Travel, transportation, finance: What industries are thriving thanks to millennials?

In the coming years, millennials’ spending will increase significantly and reach its peak. According to CB Insights, the $30 trillion that Generation X and baby boomers have saved up over their lifetimes is slowly going to Generation Y. And this trend is already visible: millennials began to spend more on their preferences: travel, take-away food, and new types of transport.

Habits of Generation Y are different from their predecessors, and it is affecting the economy. Many business areas were not ready for radical changes and began to rapidly lose demand among young people. But, some industries have managed to adapt to the needs of the new generation and accelerate development — largely due to the introduction of modern technologies.

Food delivery

One of the main features of millennials is their fast pace of life. Generation Y lives in a fast working rhythm, and this has changed their habits, including those related to food. For example, Generation Y more often eats food to go as opposed to older generations. This has forced popular food chains to introduce pre-orders and set up self-service checkouts.

But, the delivery segment is growing the most in the restaurant business — now it makes up from 5 to 10% of a company’s revenue. Its development was also influenced by millennials and their lifestyle: according to the investment bank UBS, millennials are three times more likely to order food than their parents. Services that not only offer a convenient delivery method using the application but also significantly expanded their offer, have appeared on the market. If over the past decades pizza and Chinese food have dominated the segment, now their share is steadily decreasing in favor of other types of cuisine.

Food delivery market leaders. Source: Forbes

In 2006, startup Deliveroo raised $275 million as a part of its round E funding, in which GR Capital also participated. Deliveroo is an application that allows users to order food from home. Since 2016, the company has taken several more development steps: it attracted two additional rounds of investment and expanded to more than 200 cities in 12 countries. Now, Deliveroo is valued at more than $4 billion with total funding of $1.35 billion.

Another notable player in the delivery market is service Glovo. It is also a company in the portfolio of GR Capital. The fund, in particular, helped the project enter the Ukrainian market in 2018. Glovo is a Spanish company that started operations in 2015. The service stands out because it can deliver any item that fits in the courier’s signature backpack, including food from restaurants and fast-food chains. Currently, Glovo works in more than 120 cities around the world and has raised more than $320 million.

Uber is also developing its own food delivery service. The UberEats application is available in more than 500 cities in South and North America, as well as Europe. The service generated revenue of about $1.5 billion in 2018.

Overall, according to UBS, the online food delivery service will be valued at $365 billion by 2030, which is ten times more than in 2018.

Online services for travel experiences

The travel industry is actively developing thanks to millennials. According to an Expedia poll, Generation Y travels more than others — 35 days per year.

At the same time, their preferences differ from previous generations. Millennials travel less on traditional tours and more often choose more authentic trips to better understand the culture and habits of a country. Two-thirds of the participants in a survey on the Skift platform said that they are more likely to spend money on activity than in a more comfortable hotel room.

Market leaders have begun to offer unique travel experiences to meet this demand. One of the largest companies in the industry — the Airbnb rental service, which is valued at around $35 billion — launched their Experiences section in 2016. It allows users to book additional tours or events from the local host. Now, there are around 30,000 similar activities available in the section, and their popularity is growing every year.

Individual startups have also begun to pop up around the trend. Last year, Hong Kong-based Klook raised $200 million with a valuation of more than $1 billion. Its users can buy activities for their trips: tickets to an amusement park, an underwater scuba diving tour, and a sightseeing tour. Even then, over 50,000 such offers were available on Klook.

A similar service is offered by IfOnly, an American startup. This is a marketplace of experiences for travelers where you can choose both “local activities” — going to a restaurant, a boat trip — and a “once-in-a-lifetime” impression: a luxurious weekend, a personal concert or a basketball game with Shaquille O’Neal. IfOnly raised $20 million last year.

Available trips

Millennials are also used to spending money on travel less than other age groups. According to TripAdvisor, Generation Y prefers accommodation that is two times cheaper than baby boomers. Millennials are able to save on trips thanks to online services for finding tickets and price aggregators. According to CB Insights, 85% of millennials visit multiple websites while planning the trip.

Now, the market has dozens of aggregators that offer a selection of tickets at the lowest price. One of the main players is the American company Kayak. This is a platform that collects information from hundreds of websites and offers the best prices. Kayak was founded in 2004 and in 2013 it was sold to the Booking Holdings company for $2.1 billion.

One of the leaders in the European market is service firm Kiwi. This aggregator offers routes that combine flights from airlines that do not usually cooperate with each other. In 2017, Kiwi sold flight tickets for €700 million. General Atlantic bought a controlling stake in the company this year — rumored to be for $125 million.

On-demand transportation

Millennials prefer to live in cities. Moreover, one in five will probably buy a house closer to the center. The main reason is access to convenient transportation. In recent years, a number of new ways of moving around a city have appeared on the market. The most popular now are electric scooters that you can rent via apps. A similar service offers over ten startups with multi-million investments.

Investments in market startups as of the end of 2018. Source: TechCrunch

One of the fastest-growing is Lime. After over three years of work it raised more than $860 million — including from GR Capital — and received an estimated valuation of $ 2.4 billion. Initially, Lime only offered bikes for rent, but since 2018 it has added electric scooters to the line and now it operates mainly in them. As of September 2019, the startup operates in more than 120 cities in the United States and Europe.

Its main competitor is Bird, which was launched in September 2017. In the first year, the startup expanded to 100 cities and reached 10 million trips. The investments helped it a lot: by that time, Bird had raised more than $400 million at a valuation of $2 billion. It allowed Bird to become the fastest developing startup in history, which later became a “unicorn”.

Subsequently, large taxi services entered the market. Uber scooters work under the JUMP brand and they are now available for rent in 13 American and 4 European locations. Lyft is also not far behind and offers its electric vehicles in more than ten US states.

Despite significant industry challenges — for example, bans on electric scooters by city authorities — analysts believe the industry is promising. According to Morningstar, total market revenue will increase by 21% to $5 billion by 2023. It is millennials who will become the main driver of this growth.

Finances in a smartphone

Millennials do not like traditional banks: it is difficult to solve problems with them and stand in queues in branches. That is why more than 90% of Generation Y use web services for banking operations. The most popular trend is the digital-first banks. These are financial accounting applications that do not require going to the bank to open an account and to complete other transactions.

The most expensive startup in this field is the German mobile bank №26. It has a banking license in Germany but it does not operate physical branches. All operations — payment of purchases, sending and receiving funds, foreign transfers — can be done via the app or web platform.

Thanks to this, №26 offers more favorable conditions for users — for example, the foreign transfers there are six times cheaper than in traditional banks. After almost five years of operation, №26 raised $670 million with a valuation of $3.5 billion. Currently, its client database has over 3.5 million people in Europe.

Revolut has a similar service. It allows the issuance of a bank card attached to an account with and IBAN via the app. With Revolut, you can transfer money to 28 countries without additional costs and also withdraw money from an ATM. It is also possible to conduct operations with cryptocurrencies in the app. As of February 2019, Revolut served around 4.5 million clients.

Convenient investment

Millennials not only handle money differently but invest it differently too. Generation Y trusts technology and it is changing their investment habits. According to Accenture UK consulting, 67% of millennials expect robotic guidance to help them manage assets.

The same services already exist and have formed the market of financial robotic advisers. One of its leaders is service Betterment, which helps users save and invest money for different purposes: buying a house, paying off debt, and retirement.

The user initially talks about his goals, and Betterment recommends to them the amount that is worth investing and selects a plan based on risks. The service regularly changes the portfolio balance to maintain the risk level and automatically reinvests the received dividends. As of 2019, Betterment manages customer funds worth $16 billion and is valued at $800 million.

Another service that makes investments easier for millennials is Acorns. Each time users make a purchase with their card, the application rounds the amount to the whole dollar and automatically invests the difference in managed index funds. This year, Acorns raised an additional $105 million for development, receiving a valuation of $860 million.

Millennials are the audience that business really needs to bet on. We at GR Capital are actively monitoring companies that build products around Generation Y, and we consider this direction one of the most promising in the coming years.