What Happened in Consumer in 2017
This past year was full of surprises for consumer goods companies.
If 2015 and 2016 saw new consumer models hit the mainstream – most notably the DNVB (digitally-native, vertical brands) and meal delivery models – then 2017 was the year those models were truly tested. There was consolidation, some big wins (hi, StitchFix!), some disappointing losses, and a few large-scale events that will cause foundational changes for years to come.
Here’s a recap of what happened:
Amazon acquired Whole Foods for $13.7 billion in a surprising move that has fundamentally changed both the natural grocery and e-commerce food markets. Buying behavior at Whole Food has already shifted to a more price-conscious, centralized model, mostly to the detriment of smaller, emerging startups. Given Amazon controls nearly 50% of the e-commerce market, the expectation is that it’s well equipped to own the food delivery space, making it even harder for food startups to sell direct-to-consumer.
Digital marketing costs rose substantially, putting pressure on emerging e-commerce startups. Fundamental to the success of the DNVB model is the assumption that social media network effects and targeted advertising can efficiently drive traffic to a brand’s website. But in 2017, social media marketing costs increased dramatically, making the return on investment untenable for most new brands. As a result, we’ve already started to see a shift to multi-channel, with many startups opting to sell offline as well.
Walmart went on an e-commerce shopping spree, snatching up multiple online brands like Bonobos and Modcloth. In an effort to compete with Amazon, Walmart acquired online retailer Jet.com in 2016 and has been expanding its portfolio ever since. This year proved that there’s at least one viable exit path for DNVBs.
Blue Apron filed for IPO with weak numbers, including anemic growth, low margins, and poor retention rates. As a result, the company’s stock price is now trading at nearly 70% below its offer price and the meal kit delivery model has been called into question.
There was significant growth in meat and dairy alternatives. Investors bet big on companies like Memphis Meats, Beyond Meat, and Impossible Foods, which raised $17 million, $55 million, and $75 million, respectively, in 2017. These and other brands were frequently featured in the press and appear to have found mainstream appeal. Also, Big Food got on board as Cargill and Tyson both made investments into the space.
Food and beverage M&A hit record-breaking numbers. Most notably: Nestle acquired a majority stake in Blue Bottle Coffee at a reported $700 million valuation; Kellogg’s acquired RXBar for $600 million; and Mars bought a minority stake in Kind, valuing the company at more than $4 billion. For the past few years, it’s been evident that Big Food can’t keep up with consumer preferences for healthier, more authentic brands and 2017 saw big brands increasingly turn to M&A in a bid to stay relevant.
So what will 2018 be about?
The race to own last-mile delivery is just getting started, with Walmart, Target, and Amazon all vying for supremacy. Most recently, Target and Walmart acquired same-day delivery startups Shipt and Parcel, respectively.
Consumers will look for new ways to prepare food at home as the current meal delivery model struggles. This fall, Albertson’s, one of the largest grocers in the U.S., bought Plated, which may signal a shift offline for some meal kit services.
Physical retail is due for a bona fide revolution as forward-thinking, previously online-only startups move to multichannel strategies. Some retailers are already capitalizing on the trend; for example, Simon Property Group, the largest mall operator in the U.S., announced a permanent space for rotating pop-ups.
Brand will continue to grow in importance as logistics (sourcing, supply chain, operations, etc.) are increasingly commoditized. However, good branding is now so essential, it’s almost becoming table stakes. Emerging brands will need to create strong communities and/or unique experiences to stand out.
But if 2017 taught us anything, it’s that consumer trends are shifting faster than ever and while we can be hopeful for some exciting innovation in the new year, we should expect that models will continue to be tested and nothing can be taken for granted.