“Diapers was the experiment,” says Zuru’s Nick Mowbray. “Then I was, like, ‘Wow, this can actually work. You can disrupt these big, entrenched consumer goods companies and take share.’”
Courtesy of Zuru
Zuru, which makes toys like Bunch O Balloons, hit $1.1 billion in revenue last year. But its fastest-growing division is consumer products, where it has launched new brands in diapers and hair care.
In May, an upstart diaper brand called Rascal and Friends launched a licensed version with the popular streaming kids’ show CoComelon. It flew off the shelves at Walmart and other major retailers in the U.S., Canada and elsewhere.
“This was a massive coup because Huggies is with Disney and P&G [Pampers] is with Warner Brothers, and CoComelon has blown them away in preschool,” says Nick Mowbray, cofounder and co-CEO of Zuru, the toy company that launched the new diaper brand.
Zuru co-owner and co-CEO Nick Mowbray figures the new consumer products push could bring in $400 million in revenue by 2023, double its sales last year.
A toy company selling diapers? It’s highly unusual, but Zuru, which is owned by New Zealand siblings Nick and Mat Mowbray and based in Hong Kong, has big plans in consumer products that include diapers, hair care, pet food, collagen and a slew of other items. Similar to toys, its strategy with consumer products is to manufacture inexpensively thanks to automation at its factories in China and market like crazy on TikTok, Instagram, YouTube and elsewhere online. There’s a big risk, but potentially also a big reward—if Zuru can convince customers to switch to their new brands.
Founded in 2003, Zuru has become a juggernaut in toys, which it sells in more than 120 countries. It specializes in inexpensive toys, like Bunch O Balloons, a gadget that fills 100 water balloons in 60 seconds, and Mini Brands, a capsule that contains tiny figurines of well-known brands inside.
The company has nearly tripled its sales, to $1.1 billion for 2021 from $400 million when Forbes last profiled Zuru three years ago. Nick Mowbray, a voluble 37-year-old man with blue eyes and reddish hair who leads the consumer products efforts, now says that he hopes to reach $2 billion in revenue in 2023.
“It takes a lot of belief in yourself to put money down and build massive manufacturing capabilities. . . . That’s Nick. He is a force of nature.”
That’s still a fraction of the size of toy giants Hasbro ($6.4 billion sales) or Mattel ($5.5 billion), let alone consumer products Goliath Procter & Gamble ($80.2 billion). But the consumer products push is growing fast as Zuru launches new brands at a rapid clip. It accounted for some $200 million in sales last year, and Mowbray figures it will surpass $400 million in revenue in 2023. With no outside investors, no bank loans and a highly profitable business that throws off cash, Zuru can invest in these new brands, even knowing that some will fail, with little risk to its core business.
Its efforts in collagen have gone slowly in the U.S., for example, while infant formula was a “disaster,” Mowbray says. The goal is to launch fast, fail fast and get insights. “You either win or learn,” he says. “You never lose.”
Zuru began as a pet project, as Forbes recounted in the 2019 profile. At age 12, Nick’s brother Mat designed a model hot-air balloon kit that won a national science fair in New Zealand. Mat and Nick went door-to-door to sell them. Soon, both brothers had dropped out of college and moved to China to turn their hobby into a real business. “My brother lived in the factory for eight years, in a little room—he didn’t even have a toilet,” Nick recalls. Originally called Guru, they changed the name to Zuru after a French company threatened to sue.
The siblings (their sister Anna has since left the business) gained momentum in the early days with a lot of moxie (“I crashed the Dick’s Sporting Goods buyer dinner in Hong Kong”) and knockoffs of other companies’ designs, including a light-up frisbee. When Zuru brought the frisbee to the New York Toy Fair, the industry’s annual extravaganza, and sold it to a distributor, its maker sued. The case ultimately settled.
Zuru’s Bunch O Balloons: The simple but popular toy lets users fill and tie 40 party balloons in 40 seconds.
Daniel Karmann/Getty Images
Perhaps more disastrous was a 2005 effort to make a handheld video game player in which users could play as the soccer star David Beckham. Zuru financed a deal with a Chinese manufacturer based on Walmart buying 2.2 million of them for $29 million, but as production began the retailer wanted to cancel the bulk of the order. Nick flew to Bentonville, Arkansas, and got Walmart to agree to pay for 800,000 devices. Walmart’s trepidation was right: When the toys hit the market, they flopped—and Zuru wound up blackballed by the retailer for years.
“We were fighting and scrapping in the early days,” Mowbray says.
Over time, they found success with toys like Bunch O Balloons and Mini Brands, which it sells by the millions. At Walmart, a three-pack of Bunch O Balloons sells for $10.88, while a two-pack of Five Surprise Foodie Mini Brands goes for $15.99 on Amazon. At a meeting at New York’s Soho House, Nick Mowbray pulls up his phone to show Bunch O Balloons coming off an assembly line at their factory in China. “The key to our business has been this,” he says, pointing to the automation. “We’re trying to get down to a finished product with no people.”
“How do you automate and do it ten times cheaper?”
While the company has grown, the scrappiness and boundary-pushing of the company’s early years remained. In 2018, Lego filed a lawsuit alleging that a line of Zuru’s building blocks and figurines was substantially similar to its own products and received a preliminary injunction from the District Court for the District of Connecticut. In a 2020 decision on appeal, the U.S. Court of Appeals for the Federal Court upheld a partial injunction against Zuru for certain products, but vacated it for others. The litigation is still pending.
At Zuru’s Shenzhen, China offices: “We could stay in toys forever, but where’s the fun in that?” says co-CEO Nick Mowbray
Courtesy of Zuru
Meanwhile, Zuru sued ratings company Glassdoor after a former employee or employees left scathing reviews about it being a “burnout factory” with a “toxic culture” and “incompetent” management team. The company wanted Glassdoor to disclose who wrote the reviews. Zuru’s stated intent was to sue the reviewers in New Zealand. In July, the U.S. District Court of the Northern District of California ordered Glassdoor to divulge the identities of the negative reviewers.
Joe Freeman, Glassdoor’s head of legal, wrote in a late-July blog post that while the firm was “deeply disappointed,” it considered the case “a very rare outlier that was decided by one U.S. judge attempting to interpret New Zealand law” that was “not binding on any other judge.”
Mowbray declines to discuss the company’s plans toward the reviewers, but says the company needed to unmask “fake” reviews. “I do think lots of businesses get destroyed by anonymous people sitting behind keyboards writing whatever they want with no accountability,” he says. “There should be some accountability.”
Four years ago, Nick Mowbray moved back to New Zealand. He was ill with Crohn’s disease and needed surgery. “I was so sick it was crazy. It crept up on me,” he says. Used to being in perpetual motion, he also was bored while lying in bed, so he started pondering ideas. A friend of his had designed a diaper, and he thought he could make it and go up against Kimberly Clark and P&G, whose Pampers brand has annual sales of more than $7 billion. “Monopolies and duopolies get lazy,” he says.
Zuru’s Rascal and Friends diaper brand launched with CoComelon this spring.
Courtesy of Zuru
So Zuru made its first foray into consumer products with its Rascal and Friends brand. Its first rollout was at Foodstuffs, a New Zealand grocery chain. “I was very nervous before we launched the nappies because it was so radical. It had no equity. We had to start from scratch,” says Morgan McCann, who heads up Foodstuffs’ New World brand and who’d known Nick Mowbray for years before signing the partnership deal.
It quickly gained 20% market share, McCann says, leading the two to test other categories, including hair care, pet food and collagen, in Foodstuffs’ stores. “We talked a lot about what Zuru had done in the toy industry,” McCann says. “Not everything is going to be a huge success, necessarily, but in a market like New Zealand we can prototype a little bit.”
Since then, Rascal and Friends has rolled out at Walmart, Tesco and other retailers, where it quickly gained market share. At Walmart Canada, it’s gained “double-digit” share, says Rose DeMarco, the retailer’s senior merchandising director for pet and baby care. “That’s not something that is typical,” she says.
Today Rascal and Friends is Zuru’s bestselling consumer product, with revenue expected to reach $150 million this year, up from $100 million last year. Mowbray touts the design of the diaper, which has three layers of protection against leaks, but Zuru also priced it below the big brands. Today, a 72-pack sells for $19.97 at Walmart, making them just 27 cents apiece.
Since then, Zuru has launched a flurry of new brands in rapid succession, including Monday (hair care), Nood (pet food) and Dose & Co. (collagen). Nick Mowbray figures that Zuru’s manufacturing operations in China, which are highly automated to keep costs down, will give it an edge in producing consumer products profitably, while its marketing blitz on social channels like YouTube and TikTok (it does almost no traditional marketing) will help it drum up consumer interest.
Consider Monday, which launched two years ago and offers shampoo and conditioner in distinctive light-pink bottles that show off well on social media, and are priced for the masses at $7.99 for a 12-ounce bottle at Ulta. To get some glamour, Meena Harris, the lawyer-entrepreneur and niece of Kamala, became a muse for the brand, and Mowbray gushes about getting a profile about her and the brand in Vanity Fair. “People thought it was a luxury brand, and it was a surprise you could buy it at Walmart and CVS,” he says.
Zuru’s Monday hair care brand was built for social media. On TikTok, the brand has 240,000 followers; on Instagram, it’s got 142,000.
Courtesy of Zuru
Monday’s sales are expected to reach $60 million this year, up from some $35 million in 2021. Building off that, Zuru is now launching other hair care brands sliced and diced for different demographics. “We want to build a 21st-century L’Oréal,” Mowbray says, without irony.
As with its toys, Zuru is making all its consumer products itself. “It takes a lot of belief in yourself to put money down and build massive manufacturing capabilities,” says Simon Philips, a licensing veteran who is managing director of global consumer products at Moonbug Entertainment, the company behind CoComelon, and has done deals with Mowbray for years. “There are very few people in the consumer products industry that would do that. That’s Nick. He is a force of nature.”
Underlying the automation is Zuru’s third business, a software platform called Zuru Tech that allows people to design a house online for the company to produce in a massive factory in Asia. Do you want cheaper versions of marble? Zuru will print a look-alike on ceramic tile. Wood? Similarly, it will print the grains. Earthquake proofing? The software will figure it out. Mowbray’s brother Mat, who declined to speak with Forbes, is running this project, which Nick hopes will be operational within two years.
Mowbray isn’t looking to automation to shave costs, but to slash them, lowering prices for consumers and keeping Zuru’s profits high. “How do you automate and do it ten times cheaper?” he says. “The reason we automate so much in toys is that we built the automation team for this project and leveraged it for toys and consumer products.”
Source by www.forbes.com