Equal Ventures Focus Area: Retail
This is one of our current interest areas for investment at Equal Ventures. Our other areas of interest can be found in our overview post.
This is one of our current interest areas for investment at Equal Ventures. Our other areas of interest can be found in our overview post.
Market Overview & Shifts
The Retail industry has seen massive shifts over the past several years as eCommerce continues to grow as a percentage of overall spend. COVID-19 accelerated many of the events that had been forecasted by industry observers for years: from the pressure and bankruptcies of legacy offline retailers to increasing adoption of eCommerce across categories that had historically been underpenetrated across the U.S. (ex. Grocery). These trends accelerated an already dominant trend toward eCommerce platforms like Amazon and Shopify.
As buying patterns increasingly shift online, major shifts in consumption patterns around purchasing behavior are creating opportunities for innovation. Many brands are growing weary of platform dependency and looking for ways to detach themselves from their dominance. As the retail landscape grows increasingly competitive (both online AND offline), it’s also become increasingly important to double-down on core competencies and meet consumers where they are. Increased demand for flexibility and choice at affordable rates has enabled a rise in the circular economy for used and rented goods. These trends reflect not only a change in the way that brands/retailers will operate but the way consumers will interact with them, requiring a major overhaul of the enabling infrastructure for the industry.
Digital grocery has been an equally exciting trend with a 16.5% CAGR between 2014–19 and COVID-19 further accelerating adoption with 31% of households reportedly ordering groceries online in March 2020 as opposed to 13% in August 2019. Much of our research suggests digital grocery is here to stay, creating opportunities for new category leaders and leaving many incumbents struggling to adapt. Perhaps the biggest shifts here will be the movement away from traditional wholesale/distribution channels that have historically stymied access to customers and the erosion of long-held “cornered resources” of prime shelf-space by incumbent brands. These developments could enable a new class of food & beverage leaders to emerge that better meet the needs and preferences of today’s consumer. The rise of contract manufacturing and the ability to sell online has also enabled several new CPG brands that are digitally-first and we anticipate many more will come.
What We’re Interested In
Our biggest focus within the Retail category has been “The Great Unbundling”: a focus on businesses that enable brands and retailers to take activities off their balance sheet that are not core competencies. We see opportunities to do this across a firm’s operations, but especially in areas such as marketing (reducing CAC), logistics (forward or reverse) and manufacturing to be more agile in a fast-moving market environment.
The digital grocery segment is one that we’re interested in as well as COVID-19 accelerates adoption. Given the tight margin-profiles and competitiveness of existing companies in this segment, we’re particularly interested in companies that identify ways to reduce CAC and maintain high retention as they scale. We’ve also had a particular interest in the second-order effects of digital grocery and the opportunities it creates in the value chain removes the bottleneck of traditional wholesale/distribution channels and enables greater connectivity between the brand and the customer (a phenomenon pervasive in other categories, but impossible in grocery until now). While we don’t invest in individual brands, we’re excited to see new companies supporting infrastructure, marketplaces, software platforms and business models in this space.