138. Building Slow to Go Far with Aaron Luo of Mercado Famous

Podcast - Aaron Luo, Mercado Famous

Jordan Buckner: [00:00:00] My guest today is Aaron Liu, CEO and co-founder of the new DTC Spanish charcuterie brand, Mercado Famous. So Aaron was born in China, but raised in Madrid where he grew up eating a blend of cuisine, incorporating Chinese ingredients. He's also the co-founder of Caraa, which is a top selling fashion apparel brand.

Aaron, welcome.

Aaron Luo: Thank you, Jordan. Really excited to be here. 

Jordan Buckner: So there's a lot that I think we have to talk through, but there's a couple points that I think are really helpful for our audience. You have launched a second business. about Mecado Famous, first and then we'll kind of get into why you decided to launch.

Aaron Luo: Yeah. Yeah. So the genesis behind Mercado Famous is that you know, Chinese. My co founder and I, we both are Chinese, but grew up in Spain. Like you mentioned in the introduction and have been living in the U S for about 20 years and always struggled with finding high end It's all well made, good quality charcuterie, which is a signature product from Spain, right?

For any listeners and including [00:01:00] yourself that have been in Spain you know, one of our signature dishes or flagship products is our charcuterie and it's jamon, it's chorizo, it's lomo and it's salchichon also. And we grew up eating it and couldn't really find a really good quality ones in the States. Either we found, you know, kind of mediocre quality products at a pretty high price or you know, good quality product at even higher prices, right?

So we kind of wanted to change all that. the Word disruption just because I feel like it's overused in the DTC world for the last, after 10 years But, you know, the truth is, I think when you look at the charcuterie space, right, we also felt that overall, you know, it's been a little bit stale and it's dominated by a lot of bigger brands, right?

Bigger CPG brands that not necessarily care about some of the practices that we do in terms of using organic products or raising the pigs in the right way. And I'm sure we'll dive on a little bit later on. So yeah, so the idea is, you know, to [00:02:00] really introduce this product into the States for the pantries of American consumers at, you know, very accessible prices and then maintaining the high quality that we think we were able to 

Jordan Buckner: I tried put product so well. You sent me some samples, and they're absolutely delicious. I love them. I love the chorizo and the lomo and I think the quality , is top notch. And you're actually sourcing everything from Spain. That's right.

Aaron Luo: That's correct. And that was honestly a little bit of a challenge. You know, we started thinking about the brand about two years, maybe like two and a half, three years ago, but really kind of spent a year and a half, two years really looking for the right partners. Just because, you know, we didn't want to go the industrial route, right?

In terms of finding kind of mass produced partner when it comes to sourcing. And then, you know, there were many smaller farms that we ended up loving, but they had a hundred pigs, right? So we knew we can't really scale with a hundred pigs a yearly basis. So, you know, it was a challenging equation to balance between somebody who would really love [00:03:00] that, you know, raise the pigs the right way, that feed the pigs the right way, that sacrifice them the right way, that cures the meat the right way. You know, kind of has all the values that we have when it comes to sustainability and animal care, but still have enough that we can actually scale the brand you know, especially as we're thinking about, you know, scaling. Beyond DTC into a lot of the wholesale partners that we have, you know, we want to make sure that we have that kind of horsepower. So it was not easy, especially during COVID. A lot of trips to Spain, which we loved, you know, my family still lives there. And but yeah I, you know one of the key lessons actually from there, just jump right into the key things that we learned through that entire journey is, you know, I always say, if you don't have Your supply chain figure out whether you're selling CPG brands, fashion, whatever it is, you don't have a business, you know, and it's interesting and especially in the DTC world and again, you know, we started with a car business back in 2013, coming up to 10 years. You know, when we started the brand, we felt that there's a lot of brands out there that were really, really great at marketing, this [00:04:00] is even true when it comes to CPG. So, you know, fantastic branding, you know, in terms of language visuals. But when it comes to product, it's like, you know, we felt that it's a little bit of a mediocre product or products that were really similar to one another.

It was not before initiation for us, you know, that was a no, no, right? So we really want to take our time to really find a product that different that it's You know, I don't want to use the word better, but, you know, that we think that we can get behind it. And so we always say that, you know, when it comes to starting a new brand, if your supply chain, if you don't have a brand and consumers these day and age are savvier than ever, right? you might get them the first time, you know, when you think about LTVs kind of a long term relationship you want to build with the customers, if your supply chain, the product, it's not unique and better. They're just not going to come back. so, you know, we knew that, you know, two years is a long time to figure out the supply chain side of things, but we were okay with it because we knew. And without that, we were never

Jordan Buckner: Yeah. You know, you mentioned an interesting thing that I've been talking about a lot, which is the difference between building a brand and building [00:05:00] a business. And you see a lot of founders, especially starting off, and I made this mistake. Too. I was so focused on building a brand and awareness and notoriety, we had a good product. You know, I had a, 

Well, one of my first business selling energy bars. And the product was good, but from a taste perspective, but from a product positioning standpoint. There's a lot to be learned and, you know, I really learned a ton just in terms of like actually building the fundamental business behind the brand that you're selling.

And it looks like you've been able to both build a brand but also a really strong business that supports the company so that you can sustain.

Aaron Luo: no, I couldn't agree more, you know, and that's a little bit of us having gone through the journey with Caraa to know that, you know, again, if we were having this conversation, maybe a decade ago, right? I come from corporate finance with a large conglomerate and interesting enough, you know, one of the running jokes that we had inside that company, and I think it's true with a lot of the fortune 50 or fortune 30 [00:06:00] companies in the world that a lot of times when you prototype or your product gets 45 50 percent there.

That's wrong with it, right? Let's see if there's a product market fit. Let's make sure that, you know, that the data it's working and so on and so forth. And I think it works for some industries, but you are also at the risk of failing, right? And we just feel that, you know, for a smaller new brand that's coming into the market, attempting to disrupt the charcuterie space. We have no room to fail. I think, you know, currently, I think customers have very short attention span. If you don't get it right the first time, I think that getting a better next time around the second time around, we felt that it was gonna be hard. So, you know, like I said, most of the CPG brands. Especially starting off, you know, when I talk to other founders, I think, you know, a lot of them actually with a lot faster than we are in terms of getting a brand off the ground. And we just felt that, you know what I can get all the branding and PR and advertising on Facebook, all that laid out as well as I can.

 And we have a lot of connections coming from Caraa, but without a [00:07:00] product, I think we're not just not. So you know, the last thing I say is I've been saying this internally with our team is that I think the age of, you know, mediocre product and fancy marketing is long gone. And consumers are just smarter, you know, you might get them like gotcha the first time, but there's just no

Jordan Buckner: So tell me about what it's been like building a D2C food brand compared to building a fashion brand. What? There have been some of the key differences there.

Aaron Luo: yeah, I think, you know, , there's plenty of differences. You know, I think CPD , is a volume game versus fashion, I think, especially when it comes to fashion accessories, which is, you know, what carrots well known for our high end functional handbags. I think the high touch is a little bit different, which is interesting because we learned that pretty quickly that when it comes to like high end fashion, you know, we have an excellent customer service team. I think every single customer would try to give kind of a white glove experience. And we're still trying to attempt to do the same thing with CPG with Mercado. But because the margin profiles [00:08:00] are very different, right from one another. I think, you know, we learned really quickly that you know, good customer service needs to be there. But it has to be done in a different scale. So that's kind of the first thing we learned. So far this is a journey, so we don't have all the answers just yet. But, you know, I think when it comes to similarities, actually, there's a lot of similarities. Branding, of course, is it's a key one. Again, I'm taking the table stake of product custody. You have no product, you have no business, you might have a hobby, but you have no business. So assuming that the product is good you know, creating brand affinity, it's one thing that we're always trying to achieve. that comes back, too. Product quality and then how you deal with the customers. Right? So, you know, despite the fact that we like I said before, try to give the white glove services and in the beginning failed a little bit, just because we couldn't stop with the right team to give that kind of a high touch when kind of cattle at the end of the day, that's what we're trying to attempt to get to.

[00:09:00] So creating the brand affinity when it comes to customer service, when it comes to educating the customers, when it comes to creating content. Yeah. Yeah. I think those are some of the key things we're learning so far that we're borrowing from the back content creation is just taking a step back and give you and the listeners a little insight into kind of how we thought about Mercado. Mercado was usually designed to be strictly DTC brand. You know, we were bold enough to say like, Hey, look. You know, we kind of want to take , the direct to consumer, skip the middleman, the whole story that we actually all know, right? In terms of be able to have high touch with the customers, be able to own first party data that we can then have a communication, have a direct relationship with our customers. So no wholesale. the reality is that we're starting to discover that we actually. Again, without us doing any type of outreach, getting a lot more solid wholesale partners that's written out to us that wanted to actually, you know, work together. And what's interesting is that, you know, as the brand starting to [00:10:00] expand, you know, beyond DTC and more looking at strategic partners, like Call it because we don't want to work with, you know, every single one that reached out to us. When I look at all their CPG brands in similar situations, a lot of times they end up being, you know, a lot more focused on retail presence in the stores. You know, a lot of them are start focusing more on the packaging and so on and so forth, which I think got all very important things. But when it comes to content creation, you know, I feel personally that. can do better. And that comes from the DTC side of things, right? When I think about how we can, know, allocate marketing budget budget overall when it comes to Caraa. You know, on the fashion side. Content creation is key for us, and that's something that we're actually translating and learning and putting that to the Mercado side of the house. So despite the fact that we, you know, do both DTC and wholesale, we spend enormous time. In terms of content creation, whether it's recipes, whether it's product education and so on and so forth, and we're going to do much more in the next six months. That's the key thing we learned is [00:11:00] that, you know, I think the playbook often for CPG brands is not necessarily content creation, but more focused on, you know, like I said, in store marketing or packaging and so on and so forth.

We're paying a lot more attention to content creation.

Jordan Buckner: Yeah. You know, it's kind of interesting because you mentioned earlier how on the C P G side is common across all where the margin on products that you're selling is typically a lot lower, and the average order value is typically lower. But you know, you really need to keep those customers over the long term , to break even or be profitable on them.

And so what have you learned from, you know, how you're acquiring customers, thinking about how much you're willing to pay for them, and then how you're nurturing them into long-term repeat customers.

Aaron Luo: Yeah, think, you know, so. Sure answer is that we're still freaking that out. I think, you know, I don't know if there's a silver bullet or answer there for us. I can tell you so far we actually scale way back in terms of our you know, again, you know, we're pretty [00:12:00] versed in the digital marketing world just because of, you know, I mean, when we started Karen 2013, you know, I call it a little bit of a heydays, right?

Of digital marketing. Where, you know, you can see the raws of 5x or 6x and CPMs are low, you know, CPS are ridiculously, you know, cheap. And I think , those times are long gone, right? So, you know, we did our fair share of testing in the early days, but really realized that. You know, it's not a way to go in terms of, so, you know, we rely very much on content and also affiliate marketing and also on influencer marketing in order to help us to get an, you know, the one thing interesting, and it is touched a little bit also on what I said before, in terms of learnings is that, you know, we actually hold our ground really strongly, especially, you know, in the first six months of launching the brand to not want to go too fast. , you know, it's kind of, I guess, rule of thumb or I don't know if it's a common practice where, you know, there's this. It's almost like [00:13:00] demand table stake where you started a brand, you have to go out there and raise funding, right? You start maybe throwing 50, 000, 30, 000, 10, 000, whatever you have of your own savings, run that, you know, whatever your burn rate is or whatever, how long you can last, and then it's like immediately go out there. We purposely said we're not doing that, right? Because I think that a creates very somewhat of a bad behavior to certain extent for founders, including ourselves, where it's like, okay, you know what? I'm going to go out there. You know, the product is good. Marketing is solid. I'm just going to burn all my cash in terms of customer acquisition, prove that there's a business out there convinced by future investors and then get a good evaluation and raise funding, right? You know, I think for us, we quickly realized that that first of all you lose control really quickly of your brand just because once you start raising, you have to raise again, especially if it's the VC funding, right? That's the first thing we say. The second thing is, I think if you go too fast, you're not allowing yourself to work out a cake and there's plenty of kinks in the beginning when it comes to branding, packaging, supply chain, [00:14:00] logistics. Warehouse customer service. I mean, all that. And we said, you know what? We want to take a step back and be able to actually work out all those kinks in the early days. Not necessarily good funding. And then, you know, the business it's viable and we want to scale and we find the right partner.

Absolutely. But, you know, I think when it comes to customer acquisition, which was your first question, we did not allocate a huge number of budget in terms of acquiring customers. It was very much on Hey, let's, you know, of course, focus on profitability, cashflow positive. But in terms of growth, you know, there was no unrealistic expectations in terms of growth for customer acquisition. So I'm pretty, you know, I don't want to say bearish, but I'm pretty skeptical at this day and age, you know, to leverage digital marketing you know, when it comes to customer acquisition for CPD brands, I think work for some brands in general. But you know, I think for us, we kind of. Pulling back a little bit on that area in terms of how we think about buying

Jordan Buckner: You know, I think it's really interesting that you talk about [00:15:00] taking , a slower and more methodical approach to growth, because you're right, a lot of the founders that . I talked to, and I was the same way when I started my first business in my twenties, was I thought I was going to build the company and sell it within five years and make a hundred million dollars, right?

And come out the gate. And I'm talking with a lot more founders who are taking a longer term view and say, Hey, look, I. I'm gonna build a business that I enjoy running that is making an impact in the world, either with our customers or some greater purpose. And this can be something that can grow for 10, 23 years.

If there's a right opportunity to exit, great. But you I'm focused on just building a really solid business and I am, you know, it's great to hear that you're taking that approach.

Aaron Luo: Couldn't agree more, man. think what's interesting is that, and I think the market, you know, given the fact that, you know, there's not a lot of funding out there. So I think that flimsy is starting to come down a little bit more, but. Man, I mean, during COVID or even before COVID know, often I get together with new founders to share [00:16:00] notes and learn from each other and all that, you know, I think it became a point where it was less about, Hey, what are some of the tricks of the trade?

You know, how can you acquire customers? You know, it became basically how much money do you raise And to a point where I remember actually sitting down with a founder and she was telling me, it's like, Oh, well, if you didn't raise, you know, at least 2 million for your first friend and family, it was a small time.

And again, knowing those words, but kind of that insinuation, and then just like, you know, what about profitability and cashflow positivity and other KPIs that I actually think that is much more important for longevity of the brand. So I couldn't agree with you more, Jordan. . I would say , when I get asked, you know, kind of what How are you thinking about Mercado in terms of growth?

I always say this, you know, I don't have a timeline, you know, my timeline is forever. Along the way, if things happen, I will entertain it. But there's no exit. There's no 10 year payback. There's none of that. Right. And I think, you know, what was a founder when you start thinking. In that framework. I think you make decisions differently.[00:17:00] 

Jordan Buckner: Hundred percent and. Right, like you're focused on your customers is to drive the business forward instead of focused on your investors to drive the business for it. Because I see a lot of founders making those mistakes is when you take outside money from investors and you're operating at a loss, you know, almost no matter how much your customers buy in the early days, like you're still going to go outta business unless you have more investor money, and so really you start making decisions to please the investors because they're the ones supporting your business. And that can often take the business really far awry, right?

Versus relying on your customers to grow the business. Because if you rely on the customers and you satisfy them, Then they're the ones that are gonna keep coming back because they find value in you and they won't just like drop you out of nowhere, like an investor will.

Aaron Luo: 100%. 100%. Couldn't agree more. So, I think that's probably one of the key golden nuggets that we have coming from Caraa. Is that, look, build the right team. Build the right infrastructure. Don't launch too many products too [00:18:00] early. You know, to, again, you know, not to be the data force, but, you know, to your point, Jordan, you know, venture capital and assuming venture capital, you know, are probably the most common funding you might get in the early days of your venture they have an exit plan, right?

I mean, we're investors ourselves and when you give, you know, a brand, a founder X amount of money, you know, the question is, when am I going to sit back and, you know, timeline varies depending on the fund, 8, 10, 12 years, whatever that is. But they want you to use that money on work, right? They're like, okay, I'll give you money to go out there and actually hire the right team, expand, you know, and if you're not ready, you're going to trip. to, again, to the last point you mentioned. Once you start raising, you're always going to have to raise because there's going to be a burn rate. You're going to blow through the cash. You're probably not going to be that profitable in the early days, but you still have to blow the cash because you want to grow. And 18 months from now, if you can convince the next round of investors that you're going to be profitable that's a terrible cycle, man. And, you know, we're just like, you know, no, I'm not doing that. And yeah, you know, the brand is [00:19:00] going to scale perhaps slower. Unless people might know about your brand, you know, early days, but again, we're running a marathon. So that's kind of the view we have.

Jordan Buckner: Aaron, thank you so much for being on and sharing that viewpoint. I think it's something that's really powerful for founders and to our listeners. You know building, a lifestyle business where you enjoy the business that you're running and making money. It's not a bad thing. It might take a little bit longer, but there's a lot of rewards on the other side of it.

Aaron, thanks so much for being on and joining today.

Aaron Luo: No, thank you very much for having me, Jordan. Well, I appreciate it.