KC Underweight Deals: A Niche Market Fraught With Risk

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Summary

This week’s underweight deal is Rose: a startup that has created a modern injera grill that redefines the modern Habesha lifestyle. Instead of utilizing traditional methods to cook food this modern take on the injera grill uses induction technology. It combines traditional methods of cooking with modern technology and makes the cooking faster, safer, and more efficient.

The product utilizes electromagnetic induction to ensure that user input is minimized and the device does not get heated up. At the same, the grill uses natural materials like wood and ceramic, instead of plastic.

As we will elaborate on below, we don’t question the merits or innovative nature of the product: we worry about lack of consumer demand. There are thousands of households in the US that use old-fashioned injera grills for cooking purposes. However, it has not been well-researched if these households are willing to move to modern technology for the same purpose. The older grills have been used for ages and have been satisfying the customer needs. It is not certain whether the customers are willing to accept the change.

The startup world is replete with examples of excellent products that just never got attention from consumers. Below we analyze the strengths and drawbacks of the product, its business model and market acceptability to find out the expected returns on investment for the crowdfunding investors.

Rose: Raising on WunderFund

 Rose is currently raising equity crowdfunding on WunderFund. The company has a valuation cap of $2 million. It has a minimum raise goal of $10,000 and a maximum raise of $107,000 in this round of funding. The crowdfunding round has only been able to raise $350 so far.

Let us understand the drawbacks of the product and the business idea behind it. This will give us a clearer picture of why the company is not a suitable investment option for investors.

Sometimes ‘Niche’ can be a bad thing

The first and biggest drawback that we find about Rose is its usability and market. It is true that there are about 30,000 Eritreans and about 450,000 Ethiopians in the United States, however, other than the above-mentioned population, the East African injera grill has not found its way into the other cultures yet. Therefore, the usage of Rose is restricted only to these relatively small populations.

From what we can tell, within the aforementioned communities, it is often preferred over modern technology. Rose uses precision milling and cutting-edge heating element, however, the users have not demonstrated a demand for this modernization.

Moreover, Rose can only be used for cooking injera, which is a traditional Ethiopian and Eritrean flatbread. This further limits the usage of Rose as it cannot be used for cooking other dishes, making it highly niche. We recognize niche appliances have worked before (e.g., ice cream makers), but that is a widely adopted food product that most Americans eat and even still it is often part of a broader line of appliance products.

Too early in the market  

As previously mentioned, rest of the population in the United States does not use injera grill in their kitchens at present. The ones who do use, are quite satisfied with the traditional methods for the authentic feel. Rose is making the product safer, faster, and more efficient. However, there is no current market for such an offering.

The future market for Rose assumes that almost every household using injera grill will be switching to the $300 product, making it a $28 million maximum market for Rose. We are not so sure if there is any market, and even if there is one, we can’t say if the market is ready to pay $300 for a modernized version of the product they already own.

Market Distribution Uncertainties

The development and future potential of Rose are dependent on the assumption that the consumers will like the product and will be ready to make the shift from their traditional methods of cooking to the modern one. It also assumes that the sales of the product will be expanded to Europe, Middle East, and Africa.

However, these are situations full of uncertainties. There’s just no telling if the consumers will like and accept the product. If the product flops with the consumers, the game is over for Rose. There is no alternative market, and there is no alternative use of the product.

Trying to sell across countries and continents a product that might be slightly too modernized for a traditional user, and too misunderstood for a new user will be faced with many marketing and distribution challenges in trying to gain broad market adoption.

The Bottom Line

As per our recommendation, Rose is a deal we would recommend investors underweight. Not only are we concerned that it won’t break out of its current addressable market, but it has not even shown that current owners of injera grills will upgrade. Rose is full of uncertainties and risks. 

The product offered by Rose sounds promising, with glass-ceramic cooktop, ergonomic handles, simple temperature setting, and electromagnetic induction. It claims to be one of the smartest and safest injera grills in the world. With its modern design, it holds the potential to become a part of every modern kitchen, redefining the Habesha lifestyle. But, will it live up to the expectations and hopes, is the question. 

Rose caters to the needs of only the East African households in the US for now, and only for the preparation of injera. The product is just too niche, and the product is too early into the market. We have no doubt that it’s a wonderful grill – we’re just not sure it’s a crowdfunding deal worth backing. 

If you have any questions regarding the underweight rating of Rose, you can reach us at hello@kingscrowd.com.