After selling his $200m startup to Alibaba, an entrepreneur’s back with a pet food venture

Like certain diseases and a sense of humor, weight issues can run in the family, according to studies. Scientists have found that overweight or obese parents tend to have overweight or obese children, and the same goes for pets, apparently.

As it stands, the worldwide prevalence of pet obesity lies somewhere between 22 and 44 percent, and there are many reasons for that. For example, pets are being fed a lot of snacks and table scraps. Food, more than anything else, is also used by pet owners as a reward for good behavior.

Photo credit: 123RF

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Attempting to curb the tide of overweight pets – canines, in particular – is Léo & Léa, a Japan-based startup that delivers healthy, premium dog food to pet owners throughout the country. And if things go according to plan for co-founder Alexandre Monteux, Léo & Léa products will soon be reaching the doorsteps of even more customers across Asia.

nUS$200 million exitn

This is not the first time that Léo & Léa has made the headlines. In early March, Tech in Asia reported that the startup raised close to US$1 million in a pre-series A funding round. Riding that momentum, the company is preparing for a further US$5 million series A funding round to bankroll its international expansion.

Monteux, along with his founding partners Alain Soulas and Olivier Chouvet, are veteran entrepreneurs. Their previous ventures include the luxury flash-sale platform, Glamour Sales, which is known as Gladd.jp in Japan and Mei.com in China. In 2015, Mei.com was snapped up by Chinese tech titan Alibaba in 2015 with a valuation of about US$200 million. Gladd.jp is also a dominant player, with an 81 percent market share among all Japanese flash-sale platforms.

Going from luxury goods and flash sales to premium dog food might sound like a huge jump. However, according to Monteux, the leap was calculated. After the Alibaba deal, he and his co-founders “made some cashouts.”

As he recalls, “We knew that we needed to capitalize on our experience there and continue in ecommerce. In 2015, we saw a rise in consciousness around the world about pet health and the issue of junk food for dogs. Pets were becoming a real part of the family, just like children. So we thought maybe there’s something to do around this as the common expertise we have developed in our different businesses is the know-how of the luxury and lifestyle customers and how to communicate to them.”

nBringing in the expertsn

Growing up in southern France, Monteux had pets of his own, but that’s the extent of his knowledge in pet nutrition – at least before Léo & Léa became a reality. “I was in no way a specialist,” he confesses.

However, Monteux is bringing his own expertise to the table. For one, having founded and exited an ecommerce platform before, he knew the importance of optimizing customer acquisition costs and the role that social media plays in putting products out in the market.

“A good repeat rate for customers” is also necessary, Monteux explains. “You pay a lot of money to get customers, and you want them to come back as much as possible. So you want to maximize their lifetime value.”

Lastly, there’s gross margin. “You have the logistics cost, the marketing cost, so you need the gross margin to be good. You want to break even as soon as possible,” he adds.

Besides, selling premium dog food online is not too different from luxury fashion. For one, both are premium lifestyle products, since Léo & Léa carries and produces customized, additive-free dog food made from Japanese beef, according to the company.

Finally, a large chunk of Léo & Léa’s initial funding of US$2.4 million (which came out of the founders’ own pockets) went to developing dog-food recipes. Veterinarians and nutritionists in Japan and France are responsible for coming up with the recipes, which are tailored to the dog’s breed, age, habits, and a host of other criteria. That way, dog owners know that what they’re getting is top-quality stuff.

nMade in Japann

To borrow from a Frank Sinatra song about New York: if you can make it there, you can make it anywhere. It seems to apply to Japan as well, and the fact that Léo & Léa is headquartered in Japan is no coincidence.

First, there’s less competition in the country. “When we started our flash-sale business in 2009, there were three competitors in Japan,” Monteux says. “Ten years later, there are still only three. There have not been a lot of people entering the market.”

However, it is a different story in China altogether. “When we started Mei.com, there was effectively only three competitors. But six months [later], we saw almost 100 competitors, and at least 10 with US$50 million to US$100 million in cash to invest,” he shares.

Alexandre Monteux, co-founder of Leo and Lea.

Secondly, Monteux and his partners are intimately familiar with the Japanese market. In fact, for the last 15 years, they set up all of their companies in Japan first before venturing abroad.

Monteux cites “a very simple reason” for this: “Japanese customers are probably the most difficult to please, and they are very demanding and sophisticated. They care about quality of products and customer service. So when you’re Japanese-proof, you can expand anywhere.”

He also notes that foreign companies often find it very difficult to take root in Japan. It helps, then, that one of Monteux’s partners, Alain Soulas, has lived in Japan for 25 years. Knowing the market and people is a big boon to the business.

nTender loving caren

An expansion is in the works for Léo & Léa: it sees pet food ecommerce as an untapped vertical, despite large populations of tech-savvy pet owners and a growing demand for high-quality healthy products.

Since June 2017, the company has amassed over 7,000 monthly active users – and 40 percent of them are repeat customers. Furthermore, two months after Léo & Léa launched its subscription service, 25 percent of its users came on board.

The startup’s pre-series A funding is going towards marketing and developing new recipes based on that data it collects about its users’ pets. The upcoming series A goal of US$5 million, which Monteux hopes to close between June and September 2019, will help Léo & Léa penetrate markets like China, South Korea, Taiwan, and Southeast Asia.

According to independent M&A firm Gereje Corporate Finance, which also helps Monteux and his team negotiate with potential investors and structure transactions, the “premiumization” of pet food is a growing trend globally, with an average Enterprise Value-to-Sales multiple above 2x for mature companies, and between 7x to 10x for venture businesses. The recent acquisition of US-based Blue Buffalo by food manufacturing giant General Mills for US$8 billion is a further proof of how the market for premium pet food is thriving.

Beyond pet food, Monteux wants to cross-sell pet accessories and toys as well as pet-care products. Pet insurance, too, is something that Léo & Léa is looking to offer.

“We have 25,000 pets in our database. We know who they are, we know their age, their lifestyle and physical conditions, and we know their owners. It’s a lot of data,” Monteux claims. “What we want is to become a platform for the well-being of your pet.”