Robin Lane Capital
Opus Connect Event Recap: The Consumer Sector: Winning in Low Growth Times, M&A Activity, & Overall Trends and Condition
In case you were unable to attend the recent Opus Connect San Francisco panel on the Consumer sector, we had a great turnout and some valuable insights into the current deal market and industry trends. A big thanks to our moderator, Ted Kuh (Lecturer at Haas School of Business, University of California, Berkeley and formerly Managing Director and Global Head of Retail Industry Investment Banking at Citigroup Global Markets), and panel members: Julie Bell (Partner – San Francisco Equity Partners), Robert Brown (Co-founder and MD – Encore Consumer Capital), Joe Rainero (CEO – Kinder’s Meats & BBQ), Kevin Sherman (VP Marketing – BJ’s Restaurants) and Brian Sullivan (MD – The McLean Group).
The conversation kicked off with a brief macro perspective and highlighted that high-end, club and low-end retailers are doing well, while middle market retailers are underperforming. Consumer confidence is improving due to a recovery in jobs and income, but remains volatile as consumers are maintaining their frugal habits developed during the past years. Global CPG brands are having difficulty growing in the U.S. while new, exciting companies with innovative business models and targeted product offerings are rapidly growing as they gain small market share in the huge consumer sector. This presents interesting opportunities for lower middle market investors
Our investor panelists noted that valuations in the consumer space are high, especially for quality targets when competition among bidders is likely to be strong. In such an environment, bidders can position themselves more favorably by convincing targets that their relationship will lead to a better medium-to long-term outcome with greater certainty. Companies should substantiate exactly where and how they will grow and bidders must set expectations with target management that not every company will be the next “Annie’s”. Earlier stage deals are also seeing high valuations, especially for companies that raise investment through crowdsourcing. Such a model can attract investors whose motivation is more than just returns, but also a desire to be involved in an exciting new company. While a high valuation might please an entrepreneur in the short-term, he/she could face a crunch later and find it difficult to raise subsequent rounds of funding.
B2B remains important as companies increasingly focus on multi-channel retailing, where it is imperative to understand the purpose of each channel, how they interact with one another and how to prevent conflict amongst them. Companies also need to closely manage retail relationships. Kinder’s Meats & BBQ believes in developing strong relationships with its retail buyers to garner early support for new products and thus accelerate the brand with lower levels of trade spend.
B2C is becoming a top priority as emerging technologies and ever increasing amounts of consumer data enable companies to better segment, communicate and listen to their consumers. The strongest brands codify their mission and tell it through a compelling story. Gone are the days when a company had a singular message to target a singular audience. Instead, companies are targeting multiple segments with tailored yet consistent messaging. Furthermore, a democratization of influencers, facilitated by a surge in blogs and social media, has enabled these messages to be communicated more cost effectively. The future of B2C will go beyond social messaging and evolve into social listening. For example, imagine how advantageous it would be to know when your consumers are sending pictures of your products to their friends? And, even better, what specific products and from which location (store, home). Better segmentation can also enable companies to develop more customized products and useful experiences for its users. Millennials are demanding that products serve their individual needs and immigrant populations are poised to invest more in durable goods should immigration reform give them more assurance of their presence in the U.S. Despite these opportunities, many companies are not poised to seize them. This presents opportunities for savvy investors to help their companies’ transition to the new way of building brands and realizing greater value.