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The startups, corporations, and emerging technologies transforming consumer packaged goods. Disrupting CPG
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The startups, corporations, and emerging technologies transforming consumer packaged goods.
Disrupting CPG
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Zoe Leavitt
Zoe Leavitt is a senior intelligence analyst at CB Insights covering consumer goods and retail technology. Zoe's research has been featured in the New York Times, Wall Street Journal, Good Morning America, and more, and Zoe was named the #1 voice in retail for 2018 by LinkedIn. Along with her data-driven reports, she leads the weekly newsletter CPG Insights.
Prior to joining CB Insights, Zoe worked in equity research at Cowen and drove consumer analytics efforts at the consumer finance group of the Bank of China in Shanghai. Zoe graduated from Stanford University with a degree in International Relations.
@zoe_leavitt [email protected]
Senior Intelligence Analyst
A B O U T T H E A N A L Y S T
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Contents
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3 5
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CPG: an industry in flux
Vertical integration
The post-storefront world
Betting on wellness
The race toward personalization
Looking forward: personalized distribution
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The CPG industry faces major challenges
Activist investors Changing consumer tastes
New entrants Dispersed points of sale
TIME
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Pinnacle Foods Targeted by Activist Investor Jana PartnersApril 20, 2018
Activist investors reshape company roadmaps
Sources: NYTimes, Food Dive, New York Post, WSJ, CNBC
A C T I V I S T I N V E S T O R S
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CEOs face new pressuresSince the start of 2017, we’ve seen CEO turnover at CPG companies including:
*Nestle CEO Mark Schneider took office on Jan. 1, 2017
A C T I V I S T I N V E S T O R S
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CPG leaders kill their darlingsA C T I V I S T I N V E S T O R S / C H A N G I N G T A S T E S
On a mission to kill “zombie brands,” targeting 125+ eliminations by year end
Sold US candy business, prioritizing pet care, water,
coffee, frozen food, and baby food
Shifting focus toward pet care, which drove revenue growth in
Q1’18
Launching major portfolio revamp focused on pet care and
pet services
On Aug. 30 Campbell’s announced plan to sell its Fresh and
International divisions
In 2016 P&G transferred 41 beauty brands to Coty and has since
focused on reducing SKUs and adding natural ingredients
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Consumers demand more out of food…Long-term benefits Visually appealing Experiential Lifestyle-oriented
C H A N G I N G T A S T E S
• High-protein, plant-based products with beneficial ingredients
• Focus on mental and physical health
• Vegan, gluten-free options
• Bold colors in products and on packaging
• Primed for social media
• Farm-to-table or sustainably sourced products
• Products bundled with services
• Memorable points of sale
• Personalized products
• Brand emphasizes convenience
• Promotes energy, sleep quality, and other lifestyle benefits
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…and expect more out of beauty productsPromising long-
term benefitsVisually appealing Experiential Lifestyle-oriented
C H A N G I N G T A S T E S
• Beneficial ingredients
• Plant-based products
• Chemical-free formulas
• Bold colors on both products and packaging
• Focus on social media
• Farm-to-face products
• Products bundled with services
• Memorable points of sale
• Personalized products
• Emphasis on convenience
• Suited for exercise, travel, and more
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Meanwhile, startups pose new threats…
Disclosed funding: $750M
Select investors: Healthcare of Ontario Pension Plan (HOOPP)
Disclosed funding: N/A
Select investors: CircleUp
Disclosed funding: $104M
Select investors: Kleiner Perkins Caufield & Byers, Tyson Ventures
Disclosed funding: $506M
Select investors: Bill Gates, Temasek Holdings, Khosla Ventures
N E W E N T R A N T S
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… with more on the wayN E W E N T R A N T S
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Weakening incumbents & hot M&A environment attracts specialized investors
N E W E N T R A N T S
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Tech leaders blur industry lines
*Table is illustrative, not meant to be fully inclusive of company efforts
N E W E N T R A N T S / C H A N G I N G P O I N T S O F S A L E
Controlling CPG points of sale
Making CPG-related equity investments
Shaping industry trends Using data to launch private labels
N/A
N/A
Hema grocery stores
Ele.me
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The great dispersal: points of sale multiplyC H A N G I N G P O I N T S O F S A L E
Smart homes
Public venues
Voice commerceBrick-and-mortar
retail
Mobile commerce
E-commerce Virtual reality
On-demand services
Automated storefronts
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CPG leaders look to startups, incubator partnersS H I F T I N G F R O M R E A C T I V E T O P R O A C T I V E
Acquiring companies Directly investing in startups Managing internal VC fund
Launching externally-managed VC fund
Supporting internal innovation studios
Working with incubator/accelerator programs
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I N C U M B E N T S F I G H T B A C K
Vertical integration
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Vertical integration: why now?
In the face of new competition, retailers can no longer rely on being middlemen; private labels
can become valuable differentiators
CPG manufacturers hope that controlling their own points of sale can help them build loyalty
and capture shopper data
Quote sources: Walmart, Covergirl
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Facing increased competition, retailers turn to private labels
Albertsons is on track to launch 1,400 new private label products in 2018, more than double its 2017 rate. Its O Organics brand hit $1B in Jan’18.
Kroger’s Simple Truth brand hit $2B in annual sales this year, and Kroger just partnered with Alibaba to sell its private labels in China.
Target plans to expand its private label offerings and in Jun’2018 rolled out new home goods label Made By Design.
Walmart aims to boost loyalty through private label growth; in Jun’2018 it launched wine private label Winemakers Selection.
Sources: Albertsons, Kroger, Target, Walmart
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Who’s done it best?
Read more: How Sephora Built a Beauty Empire to Survive the Retail Apocalypse
R O L E M O D E L S
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Marketplaces capture data; private labels turn data into sales“We’ll keep adding selection.”
- Four words on Amazon’s private labels (from its Q4’17 earnings call) that should strike fear into brands’ hearts
Amazon knows your customers better than you do
Source: Amazon Patents Always-On Video Streams Of Friends And Relatives’ Homes
Amazon owns the points of sale
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Big CPG moves into physical retail through new flagships…These stores focus on providing memorable experiences and encouraging social media sharing.
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… and M&A
$500M$5.1B
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Legacy companies use M&A to move online
4/18/17
9/20/17
2/15/18
3/15/18
5/23/18
4/30/18
1/10/18
11/15/17
$300M
$3.35B
$100M
$200-700M
29Source: Quartz
In CPG, online shoppers need extra comfort.
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Transparency: it’s time to take packaging out of online product listings
So far, CPG companies have tended to show products online as they would in stores — by putting up photos of packages.
Online, brands have more freedom to highlight the products within the packages, using photos to make their products more appealing to new shoppers.
Read more: The 4 Trends Driving Packaging Industry Disruption
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Transparency: brands invest in online reviewsThrough investments… …internal initiatives… …and paid relationships
Read more: [Client Only] 60+ Startups in Influencer Marketing
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Visualization: augmented reality enables product testing
Modiface enables virtual makeup try-ons on websites, mobile apps, and in-store screens for L’Oreal, Sephora, Estee Lauder, and other clients. The platform gathers visual shopper data, offers personalized suggestions, and supports sales. L’Oreal acquired Modiface in March 2018.
Online CPG marketplace Boxed piloted augmented reality in December 2017 to let people test whether bulk packages would fit inside their cabinets. While it hasn’t yet gained traction, the experiment shows how AR/VR could support sales of even low-margin items.
Boxed photo source: Business Insider
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Walmart considers visual strategies onlineRecent Walmart patent applications show a focus on helping online shoppers gain a better view of products.
Live streaming in-store produce sections
Read more: Walmart Patent Aims to Solve the Biggest Obstacle to Online Grocery Shopping; Walmart Patent Wants You to Shop at Home Using Virtual Reality
Showcasing products in virtual reality
34Source: The Brick-and-Mortar Food Space Goes Driverless [client only]
Speed supports convenience
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N E W O F F L I N E C H A N N E L S
The post-storefront world
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New offline channels: why now?
People are less likely to visit centralized retail
locations
Increased competition from retailers’ private labels
(online and offline)
Brands’ desire to capture shopper attention in
fragmented media landscape
Source: Business Insider
US mall visits fell by 50% from 2010-2013, according to Cushman & Wakefield
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The great dispersal: new points of sale integrate with daily experiences
Smart homes
Gyms
School campuses
Office buildings
CarsTravel
Public venues
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WeWork turns offices into sales channels
Office management giant WeWork has been a major distributor of coffee, beer, and snacks to its tenants for years.
In July, it launched WeMRKT, a new retail space inside WeWork buildings that will stock CPG products made by WeWork member startups. Participants so far include Barnana and SunnivaSuper Coffee.
A D D I T I O N A L P L A Y E R S I N O F F I C E C P G S A L E S : S E L E C T B R A N D P A R T N E R S :
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Cargo markets to Uber riders
NY-based Cargo installs mobile-operated kiosks inside ride-sharing vehicles, selling snacks, beauty products, and other items.
So far, it partners with Uber in the US and Grab in Asia. It focuses on gathering user data through its mobile app for CPG brands.
Looking forward, Cargo’s model could support consumption by riders in self-driving vehicles.
A D D I T I O N A L R I D E - H A I L I N G P L A Y E R S : S E L E C T B R A N D P A R T N E R S :
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Vengo stocks products in gyms
Vengo recently partnered with Blink Fitness to install its cashless vending machines with interactive digital screens in gyms nationwide.
In its gym locations, Vengo will sell headphones, shower products, phone chargers, and other relevant items. Vengo also operates in hotels, university campuses, and other high-traffic areas.
A D D I T I O N A L G Y M - B A S E D M A R K E T P L A C E S : S E L E C T B R A N D P A R T N E R S :
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Hotels offer immersive shopping experiences…While many hotel chains sell products, brands have begun to connect with consumers by opening their own hotels.
Yves St. Laurent showcases beauty products in its YSL
Beauty Hotel, which will open in NY in Sept’2018.
Japanese retailer Muji opened its first two hotels this year in China to promote its home goods and
personal care products.
AccorHotels partnered with fragrance maker Lola James
Harper to open a hotel in Paris in late 2018.
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… while airplanes help startups get off the groundThe strategy helps airlines seem more innovative and better serve passengers, while handing startups a captive audience.
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Appear Here helps drive pop-up retail economyCPG leaders from Unilever to Coca Cola, which don’t tend to operate their own stores, have experimented with pop-ups to attract shoppers and gather data.
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H E A L T H Y S T R A T E G I E S
Betting on wellness
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Wellness: why now?
Post-recession, healthy lifestyles and fitness
routines became the new luxury status symbols
Social media creates “always on” pressure for users and turns wellness into aspirational lifestyle
People are seeking alterative strategies for
controlling their own health
Source: NYTimes
“In 1966, more than three-fourths of Americans had great confidence in medical leaders; today, only 34 percent do.”
- New York Times, Jan. 23, 2018
46Read more: 150+ Startups Cultivating The Wellness Industry
Wellness takes off across verticals
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Startups, VCs, and corporates tackle wellness from different angles
Read more: The Rise Of The Wellness Economy
[INTERACTIVE DEMO]
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Wellness funding takes off, acquisitions multiply
Read more: The Rise Of The Wellness Economy
[INTERACTIVE DEMO]
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Leading alcohol players shift priorities“The broader beer trends are concerning to me and … we’re going to be playing outside the traditional definition of beer.”
— Andy Thomas, CEO of Craft Brew Alliance
Read More: Beyond Beer: Major Brewers Are Investing In Cannabis, Kombucha, And More
AB InBev created a new role, Chief Non-Alcoholic Beverage Officer, and aims to grow its non-alcoholic revenue from 10% of the total today to 20% by 2025.
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Big food companies turn toward waterIn August 2018, PepsiCo acquired SodaStream for $3.2B. On the smaller side, Danone’s Danone Manifesto Ventures led a $10.6M investment into personalized at-home mineral water maker Mitte.
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Wellness startups promise retailers a win-win
Read more: A Wellness Win-win-win
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M A R K E T S O F O N E
The race toward personalization
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Personalization: why now?
Shoppers have long sought personalized products and services…
…and new technologies are making the strategy more viable today, including:
Source: U.S. News & World Report
Big data
Enhanced manufacturing capabilities
DNA testing and microbiome analysis
Machine learning
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Step 1: framing products within lifestyle needs“People don't want to buy a quarter-inch drill. They want a quarter-inch hole.”
- Theodore Levitt, Harvard Business School
Through product labels… …and e-commerce taxonomies
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Step 2: offering personal product guidance“When you talk to users, everyone says, ‘I’m very different, I’m an outlier.’ Everyone says that.”
– Christina Bognet, CEO, Platejoy
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Companies expand product selections, targeting a wider range of shoppers
Source: Racked
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Step 3: fully personalized products“The future of beauty will be very linked to personalization and precision.”
- Guive Balooch, Global VP Tech Incubator, L’Oreal
Total funding: $7.5M
Select investors: Lerer Hippeau, Maveron , Forerunner Ventures
Total funding: $19M
Select investors: Forerunner Ventures, Sherpa Capital
Total funding: $9M
Select investors: Y Combinator, GGV Capital
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Personalization vs. standardization: reducing the burden of choiceAlong with the rise of personalized products, we see a parallel trend in startups offering limited selections of one-size-fits-all products. Both strategies solve for the same pain point: too many choices.
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Personalization platforms collect new data streams for brands
… and observing. By asking…
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Can science support DNA-based diets? “People search for things, they don’t pick the brand. When people talk about brand marketing, I’m just thinking, ‘What’s that?’”
- Kozo Takaoka, head of Nestle Japan
In 2016, Campbell’s invested in DNA-based meal plan startup Habit, but it has failed to gain much traction so far.
Last week, Nestle began piloting a DNA-based nutrition service in Japan, offering users personally formulated beverage capsules.
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Looking forward: personalized distribution
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Consumer leaders consider IoT-based personalized subscriptions: from Walmart…
T H E F U T U R E O F C O M M E R C E ?
Walmart recently patented methods of using connected appliances — including a smart trash can — to track shoppers’ consumption in the home and automatically reorder depleted products.
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…to Procter & Gamble…S E N S O R - F I L L E D H O M E S
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…to Pernod Ricard“Connected [glassware] isn’t a gimmick…the bottles gibe us insights into how people drink our brands at home.”
- Pierre-Yves Calloc’h, Global Digital Acceleration Director, Pernod Ricard
Source: Digiday
S M A R T E R C O C K T A I L S
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Will self-driving cars host the kitchens of the future?
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Using IoT to set up in-home storesWalmart recently applied for a patent for an “unattended retail storefront” that would showcase unsold products in consumers’ homes, and charge them upon use.
The kiosks could be restocked by drone.
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