FI April 14, 2017

OPENING SHOT

New cloud-based technologies are disrupting the grocery business globally and also starting to impact the big brands. In the UK, home of Deliveroo and Just Eat, food consultant Prof. David Hughes says 62 or the top 100 grocery brands in the UK saw a sales decline in 2016. The top six (led by Coke) dropped £155 million. Meanwhile in India, The Financial Times reports big ecommerce players like Snapdeal, Flipkart and Amazon India lost $1.4 billion combined in the year to March 2016 as they invest heavily on marketing and logistics in an effort to gain scale. 

DEALS

  • Supervalu Inc. moves deeper into wholesaling with its deal to buy Unified Grocers. This will boost annual revenue in their wholesale business to around $12 billion, almost three times what they will do in retail revenue. Should be good for Unified's retail grocer clients who benefit from the technology and larger buying power that Supervalu brings.
  • The move on Whole Foods Markets by activist investor Jana Partners LLC is putting pressure on the margin-challenged grocer to sell or restructure. Amazon apparently took a look at them last year but decided it was too rich of a price to pay to get a large footprint in the grocery business. We think they made a good decision - there aren't enough consumers today (and may never be) willing to pay a premium for organic food.
  • Roark Capital Management is cashing out on its investment in Atkins Nutritional Holdings, purveyor of low-carb foods and best known for the Atkins Diet. As a new publicly traded company, Simply Good Foods, we should soon know more about the cyclical nature of the weight control business and the marketing costs involved in keeping customers on a diet program.
  • While we are on the subject of weight management, French company TargEDys just raised another $3.7 million, on top of the $6.2 million it raised in 2016, to further develop its promising appetite suppression technology. The science is based on new knowledge of proteins generated in the gut which signal satiety to the brain. Cash is needed to run a pile of human clinical trials. It may be some time before it hits the market. 

TECH BYTES

  • As the market for wearable devices disappointing, Apple is said to have a team of engineers working on glucose sensor technology which would allow non-invasive, constant monitoring of blood sugar levels. Idea is to turn the Apple Watch into a must-have for anyone with diabetes. Expect similar innovations from other large players in wearable tech like FitBit and Garmin if they can find enough money to do it.
  • Chinese e-commerce giant Alibaba is launching a pilot Blockchain-based tracing system to fight food fraud in partnership with New Zealand dairy giant Fonterra  and Australian vitamin supplier Blackmores. Alibaba says global food fraud costs the industry over $40 billion a year.

MEAL DELIVERY SCALABILITY ISSUES

Bloomberg's profile on Blue Apron highlights the risks inherent in the growing food/packaged meal delivery business. The company is bringing in a boatload of revenue ($750MM to $1B last year) and has been able to leverage incredibly sophisticated software to manage delivery to millions of customers and make money at it. But they are also more and more vulnerable the larger they get. One bad experience with a late delivery or poor quality could drive away a customer and impact their reputation. And the viral impact is much larger. Less than 1% poor quality/dissatisfaction may lead to a much larger percentage loss in customers.    

LOCAL MARKETS NOT JUST FOR THE WELL OFF

As the farmer's markets start to ramp up again around the country, worth noting that a lot more of them are catering to those with lower incomes. According to the USDA, the number of vendors accepting SNAP (Supplemental Nutrition Assistance Program) has increased more than eight-fold between 2008 and 2016:

As always, we welcome feedback and tips. E-mail: dryder@lumenitix.com