7 minute read
Food: Heartcore Consumer Technology Trends 2021
Heartcore is Europe's consumer technology VC. Our annual Consumer Technology Trends Report sums up what happened in the world of consumer technology - category by category.
Groceries are finally moving online.
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The second largest consumer spend category has historically been one of the biggest laggards in terms of online penetration. We think that Covid-19 will be remembered as the catalyst we were all waiting for.
And that shift has only just begun.
The latest estimates believe that in the next 5 years Europe will reach the same levels of grocery sales online penetration than some Asian countries experience today.
Current and 2025 Expected grocery sales online penetration (%)
Korea | 2020: 25% China| 2020: 22%
DE | 2020: 3% | 2025 Expectations: 10%
FR | 2020: 9% | 2025 Expectations: 20%
UK| 2020: 12% | 2025 Expectations: 24%
US| 2020: 10% | 2025 Expectations: 21%
We still underestimate the magnitude of that shift.
European grocery sales account for $2,200B Annually, increasing online penetration by an average 10% in the next few years means adding an additional ~$220B of TAM. For context, this is 20x the entire mobile app economy in Europe!
So, who will capture that value?
Not incumbents.
1980s
The 1980's super/hyper market model is getting old. It was built for a world of "average consumers" and their automobiles--not modern consumers with eclectic tastes working from home.
2020s
Death by a thousand cuts.
The "one-stop-shop" model inherited from the 1980's is also growing old in the age of the internet and next day delivery. A large array of specialist retailers and direct-to-consumer brands are "unbundling the grocery aisle" and capturing share of wallet.
No silver bullet.
We buy groceries in various ways. We see 3 major models emerging catering for 3 distinguished types of consumer needs. Each use case requires a different type of infrastructure and assortment.
Segment: Quick Trip
Who: GoPuff, Gorillas, Weezy (Heartcore Portfolio)
Frequency: Daily to weekly
Where: City Centers
Delivery: <30 min on demand
AOV: €20-30
Infrastructure: Distributed dark stores
Segment: Top-Up
Who: Picnic, Cortilla, La Belle Vie
Frequency: Weekly
Where: Tier 1-2 Cities & Suburbs
Delivery: Same/ Next planned
AOV: €60-80
Infrastructure: Semi centralized warehouses
Segment: Stock Up
Who: Fourche (Heartcore Portfolio), Thrive, BOXED
Frequency: Monthly
Where: Everywhere
Delivery: 3 Days
AOV: €100+
Infrastructure: Centralized Warehouse
The dark-store model is superior.
We believe that the dark-store model will win within urban centers. Full integration makes for inherently superior unit economics, allowing in turn to achieve lower prices to the end consumers.
Covid-19 was a massive boost to “stock-up” players.
Cheap + high quality + bulk + dry + delivered to your door = terrific value proposition in 2021 (and beyond).
Covid-19 was also a major tailwind for meal delivery.
The sharp increase in meal delivery orders was significantly less pronounced in Europe where traditional restaurants were forced to close for months due to stricter lockdowns (i.e. less supply).
2020 was a year of consolidation and fundraising.
As we predicted in last years report, 2020 was a year of major consolidation in the meal delivery industry. M&A was mostly aimed at improving unit economics in core markets through scale & market share, or international expansion into new markets.
Profitability vastly improved in 2020
Major delivery networks were able to improve profitability through price increases, volume increases, and consolidation. Consumer demand has proven inelastic to delivery fee increases.
In 2019 investors had bet the real estate layer would be next…
Investors bet that there was high need for new purpose-built capacity in order to scale meal delivery. Dark kitchen operators providing turnkey real estate facilities to launch delivery-only restaurants raised significant capital.
Raised $400M
(Saudi Arabia's PIF)
Raised $1.2B
(Mubadala, Softbank, Oaktree, Target Global)
Raised $35M
(A16Z, Founders Fund)
Raised $50M
(GV)
Raised $117M
(Knollwood, Lumia, BECO, CE- Ventures)
… but what a difference a year makes.
Covid-19 unleashed an unprecedented amount of spare capacity on the supply side, ~2M of restaurants & food operators are now running way under capacity across the western world.
The next big thing? launching delivery brands on top of underutilized kitchens.
Building the world's largest restaurant chain on top of a distributed network of third-party kitchens, 100% asset-light models licensing IP/software/supply chains to traditional restaurants. Providing a turnkey solution to restaurant owners to thrive in the delivery era.
There’s massive potential in leveraging culturally relevant IP.
Delivery-only concept Mrbeast Burger became an instant hit in December by leveraging the reach of internet celebrity MRBeast - 300 outlets nationwide overnight, $0 in marketing!
Delivery networks are also starting to get unbundled - by segments…
Verticalized delivery networks catering to a particular type of cuisine or diaspora are gaining strong momentum. More curated/more culturally relevant UX for a particular group.
… and by function delivery vs demand generation.
Many restaurants feel they only want to pay for 1 of the 2 functions traditionally served by delivery networks. Some have enough reach to launch their own app, others have their own fleet of drivers. A number of software companies are giving them the means to own the consumer relationship directly, while delivery networks are increasingly forced to unbundle their offerings.
Covid-19 was a massive boost to plant-based products...
Severe meat shortages in US + increased concerns about sustainability & sanitary risks of animal farming + increasingly health-conscious consumers = perfect storm.
Consumer responses to whether Covid-19 makes them less safe about buying meat (US)
...and there’s still massive room to grow.
These markets are larger than we think. Getting meat and dairy alternatives to the same current 12% market share of alternative milk is a $60B opportunity in Europe and the US alone.
Following in the steps of Oatly
While Oatly started in the 1990's, we're seeing a number of new European startups develop CPG plant-based products. From red meat to poultry to dairy, these companies tend to have strong footing in their home countries. The barriers to entry seem surprisingly low, as in some categories it's not unusual to see upstarts develop compelling products in a matter of months with limited resources.
Significant barriers to scale act as strong moats for established players.
While barriers to entry are relatively low in the space, barriers to scale are significant. Large players started ~10y ago, have accrued large scale benefits in R&D, production and distribution. They are also aggressively expanding to adjacent markets.
Impossible Foods’ foray into milk could mean bad news for smaller plant-based milk companies
Cellular Agriculture is still looking for its “Oculus moment”.
1985: VPL Research is the first company to commercialize VR goggles
2014: Facebook buys Oculus
2013: Mark Post develops the first cultured hamburger
The key question remains one of timing.
Best of both worlds: we think that hybrid models are the future.
Mixing animal cells cultivated in a lab with plant-based formulations in order to make them tastier.
Just Egg: Mixing cultured chicken cells and plant-based ingredients to create synthetic nuggets
Gormey Paris (Heartcore Portfolio): Mixing cultured chicken cells and plant-based ingredients to create synthetic nuggets
Mission Barns: Mixing cultured pork cells and plant-based ingredients to create synthetic bacon
Artemys: Mixing cultured pork cells and plant-based ingredients to create synthetic pork
Higher Steaks: Mixing cultured pork cells and plant-based ingredients to create synthetic pork
From Soylent to Magic Spoon?
Rather than working on full meal replacements in new-form factors, we see a new wave of companies tweaking the nutritional profile of products we already love (often replacing carbs by proteins). Like for plant-based CPG companies, the main question we ask ourselves is whether these have the potential to product "venture outcomes".
