ASX debutant Candy Club sinks teeth into multi-billion-dollar candy market

Candy Club ASX CLB IPO initial public offering candy market
Confectionary start-up Candy Club boasts several high-profile backers including serial entrepreneur Keith Cohn and director James Baillieu.

Life is sweet for confectionary start-up Candy Club (ASX: CLB), which makes its debut on the Australian Securities Exchange today after successfully closing its $5 million initial public offering (IPO).

The $5 million was raised through the issue of 25.12 million shares at $0.20 each, giving the company a market cap of around $30 million at issue price.

The Los Angeles-based supplier of premium specialty candies is led by serial entrepreneur Keith Cohn and boasts several other high-profile names behind it.

It has also achieved impressive performance results to date, with customer re-order rates boding well for Q4 2019’s targeted profitability.

Sweet success

Candy Club business operates a confectionary subscription service, delivering a curated box containing six varieties of sweet treats directly to customers each month.

In the 2017 calendar year, this business-to-consumer (B2C) arm generated US$8.4 million in revenue and US$3.4 million in gross profit.

The company rolled out its business-to business (B2B) side in July last year to bulk sell Candy Club branded confectionary to specialty market retailers in the US.

In a business update also released to the market today, Candy Club said this wholesale business segment has secured more than 300 individual retail accounts and more than doubled internal sales projections, bringing in about A$500,000 in revenue in its first six months.

According to the company, re-order demand has been “significantly above internal expectations”.

“It is anticipated that the strong re-order rate will translate to a material increase in the number of locations to be rolled for B2B customers,” Candy Club stated in its update.

“The combination of accounts being won on a consistent basis, sell-through and reorder rates, point to a significant quarter over quarter growth in Q1 and 2019 for this business segment,” it said.

Candy Club’s business segments have been designed to complement each other, with the rapidly growing B2B arm expected to drive demand in the B2C segment as retail customers are encouraged to explore Candy Club’s e-commerce subscription website.

The company is planning to use the IPO funds to scale both the B2C and B2B businesses through increased sales and marketing initiatives, hire key employees, purchase packaging automation equipment and for general corporate purposes.

Strong backing

Candy Club is backed by several high-profile names and a strong board with members owning about a third of the company’s total issued shares.

Founder and chief executive officer Mr Cohn has successfully built up businesses from scratch including Vendare Media, a leading adtech company with 300 staff and annual sales of around A$200 million.

The company’s chairman Rob Hines has held several board positions over the last two decades including chairman of biotech company Genetraks, group chairman of the CEO Circle and director of online bookie Sportsbet.

Another board director is James Baillieu, one of the founding directors of former ASX 200 listed company Aconex, which was sold to Oracle Corporation last year for US$1.9 billion. Baillieu is also the current chairman of BidEnergy (ASX: BID).

Other non-executive directors include Zac Rosenburg (founding partner of investment firm Capital Zed) and Kan Tang (founding partner of private equity firm Asia Summit Capital).

In addition, Candy Club’s top shareholders include Young Rich List member and Luxury Escapes founder Adam Schwab, reputable New York-based venture capital firm KEC Ventures and ASX-listed investment fund CVC (ASX: CVC).

The burgeoning candy market

According to the National Confectioner’s Association 2017 annual report, the confectionary industry was worth US$35 billion in 2017 in the US alone. The market has been forecast to grow to US$40 billion by 2023.

Confectionary is also the fourth largest category by revenue in multi-centre stores in the US, including grocery stores, chemists, convenience stores and “big box” or department stores.

The statistics also show the average US household purchases candy about 17.4 times per year, with customers consuming candy about two to three times a week and about 90% of US consumers choosing to give it as a gift.

However, Candy Club believes confectionary is an “old world” market, with no new innovations and a lack of omnichannel capabilities, dominated by mass market players that lack high-quality, appropriately presented products to fit in the specialty retail market.

In a nutshell, the company believes mainstream, mass-produced candy like what is found at the front counter of at a petrol station or supermarket is not appealing and can “cheapen” a clothing boutique or high-end gift store, for example.

However, its own branded premium candies in “artisanal-style” contemporary packaging could be the products to fill this niche market.

Sugar confectionary are also high-margin, high-turnover products with long expiry dates expected to increase the average order value for specialty retailers while not competing with their core merchandise.

Mr Cohn told Small Caps that Candy Club’s accepted listing on the ASX was “a significant next step in our journey to become the world’s preeminent specialty market confectionary business”.

“Candy Club continues to execute well in all segments of our business. We are off to a strong start in 2019 in both the wholesale and direct-to-consumer segments,” he added in the company’s business update.