FSV Notes on CAGNY #1
Five Seasons Ventures attended CAGNY 2021 (the Consumer Analyst Group of New York), where major publicly listed consumer product companies come together to present past year performance and strategic priorities. It is the not-to-be-missed event for anyone active in the consumer sector. This 3-part mini-series of “FSV x CAGNY” packs in our key take-aways and analysis from the point of view of a foodtech venture investor.
Part 1 — Covid-19: revival of some old brands and DTC FOMO
Part 2 — Sustainability and Diversity: Big Food, Big Promises
Part 3 — Key trends and what to expect from M&A
Covid-19: revival of some old brands and DTC FOMO
By Eléonore Lafonta, Saskia Hoebée and Ivan Farneti
We already knew that Covid had turned the world upside down, but the CAGNY conference brought more evidence to it. One unexpected effect of Covid was customers reverting to brands they knew, resulting in a 3–4% organic growth across all segments for the large FMCG company brands. While Kellogg’s had clearly stated their focus on the snacking category rather than cereals (we all remember the acquisition of RXBAR in 2017), their ready-to-eat cereals in North America unexpectedly grew faster than the snack portfolio during the lockdown months.
Several food companies presenting at CAGNY acknowledged the increased importance of the online channel and terms like “digital marketing increase”, “consumer data” and “e-commerce” were frequent buzz words throughout the event. On all fronts, the pandemic accelerated corporate digitalization and the move to online. Kellogg’s claims to be able to launch personalized marketing campaigns based on consumer data collection through social media, while General Mills increased its media spending by 15% and refocused on digital channels at the expense of TV. These new digital marketing strategies encountered some success, for instance Mondelez experiencing a +75% growth on e-commerce revenues in 2020.
However, despite the buzz, one must not forget that e-commerce still represents a fraction of the total revenues generated by these big players (5% for Mondelez for instance). When it comes to online channels, big brands have two options: listing on third party sites like Amazon or selling through their own direct properties. Little was revealed about company’s channel split, but the DTC channel was barely mentioned by a few companies. For instance, Unilever presented its e-commerce growth as follows: +99% for omnichannel +48% for third party B2C sites and +65% for eB2B. In addition, Unilever only has two brands that are pure DTC players, which represent $1bn (=<2% of the $58.2bn revenues in 2020). This data suggests that despite the accelerated move online by consumers during Covid, big FMCG still has to crack the DTC channel.
To put things in perspective: the presenting parties achieved between 50–75% of e-commerce growth in 2020 (+61% for Unilever, +66% for Nomad Foods, +75% for Mondelez), while the combined growth of four of our portfolio companies that are pure DTC players was +266% in 2020. Of course, one might argue that it’s more difficult for a bigger company to achieve those levels of growth compared to a smaller company, which is true. But it’s also true that a DTC strategy is more valuable the more data cohorts layer on each other and create patterns that help reduce marketing acquisition costs, increase retention, and drive product development decisions: ultimately growing the value of the brand and business. From our perspective, we expect the “DTC ankle biters” to keep “ankle biting” at Big Food, and while demand is shifting across channels like in 2020, they will continue to chip away some market share and outperform the traditional distribution model.
