Berlin Brands Group Acquires D2C & Amazon Merchants for $302M

The increasing popularity of direct-to-consumer companies has been a significant trend in e-commerce over the past decade, and a corresponding development has been the emergence of startups securing substantial funding to consolidate these D2C businesses and achieve greater economies of scale.

Recently, Berlin Brands Group, a German startup, announced plans to invest €250 million (approximately $302 million based on current exchange rates) in acquiring smaller companies and integrating them into its operations.

While many companies competing in this consolidation arena are concentrating on the Amazon Marketplace – utilizing Fulfillment by Amazon (FBA) for distribution and logistics – Peter Chaljawski, the founder and CEO, explains that the situation differs in the company’s primary target market of Europe.

He stated that the mergers and acquisitions landscape in Europe is more fragmented compared to the United States. In the U.S., D2C businesses heavily rely on Amazon, whereas Europe offers numerous alternatives, and in certain countries like France, consumers often prefer not to use Amazon. BBG also prioritizes direct sales to consumers, bypassing marketplaces entirely, and currently utilizes around 100 different sales channels.

BBG distinguishes itself from typical e-commerce startups by having successfully established a large and profitable business primarily through organic growth. Notably, despite being a major e-commerce entity in Berlin, BBG has no affiliation with Rocket Internet, the well-known e-commerce incubator based in the city.

The $302 million designated for acquisitions will be funded from the startup’s existing capital reserves. Furthermore, this investment is occurring before BBG pursues a significant round of external funding to support its continued expansion. Although BBG has previously secured funding (the amount of which remains undisclosed according to PitchBook), this would represent its first substantial equity round upon completion.

BBG has independently built a profitable direct-to-consumer business since its founding in 2005. Initially focused on audio equipment – stemming from Chaljawski’s earlier aspiration to become a DJ – the company now encompasses 14 brands, offering 2,500 products across 28 markets.

The company’s conglomerate approach spans various categories, predominantly in consumer electronics – including audio devices, fitness equipment, and home appliances – marketed under brands such as auna, Klarstein, and Capital Sports. To date, BBG reports selling over 10 million products and generating €300 million (roughly $363 million) in revenue in 2020 while remaining profitable.

The company’s acquisition strategy will focus on brands and products within the garden, home and living, sports, electronics, and household appliance sectors, targeting businesses with revenues ranging from €500,000 to €30 million.

While BBG has primarily focused on organic expansion, it initiated inorganic growth in December with the acquisition of Sleepwise, a home goods brand described by Chaljawski as producing “a very nice blanket.”

The benefits of a comfortable blanket may prove valuable, as BBG faces several challenges despite its current success.

One key challenge is competition. BBG’s strategic shift and acquisition plans coincide with the emergence of other consolidators equipped with significant capital to acquire smaller brands that have achieved success on marketplaces like Amazon, but may lack clear paths to further scaling.

These competitors include companies such as Thrasio (which recently raised $500 million in debt for acquisitions), SellerX, Heyday, Heroes, Perch, and others.

A recent article in the FT (prior to Thrasio’s latest debt round) estimated that these companies have collectively raised at least $1 billion to establish new online consumer empires based on this model.

Their overarching goal is to become the next Unilever, P&G, or Sony, leveraging new economic models and technology to enhance manufacturing, logistics, economies of scale, sales analytics, and marketing innovation.

Another challenge lies in successfully integrating numerous new brands, along with their associated cultures and existing business partnerships, given BBG’s history of deliberate, organic growth.

A third challenge is identifying high-quality brands for acquisition. As previously noted, marketplaces like Amazon feature a substantial amount of low-quality merchandise, including products resold from wholesale sites, leading to numerous merchants offering seemingly identical items. These sellers often utilize SEO and customer reviews to achieve high search rankings, potentially selling well despite offering limited value to consumers. This presents misleading signals for potential consolidators seeking promising companies to acquire.

The interplay between how marketplaces are utilized and how brands strive to build independently will be a crucial dynamic to observe in the coming years. Amazon and similar platforms continue to grow and improve efficiency, although this can sometimes result in excessive power over third-party sellers:

Conversely, we are witnessing ongoing efforts from startups and established companies to provide tools that empower smaller businesses to compete effectively on their own terms. These include major players like Shopify, as well as newer companies such as GoSite, Shogun, and Xentral.