have shown that an increased intake of Calcium does not help with bone loss and that American women already consume more calcium than women around the world. What our diets do tend to miss are other key nutrients (Vitamin D3, Vitamin K2, Magnesium, and Boron) that synergistically help absorb and transport Calcium from tissues into our bones. And yet, none of the top 5 multivitamins on Amazon contain K2, 3 of them don’t contain Boron, and 2 of them don’t contain Magnesium.
- Ritual’s vitamins contain nutrients that are in forms and doses that make them most effectively absorbable. For example, Folate deficiency has been linked with an increased risk of neural tube defects in fetuses, cardiovascular disease, cancer, and cognitive dysfunction. However, the majority of fortified food and vitamins contains folic acid, which cannot be converted into 5MTHF folate (the form our bodies need) by up to an estimated 40% of women due to a gene variant. Ritual makes sure to use 5MTHF folate amongst other forms of nutrients that are best suited for our bodies.
- The pills are designed (in a patent-pending manner) to contain both oil-based and dry ingredients, thereby allowing for an all-encompassing multivitamin that also contains omegas.
Finally, the nutrients are “clean” — aka non-GMO, vegan, ethically and sustainably sourced, which aren’t by-products of scientific necessity but are important for the conscientious consumer base the Company is targetting.
Business Model
An Authentic Approach to Direct-to-Consumer
Like many recent B2C startups, Ritual follows a direct-to-consumer model that bypasses retailers both in the physical and online realm.
The multivitamin space is made for the direct-to-consumer world. Rising insurance premiums and greater access to information (80% of Americans get their health information from the internet³) has led to consumers increasingly look to self-diagnose and identify targeted health needs. This shift in behaviour is expected to benefit the vitamin and supplement market as sales conversion is no longer heavily dependent on doctors’ advice.
And yet, the internet is a scary place. A trip to WebMD convinces you that you most definitely have the symptoms of a life-threatening illness. So while people are increasingly not likely to visit a doctor in person for their health needs, they still crave honest guidance to navigate the information overload that is the internet.
Ritual understands this seemingly conflicting dynamic and does a fantastic job of recreating the transparent yet supportive doctor-patient relationship with its customers. For one, it writes easy-to-read, informative, non-alarmist pieces on vitamins and nutrients that it chooses to include or exclude. It meticulously documents the sourcing of its ingredients, the vetting process of suppliers, the science behind why certain forms of vitamins are more absorbable, etcetera, etcetera. In informing its customers in a non-pedantic manner Ritual empowers them to take control of their health and feel good about it.
Ritual then goes one step further and makes an effort to explicitly not position itself as the answer to all of your health problems. The company recently posted on Instagram with the following caption:
“Miracles are magical. But no matter how many women tell you Essential for Women is a miracle pill, it’s not true. The truth is, health takes time. You have to commit to it.”
— Ritual
This level of authenticity not only sets Ritual apart from the scam-ridden vitamin universe but also creates a very necessary foundation for trust with its customers. It is incredibly important for startups and legacy brands alike to remember that DTC is not just another customer channel, it is a relationship, which is the underpinning of every B2C success story. Jeff Bezos (the King of B2C and B2B alike) very famously said, “I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation.”
Transparency and integrity are not just hokey marketing ploys but are integral to servicing the “obligation” that consumers need and now expect. Ritual’s well-defined and authentic ethos positions it to be a leading multivitamin brand that consumers can rely on and be proud of using.
Beating Subscription Fatigue
Instead of selling its vitamins in a one-time fashion, Ritual solely offers $30 monthly subscriptions for bottles with 60 capsules, which at 2 capsules per day last exactly 30 days.
Truthfully, Ritual’s subscription business model was the largest contributor to my reluctance to try their vitamins. As more and more paywalls prop-up and venture capital continues to fund anything and everything subscription-based (wine, cosmetics, tampons, meal-kits, pastrami sandwiches, etc.), I have noticed a trend of subscription fatigue amongst my friends and I. Each subscription can cost upwards of $30 per month and 34% of subscribers own more than 3. As someone that currently uses 7 of them, the thought of adding one more to my collection feels tiresome and unnecessary. Not to mention, they are usually a nightmare to cancel. This isn’t my sentiment alone — Deloitte recently found that 47% of U.S. consumers are frustrated by the number of services required to watch the media they want.
The subscription model simply isn’t intuitive for most consumers. McKinsey surveyed 4,000 individuals and found that performance across the purchase funnel, which is a model meant to depict the magnitude of dropoffs in the consumer journey towards conversion, for an e-commerce subscription service is quite weak. Only 55 percent of those who consider a service ultimately subscribe, likely because of an aversion to long-term commitment to any one service. Even scarier, high churn is rampant as 39 percent of those that do subscribe end up canceling their subscription.
That being said, there are instances where subscription models make sense and perform well. For one, the type of subscription offering matters a lot. Ritual benefits from being a “replenishment subscription”, defined by McKinsey as an offering that allows consumers to “automate the regular purchase of commodity items”. In comparison to other services that are curation-focused, replenishment subscriptions are the easiest for consumers to identify as a value-add as they offer the benefit of convenience, which noticeably lowers the hurdle to justify subscribing.
Two, being able to identify and adapt to consumers’ differing usage patterns is essential. A primary reason why consumers decide to cancel replenishment subscriptions is that they prefer to buy the product when they need it versus on a scheduled basis. For example, how often someone uses a razor in a month is highly dependent on their hair growth and their aesthetic preferences, meaning that a significant portion of individuals will not realise the value of a monthly subscription for blades and will likely be frustrated by a build-up of product that goes unused.
Ritual, however, benefits from having a pre-defined depletion schedule. As mentioned earlier, each bottle contains 60 capsules and at the recommended 2 capsules per day, bottles are ensured to empty every 30 days, putting it in lockstep with a monthly subscription timeline. On the off-chance a customer has not been so great about taking their vitamins daily, Ritual preempts any fatigue or frustration by shooting a reminder email a couple of days prior to delivery that allows customers to rush or delay orders. In doing so, Ritual transforms what has become a monthly reminder of wastage to one of pleasure — which is critical for minimizing churn, extending customer lifetime value, and scaling the business.
Building a Platform as a Vehicle for Growth
In 2 years, Ritual has sold over 1 million bottles of just one product — its essential daily vitamin — yielding $30 million of revenue. And yet, the company is just starting to ramp-up. Ritual is leveraging its positioning as a lifestyle brand to create a suite of products that address women’s evolving nutritional needs such as prenatal vitamins, postnatal, post-menopausal, etc. In doing so, the company increases its target addressable market, extends customer lifetime values, and stickiness. Notedly, it aims to create only one product for each of these life stages, which means that Ritual is able to expand its SKUs without worrying about cannibalization of existing products. This growth strategy is great not only for topline considerations but also for margin considerations as the operational complexity of the business will not drastically change over time.
Industry Overview
Commoditized and Undermonetized
As mentioned previously, the dietary supplement industry is enormous, fragmented, and commoditized in nature. A quick search in Google for vitamins shows exactly how lackluster these brands can be. As a result, consumers don’t have much brand awareness or loyalty to products — giving way to the adoption of generic private-label vitamins (made by Walmart, Costco, Amazon, etc.) that account for 10% of the market.
Such high market fragmentation serves as a great opportunity for new entrants to better monetize the industry and gain substantial market share. Ritual is poised extremely well to do so with its differentiated scientific approach and memorable brand presence.
Fierce Challengers Abound
That being said, Ritual is not the only startup trying to upend the dietary supplement industry. The most vocal of which is Care/Of, a D2C startup focused on personalized vitamin packets has done immensely well in generating significant brand awareness and recently raised $29mm in its Series B, valuing the company at $146mm.
Care/Of’s biggest differentiator is its approach built on personalisation. The company builds a pack of vitamins, minerals, and herbs based on your responses to a short questionnaire on behaviour, diet, and goals. It also gives you the opportunity to add or remove vitamins as you wish.
Personalization is exciting. If done well, it makes consumers feel special and establishes a real relationship between the brand and a customer. Care/Of’s attention to small details like addressing each packet with your name has gone a long way in terms of virality and brand presence. A quick look at the stats describe the gap — “Care/Of vitamins” has 579mm hits on Google, while “Ritual vitamins” has 27mm hits. Care/Of’s Alexa ranking in the U.S. is 13,559, while Ritual’s is 25,808. Care/Of has 144k followers on Instagram, while Ritual has 109k.
However, it is important to note that Care/Of doesn’t engage in a level of personalisation that would put it in the realm of precision medicine, or really any realm of science. In fact, Ritual says it best in its not so subtle article, The Truth About Personalized Vitamins:
…identifying issues like nutrient deficiencies or heavy metal burdens is very different from matching preferences like “more energy” or “better skin.”…Because questionnaires usually do not reflect objective analytical testing, they’re pretty shot-in-the dark as far as what they might be able to deliver.
Scientific integrity aside, C/O doesn’t seem to deliver on cost or convenience either. My personalized daily pack includes 7 different pills and costs $49 per month for an average of $7 per ingredient. Alternatively, Ritual’s daily multivitamin requires just two pills per day and has 9 ingredients for the cost of $30 per month or ~$3.30 per ingredient.
Admittedly the number of pills included and the cost of C/O packs can vary, but even the cheapest ingredients cost $5 per month. This is all to say that Care/Of, although trendy and well-funded, seems to be just that. Ritual has a real opportunity to come out on top if it is able to overcome its current visibility gap.
Market Sizing and Valuation
As of 2016, the global vitamin, minerals, and nutritional and herbal supplements (VMHS) market was valued at $133bn with a 9.6% CAGR. Approximately 30% of the market is attributable to the U.S., making Ritual’s total addressable market $49bn.
At $30 a bottle, Ritual’s target demographic is college-educated women, likely under 65. Using census data and the FDA’s assertion that 3 in 4 adults take supplements regularly, 23.8mm women would be in its serviceable market. The average annual expenditure on supplements is about $230, meaning that Ritual’s SAM is $5.5bn.
If we assume that Ritual is able to capture just 10% of its serviceable market, or 2.4mm women, and charge them $360 a year, they would be able to generate $860mm of revenue per year.
The average EV / Sales multiple for B2C subscription-based companies is 4.2x. If Ritual is indeed able to generate $860mm of ARR, they could be looking at a $3.6bn valuation — making it a prime candidate for growth capital infusion used to aggressively gain market share.
The Final Take
Ritual is not just another vitamin company — it has expertly created a brand that can command premium, recurring, pricing at $30 per month, which is arguably a defensible moat in the archaic, bland, and crowded multivitamin universe.
It does face a variety of risks, such as brand erosion if it is not up-to-date with scientific findings, price undercutting by established manufacturers, increased competition due to low barriers of entry, and subscription fatigue’s impact on user adoption.
That being said, I believe that it is positioned to significantly capture market share with its product differentiation rooted in scientific integrity and transparency, its approach to mitigating churn by heightening end-to-end customer service, and its platform growth strategy that expands its addressable market without cannibalization concerns. If I somehow came across a pool of unallocated capital (LPs give me a call), I would most definitely deploy some to Ritual, a company I can confidently say is More than Momentum.
I am always looking to better refine my views on business models and industries — if you have an opposing view on any of the above please comment below!
