I am 50 this month, I have been in high technology and emerging technology for 30 years.
I am an early adopter – I buy all the new services I can, explore new ways to shop and pave the way for the mass market to follow.
I have seen this in technology first hand – usually by being around a decade too early!
In Grocery as with all retail – things are changing. Asked years ago consumers would say they were perfectly happy with shopping in supermarkets rather than fiddling around with their computers to buy online.
But online is taking a grip of grocery quicker than many can appreciate.
Americans buying Groceries online
CB Insight have produced some great information on the changes in the grocery market. Take a look here.
We have had a pretty busy year at Move Fresh, our latest brand to launch is Bean to Door (www.beantodoor.co.uk), a subscription fresh coffee company.
Fine Coffee Club has gone from strength to strength over the last few years but customers have kept asking us about ground and bean coffee. Bean to Door is a separate brand (due to the subscription requirements) and offers freshly roasted coffee directly to your door from £3.95.
In FMCG we believe that price elasticity of demand is clear within all sectors – so we are positioning ourselves closer to supermarket coffee prices with the freshness that only e-commerce can give you.
We soft launched this weekend and already the response has been great. Get your first bag for 50% off using our Move Fresh Discount Code
You might not have noticed but our shopping habits in the UK have changed quite a bit recently.
We used to go to superstores (large stores with lots of choice and SKUs) usually once per week, usually at the weekend and “did the weekly shop”.
This was a major innovation over our parents and grandparents who used to shop in their local community and make frequent trips to shop.
We have now seen our shopping habits further change with the introduction of the discounters (Aldi & Lidl) who have a limited selection of SKUs and a large percentage of own-label items. We are both shopping more frequently in these locations and they are also enticing new customers (Aldi wine is acceptable at dinner parties!) to this retail category.
This means that emerging FMCG brands have limited ability to gain consumer trial due to limited space within discount retailers (frequently using short-term promotional space). So how do you launch a challenger brand in this landscape?
We strongly believe that direct to consumer can fill this gap, building strong consumer relationships on lower cost models, encouraging trial and investing marketing spend directly in customer recruitment rather than “brand marketing”
Perhaps use online to test product/market fit and look at retail to deliver the mass market consumer once your brand is well established.
Over the last week or so Hello Fresh became a public company on the Frankfurt stock exchange. This follows Blue Apron listing on Nasdaq earlier in the summer. Both companies (along with Gousto in the UK) have raised many. many millions of investment, mainly pumped into customer recruitment.
I do agree that FMCG will move – more and more online – as consumer habits change from large central supermarket purchases to more local smaller retailers (such as Sainsbury’s Local or Tesco Metro) but I don’t agree that any of these companies have yet grown into their current (and sagging) valuations.
Customer recruitment costs continue to increase with stiff competition and poor retention and margin statistics does not suggest that growth will continue.
There is a business here, but I think trying to force growth with more discounted offers and higher recruitment cost is only good for new customers – not for shareholders.
Some consolidation may well happen to remove duplication over geographies and headcount – but until then I will stick to shopping for myself either online or at my local store.
If you need to know more check this video out on marketing as a percentage of sales
Amazon (AMZN) announced on Friday that it was acquiring Whole Foods (WFM) in a move to extend its reach into Grocery.
We have long said that Grocery is one of the last areas of e-commerce penetration and although many have tried (Ocado for example) most have failed with a pure play e-commerce offering. This is mainly due to the complex nature of the supply chain and the fact that a large part of the product base is perishable.
We have followed a number of “foodtech” businesses for the last 5-10 years and competing with the integrated nature of traditional store based retail has been very hard.
The market view is that Whole Foods give Amazon access to both local distribution hubs (historically called stores) and a very integrated and unique supply chain. Whole Foods has a strong presence in North America and a few stores in the UK but has great coverage in the US in demographically richer neighbourhoods (Whole Paycheck).
But for FMCG brands the creation of Amazon as a retailer and a potential competitor will be an interesting area to watch. We suspect a number of brands may have to increase there own technology investment and this might be based on so called “acquihires” of struggling startup in the sector.
Good news for brands – but not fantastic news for investors who have paid high multiples to fuel the burn within a number of these companies.
Long term we think this is great for the consumer, great for Amazon shareholders and fantastic for brands that have well developed e-commerce capability – allowing them to leverage the investment that Amazon is making in this sector. Not great for Walmart though!
The future of convenience shopping is here and its called Amazon Go.
Amazon is one of our top technology holdings and we continue to be very bullish about the future of Amazon.
Amazon Go allows the vision of the future with no checkouts, no baskets, no staff, just great technology. All you need to get access is a simple barcode on the app. Everything else is done automatically.
Grocery shopping will never be the same – launching in Seattle in early 2017 this leapfrogs most other convenience retailers.
Asda has reported the worst quarterly drop in sales a massive 7.5% in the last 3 months.
Let’s just sit back for a moment or two and think about this. All the major “multiple” retailers are in decline apart from Waitrose. That is a seismic shift in consumer behaviour, multiple retailers are being attacked by discounters, convenience and online in one of the biggest shift in consumer behaviour since supermarkets first appeared and impacted local high street stores.
Change in market share
So if you are an FMCG brand trying to find growth the worse place to be is within multiple retailers. Your choice is the unpredictability of discounters (smaller range) or stick with volume in multiples and expect exceeding price and margin pressure.
Sainsbury’s has become one of the first UK multiple grocers to move to compete with Amazon – as reported on Friday by Reuters
There are some fundamental issues around this strategy. One company I would not have a price war with is Amazon!
Amazon traditionally operate on around a 15% margin from suppliers. Not all categories work within this margin structure but in comparison with UK retailer margins of between 30-40% a price war at this level would only suggest one winner.
Some interesting stats within this report though also point to a doubling of the online grocery market by 2020
Britain’s online food market is expected to nearly double to 17.2 billion pounds in the five years to 2020, according to industry research group