Consumers are upbeat as confidence levels rise
The next few years promise to be the most challenging seen in modern times. The fundamental change in the structure of the global economy, the consumer’s shifting disposal income, the rise in commodity prices, and evolving technologies will shift the manner in which consumer businesses obtain growth.
The consumer at the core. Close monitoring of spending attitudes and behaviours through our quarterly Consumer Tracker allow us and our clients to stay connected to the consumer.
Keeping pace with the market. Our Consumer Review series provides insights into selected trends that we believe will have a significant impact on consumer businesses.
Digital Evolution. Consumer businesses that wish to remain relevant to today’s hyper-connected consumer need to consider what they need to do to adapt the way they organise and operate. Evolve, or be left behind.
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About the L & S Accounting Firm Consumer Business practice
The Consumer Business practice at L & S Accounting Firm is comprised of over 1,000 people in the UK – drawn from our four services lines of Audit, Tax, Corporate Finance and Consulting – and 12,000 professionals globally across 153 countries.
We help consumer business companies improve the efficiency and effectiveness of the way they operate in the challenging UK market, and take advantage of the growing populations and economic wealth in developing economies.
Within the UK, our teams work with some of the world’s best known brand owners, retailers and travel, hospitality and leisure companies as well as having close working relationships with several key industry bodies.
5 Reasons Why It's Never Been Easier To Start A Consumer Business
It has never been a better time to build an early-stage consumer company. Just look at the variety of new brands in your shopping basket. Brands like SkinnyPop Popcorn, Stumptown and Dang Foods. A major transformation is going on right under our noses, and in our shopping bags, kitchen cabinets and refrigerators. Here are the five forces that have aligned in favor of emerging consumer brands:
Consumer preferences are changing, creating a golden opportunity for new, innovative brands. Not to mention, these shifted preferences are being expressed loudly, be it through social media, product reviews or dollars spent. Led by millennials—now the largest generation—American consumers want products that meet their unique personal preferences. Organic, ethnic, healthy, environmentally friendly, local, mission-driven. This notion that we call the Personalization of Consumer is disrupting the market, elevating the selection of consumer goods - even ones as seemingly mundane as household cleaning products - into an act of self-expression.
Among the 100 top consumer brands in the US, 90% are losing market share, and 68% have been experiencing falling sales. This decline is the direct outcome of large consumer brands failing to adapt to the personalization of consumer. This isn’t for lack of trying, but for lack of feasibility. Small brands are simply much better suited to deliver authentic products, as they commit to doing less volume at higher quality. This thereby opens the door to small innovative companies that have been quick to respond effectively to consumer preferences. This shift has been made abundantly clear in sales numbers: $18 billion in sales shifted from large to small companies from 2009 to 2014 across all consumer packaged goods categories, according to a report by Boston Consulting Group and IRI.
2. Increasing investor interest
Funding to private consumer packaged goods companies has increased every year for the past four years. That’s because private investors are awakening to the great opportunities in the early-stage consumer asset—an attractive alternative to high-risk, low-return tech investing. The fact that consumer products are indispensable to society, paired with the drought of innovation that the consumer industry experienced until recently, spells out of big opportunities for strong investor returns. It’s why the average consumer investor realizes 3.6 times their investment in an average of 4.4 years, according to the Angel Investment Performance Project (AIPP) from the Kauffman Foundation.
Rising interest from private investors is finally igniting change in the consumer industry, pressuring consumer giants to keep up and meet new demands to remain relevant. This pressure has spurred a huge uptick in M&A activity in the industry, with M&A in consumer reaching an all time high in 2015—$238 billion—almost twice that of tech, according to PwC. True, there are still challenges for consumer companies to efficiently connect with investors and raise capital, since there is no ecosystem like Silicon Valley ensuring all of the great companies get capital quickly. But with increasing consumer tailwinds and opportunities for strong returns, the tide is turning and more investors are realizing they could be missing out on something big in early-stage consumer.
It used to be nearly impossible to get a new product in front of consumers. The supermarket shelves were expensive real estate, and giant consumer companies held a near monopoly on that property. Slotting fees, often $50,000 to $100,000 per product, made it difficult for emerging companies to thrive. Imagine if every app had to pay $100,000 just to be listed in the App Store? Now retailers are shifting gears, led by Whole Foods and Target in the offline world, and Amazon in the online world. These retailers are cutting slotting fees. It creates an environment where smaller brands can participate, and that allows consumers to vote with their wallets for the high-quality products coming from small brands.
Additionally, it’s never been easier to skip the supermarket shelves entirely and run a successful business online, with direct-to-consumer sales on company websites and social channels for building powerful brands. Some of the most influential modern consumer brands, such as Everlane and Warby Parker, have championed this business model. For them, the primary function of physical storefronts is experiential marketing support. With new technologies enabling direct-to-consumer sales and slashed slotting fees, brands can compete fairline on distribution no matter what their size.
4. Outsourced SG&A
Consumer companies require less cash to succeed today than they ever have before. Manufacturing is outsourced, and sales and marketing is often (though not always) outsourced. As a result, Sales, General and Administrative (SG&A) expenses tend to be lower than those costs for tech startups. For tech companies, for example, the median series A round tends to be near $5 million, and often raise upwards of $50 million before reaching $10 million in revenue. Meanwhile, the average consumer and retail business on CircleUp is typically raising $1-2 million and already seeing revenue of $1-10 million. One of the beauties of consumer businesses is that they don’t need tens of millions of dollars early on to grow. We’ve found these startups to be incredibly efficient, outsourcing production, salesm marketing and other functions. In fact, it is not uncommon for an emerging consumer brand to hit $10 million in revenue with fewer than a dozen employees. Consumer companies are more capital efficient than tech companies -- period.
5.Large consumer companies forgot to innovate
The cool products from emerging consumer brands rarely face competition from large consumer brands. The revenue and market share declines I mentioned earlier are evidence of the disconnect between small, innovative consumer companies and the slow-moving giants. Those corporations have neglected innovation for decades and are now frequently responding to declining sales by trying to squeeze out costs. Innovation has not been part of their vocabulary. Look at the numbers of some of the largest consumer companies: In 2015, Pepsico spent $2.4 billion on marketing (including consumer research costs), and just $754 million on product R&D, and Unilever spent eight times more on marketing than on innovation - $8 billion versus $1 billion on R&D - according to information shared by CB Insights.
Consumers in saturated markets have more choices than ever. They are better informed about prices and quality and know exactly where and what you get the most for your money. This poses new challenges for companies in the industry. We support you in mastering them.