Trumped by Tariffs?
Trump’s tariffs have trickled down to impact middle market companies, and nearer and dearer to our hearts, middle market deals. We have several consumer growth clients that have been impacted by the tariffs, and each company is scrambling to figure out how to respond. For any company that sources a significant portion of its products from China, the tariffs create an immediate hit to EBITDA, which of course often leads to valuation discussions. What happened here, and what is a seller to do?
Asahi's Push Into the EU Beer Market (not China, not the U.S.)
Last week’s announcement of Asahi Group’s acquisition of the British beer business of Fuller, Smith & Turner marks Asahi’s third substantial beer acquisition in Europe since 2016. This deal further supports Asahi’s international expansion goals, but is this push strategic? Reactive? Opportunistic? Why has Asahi ignored the U.S. craft beer market (and craft beer in general), and why not focus on the massive growing beer market in neighboring China?
American Association of Equine Practitioners (“AAEP”) Trade Show Review
I attended the recent American Association of Equine Practitioners (“AAEP”) trade show in San Francisco recently, December 1-5. The show was a great reminder of how varied, robust and global the equine market is. Attendees were the usual mix of veterinarians, salespeople, scientists….and guys with big belt buckles and cowboy boots (a rarity in San Francisco). In the vein of San Francisco, while I’ll never complain about attending a trade show in my home city, in this case, I will nonetheless grouse a bit. While quality of exhibitors and attendees was strong, quantity was lower. Attendance felt down significantly from last year (held in San Antonio – certainly more “horse” country than the Bay Area) and was a common theme echoed by nearly everyone I met. Chief reasons for diminished attendance were 1) coastal city that is a long trip for anyone on the opposite coast, 2) expensive city where hotels, meals, etc., were viewed as “not worth the investment,” 3) the city too liberal a venue for companies from more conservative parts of the country, and 4) San Francisco’s current reputation for dirtiness, particularly in areas around the Moscone Center. My $.02, but AAEP would be better served holding court someplace “in the middle of the country” in the future.
What You Really Need: Smarter Offline Retail
For those consumers overwhelmed by choices when shopping at a traditional big box retailer, good news – smaller footprint, well-curated retail formats are on their way. Specifically, Amazon is continuing to experiment with various offline retail formats (“clicks to bricks”), recently opening a second Amazon 4-Star brick-and-mortar retail location in Denver, Colorado, to augment its first 4-Star location in New York City. 4-Star locations offer the consumer a variety of items, including consumer electronics, kitchen tools, home goods, toys, books, and games, which are either best sellers or new and trending on the Amazon e-commerce platform, in an approximately 4,000 square foot retail footprint. This format is meant to give the consumer a more streamlined set of purchase options and utilizes online data to curate products that will likely sell well at the local level. The 4-Star format joins Amazon’s other forays into the brick-and-mortar retail world, including the cashier-less Amazon Go grocery/convenience store, Amazon bookstores, Amazon pop up kiosks, and Whole Foods. Amazon is clearly trying to figure out what works in terms of structure for offline retail, to compete with the likes of Walmart, Target, etc., and it will be interesting to see which concept(s) are most successful in the long run.
Outdoor Retailer ("OR") Winter Market Recap
I attended Outdoor Retailer (“OR”) Winter Market in Denver late last week, and while a light snow provided some seasonal cheer and ambiance, the show itself was “meh.” While understanding the rationale for an inaugural November OR show –namely allowing larger retailers (and influential members of the OIA) to get an earlier view of what brands and vendors have coming earlier in the selling season, this was a significantly smaller show than the traditional winter and summer ORs. The footprint of the show itself was limited to the upper floor of the Colorado Convention Center and a reasonable, diligence pace allowed me to canvas the entire show in a matter of hours. Given a limited number of exhibitors, lower attendance and lack of booth floor and booth traffic, there was an element of “snORe” in this OR. Thursday and Friday morning had, relatively speaking, the most activity, but by Friday afternoon and certainly by Saturday, the crowds had really diminished (except for the “Life is Good” show late Friday – fantastic turnout!). A significant number of exhibitors expressed disappointment in show activity and the rationale behind a show in the first place (particularly with OR’s Snow Show coming up in late January – two months from now). It will be interesting to see if this show is viewed as viable and sustainable, and/or if significant changes are implemented next year.
Going Native: Is Consumer Backlash Impacting Walmart’s Newly Acquired Digitally Native Brands?
As many informed consumers and investors are probably aware by now, Walmart Inc. and its subsidiary Jet.com have been on a tear acquiring specialty ecommerce marketplaces and digitally native consumer brands in recent years. Walmart has stated that it is trying to broaden its consumer base, targeting younger, more affluent consumers that increasingly buy everything from sundries to $300 dresses online. Furthermore, in acquiring digitally native brands such as Bonobos, an e-commerce-driven apparel company headquartered in New York City that designs and sells men’s clothing, Walmart is investing in brands that could eventually migrate to larger format stores and/or 3rd party ecommerce marketplaces. Bonobos CEO Andy Dunn recently provided a great analogy on CNBC, “It’s kind of like what Netflix did. They started making their own content. And we’re of the belief the same thing is going to happen in commerce.”
The “Changing” Landscape of Diapers
Over 3.8 million babies were born in the United States in 2017, according to the National Center for Health Statistics, and with most babies using four to twelve diapers per day, depending on age and other factors, diapers are big business. Parents change thousands of diapers a year, and at an average cost of $0.20 – $0.50+ per disposable diaper, costs can really add up, reaching thousands of dollars before a child reaches potty-training age. Beyond costs, however, the environmental impact of the significant volume of diapers generated each year and the safety of the materials used to manufacture disposable diapers are increasingly on the minds of new parents and influencing purchasing decisions in this massive market.
If the Eco-Friendly Shoe Fits…
Consumers are clearly increasingly focused on the environmental and social impact of their purchasing decisions, and the fashion world is no exception. The demand for sustainable and ethical fashion products continues to grow, with new entrants into the apparel market trying to balance consumers’ desires for eco-friendly clothing and accessories while also creating beautiful, wearable products.
Weeds and Plant-Based Food . . . Heed the Weed!
So for all of you fixated on the Snoop Dog (Cheech and Chong for you older readers) interpretation of the last word in the title, sorry to disappoint, we’re talking real weeds here.
What is a weed? A plant whose virtues have not yet been discovered. – Ralph Waldo Emerson
The Evolution of Personal Care Companies
What do Harry’s, The Honest Company, Dollar Shave Club (acquired by Unilever in July 2016), Native, Schmidt’s, Lola, Hello, Brandless, and Quip, have in common? They’re all upstart personal care companies that are disrupting traditional Consumer Packaged Goods (CPG) brands and upending the status quo, not only in e-Commerce shopping carts but on retail shelves as well. These new brands have gained rapid market share by launching savvy digital marketing campaigns, offering free trials, and enlisting consumers to subscription services.