Stuck in the Middle

If you have children, you may have read “One Duck Stuck” at some point, and if you did, you may recall the refrain, “no luck…still stuck” … which, in the continuum of business models and brand focus has applicability as well – namely with companies and brands along the value, mid-level, and premium continuum (or “good, better, best” continuum).

The world of consumer goods and services has increasingly become a polarized one, with companies in the premium and value segments enjoying much success, and those in the middle, well, “stuck.” Whether evaluating restaurants, footwear, grocery, health and beauty items, pet products, or gyms, for instance, the trend is indisputable – value and premium outpace the middle.

Why is this? There are a couple of notable dynamics. The middle means the consumer is “indifferent” (the middle is neither viewed as a smart, no frills option, nor as the high quality, cache-laden option). And in the absence of a strategic message addressing both why value buyers should “trade up” and why premium buyers should “trade down,” this “indifference” spells trouble.

Focusing on the value segment, the burgeoning presence of private label is well documented and certainly speaks to the success of less expensive alternatives on retailer shelves (oftentimes in the presence of a brand). The increasing bifurcation of American households into the “haves” and “have nots” has seen scores of consumers trade down as stagnant real-wage growth, limited career prospects, debt burdens and uncertainly have taken their toll.

On the other end of the spectrum, in a robust, late-stage economic expansion, it’s also not surprising to see premium, or luxury, performing well. Consumers of means (the “haves”), as well as aspirational risers, seek the experience, identity and cache that come with premium. Also playing into this, are millenials who value green and sustainability – attributes that, all else equal, often cost more.

Examples across the spectrum include Planet Fitness on the value end, SoulCycle on the premium end … 24 Hour Fitness in the middle. Five Guys on the value end, The Capital Grille on the premium end … Applebee’s in the middle.

So, brands and companies – seek out the light at either end of the tunnel – because you can’t spell “middle” without “dim.”

We welcome further discussion!  Please contact Craig Lawson (clawson@mhtpartners.com).

Big Business in Biologics

What are biologics? As the “bio” prefix suggests, biologics are drugs derived from living organisms, rather than traditional chemically synthesized drugs. They are also big business, representing six of the top eight drugs by total revenue and generating over $219 billion globally in 2016. [1]

Considering that the first real biologic came to market with human insulin in 1982, these therapies’ rise has been nothing short of meteoric. [2] Warwick Smith, Director of the British Biosimilars Association explains that:

Over the past 30 years, we’ve seen a shift from the new innovative “blockbuster” medicines – synthesized chemicals – to biological medicines. It’s a big change for the industry as a whole but patients benefit because [these treatments] are grown from living cultures, they can be designed to link to specific parts of the body, and therefore can be more specific and effective for certain conditions compared to chemicals. [2]

These therapies, then, offer a degree of biological adaptability and precision unseen in many of the chemically synthesized “small molecule” drugs that dominated the twentieth-century pharmaceutical landscape.

While biologics are an extremely innovative class of therapies, biologics development brings a unique set of challenges. Specifically, these drugs are massive. While small molecule drugs are often made up of a handful of atoms (aspirin, for example, consists of 21 atoms), biologics consist of thousands (IgG Antibodies, large biologics, consist of about 25,000 atoms). [3] Because of their size, it is often difficult to exactly replicate any individual biologic; instead, researchers and organizations often repeat processes to create incredibly similar mixtures of molecules. Additionally, the Arizona Bioindustry Association explains that “proteins have unique structural organization patterns (referred to as “folding”) that affect the way they work in the body; even biologics that are chemically the same may have differing biological effects due to differences in the structural folding.” [3]

The confluence of biologics’ significant innovation potential and unique research and development challenges has spawned widespread demand for organizations with deep biologics knowledge and specialization, and investors have taken notice. Private equity firm Riverside Partners, for example, partnered with BioAgilytix Labs, a biologics-focused contract research organization, in 2013 and sold the Company to Cobepa in late 2018. Additionally, Ampersand Capital Partners has developed an extensive portfolio of partnerships across the biologics value chain, from biologics raw material provider Key Biologics to biologics-focused research organization LakePharma to Bioventus, a provider of orthopedic biologics therapies. [4]

As a leading healthcare services investment bank, advising innovative niche market leaders, MHT Partners closely follows developments across the biologics value chain and anticipates the volume of deals consummated with firms specializing in biologics to increase in the coming years.

[1] Statista, Mordor Intelligence
[2] ChemistryWorld
[3] AZBIO
[4] Company websites, Capital IQ

The Expanding Technology Behind Channel Sales

If you’re a shopaholic, you’re probably a Nordy Club(1) member or hold a REDcard(2) from Target. If you can’t live without pumpkin spice lattes, you’re likely enrolled in the Starbucks Rewards program.(3) Many business-to-consumer (“B2C”) companies utilize marketing, loyalty, and rewards programs to engage consumers and drive brand recognition and customer retention. These programs were early adopters of technology and software aimed at delivering effectiveness, efficiency, and measurability to rewards and marketing spend. However, business-to-business-to-consumer (“B2B2C”) companies and channel marketers have been slower to adopt similar technology, until now.  B2B2C companies and channel marketers are beginning rapid adoption of technology and software to drive these types of measurable and repeatable results in their businesses.

Consider an HVAC equipment manufacturer: the manufacturer may choose to sell its products directly to consumers via a sales and installation team, partner with HVAC installation companies and outsource distribution, or use a combination of direct and indirect sales channels. On one hand, selling through a direct channel provides full control of the sales process. On the other hand, channel sales provides low sales, marketing, and distribution costs, and allows for expansion and scaling opportunities. Perhaps the biggest drawback to channel sales, however, is the lack of control over managing the sales process. Depending on the sales model, the manufacturer may have limited visibility into and influence upon the sales process. With 75% of world trade flowing indirectly, how do channel sales companies effectively incentivize and engage partners to achieve strategic sales initiatives?(4)

Channel loyalty technology and software provide a powerful answer to this challenge. Leading channel loyalty technology providers are enjoying rapid growth as they develop innovative solutions that help incentivize and reward partners in indirect sales channels. Traditional channel loyalty and rewards programs rely on commission opportunities as the sole force for driving strategic sales initiatives. New technology and software innovations like omni channel marketing, gamification, artificial intelligence (“AI”) and machine learning, and specialized partner relationship management (“PRM”) software are reshaping the loyalty landscape to provide personalized and experiential rewards programs for partners.

The average partner program contains over 90 distinct components.(5) Specialized PRM software helps string together partner planning, onboarding, enablement, incentives, marketing, and management. Channel, marketing, and sales professionals are realizing the importance of a strategic partnership with PRM software providers as it helps professionals influence the partner journey and manage a larger, more heterogenous portfolio of channel types. Further, channel loyalty technology providers are building omni channel marketing solutions and using AI and machine learning to help large businesses manage complex channel incentive programs in real time.

Some channel loyalty technology providers are using mergers and acquisitions (“M&A”) to broaden and expand service offerings to customers. For example, Zift Solutions secured a position in the PRM market in July 2017 after merging with Relayware, a PRM software provider.(6) The combination of Zift’s existing Channel-as-a-Service platform and Relayware’s PRM platform established an Enterprise Channel Management technology solution to expand functionality and return on investment (“ROI”) for customers. Another example is 360Insights’ recent acquisitions of Ohana Companies(7) in August 2019 and Marketing Technology Concepts(8) in January 2019. These acquisitions provide 360Insights with brand loyalty solutions and sales incentive management software to continue progressing toward an all-in-one solution. MHT Partners expects continued M&A activity in the channel incentive and rewards space as many players compete to become a dominant provider in the fragmented market.

MHT, a leading technology investment bank, will continue to follow channel loyalty trends as industry consolidation remains an increasingly beneficial option for companies looking to maintain high growth and expand into new services and geographies. To learn more about MHT, please contact Mike McGill (mmcgill@mhtpartners.com).

(1) https://shop.nordstrom.com/c/nordy-club
(2) https://www.target.com/redcard/about
(3) https://www.starbucks.com/rewards/
(4) https://go.forrester.com/blogs/partner-relationship-management-prm-comes-of-age/
(5) https://go.forrester.com/blogs/time-to-rethink-channel-incentives-and-program-management-cipm/
(6) https://ziftsolutions.com/whats-new/zift-relayware-to-merge/
(7) https://360insights.com/newsroom/pr/360insights-acquires-consumer-rebate-provider-ohana/
(8) https://360insights.com/newsroom/mtc-performance/

Additional resources:

https://blog.hubspot.com/sales/channel-sales
https://www.saleshacker.com/channel-sales-direct-sales-strategy/
https://go.forrester.com/blogs/partner-relationship-management-prm-comes-of-age/
https://ziftsolutions.com/whats-new/zift-relayware-finalize-merger/
https://go.forrester.com/blogs/time-to-rethink-channel-incentives-and-program-management-cipm/

Other transactions:

Impartner (PRM provider)_ acquired Amplifinity (develops and delivers referral programs)
Allbound receiving multiple rounds of venture capital funding (PRM software)

Soft Skills Dictate the Capabilities of Professional Development Services – Part 1

In a world where digitalization has become the standard, there is an unwavering consumer demand for new, innovative, personalized content. Since change in consumer demand is the only constant, digital transformation has become imperative for all businesses in order to remain competitive. Digital transformation means more than delivering and embracing new technology; it encompasses change in thought and organizational culture. It often requires restructuring of business models in a way that proactively seeks to understand customers while innovating ways to captivate changing needs. Today, it is apparent that the most effective way to meet the digital demand is through digital talent. However, instead of creating new job titles, most companies prefer to retain quality, tenured employees while modifying the required skills of their current job positions. In order to do so, companies must continue to nurture the skill sets of both existing and newly acquired talent through professional development services, creating a culture of lifelong learning.

As digitalization evolves and corporations become more data driven, one would think technical skills surpass soft skills, but this is not the case. A research report conducted by Infosys, a global leader in next-generation digital services and consulting, suggests that the soft skills emphasizing collaboration rank higher than individual skills and are just as important as technical prowess. In addition, the study concludes that undervaluing learnability is the “biggest tangible barrier to reskilling the workforce.” [1] This underestimation impedes the activation of a lifelong learning culture, which is required to captivate the rapidly progressing consumer demand. It also decelerates the digital transformation process – a key to profitability and competitive advantage today.

Corporations across various industries are demanding skillsets that complement their digital initiatives and projects. Infosys’s research [1] reveals that:

 

Going forward, it will be critical not to overlook how essential these innate skills are for both design thinking and continuous personal and technical development.  Both traits are required for today’s talent to understand and keep pace with new technologies and consumer demands.

It is safe to say that the skills companies need most vary by industry and the types of digital initiatives they pursue. However, learnability is one that is needed across all industries, especially ones that require a profound understanding of the consumer in order to offer new, personalized digital experiences. For instance, the education sector must cater to the needs of its consumers, the students, whose abilities to learn in the traditional way has changed with increasing technology. In response, this industry has become increasingly more tech-enabled to tailor the learning experience for each individual. The education technology space has seen  $962 million raised over 65 deals in the first half of 2019 compared to $750 million across 62 deals in the first six months of 2018. [2] In the K-12 Professional Development market alone, there is a predicted $3.2 billion to be generated in net sales by 2021 [3] and this figure continues to grow as investors recognize the necessity of this market with such advancing technology and consumer demand. This goes to show how crucial learnability is. If educators and teachers are still seeking new ways to positively impact their students, then all professionals and corporations should feel the same way toward their respective end markets and customers. More importantly, it should be reflected in their office cultures and their hiring strategies.

In a society where consumer demands are growing with new technological advances, corporations must continue to educate and revitalize the skills of their professionals. However, the biggest intangible barrier that limits the tremendous potential of reskilling as a competitive advantage, is undervaluing learnability. Technical prowess is stagnant without indulging them with soft skills. And – it is up to corporations to seek employees with this skill set while cultivating culture of lifelong learning. This is the only way to reap full benefits of the booming professional development market and captivate the continuously changing consumer demand. The next question is… What necessary steps need to be taken to effectively do this?  Stay tuned for MHT Partners, a leading education investment bank, next “Learning Curves” blog for part 2.

[1] https://www.prnewswire.com/news-releases/need-reskilling-and-non-traditional-talent-nurturing-in-a-culture-of-lifelong-learning–finds-new-global-research-from-infosys-300916708.html
[2] https://www.edsurge.com/news/2019-08-07-us-edtech-funding-already-nears-1-billion-in-first-half-of-2019
[3] https://marketbrief.edweek.org/marketplace-k-12/investment-opportunity-strong-bit-risky-k-12-education-report-says/

 

A Summary of Natural Products Expo East

MHT’s Consumer Growth team recently attended Expo East in Baltimore, MD, and despite the blistering, humid conditions outside, the interior halls of the Baltimore Convention Center were filled with the always refreshing air of entrepreneurship. We walked the aisles for two days, visiting existing relationships and establishing new relationships. As usual, Expo East was smaller and a bit more manageable than Expo West, both in terms of logistics and the sheer number of exhibitors. Further, the ‘Hemp Pavilion,’ basically a separate venue, served as a helpful micro-enterprise showcase for the rapidly growing and highly fragmented CBD/Hemp consumer product space. Here are a few general themes that MHT noticed from this year’s show, many of which were also abundant at Expo West 2019:

  • CBD everything – Easily the consumer product industry’s largest ‘wild west’ segment right now, we saw CBD and hemp-infused products for humans and pets in virtually every category. Many startups are leveraging CBD as their core positioning, while simultaneously we saw established food, beverage, personal care, and cosmetics brands launching new products and/or sub brands containing the unregulated, non-narcotic ingredient. Interestingly, most of the experienced consumer investors we spoke with at the show were adamant about staying on the sidelines in the pure CBD space…for now.
  • Endless bubbles – While La Croix had a large booth and was giving away full cans of pomelo-flavored sparkling water (will they ever run out of fruit flavors?), there was an abundance of me-too sparkling water brands exhibiting. Our favorite was Minna, a ‘lightly brewed sparkling tea,’ and the beauty of all of these infused still and sparkling waters is the breadth of claims that catch the eye of the myopic shopper. XYZ’s Sparkling Waters are Certified Organic, Non-GMO, and have zero sugar, calories, and sodium – yes, it is water.
  • Keto-compliance and endless protein – The hottest trend in lifestyle dieting today has driven food and beverage companies to make formulation changes and/or launch new products that conform to the high-fat/low-carb Keto lifestyle. Unsweetened beverages, Keto energy bars, crackers produced with pea/legume protein, dehydrated unsweetened snacking vegetables, and our favorite emerging ingredient-turned-beverage, bone broth. Bone broth checks so many boxes from Keto compliant to gut health to on-the-go lunch, it is no wonder that several brands have raised venture funding and are expanding into national grocery chains.

Always one of the best shows in the consumer products industry, Expo East did not disappoint, and we, a leading consumer growth investment bank, look forward to seeing how the landscape evolves over the next six months.

We welcome further discussion! Please contact Craig Lawson (clawson@mhtpartners.com), Patrick Crocker (pcrocker@mhtpartners.com) or Gavin Daniels (gdaniels@mhtpartners.com).