The Connected History and Popular Regrowth of Roller Skating

Hundreds of people lined up on July 16th in Long Beach, CA, and no, it was not for a COVID-19 test. Instead, crowds assembled (hopefully socially distancing, of course!) in hopes of buying a new pair of roller skates from Pigeon’s Roller Skate Shop during its flash sale.(1) With shelter-in-place and work-from-home initiatives, many Americans have more free time than ever. As people have begun picking up hobbies new and old, specially those involving the outdoors, it is only natural that many have turned to one of America’s most beloved pastimes from earlier decades: roller skating.

Social media platforms, such as Instagram and TikTok, have been dominated with roller skating posts, accelerating the trend even further.(2)

Roller skating became popular in the 1930s and experienced surging popularity at various times, including in the ’60s through the ’90s. However, roller skating was more than an erratic trend in mainstream culture. United Skates, a 2019 documentary film highlighting the history of black roller skating rinks, tells a narrative deeply entrenched in the civil rights movement. Ledger Smith, known as “Roller Man,” skated 685 miles from Chicago to D.C. to attend the March on Washington, wearing a placard that read “FREEDOM” around his neck.(3) Popular actress Ana Octo has spent time in the recent past protesting (in roller skates) in support of Black Lives Matter and posting historical information about Ledger Smith to her 65,000 followers. (Her Instagram bio reads, “Don’t hate, roller-skate.”).(4)

Roller skating finally peaked in mainstream popularity in 2000 when 22 million Americans reported they skated at least once a year. In comparison, only 17 million people reported playing baseball.(5) Roller skates and skateboards led the U.S. alternative sports market in 2017 with $11 billion in revenue, which is expected to continue growing steadily over the next few years.(6) Bauer, a leading performance sports manufacturer, reported a 723% year-over-year online search traffic increase for inline skates.(5) Many retailers cannot keep skates in stock due to limited production, factory shutdowns, and sudden increased demand. Is 2020 the renaissance of roller skates?

As consumer investment bankers with significant experience working with clients in the outdoor and enthusiast products’ sectors, we are eager to watch this trend unfold, as well as the recent increase in biking, and see whether ”wheeled activity” will remain popular post-COVID or take a back seat to other activities once restrictions lift. Meanwhile, you can find us dusting off our old skates until we can get our hands on some new handmade Moxi skates, which currently take a whopping 10-14 weeks to ship due to factory shutdowns.

Sources:
1) https://abc7.com/community-events/hundreds-line-up-for-roller-skates-in-long-beach/6329421/
2) https://www.nytimes.com/2020/06/24/style/roller-skating-is-back-baby-taylor-lorenz.html
3) https://www.businessinsider.com/roller-man-skates-for-freedom-2015-8
4) https://www.thedailybeast.com/the-rich-history-of-black-roller-skating-rinks-and-their-civil-rights-legacy?ref=scroll
5) https://www.insidehook.com/article/health-and-fitness/rollerblading-comeback-coronavirus
6) https://www.techsciresearch.com/news/2645-roller-skates-skateboards-leads-11-billion-alternative-sports-equipment-market-in-us.html

What Will Become of the Sharing Economy?

We had (and still have) “excess capacity” in personal assets – everything from office space to cars to restaurants to boats to houses to bikes…even apparel. It is physically impossible to use all of our “stuff” 100% of the time, and conversely, it is often inefficient to purchase all of these assets when you can’t afford them, can’t store them, or just want to use something once. Enter an explosion of entrepreneurs and their apps that virtually connected intermittent demand with intermittent supply. The sharing economy was born, and until a few months ago, society had developed a feeling of accomplishment (wasting less, saving money) while billions of dollars were being generated by property owners and app developers. Further, the sharing economy includes the “gig economy,” which shares all of the same network effects previously described. However gigs are personal and professional services performed remotely (e.g., legal services, graphic design) or in person (TaskRabbit, Uber, NetJets, Wag.com, etc.). The gig economy contributed to a dynamic transformation in our society, as millions of workers around the world pieced together multiple occupations, often lifestyle-oriented, to generate a desired level of income.

And then came the COVID-19 global pandemic in late 2019 and early 2020. The unprecedented shelter-in-place rules have had a crippling impact on the sharing economy, as much of the sharing economy depended on the transportation, hospitality, entertainment, and office space demand of people. Said another way, much of the sharing economy relies upon close human contact.

Perhaps the most notable impacted networks, so far, are Uber, Lyft, and Airbnb. The two dominant ride-sharing companies had not been publicly traded for a year when global ride-sharing demand evaporated in Q1. Millions of self-employed drivers around the world, and nearly 8,000 total full-time employees, are out of work. Airbnb was slated to go public this year and instead has laid off 1,900 employees and taken on $2bn of expensive debt. For some lucky drivers, the spike in grocery, parcel, and meal delivery has softened the blow.

The bottom line is that most of us are still not comfortable being in close contact with shared “stuff” without a sanitary guarantee. My family’s next trip was to involve an Uber ride to the airport, cross country flight, Turo car rental, Airbnb lake house rental, and probably peer-to-peer boat and bike rentals. Everything has been cancelled.

When will we, as frequent sharing economy customers, be comfortable with these arrangements again? When will the millions of drivers, property owners, office owners, dress owners, etc., find a proven and affordable disinfecting solution that we can all swear by? How will a customer receive validation that a bike or cubicle or car was properly sanitized? When a vaccine is rolled out, will we as customers need to prove our vaccination or is it the other way around?

As consumer investment bankers, we are keenly interested in how the evolution of the sharing economy will continue as COVID 19 continues to impact the world. To discuss this and any other consumer topics, please don’t hesitate to reach out to us.

The Bicycle is Back in Black!

A simple mechanical contraption has surged in popularity over the past couple of months as people struggle with restlessness at home, public transportation unavailability, shuttered gyms, the temptation of all day work-from-home snacking and bulging waist lines – the bicycle is back in black!

Whether it be road bikes, mountain bikes, e-bikes and the latest, gravel bikes, all have seen a surge in demand from “state of the art” versions to beginner varietals. While some of this mechanical mania will surely subside as “normalcy” returns to recreation, work and commuting – we believe a significant percentage of this change to consumer behavior will stick.

The National Association of City Transport Officials (NACTO) reports an “explosion in cycling” in numerous U.S. cities. While much of this is recreational, usage by essential workers commuting is up significantly and may portent the behavior of non-essential workers who return to the office in the coming months.

Domestically, an increasing number of cities have closed city streets to vehicles both in response to less cars on the road and increased demand from cyclists. Among notable cities:

  • Oakland has closed 74 miles of streets.
  • San Francisco just this week pledged to close another 20 miles of streets which brings the total to 34 miles.
  • NYC plans to close 100 miles (starting with 40 in May).
  • Seattle plans to permanently close 20 miles of streets.
  • Elsewhere in North America, Minneapolis, Philadelphia, Burlington, Denver, Boston, Charlotte, Calgary and Mexico City have all had street closures.
  • International cities ranging from Auckland to London, Berlin to Bogota, are doing the same.

Admittedly, not all road closings will be permanent, but it’s not a stretch to envision some permanency will continue.

Several considerations and factors contribute to cycling popularity:

  • Biking is fantastic exercise, and with public transportation in high density urban areas down 50% or more across the nation, biking is a logical alternative.
  • One can partake in this activity with the whole family.
  • It is lower impact versus some physical activities, and one can cycle late into their life.
  • Biking is an activity that can be both social and social distancing at the same time (unless you’re banging bike pedals, it’s difficult to be within 6 feet or so).
  • Importantly as well, biking is fantastic for the environment as it reduces reliance on cars.

More specifically with respect to some of the points above, according to the World Resources Institute, studies have shown regular cyclists can have a 50% less likely chance of heart disease among other ailments (the same can presumably be said for other acts of regular exercise). As relates to the environment, it’s estimated that each kilometer cycled avoids 250 grams of CO2 emissions. Cyclists in Copenhagen, one of the world’s most prodigious biking cities, by virtue of avoiding cars, keeps 20,000 tons of carbon emissions from entering the atmosphere.

All of this points to significant growth in the estimated $6B + bike market.

Anecdotal checks with numerous bike participants (vendors and independent shops) paint a picture of massive demand juxtaposed against limited supply. At the local bike shop I frequent just north of San Francisco, a simple mountain bike tune-up is taking 10 days (because of overwhelming demand), and the availability of a bike to demo in advance of a new purchase was exactly one (in contrast to probably 10 X that in less active times).

But a word of caution – America witnessed a significant bike boom in the 1970s, and at the time it appeared to be spurred on by high oil prices, a concern for the environment and a number of other “wellness“ dynamics also at play (sound familiar?). Bike sales boomed for a number of years and then they deflated just as quickly and alas, America didn’t become the Netherlands. That said, in hindsight, the 70s’ boom appears to have been fueled simply by baby boomers coming of age and buying “big people“ bikes. While bikes in the 70s were still viewed as somewhat of an odd accoutrement for an adult (rather than something shed with finality in one’s teenage years), bikes (and the quality and spectrum of them) have come a long way in the interim, and there is nothing “childish“ about them anymore.

In addition to the aforementioned dynamics, it remains to be seen how much consumer behavior will stick versus the alternative of bikes becoming glorified drying racks in one’s garage.

Additionally, with respect to worker commutes, the interplay of more people working from home (less need to commute) and convenience (dedicated bike lanes – perhaps less needed with more people working from home) remains to be seen.

As an avid mountain biker and believer in “a sound body makes for a sound mind,” I hope that this two-wheeled revolution continues!

MHT Partners, a leading consumer investment bank, welcomes further discussion. If you would like to learn more about MHT’s consumer advisory practice, please e-mail Craig Lawson, clawson@mhtpartners.com; Patrick Crocker, pcrocker@mhtpartners.com; Gavin Daniels, gdaniels@mhtpartners.com; Tara Smith, tsmith@mhtpartners.com or Tom Gotsch, tgotsch@mhtpartners.com.

Pet Space Update During COVID-19

The pet space continues to be an attractive investment arena in the midst of the pandemic. As a leading consumer investment bank very active in the space, we field a steady drum beat of inbound interest from sophisticated investors. Notably, CD&R’s recently announced pending acquisition of Radio Systems, Corp. serves as an apt example of recent M&A activity, growth and liquidity. The rumored sale price of $1.3B represents 12.75x pro forma adjusted LTM EBITDA as of June 30 – all the more noteworthy in the billion dollar plus range.

More broadly speaking, while unlike past downturns, overall industry growth rates will decline this year. Packaged Facts estimates U.S. pet industry retail sales will decline 17% in 2020 (to $78.5B in 2020E) — the “devil is in the sub-sector details” and in the supply/demand equilibrium equation. To bookend the spectrum of pet-related products and services, pet services, which by and large have been deemed “non-essential,” have and will continue to suffer the most given shelter in place restrictions and a massive decrease in travel (as relates to pet hotels and boarding). On the other hand, pet food, befitting its staple designation, is churning along fine notwithstanding “noise” from pantry stuffing in March that has reversed itself the last few weeks. Other sub-sectors (e.g., treats, durables) fall in between.

Non-consumable pet expenditures are projected to decline in 2020, though that decline appears to be largely a supply-side function due to a subset of brick-and-mortar retailers being deemed non-essential and temporarily shuttered (though a significant percentage of smaller independents, lacking eCommerce capabilities and capital, will undoubtedly permanently disappear). Chinese tariffs have taken their toll and COVID-19 related blowback may as well. Demand, on the other hand, has held strong. As an example, dog food (an essential staple) is projected to grow 4-5% in 2020E. Distribution channels play a large role in success, and anecdotal company checks with scores of vendors with eCommerce/DTC capabilities, or wholesale customers with eCommerce capabilities, highlights strong channel outperformance in these times. Nielsen reports that online sales of pet food in the U.S. increased $281 million (51%+ growth) from February to March 2020 and year over year (“YOY”) increased 77%, compared to March 2019.

While still relatively early, premium brands have held in well, but we may see a shift to lower-priced products as consumer budgets shrink, and/or consumers, absent a truly experiential and/or unique product assortment at their favorite pet store, limit their brick and mortar visits to the “one-stop-shop” FDM venues that offer lower price point products. The pandemic has brought about a period of product and brand discovery whereby the “value proposition” (and all the elements – price, content, transparency, convenience and availability that define it) will find itself under increasing scrutiny from consumers – and vendors need to take heed.

Helping soften the blow of COVID-19 is increased pet ownership as people look to pet companionship to fill the void of social distancing. Shelters nationwide report significantly elevated levels of adoption and fostering (the ASPCA reported a 70% increase in fosters in Los Angeles and New York in March) and if the Great Recession serves as apt precedent, dog ownership rates in the U.S. (presently at ~50%) should tick up a couple percentage points incrementally and pay dividends in the future. A recent LEK Consulting consumer survey indicates that U.S. dog and cat ownership has increased approximately 4%, or approximately 7 to 8 million animals, during the pandemic.

As an investment bank deeply involved in the pet space, we remain highly enthusiastic and optimistic for the pet industry and the growth PAWSibilities in the future – we welcome a discussion with you!

Getting the Goods During the Pandemic: Pivoting Consumer Supply Chains

As millions of Americans are sheltering in place during the pandemic, the at-home demand for food and supplies, including paper goods such as toilet paper and paper towels, has increased, while restaurants and offices no longer need these items in bulk. According to Alix Partners, U.S. household demand of toilet paper is up 40% due to the closure of schools and offices nationwide.(1)  Coupled with consumer desires to “stockpile” some items for preparedness sake and to avoid shortages, the demand for many items in the direct-to-consumer channel has increased dramatically in the last two months. Out-of-stock shelves in brick-and-mortar grocery and sold-out e-commerce channels have forced consumers to get creative while sourcing their needed items and forced manufacturers and distributors to figure out how to pivot supply chains in order to meet these changes in demand.

Local restaurants have, in some cases, started selling grocery items to their consumer supply base, utilizing their ability to source goods at the wholesale level. Not only does this provide an opportunity for restaurants to make money and keep staff employed during the crisis, but it also potentially engenders goodwill with consumers, who may seek to patronize these establishments that helped consumers get what they needed when they couldn’t find it elsewhere (and I can personally attest to this dynamic, with a strong affection for my local Italian restaurant selling flour in bulk and my local brewery selling yeast!).

Notably, new technology upstarts are helping to enable food and toiletry businesses serving commercial markets to reach consumers directly with goods as the crisis unfolds. Cheetah, a startup founded in 2015 with an app enabling wholesale supply deliveries to restaurants, in late April just announced $36 million in funding from Eclipse Ventures, ICONIQ Capital, Hanaco Ventures, and Floodgate Fund. As the pandemic has played out, Cheetah has shifted its business model to reach consumers directly, through a service called Cheetah for Me, in which consumers can purchase groceries, paper goods, and other supplies in varying quantities via the app and pick them up at designated delivery sites around the Bay Area. As such, goods that would have traditionally found their way into the restaurant supply chain are now in the hands of consumers at home, enabling the startup to generate revenue despite widespread restaurant closures. Similarly, Choco, a Berlin-based startup that also operates in the U.S., recently raised a round of funding in mid-April ($30 million from Coatue Management, Bessemer Venture Partners, Atlantic Labs, Target Global and Greyhound). Choco, which streamlines ordering from, and communicating with, suppliers for chefs and restaurant staff, is currently partnering with its restaurant customer base to enable them to resell groceries directly to consumers.

Companies that are flexible and creative in finding ways to meet changing demand patterns in the global pandemic have clearly attracted the attention of new customers and investors and will likely continue to do so in the coming weeks and months ahead. As consumer investment bankers, we are keenly interested to continue to follow how changing supply chain dynamics will continue to shape the consumer landscape going forward. Our MHT Partners’ consumer team welcomes further discussion on changes in the consumer landscape as a result of COVID-19 (Tara Smith, tsmith@mhtpartners.com, Craig Lawson, clawson@mhtpartners.com, Patrick Crocker, pcrocker@mhtpartners.com), Gavin Daniels, gdaniels@mhtpartners.com, or Tom Gotsch, tgotsch@mhtpartners.com).

(1) https://nypost.com/2020/04/09/how-a-global-pandemic-lead-to-a-toilet-paper-shortage/

Food & Beverage Opportunities in the Midst of COVID-19

COVID-19 has certainly created challenges and pain in a host of industries.  That said, adversity often breeds opportunity, and it is no different for the consumer packaged goods (“CPG”) industry. With respect to the food & beverage side of things, below are a few observations:

  • With respect to food & beverage, the direct-to-consumer (“DTC”) model, while benefiting in an outsized manner presently due to “pantry stuffing,” will nonetheless capture gains due to permanent shifts in consumer behavior, increasing their share of consumers’ buying trends and wallets.
  • U.S. consumers spend approximately 10% of their disposable personal incomes on food; split roughly 50/50 between at home and away from home, with the scales tipping slightly towards eating out. From a dollar perspective, U.S. consumers spent approximately $1.6 trillion on food & beverage in 2019. As of this moment, most of that approximate $900 billion of “eating out” spend is “up for bid.”
  • Given the dislocation in the market, an opportunity for a brand discovery presently exists as consumers rethink family food budgets, what they are eating, and the nutritional choices they are making. In particular, DTC models, already on the rise, have an opportunity to further accelerate their traction. Food & beverage eCommerce sales, while a small ~2% of total food & beverage sales, were already growing approximately 20% annually prior to COVID-19.  While only one data point, Unilever reported DTC sales of its products (approximately 6.5% of its total sales) grew 36% in the quarter. Shelf-stable products (particularly those in non-glass lightweight packaging) stand to benefit most, as they are conducive to efficient, cost-effective pick-and-pack shipping.
  • One would expect to see eCommerce penetration increase across all cohorts (Gen Z, Millennials, Gen X and Baby Boomers) but in particular, on a relative basis with Boomers, and to a lesser extent Gen Xers, given the unique COVID-19 age risks at hand.
  • Male purchases, which lag female purchases, may see an upsurge related to an apparent higher COVID-19 infection risk within males.
  • Premium food & beverage products have held up decently thus far and are likely to continue to do so, though the longer a return to “normalcy” takes, the more “in focus” these products will be in the cost-benefit analysis of consumers. Continuous adherence to a rational and attractive price value proposition will be key for these companies as they reflect upon their distribution channels, price points and content.

To date, we have seen numerous examples of consumers investing in themselves during this period of social distancing . . . exercise equipment, outdoor products that can be used in a solitary context, supplements, and food (for themselves or their pets) – and let’s not forget alcohol (for mental well-being!).

MHT Partners, a leading consumer investment bank, is very active in the food & beverage space and will keep its finger on the pulse during this global pandemic. If you would like to learn more about MHT’s consumer advisory practice, please e-mail Craig Lawson, clawson@mhtpartners.com; Patrick Crocker, pcrocker@mhtpartners.com; Gavin Daniels, gdaniels@mhtpartners.com; Tara Smith, tsmith@mhtpartners.com or Tom Gotsch, tgotsch@mhtpartners.com.

Play to Connect: Gaming is Engendering Social Connection in the Age of ‘Shelter in Place’

By all accounts, the U.S. gaming industry is booming due to shelter-in-place ordinances systematized throughout the country. From video game consoles, like Microsoft’s Xbox or Sony’s PlayStation, to mobile apps and board games, consumers are turning to gaming not only to escape the onslaught of COVID-19 headlines, but also to connect with friends and family safely and responsibly.

Video game consoles have reported large spikes in usage. Sony recently reported throttling game download speeds for its PlayStation platform in order to “ensure internet stability.” Microsoft’s Head of Xbox, Phil Spencer, commented on Twitter that “usage is up on almost everything,” referring to the many online titles offered on the platform. Steam, an independent digital distribution service that allows consumers to purchase games directly from developers, reported the highest average concurrent users ever on the platform last month, an increase of 20% over the same period last year. The popularity of traditional console games combined with the desire for players to interact has put a strain on supplemental communication services, like Xbox Live and Nintendo Online. These services, which allow gamers to chat, joke, and coordinate strategies live while engaged in multiplayer games, have reported multiple short-term outages over the past month due to the burden of increasing demand. While the ability for gamers to ‘meet up’ online is not new, the widespread shelter-in-place mandates make these services a unique draw for many who are looking to connect with peers. As such, the world of online gaming is seeing many new faces, as well as some familiar faces, more often.

On the mobile app front, the usage of gaming apps on phones and tablets is up 75% according to March 2020 data published by Verizon, with 23% of those users playing newly downloaded games(1). The increase in usage is double that of social media, web, or video streaming apps like Netflix, Amazon, and Hulu, over the same period. According to the data, card, word, and board game categories saw the largest increase among new game downloads, respectively. The increase in card and board game app downloads may correspond with a similar uptick in the use of virtual services, such as Zoom, Skype, or FaceTime, where friends and family can converse in real-time while also playing the same virtual board game. Or, as I can attest, weekly poker nights using Zoom to add some jokes and banter to our app-based group poker game.

Demand for traditional board games has also increased. Ravensburger CEO, Filip Francke, reported last week that puzzle and board game revenue is up 10x over March 2019 – numbers typically seen only at the height of the holiday shopping season(2). One reason for this may be as families and parents seek wholesome entertainment for their kids, board games have become a great, non-screen-based option. Another indicator of the popularity of board games can be found at Hasbro, whose stock has strongly outperformed the broader S&P 500 over the past month due to increased demand for the Company’s traditional board games such as Monopoly, Operation, Jenga, Life, and Risk. Capitalizing on their products’ increasing popularity, last week Hasbro launched the ‘Bring Home the Fun’ program, offering parents and caregivers resources to keep kids engaged and challenged and offering tips to ensure families stay connected during these difficult times.

Natural disasters and economic crises tend to accelerate underlying trends, business models, and business practices that were sustained by a strong economy. Gaming has been growing its share of consumer time and entertainment spend for years. As we find ourselves in the throes of maintaining social interaction during the age of COVID-19, gaming has developed from being a convenient form of escapism, to a useful tool for nurturing our social relationships. As we look ahead towards eventually exiting this crisis, it will be interesting to see if the accelerating trends in gaming and social connection maintain their trajectory going forward.

As consumer investment bankers, we are keenly following the evolution of online and in-person gaming in the age of COVID-19. For further discussion around the trajectory of consumer M&A and the current market environment, please feel free to reach out (Craig Lawson, clawson@mhtpartners.com, Patrick Crocker, pcrocker@mhtpartners.com, Gavin Daniels, gdaniels@mhtpartners.com, Tara Smith, tsmith@mhtpartners.com, or Tom Gotsch, tgotsch@mhtpartners.com).

(1) https://www.businessofapps.com/news/game-app-usage-up-75-during-the-covid-19-pandemic/
(2) https://www.wsj.com/articles/coronavirus-means-everyone-wants-jigsaw-puzzles-good-luck-buying-one-11585503789

COVID and Food Delivery: Paradigm Shifts in Foodservice in the Midst of the Pandemic

It is evident that the COVID-19 pandemic is wreaking havoc on the foodservice economy, with multitudes of local restaurants struggling as diners are staying home, forcing restaurants to limit service to takeout and delivery options. As COVID-19 started to spread globally, as of early March, the OpenTable reservation system reported that year-over-year seated diners were down by 20%, and reservations obviously ground to a halt by the end of the month. However, delivery services such as DoorDash, Postmates, and Grubhub, which have already been disrupting the way American diners approach restaurant dining over the last few years, are now providing a critical lifeline for individuals that don’t want to venture from their homes to go grocery shopping or pick up food and for restaurants not equipped to offer their own delivery. In fact, these services are now offering “no contact” delivery options, where meals are left for customers on the doorstep without any physical contact with the driver. While data is evolving realtime in the fluid environment surrounding the COVID pandemic, U.S. engagement in food and drink apps, including restaurant and grocery delivery, was up 15% in early March as cases began to rise, and this will likely increase as data from subsequent weeks will capture more of the restrictions taking effect and driving demand for delivery.(1)

Will this uptick in food delivery last, representing a paradigm shift in the way consumers engage with restaurants? Right now, delivery services offer a way for local restaurants to remain in business and reach their loyal consumers, and it is clear that these restaurant delivery business models are well positioned in the current environment. As consumers who previously did not use these services embrace them during the pandemic, and as diners potentially eschew eating out for the foreseeable future to avoid crowds, it is possible that these services will gain an increasing share of the American dining dollar permanently.

Additionally, restaurants are getting creative in engaging with consumers during the pandemic and shifting their menu options as well to cater to the takeout and delivery market. In some states, such as California, Colorado, and Texas, among others, laws around selling alcohol “to go” and its delivery are being relaxed, affording opportunities for restaurants to capitalize on higher margin alcohol sales during this unique time. Given the historical complexity of state-by-state laws around alcohol sales, it will be interesting to see if these changes are adopted for the long term, potentially opening the possibility for at-home delivery of cocktails permanently.

Beyond cocktails-to-go, some restaurants are shifting menus to “family-style” meals for takeout or pickup. These changes in menu structure are in part to target families quarantined together (one ancillary benefit to shelter-in-place restrictions is perhaps the resurgence of the shared family dinner, without the pressure of school and work commitments that characterize the typical American week), as well as to streamline kitchen operations and required ingredients in these uncertain times. As the restrictions are eventually lifted, it will be interesting to see how many restaurants continue to offer these family-style meals as standard options.

As consumer investment bankers, we are keenly following the evolution of the food-and-beverage and restaurant-and-retail landscapes in the age of COVID-19, and specifically which changes may be here to stay as a result of the global pandemic. For further discussion around the trajectory of consumer M&A and the current market environment, please feel free to reach out to us (Craig Lawson, clawson@mhtpartners.com, Patrick Crocker, pcrocker@mhtpartners.com), Gavin Daniels, gdaniels@mhtpartners.com, Tara Smith, tsmith@mhtpartners.com, or Tom Gotsch, tgotsch@mhtpartners.com).

[1] https://www.appannie.com/en/insights/market-data/coronavirus-impact-mobile-economy/

Perspectives from a Consumer Lens – Rays of Light Amongst the Storm Clouds

First and foremost, we hope everyone is safe and healthy. Given the abundance of uncertainty and ambiguity in today’s world, we thought it might be helpful to provide some perspective on sectors of the consumer economy that are doing well, relatively speaking.

Clearly there are sectors suffering mightily right now and net net, there will be winners and losers from a structural perspective once the pandemic settles down and “normalcy” (a relative term) returns.

Focusing exclusively on the good (in part because the bad is widely publicized), we want to share conversations and anecdotal perspectives we are hearing from our clients and prospects:

1.Direct-to-consumer (“DTC”) models, in general, are holding on well. Of course, it depends on exactly what products are being sold and at what price point, but relative to traditional brick-and-mortar, distribution-dependent vendors, DTC-focused models are outperforming. A recent conversation with an “on trend,” plant-based food producer with a sizable presence in traditional grocery, food distribution and DTC reported that food distribution is obviously suffering, grocery is performing well, and DTC is “shooting the lights out.”

More industry-specific (vs. business-model specific) correspondence provides the following anecdotal (and admittedly limited) evidence:

2. Outdoor products manufacturer (100% DTC) – business has been strong as this producer’s older, healthier and active customer base finds themselves with extra time on their hands due to working from home and shelter-in-place restrictions and a general desire to hit the outdoors, “staycate” and indulge in activities that are, by definition, “social distancing.”

3. Pet-related companies (numerous) – the pet sector, which grew through the Great Recession, appears to be holding on well as our four-legged friends are afforded the same status as other members of the family, proving their health, livelihood and entertainment are on par with two-legged members. Pet product vendors and retailers (namely those with e-commerce capabilities) report good, if not very strong performance thus far. A conversation with a brick-and-mortar pet retailer with e-commerce capabilities reports challenges hiring large numbers of new warehouse workers to fulfill orders that are “going bonkers.” From a higher level, one need look no further for evidence of the durability of the pet/DTC space than Chewy’s stock price, up 3% in the last few weeks while the market is down 30%+.

4. Home fitness equipment manufacturer (100% DTC) – business is exceptionally strong, in particular, given social distancing, gym closures, etc. Ability to keep adequate inventory has been mitigated by ability to cost effectively overnight freight and given Chinese factories are back to full utilization. Additionally, ad spend (CPM, CPC) has declined significantly.

5. Traditional gaming company (board games, etc.) – as families hunker down and are “forced“ to interact more than normal, the demand for simpler, and in many respects “comforting“ entertainment (at least for those of us old enough to remember actually playing these games as youths) has increased.

6. Food manufacturer (serving Costco, Trader Joes, etc.) – demand remains very strong from grocery and club channels (the latter was described as “doubling down” on orders). Main concern is having enough factory workers to fulfill demand, “social distancing” on the factory floor (that can entail reworking line configurations) and obvious worker and/or factory equipment COVID19 infection and contamination.

7. Off-price retailer – while suffering from temporary store closures, this business expects to perform strongly in the near term as inventory presently sitting idle in non-off-price retailers will, in some instances, be viewed as “worth pennies on the dollar.” A natural escape hatch for this inventory will need to be off-price retailers who obviously have the customer base and importantly, the warehousing to accommodate.

8. “Retail healthcare” (numerous conversations with healthcare service providers with a consumer-facing angle) – depending on geographic location, the more discretionary the procedure or service, the more near-term deferrals (distinct from a cancellation), based on shelter-in-place mandates, local demographics (e.g., age), etc. Centers for Medicare & Medicaid Services may begin requiring patients to forego any elective / non-essential procedures. Dermatology, dental, orthopedic, Lasik-focused vision and fertility are likely going to take near-term hits (but will likely rebound quickly from “deferred treatment”). Instances of discretionary patients not wanting to leave home and/or go to a medical office now are balanced by telemedicine (providers with these capabilities are differentiated and faring well) and by the recognition of existing or looming shortages of personal protective equipment (which appears to be subsiding a bit). Non-acute retail healthcare services that are nonetheless viewed as mission critical and non-discretionary are clearly performing, but providers face many of the same health risks, albeit perhaps against a less urgent backdrop, as acute care medical professionals do.

MHT Partners, a leading consumer growth investment bank, will remain committed to providing thoughtful insight during this time of uncertainty and welcome further discussion (Craig Lawson, clawson@mhtpartners.com, Patrick Crocker, pcrocker@mhtpartners.com), Gavin Daniels, gdaniels@mhtpartners.com, Tara Smith, tsmith@mhtpartners.com, Tom Gotsch, tgotsch@mhtpartners.com).

Review of Global Pet Expo 2020

I recently attended Global Pet Expo and came away with the following thoughts and observations.

Overall, the show was slloooow. Traffic was down significantly, palpably, depending on your location on the floor, due to, not surprisingly, coronavirus fears (yes, there was some bad weather in the Midwest as well, but that was not the main issue). Not only was the section of the floor typically reserved for Chinese vendors completely unoccupied, but several, notable large retailers (spanning the spectrum of channels) had smaller-to-nonexistent contingents at the show as well.

Over and above the aforementioned, certain themes continue to play out. In the consumables category, raw, dehydrated, and to a lesser extent, supplements, continue to garner a lot of attention. On the supplement front, while the cannabidiol (“CBD”) element was certainly present, I felt it was less so than last year (where it was almost ubiquitous). Dilated cardiomyopathy (“DCM”) continues to be a topic of discussion though less so as the year anniversary approaches and comps lap. On the durable side, as is the case every year, evolutionary change continues to manifest, though nothing of “revolutionary” nature.

Additionally, in the midst of a week of tremendous stock market volatility, a certain “macro” calm did exist at the show given the “recession resistant” status of the pet sector….the economy will go up and down, the stock market will go up and down, but Buddy will continue to get his toys and treats every day.

MHT Partners, a leading consumer growth investment bank, will remain highly active in the pet space and would welcome a conversation with you (Craig Lawson, clawson@mhtpartners.com).