What’s Red, Green, Spicy, and Growing like a Weed? HOT SAUCE!

My family and I recently visited a beautiful, historic New England resort where I worked during two college summers.  Exactly 20 years after my first summer as a tuxedo-clad server in the main dining room, I was excited to see the subtle changes at the family-owned and -operated resort known for preserving its dining room traditions dating back to 1910.  While the same fine china, beautiful views, celebrated cuisine, and international wait staff were still present… the most noticeable change in the dining room was a respectable assortment of hot sauce bottles at each waiter’s station!  Back in 1999, ketchup, the primary condiment, was only allowed to be served in a ramekin on a doily-clad side plate.  In my mind, if the global hot sauce craze could reach the hallowed grounds of this main dining room, I wouldn’t be surprised if Queen Elizabeth herself kept a bottle of Cholula or Sriracha next to her marmalade at breakfast in Buckingham Palace.

So, what exactly has happened in the hot sauce category, and why is the category growing faster than other condiments?  Well, quite simply, the American palate has evolved quickly in the last two decades.  Palate evolution is widely seen to be fueled by a rapidly diversifying population and Asian and Latin culinary influences in both restaurants and in the center of grocery stores across the country.  Hot sauces have followed suit, evolving from pantry-bound cooking ingredients to mealtime toppings as popular as salt and pepper.  The old saying ‘variety is the spice of life,’ now applies to pretty much every category of food and beverage (including spices).  Americans from Miami to Seattle are doctoring up scrambled eggs, mashed potatoes, and everything in between, supporting a $702 million domestic market for hot sauces in 2018, representing 23.6% growth from 2013.  According to Euromonitor, hot sauces grew the fastest among liquid condiments during the time period and are nipping at the heels of ketchup ($906 million sales in 2018/13% growth), soy sauce ($870 million/20%) and BBQ sauce ($765 million/12%).

George Milton, founder and CEO of Yellow Bird Foods (https://yellowbirdsauce.com/), had this to say about the category: “The hot sauce category is fascinating to me because just the term hot sauce can mean so many different things. You have this category that is just very loosely defined as ‘sauces of any consistency in any type of packaging that have some non-zero level of spiciness imbued by the addition of one or more of a growing multitude of chili pepper varieties.’  And the chilies themselves can be dried or smoked or fried or fresh or fermented, and on and on. Compare that to something like ketchup which is incredibly tightly defined as far as formulation and taste.  The last 10 years or so have also seen the larger category evolve past the niche, burn-your-tongue-off, novelty brands and into some really wonderful products that are approachable for a wider consumer base. When we first started going to hot sauce shows in 2012, you didn’t really hear anyone referring to their products as ‘flavor-first’ but now that is the norm.”

Like any other highly fragmented food category with low barriers to entry, there will continue to be some winners and many losers.  MHT, a leading consumer growth investment bank, believes that the winners in this category will be those brands that closely follow rapidly evolving consumer trends and master the ever-changing (and expensive) marketing challenge to build aided awareness and drive trial on a national scale.

Are College Loans Worth It?

Headlines about the growing cost of education and the massive amount of debt burdening students after graduating college are prevalent. Student debt levels have grown to astronomical levels since the early 2000s, with total student debt in the U.S. approaching $1.5 trillion at the end of the first quarter of 2019.[1]

Not all of the factors behind the increase in student debt are bad.  For instance, more people are going to college now than ever before, largely due to the fact that approximately 65% of job openings in the U.S. require some level of education beyond high school, such as an associate’s or bachelor’s degree.[2]  On the other side of the equation, the increase in debt is also attributable to the cost of education which has grown at an annualized rate of 5.5% over the last 30 years.[3]  As the cost of education surges, more people are focusing on the tradeoff and asking themselves, is the cost of college really worth it?

 

 

Survey Says

The pursuit of higher education is ingrained in our culture and college is viewed as a crucial step in advancing your professional career.  If the perceived importance of college wasn’t already obvious, the recent “Varsity Blues” college bribery scandal, which involved some of the most rich and famous people in the country, serves as a stark reminder of the extremes some people will take to get into a good school.

Interestingly, while an advanced degree may seem like a necessity, a recent survey indicates nearly two thirds of U.S. college graduates have regrets about their education because of student loans.[4]  Surveys also show soon-to-be college graduates lack the preparedness needed to feel financially secure when leaving college.  Experian recently conducted a survey of near-term graduates which indicated:

  • 40% rate their financial security as poor or fair;
  • Only 16% have a job lined up after graduation;
  • 57% wish they had taken on less student loan debt; and
  • Only 53% feel that being debt free is an attainable goal.

While the debate about the cost of education and the mounting student debt continues to attract headlines, most people will agree higher education is one of the most reliable paths to ensure future success.  Nevertheless, alternatives such as trade schools or apprenticeship/vocational programs are expected to garner more support and enrollment as students seek to avoid the financial burden associated with four-year, higher education degrees.

To learn more about MHT Partners, a leading education investment bank, please contact Alex Hicks (ahicks@mhtpartners.com).

[1] US Federal Reserve Bank of New York
[2] Georgetown University, Recovery: Job Growth and Education Requirements Through 2020
[3] National Center for Education Statistics
[4] PayScale, Inc. Online Salary Survey

Tech-enabled Innovation Amongst Incumbent Players in the Insurance Sector

Much has been written about the rapid digitalization taking place in the insurance sector. Enabled in part by rapidly growing insurance technology “insurtech” investments, numerous new entrants are testing existing processes, distribution channels and incumbent positions.

Less has been written about the tech-enabled innovation taking place amongst incumbents themselves. Whether a broker, carrier or an administrator, many incumbents have embraced emerging technology. Some have pursued IoT to enhance data analytics and underwriting. Others have embraced workflow automation to break down silos internally and with external channel partners. Still others have implemented blockchain-based smart contracts.

To implement the innovation, incumbents have tapped all possible resources. Legacy enterprise software vendors have been asked to provide additional and better products. In-house and outsourced talent has been leveraged for customized solutions. And in many cases, new insurtech players have teamed up with incumbents. In fact, numerous key players are either investors in insurtech companies or have acquired them outright. Notable recent activity includes (i) Willis Towers Watson’s acquisition of TRANZACT, (ii) Zurich’s acquisition of Sea Pine and (iii) CoverHound’s Series D funding from a group which includes Aflac, Chubb, Hiscox and MS&AD. While it may be unusual, many insurtech startups are currently working in partnership with incumbents rather than competing to displace them.

In the insurance sector, knowledge and relationships remain key. As a result, existing players will continue to maintain a strong position in the foreseeable future. That said, they are cognizant of the demands of the modern insured. They are also well aware of the benefits of tech-enabled processes. As new technology continues to be embedded into workflow, incumbents in the insurance space are continuing to demonstrate their resilience and their openness to innovation. This openness will manifest itself partly through their continued M&A and capital investments.

MHT Partners, a leading business and information services investment bank, will continue to follow insurtech investment trends as tech-enabled innovation takes hold in the ever-evolving insurance industry. To learn more about MHT, please contact Kevin Jolley (kjolley@mhtpartners.com) or Sam Bahmanyar (sbahmanyar@mhtpartners.com).

Technology and Home Health Trends Impacting the Diagnostic Device Industry

The introduction of new technology in the healthcare industry has steadily improved patient care. Recently, increasing consumer demand for more convenient healthcare options is bringing a new wave of medical diagnostic devices that are more patient-friendly than ever before.

In vitro diagnostics (“IVDs”) are defined by the FDA as reagents, techniques, instruments, and systems used in the diagnosis of disease or other conditions in order to cure, mitigate, treat, or prevent disease. These products — which involve the collection, preparation, and examination of biological samples — represent a $69.6 billion worldwide market (2018) that is expected to grow at an annual rate of 4.75% through 2026. The U.S. accounts for approximately 45% of the diagnostic market.[1]

The expected growth in the U.S. can be attributed to several factors:

  • First, an increasing geriatric population is driving demand for medical devices, including IVDs. The 65+ demographic is forecasted to grow to 23% of the U.S. population by 2023, increasing the incidence of chronic disease and aggregate healthcare consumption.[2]
  • Additionally, the FDA’s approval processes for medical devices continue to be more efficient, reducing regulatory concerns for device manufacturers and streamlining product launches.
  • Finally, new products and advancing technology are boosting the cost effectiveness, accuracy, and portability of IVDs.

 

 

 

 

 

 

 

The majority of product and technology development is in Point of Care (“POC”) diagnostic tools — devices that allow testing to occur at or near the site of patient care — the highest growth segment of the IVD market. POC tools yield quicker results and drive better-informed, more immediate care decisions by physicians. They also offer portability and advanced functionality. Notably, certain direct-to-consumer handheld devices and test kits are designed for home use.[3] While one 2018 study credited 80% of revenue from the direct-to-consumer POC diagnostics market to glucose monitoring devices, the development of products such as Butterfly iQ’s handheld ultrasound device or TestCard — a kit with medical strips that record chemical reactions to urine samples and can be read via a smartphone app — are expanding the product offerings in this market to other arenas.[4]

 

 

 

 

 

 

 

 

These products lower cost and time commitments necessary to generate medical opinions while increasing accessibility of care, often allowing patients to undergo diagnostic testing in their own home. POC IVD development is consistent with rising consumer demand for at-home and portable healthcare solutions. 57% of consumers say they would use a telehealth platform, such as a video conference, for a remote general consultation if given the option, and the U.S. telehealth services market is expected to grow at a rate of 9.5% annually through 2023.[6] [7] Further, home health expenditures in the U.S. are expected to grow at 7% annually through 2027. Last, wearable technology providing portable health solutions such as fitness trackers, smart watches with EKG features, and AI-enabled glucose monitors are expected to reach 25% of the U.S. population by 2022.[8]

 

 

 

 

 

 

Ultimately, companies that are able to effectively fuse POC diagnostic tools and remote professional care, monitoring, and other healthcare services will be positioned to thrive in the coming years. Indeed, investment in smaller, niche POC device and technology companies has increased recently. Opportunity in the space is highlighted by Siemens Healthineers’ acquisition of Epocal Inc, CK Hutchinson Group’s investment in Sight Diagnostics Ltd., KKR’s investment in Signostics, and Genesis’ investment in Delve Labs Inc.

As healthcare continues to move towards increasing patient convenience, MHT Partners, a leading healthcare investment bank, believes that POC diagnostic manufacturers are positioned to prosper as they grant individuals access to decisive information with improved accuracy, specificity, and speed. If you would like to learn more about MHT’s healthcare services advisory practice, please e-mail Taylor Curtis (tcurtis@mhtpartners.com) or Alex Sauter (asauter@mhtpartners.com).

[1] “In Vitro Diagnostics (IVD) Market Size, Share & Trends Analysis Report,” Grand View Research
[2] “U.S. Medical Device Manufacturers Market Size, Share & Trends Analysis Report,” Grand View Research
[3] “Navigating the Diagnostics Market,” Medium
[4] “Med Tech Highlights at CES 2019: What does this innovation mean for the future of healthcare?” Pharma IQ
[5] “U.S. point of care diagnostics market size 2015-2022,” Statista
[6] “Telehealth industry defined: the services, systems, benefits & trends of a growing digital health segment,” Business Insider
[7] “Telehealth Services Industry in the US,” IBIS World
[8] “Wearables 2019,” eMarketer

 

DTC Models

It seems everyone wants to be viewed as a premium direct-to-consumer (“DTC”) model these days. But what exactly does that mean in today’s rapidly evolving landscape.

What passed for “premium” DTC in the past doesn’t necessarily hold up today, as sophisticated investors have refined the lens through which they view opportunities. With the passage of time, investors have come to appreciate what works (and what commands a higher price) and what doesn’t work.

In a nutshell, companies that can demonstrate strong repeat purchase behavior, on a cohort-by-cohort basis, are highly prized….and highly valued. LTV/CAC (“lifetime value/customer acquisition cost”) ratio is the KPI (“key performance indicator”) that, in my opinion, most accurately and comprehensively captures “value creation” by a given company. Specifically, it captures the initial purchase and stream of recurring future orders, as well as CAC (“customer acquisition cost”) that drove the purchases. Of note, while we do see revenue as an input in the numerator, sophisticated investors will analyze gross profit (a distinction that we, a leading consumer growth investment bank, agree with). Repeat purchasers (or purchases) in addition to their positive contribution through time, reduce or eliminate customer acquisition costs (which in general are assumed to increase in time from competition and from “supplier” power in the form of Google, Facebook, Amazon, etc.) and speak to strong customer engagement and affinity that are sustainable competitive advantages. Obviously, the inputs, and timing thereof, of LTV/CAC will vary by company, product and customer, but anything in excess of 3-4x multiples are the sign of “a lot going right” and multiples in excess of 8x, “nothing going wrong!”

We’ve had the good fortune to work with several attractive DTC (or largely DTC) companies in the outdoor products, pet and food & beverage spaces, and while the industries themselves may differ, the attributes that make them successful do not. We welcome the opportunity to learn more about your company and to share investor views of this ever-evolving business strategy!