What Went Wrong With Food52?

The pandemic may be over for a lot of people, but decisions made in the middle of it are still affecting some businesses. One key example? Food52.

Food52, founded in 2009 by former New York Times food editor Amanda Hesser and food writer Merrill Stubbs, was a case study in the content to commerce thesis. Starting as a cooking community and recipe site, it had built an incredible audience off its personalities and content. It then turned around and sold physical goods to this audience. To this day, the Five Two kitchen towels are hands down the best towels I’ve ever used.

And yet, since 2022, it’s been in a downward spiral to the point that, according to an Adweek story last week, it is “gutting its commerce business” and letting go 40% of its team.

Following up on that, Adweek reported this week:

In the meeting, leadership also shared that Food52 hopes to generate roughly $50 million in commerce revenue from Schoolhouse and Food52’s diminished drop-ship business, and $10 million from Food52’s media business, according to documents reviewed by ADWEEK. If it hits these goals, it will still lose roughly $2 million on an EBITDA basis.

For context, it generated $160 million in revenue in 2021 and revenue in the high $70 million range last year, according to Adweek.

So, what happened?

To answer that, it helps to understand its valuation. A big problem for Food52 is that it raised a ton of money at the absolute peak of the pandemic “stay home” era at a valuation that was entirely unsustainable. Here’s the history:

In September 2019, The Chernin Group (TCG) bought a majority stake in the business for $83 million, valuing Food52 at over $100 million—despite not being profitable. Then, in 2021, TCG doubled down, investing another $80 million with $48 million of that being used to buy the profitable Schoolhouse, a home decor manufacturer. Food52 now carried a valuation of at least $300 million.

I can understand why this decision was made. The commerce business was the bulk of Food52 even before TCG got involved and so, by putting more cash to work, the belief was that it’d supercharge things.

Unfortunately, it lost sight of what made Food52 so damn good: a content business with incredible products for sale.

Instead, it doubled down on the commerce side of things while deprioritizing the content side. It hired as CEO the former President of West Elm. The homepage evolved to look like any other online store. You can see examples of it here and here. Instead of being a content to commerce business, it turned into a commerce business that had a small content operation.

Of course things weren’t going to work. The reason content to commerce is, in theory, such a powerful strategy is because the cost to acquire paying customers is supposed to come down. You’ve got a built in audience and so long as you are promoting things that you know they’ll want, you don’t need to pay 3rd-party marketing costs.

But when you’re promoting products like everyone else has, how do you stand out? When you’re deprioritizing content, which is the reason the audience is coming to begin with, how do you stand out? It becomes a very basic game of competing on price and logistics. I can assure you, West Elm and its parent company, Williams Sonoma can do far better there.

It went from a great community where the product development team would create new physical things (like those towels) based on feedback from the audience to an uninteresting ecommerce business selling the same stuff everyone else had. Boring.

So, what comes next?

The newish CEO, Erika Ayers Badan, has the right idea. As Adweek reported, she’s getting rid of all the undifferentiated drop shipped ecommerce bloat. It wasn’t making money anyway, so why do it? She’s investing more into the media side of things, which should help the community start to get excited again. And she’s focusing on Schoolhouse for the content to commerce monetization.

The one thing I’d do differently is I’d sell Schoolhouse. Food52 is a food site and needs to refocus on that. Schoolhouse’s website doesn’t even have “Kitchen” in the top navigation, so the product lineup isn’t crystal clear. It’s a profitable part of the business, which is likely why Badan wants to keep it to help offset the Food52 losses. Ultimately, I believe businesses need focus and so long as the focus is on revitalizing the core media operation, I see anything else as a distraction.

Ultimately, the Food52 story is a lesson in two things.

First, be very careful raising a ridiculous amount of capital. That valuation is going to be a massive anchor on the business and limit its ability to make good moves. At least for Badan, it’s an asymmetrical outcome. If she can turn the business around, she’s a hero and likely very well paid. If she can’t, who could succeed buried under all of that bloat?

Second, be mindful of market cycles. I learned this the hard way, but if things leave the trend line, ask yourself why. In 2020 and 2021, everyone was buying goods online like crazy because it was the only thing to do. The world reopened and people wanted to go to restaurants again, not cook at home. And so, if your thesis is, “this once in a lifetime pandemic has fundamentally changed the world forever,” think twice.

The unfortunate reality is, Food52 is still losing money and the team has a ton of work ahead of it.

But focusing on that core audience gives it a far better shot than the strategy previous executive teams tried to do. Whether it works or not is anyone’s guess.