Thinking about the rainbow, post-crisis commerce
The stage is set.
“Black swan”, and a looming Ground Zero.
“Uncharted territories”, “unpreceded times”, a 7 billion people 24/7 live audience…for more than 3 months. And for the first time, a relatable experience for 4 billion people (and counting).
We all adjusted. Local or online shopping routines, streamed gym sessions, family facetime, webinars, digital medical visit, collaborative white board brainstorm session, zoom happy hours,…. Not talking about the frontliners who deserve reward, respect and recognition, especially when among them we count some of the most vulnerable people…
New habits are maturing more or less silently in time of WFH and social distancing. Will we really use the bread machine in 2 months? How about that rowing machine? What will actually stick?
At this stage we have more questions than answers as there are myriads of variables to consider. The length in time of the sheltering and the number of medical and economic casualties are probably among the crucial ones. Nevertheless stretching some observations can provide a prediction and foster a discussion on how commerce and retail will evolve in the next 3 years.
Finally, a MASSIVE opportunity for digital grocery solutions.
With sheltering and WFH, essential shopping moved online and chances are it’s not coming back offline anytime soon. Delivered or picked from the curbside, with COVID, 9% of American discovered the digital cart. And even beyond the current sanitary issue, the weekly 2-hour-big-box tour for replenishment is definitely a real pain versus clicking and collecting. In this case, eCommerce convenience is just an existential relief and what it truly means in growth hacker terms: stickiness on steroids.
Grocery has historically moved digitally slower than any other categories. About 7% of purchases were performed online before COVID, with a double digit growth over the past years.
During the first 2 weeks of sheltering, eCommerce grew by 25% and for grocery, there were spikes at +200%.
Grocery is the largest consumer goods category and represents a $800B market in the USA. Given this size, needless to say that it drives a significant portion of the traffic in several commercial areas. The economy of the latter will be completely transformed even if a small portion of the consumers remains buying online.
But more importantly, such a shift opens tremendous opportunities for food-tech solutions from discovery to delivery and even beyond. A timing that all grocery apps have been waiting for long. And their investors. Blue Apron 8x share price is a good illustration of the market anticipation here. So now it’s time to bloom, big. Yes, some will have real reasons to celebrate spring 2020.
Millennials’ values diffusion.
More time at home and more time for ourselves, for our families. Less agitation. Inwardness. Wellness and DIY sales consequently got a boost. As a simple example, and they are countless, this March training weights online sales grew by more than 300% vs March last year. From gardening to personal coaching, passing by home improvement, cooking. On the contrary and logically, we bought much less coolers, sunglasses, or camping equipment than last year (O Surprise!).
Are these just epiphenomenal or lasting trends? Without doing the full exercise (yet), it’s fair to assume (or maybe a simple hope) that discovering minimal shopping will be inspiring. Consumerism can be viewed as the flattery of one’s ego and shopping is driven by being social and outside. Less exposure means less desire, less craving…and a return to what is essential. Belonging and recognition needs getting slowly taken over by self esteem needs and even (again, hope speaking?) ego-transcendence. If COVID painted horrors, reinforced inequalities, stretched egoism, it also unleashed an impetus for solidarity and social creativity. Millennials’ values could diffuse within older generations or we may observe a wider generation gap. Millennials have indeed found a reinforcement of their belief system. Around authenticity, environment and community consciousness, a balance in favor of being vs having and access vs ownership. For sanitary reasons or environment concerns, checking the whole product value chain before purchasing may become an acquired reflex hard to drop. And it’s easier to check when this given chain is short, local, direct. Brands and retailers should take good notice.
A thought for Poshmark, ThredUp, Real Real, that observed a real drop in spending in March. For second hand goods and shared assets, indeed it’s fair to doubt that reusing will still be that trending. Will communication like the one Rent The Runway sent to reassure their customers about their cleaning process, be sufficient to erase probable irrational fears?
As for the Uber and AirBnB of the world, the least to expect is a decrease in usage and/or a pressure on unit economics. For the former, it becomes a hard equation to solve.
A new deal for privacy?
The debate on individual and individual privacy got recently spiced as several countries already accepted the idea of tracking people for the sake of reducing the spread of the disease . China of course, but also Singapore, France, and even the USA… Globally it was more than 20 countries at the end of March. For the interest of the group, mutualizing personal data is a game changer and when Google and Apple are collaborating on the topic, the lines will move.
The same logic can be applied to optimize resources allocation and therefore reduce environmental impact. Hello blockchain?
Will humanity, nations establish the legal framework for massive data mutualization to happen? Meanwhile the CDC will obtain a $500m budget to build a “surveillance and data-collection system”. Health data are definitely far more sensitive than electricity, water and gas consumption….and probably location. It seems clear that supply chains could gain tremendous performance out of such data sets.
And beyond location, revisiting privacy could enable a contactless experience that become meaningful for the coming months or years. QR codes are already powering Walmart contactless payment solution. Are we somehow getting ready to accept facial recognition, the ultimate touchless identification?
A reset in hospitality small business.
On average we count 27 days of runway for small businesses and even 16 days for restaurants. With a PPP covering up 2.5 months for the lucky ones, netting rent and insurance, say that hospitality small businesses had about 2 months of runway without revenue. In 30 days from now, we may observe numerous bankruptcies in this space as there are limited chances for them to cross the chasm of the shelter and the desert of the recession.
Hopefully chapter 11 will be eased to limit damages. But if rents and insurances are not eating up the cash available, when will clients actually come to delis, bars and restaurants, nightclubs again? There are good chances that this landscape changes drastically, a context where local chains could florish.
Now what will be the new practice beyond masks, hand sanitisers and temperature controls, take out and delivery. With an extended concern about hygiene that can last for long (until a vaccine is actually made available massively to the public, say late 2021 at best?), combined with the need of being social, the actual question is how can one control the safety of a commercial place. And size is an important factor in that consideration. Space organization becomes more critical. It’s fair to foresee a general reduction of commercial stores as well as tendency to reorganize space with more compartments. The implementation of a one way directional alley at Walmart gives perspectives. Did we not also hear that cubicles are reappearing in some open spaces?
Shopping malls / Fulfillment in store / pick-up store.
The response of some large banners is already brutal. They are in good position to rationalize their fleet of stores by invoking Force Majeure for the less performing ones and closing them, affecting this way the dynamics and attractivity of shopping malls. Rent decrease, less aggressive covenants on deposit and lease duration can already be observed on the market. The summer 2020 will be cold for Commercial Real Estate players and their creditors.
More online purchase means a need for more fulfillment capacity. The stores could evolve into hyper local micro fulfillment centers and some will be transformed into mere pick-up points as the new format already deployed pre-COVID by Starbucks and Kroger.
Automation and last mile innovation.
More automation both in the front (cleaning robots like Avidbots, cashierless a la AmazonGo,…) and in the back (pick and pack, staking,…). Even on delivery. For sure Starship technology and Nuro to name a few received a lot of inbounds in the past weeks. And we are of course quite bullish on the potential of CargoAI, a recent investment of ours, powering delivery and returns directly into car trunks…
Doubling down on digital engagement for the benefit of D2C strategies.
If yesterday discovery could happen on a screen followed by an offline confirmation of the engagement, the cursor is obviously moving to more digital. And all the fantastic tools imagined to drive engagement online to rocket: from conversational to video commerce and why not even VR commerce? Commerce went digital, then social. The future will be about immersion and collaboration.
In this exercise retailers will be squeezed by brands moving towards a D2C strategy. Nothing new here again. Just an acceleration. But brands that were going wholesale accelerated in developing their capacities, their talents, their systems to reduce their dependence. And this is amplifying.
In just a few weeks we observed a complete transformation of the commerce operating system that was not expected before years. Fully powered by technology.
As investors, we are adjusting our timing considerations consequently.
Now, will COVID remain the “disease of the fear of the other”, exacerbating inequalities, or on the contrary an opportunity to stimulate empathy and compassion, the necessary values behind a better commerce, a commerce caring about its social, environmental and health impacts? We obviously nurture hopes but enough playing with Nostradamus’ crystal ball, time to embrace and welcome comments, ideas, suggestions, projects and initiatives.
Interlace Ventures is an early stage venture capital fund focused on investing in technology companies transforming Commerce for Better Consumption.