At CircleUp we’re fortunate to sit at the intersection of private equity investing and data. This provides us with exceptionally rich insight into what’s happening in the private markets.
We capture metrics and indicators from thousands of consumer and retail companies that apply to join the CircleUp platform, as well as activity data from the thousands of investors leveraging our platform to invest in private companies. We see additional data from the hundreds of investment firms we speak with regularly, as well as our public partners, leaders in consumer like General Mills, eBay, Johnson & Johnson, and Procter & Gamble, who are on the constant lookout for innovations and emerging trends.
The following trends are ground-shifting changes that will shape the market not just over the next few quarters, but years. These are the kinds of trends that can create tremendous wealth for investors who understand and know how to play them.
- Rapid growth of smaller brands: The “personalization” of the Consumer is accelerating.
- ‘Make it easy’: Consumers are over-worked, tired and stretched for time.
- Ethnic spice: Ethnic foods moving mainstream.
1. Rapid growth of smaller brands: The “Personalization” of the Consumer is accelerating, as consumers increasingly opt for small brands.
Increasingly, consumers are demanding more personalized offerings. Gluten free foods, natural skincare, and freeze dried, human grade pet food. Essentially consumers, more than any point in history, are expressing their individual, unique needs and are voting with their wallet (as one of my partners at Encore Consumer Capital used to say). My wife doesn’t wear the same makeup her mother wore, and we don’t feed our dog, Tucker, the same food my parents fed their dog.
As the demand for products that meet more unique needs increases, those companies that are able to provide innovative products will win. We’re seeing small brands capitalizing on this changing consumer, as large, public brands increasingly lag behind.
The data says it all: Large brands lost share to small brands in 42 of the top 54 most relevant food categories in the last five years, according to a report by investment banking firm Jefferies aptly titled, “Food: The Curse of the Large Brand.”
Opportunities Two publicly-traded companies well positioned to support and benefit from this trend are Whole Foods Market (NASDAQ:WFM) and United Natural Foods (NASDAQ:UNFI). But most of the pure play opportunities to invest in the small-brand wave are in private markets – which is one reason why investment firms are steadily increasing their allocation to private consumer and retail companies.
2. Make it easy: Consumers are over-worked, tired and stretched for time.
We’ve reached a tipping point where consumers are demanding solutions from the products they buy. Consumers want healthy snacks in simple consumable forms. Snacks for babies and kids are ground zero for this trend. Just a few examples: Plum brand acquired by Campbell (NYSE:CPB) after reaching ~$100 million in sales; Danone’s (OTCQX:DANOY) acquisition of the Happy Family brand of organic baby food; and The Hain Celestial Group’s (NASDAQ:HAIN) deal for Ella’s Kitchen Group Ltd., known for organic baby food in flexible pouches. This phenomenon is playing out in private markets as well. In just nine years privately-held Chobani has grown from $0 to become the leading Greek yogurt brand with an estimated $1.5 billion in annual sales and a $5 billion valuation.
Opportunities: The public market play on healthy convenient foods may be to invest in the companies acquiring the emerging private brands-companies such as Danone, Campbell and Hain. Private investors may also find innovative brands that are addressing consumers’ desire for convenience, including, for example, companies such as Cooksimple, a company raising capital on CircleUp that provides healthy, easy-to-use meals and other products, and has grown sales 60% year-over-year.
3. Ethnic Spice: Ethnic foods moving mainstream.
One of every 7 dollars spent on groceries is in ethnic foods. Surprising, right? Sales now exceed $2.4 billion annually, as a growing immigrant population and increasing interest among American consumers in new flavors is driving a surge in ethnic eating options – whether it’s in the “International Aisle” of the supermarket, or in restaurants. Mexican, Korean, Chinese, Thai and Indian cuisines, among others, are growing rapidly in both packaged foods and fast casual dining.
Opportunities: Perhaps the most visible public-company benefiting from this trend has been Chipotle Mexican Grill (NYSE:CMG), which is adding stores and steadily innovating its product line to satisfy the needs of health-conscious consumers. In the private markets, there are emerging and fast-growing private companies such as Sukhi’s Gourmet Indian Foods, in the packaged space, or Kosofresh, a company growing in the healthy fast casual Korean food category.
Consumer and retail are going through phenomenal transformations, and companies large and small are identifying and capitalizing on these changes. At CircleUp, we spend a lot of our time combing through the massive amount of data we see on these trends. Companies accepted on CircleUp are riding these massive shifts, which helps explain in part why many are achieving 100% year-over-year growth rates.
I expect these trends to continue to gain momentum in 2015 – as smart companies and smart investors continue to benefit.