I started CRAVEBOX in 2014. CRAVEBOX sells snack boxes and gift baskets at cravebox.com. It looks like a recession is possible in the near future. With inflation at a 4-decade high, quickly rising interest rates, and tightening fiscal policy as COVID settles down, it’s very likely that consumers and businesses will have less cash to spend. I’ve done a lot at CRAVEBOX over the past 6-months to prepare for a possible recession. My goal is to keep my income statement, balance sheet, and cashflow strong throughout any difficult times. I’m hoping to achieve this by building up cash, creating new products, and improving operations.
Building Up Cash
Usually businesses operate on a certain amount of equity and debt financing. Historically, CRAVEBOX has used mostly equity financing, which makes for a healthy balance sheet but as a possible recession approaches, I’m paying down all debt and as of now CRAVEBOX is 100% financed by equity. Our busy season is Christmas, Valentine’s Day, and Easter so we might need to borrow to purchase inventory for those seasons but it will be minimal and our debt to equity ratio will remain very small. This is important because if a business is highly leveraged (has a large amount of debt), it will become difficult to pay the principal and interest payments that are due to service the debt when a recession, decreased consumer demand, and lower margins from inflation, eat away a revenue and profit. This inability to pay back creditors is usually what forces a business into bankruptcy during a recession. So, if I keep CRAVEBOX’s operations fully financed by equity and there is no debt service to be paid, our chances of surviving a recession improve greatly. This is important because some businesses in our category will inevitably go out of business during a tough time like this and if we survive, we have an opportunity to gain market share for the future.
Creating New Products
A recession usually brings decreased consumer demand. This is because the economy slows, businesses need to layoff workers, and wages stagnate. If consumers have less cash to spend, CRAVEBOX can probably expect decreased sales which will obviously hurt our bottom line. To counter this force, I’ve been creating new products to grow variety and revenue. These new products are inexpensive to design and put into our production process because they are fairly similar to current products. This is key so we don’t need to spend on large capital expenditures to create a whole new supply chain, operational facility, employees, etc. That would be too costly and not smart in the lead-up to a recession. But creating new products that can be produced using your current supply chain, operations, and employees is almost a no-brainer. To add further benefit, these new products I’m creating are specialty gourmet snack branded products, which command a higher profit margin and will help maintain the bottom line during waning consumer demand.
Improving Operations
It’s so important to be as efficient as possible at all times but especially during a recession. We’re thinking about how to cut costs at CRAVEBOX. For example, I’ve started using 3 corrugated box suppliers instead of just 1 because I can get better prices on certain corrugated items from a combination of the suppliers. It also forces them to compete with each other on price. Another example of how I’m cutting costs and therefore making operations more efficient, is hiring a co-manufacturer to produce our own private-label snack brands. This means that instead of buying snacks of a well-known brand like Cheez-its or Chex Mix, I’m creating my own brands and manufacturing my own snack products. This is much more cost-effective and allows me to offer unique snack products in CRAVEBOXES and improve profit margins at the same time. It’s important to improve profit margins without raising prices too much for your end consumer because you will gain market share from your competitors who are forced to raise prices more than you.
About John Accardi
John Accardi is the founder and CEO of cravebox.com and starcoursecap.com. CRAVEBOX assembles care packages and gift baskets to be sold online. STARCOURSE CAPITAL is a venture capital firm that invests in young e-commerce companies. John dropped out of a PhD program at Georgetown University in 2014 to start CRAVEBOX and he says it’s the best decision he ever made. CRAVEBOX is located in North Wales, PA and John lives in Manhattan. When John’s not working, he enjoys sailing, playing guitar, and spending time with family.
