Kevin Ryan's: Culture Matters

Technology for the Win
The National Restaurant Association published their first edition of their Reopening Guidance  for restaurants. In addition to tips on sanitation, social distancing and employee health, the guide suggests that restaurants “[m]ake technology your friend. Contactless payment systems, automated ordering systems, mobile ordering apps, website updates and simple texts can help you to communicate and conduct business with reduced need for close contact.” Already, companies are pivoting to help restaurants with this new reality. Sevenrooms, a reservation and POS integration software provider, has launched new Contactless Order & Pay system. This system allows customers to pull up the restaurant menu (via QR code, NFC or URL), order food and pay all via their phones (yes, you’ve been able to do this in most of Asia for years). This will reduce contact with staff and, the company hopes, reduce consumers concerns when dining out.  Relatedly, Reuters reports that Burger King has an app in beta that they plan on testing at their stores in Milan that allows customers to reserve a table, order food and pay all via phone.

Wingstop, the Texas-based chicken wing restaurant, announced their Q1 earnings last week and reported a 9.9% increase in same-store sales, growth that well exceeds their peers (McD’s = down 17%, Burger King= down 3.7%, Domino’s = up 1.6%). Much of this growth is due to the company’s focus for the last five years on making digital (e.g. mobile, text, etc.) their primary ordering system.  The company estimates that prior to the crisis, 80% of their sales were through off-premise ordering. “We benefited from a lot of investments in technology in the last four or five years that has manifested itself in a seamless occasion for our guests.”
The Coupon Bureau, a non-profit, industry-managed coupon data exchange technology platform, announced last week that they would be adopting Hedera Hashgraph's DLT to prevent coupon fraud. As the industry sees a large spike in the number of digital coupon redemptions, this technology uses blockchain to confirm their authenticity.  The Coupon Bureau has several large CPG companies and retailers on their advisory board, including General Mills and Target.  

A study published last week by manufacturing consulting company SmarterChains, found that 90% of CPG companies have yet to adapt digital technologies at scale. While the positives behind Industry 4.0 tech (e.g. robotics, blockchain, internet of things, etc.) in factories and supply chains are clear, the food industry has been slow to change. In an interview last week in Food Processing, Colin Guheen, managing director of food, beverage and agribusiness investments at Capital One Commercial Banking said, “The dollar expenses [in automation] are just the tip of the iceberg,” he says. “You’ve got cultural expenses in your management team and how they’ve done things in the past. You’ve got opportunity costs…And then there’s just the inertia costs, of people not wanting to change.”

So What? Here are some pictures of boxers from the 19th century:
You’ll notice two things: (1) today’s hipsters have nothing on the moustaches of old; (2) the odd stance where boxers hold their arms outstretched. While I’m no expert on ‘staches, I can tell you that there is a solid reason why boxers favored that stance (sometimes called the ‘fisticuffs stance’)—it’s the best way to defend yourself in a bare-knuckled fight.
In all combat the head is an important target, a well-placed blow to the cranium might secure you a knock-out. However, because it is dense with bone a misplaced head shot could break your hand, rendering you defenseless. Therefore, in prolonged hand-to-hand combat, attacking the body becomes the primary strategy and protecting the body the primary concern. Hence, boxers kept their arms out and low, ready to protect their bodies from a devastating jab to the kidney or ribs.
Of course, that all changed with the advent of boxing gloves. Now that your hands were protected the head became the primary target again, and your biggest weakness. So, we get the modern stance:
Technological change begets tactical change. If you don’t change with the technology, you can open yourself up to new vulnerabilities. When boxing mandated gloves at the end of the 19th century, boxers that had come of age in an earlier time quickly realized they had to either alter their stance or face an early retirement.
As the pandemic rages on, it is becoming apparent that adeptness with new technology is what will separate the winners from losers within foodservice, retail and CPG. This is not necessarily about the size of the company or how many years they’ve been around, but more about having the introspection and willingness to change in a new environment.
In the last few months, I’ve had conversations with many CPG and grocery companies who’ve seen record profits but are resistant to plowing that windfall back into changing their technology. For them, it’s still ‘business as usual’ and they do little to update and innovate their systems.  However, I’ve had just as many conversations with companies that are making huge investments in automation, supply chain logistics improvements, production flexibility and innovation capabilities. These companies don’t see their recent good fortune as profit, but as a much-needed cash infusion to do something radical. Similar to Jeff Bezos’ written note to investors last week (where he told everyone to “take a seat” because he’d be spending the entirety of the company’s $4 billion in profit to make drastic internal investments), these companies are cognizant of their own vulnerabilities and this opportunity to protect themselves.     
For those companies that aren’t taking this time to reinvest and change their technology ‘stance,’ I’m not sure if they even realize the punch is coming until it is too late.
Separating Hype from Hope
Now that we are in well into this pandemic, the numbness caused by the drastic change is starting to wear off. Some form of normality, no matter how strange, is manifesting and, as part of this new groove, I’m starting to see things a bit clearer.
Like you, every day I open my browser and am bombarded with articles about the ‘new normal.’ Clickbait headlines proclaim that ‘X is dying!’ or ‘Consumers Will Never Go Back to Y.’ But looking through the data and the trends, it becomes clear that these claims are often exaggerated. Just because everyone is acting one way in lockdown doesn’t mean the post-lockdown world will be drastically altered.
Therefore, I’ve started keeping a list, separating those trends that look more like hype from those where there is some hope of continuance post-COVID:      

Primacy of Online grocery shopping: I’m sure that everyone you know has drastically increased their use of online grocery shopping, giving you the impression that everyone is using this channel to source food. However, this only means that your friends are well off. That’s not to say that online grocery shopping isn’t up, it is, but mostly with affluent consumers. However, even for those consumers, recent survey data shows they don’t expect to order groceries online post-pandemic. Yes, the click-and-collect and online order will see a bump (~10%) but grocery stores will remain the primary source of food shopping for the near future.

Return to home cooking: Consumers absolutely have more time on their hands and some data shows that they might be cooking and baking more from scratch. However, the overwhelming data shows that they are eating a lot more Hot Pockets and pizza.  Let’s just admit that no one is becoming a gourmet cook because of the lockdown. Perhaps they’ll pick up a few new go-to meals but, most people are getting through this living on convenience food and delivery.

Hobby Food: Related to the home cooking hype, is the rise in what I call ‘hobby food.’ These are the twee foods that have filled TikTok and YouTube for the past few weeks, things like Dalgona coffee and pancake or waffle cereal. These tedious to make and fun to post foods are the perfect creation for lockdown, but will likely disappear or significantly morph when people have other things to do.

Return of carbs: Packaged food is doing well in the lockdown, but carb foods are taking the real prize. Not only that, NPD Group data shows that people are buying carb appliances to feed their return to starch. Not to say that keto and paleo are over, but serotonin-releasing carbs are definitely back on the menu in a way they haven’t been for years.

Frozen Food: Remember seeing those Emergency Preparation kits at Costco years ago and thinking “what kind of paranoid person is buying that?” Everyone is that person in 2021. However, instead of freeze-dried beef stew and dehydrated applesauce, a recent survey found that consumers said they are likely to stock on extra non-perishable and processed food (40%), household items (41%), extra milk (73%) and extra eggs (77%). However, frozen food is the real star, with 70% of US households buying more frozen food since March and 50% of consumers saying they expect to keep their freezers extra full in the future.  

Snacks: Recent data from Mondelez reports that 40% of people say they are eating more snacks since lockdown with snacking occasions up 51%.  This all translates into a total category volume increase of 21.1% for the four weeks ending March 21, compared to 8.1% for the previous 12 weeks. Of course, snacking was on an increase prior to the lockdown. However, there isn’t enough data yet to see if the lockdown accelerated the BFY snacking trend as much as traditional salty snacks.  

Plant-based Food: As I mentioned two weeks ago, plant-based alternatives are going to grow quickly post-COVID. With meat shortages, perceived health benefits, safety concerns and eventual lower costs, alternatives will likely become major players in the years to come.    

No Pretense Comfort and Nostalgia: When Bon Appetit showcases videos on how to “improve boxed mac and cheese” or how to make the best meatloaf sandwiches, you know things have changed. The pandemic (and the fear of economic doldrums) appears to have ended the gilded age of fancy food. Instead, people are turning toward tried and true, which likely will benefit big brands and well-known flavors. That doesn’t mean the end of creativity (the Bon Appetit examples are extremely creative) but its about starting with a familiar space and building from there.  
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Stressed and Stronger
Mighty Small is a new, online-only supermarket based in the UK that only carries goods from independent brands. Started last month, the founders recently told Forbes that not only is the site an online grocer but “it offers a lifeline for those independent food and drink brands struggling to keep their businesses afloat during COVID-19. And for shoppers, it’s a wonderful celebration of unique products that we know people will absolutely love discovering, with the added benefit of giving something back.” Mighty Small currently offers goods from hundreds of purveyors of snacks, condiments, drinks and other pantry items.

Last week, San Francisco-based Smitten Ice Cream was the first company to utilize Perfect Day’s non-animal whey protein to create a vegan ice cream. Called N’ice Cream, the new line is currently available for local pick-up and delivery and direct-to-consumer delivery. Perfect Day uses microbes and synthetic biology to produce whey protein that closely mimics real dairy protein. The company seeks partnerships with food manufacturers to supply dairy proteins (and eventually fats) for use in vegan applications.

Israeli food-tech company InnovoPro raised $15 million in investor funds for their B round of funding last week, led by VC firm Jerusalem Venture Partners (JVP). The company is making waves in the US and Europe with their unique, sustainably produced chickpea protein concentrate that can be added to snacks, ice creams, beverages and other dishes with no aftertaste. Chickpea protein concentrates/isolates are proving to be an extremely competitive space, with small companies (e.g. ChickP) and big companies (e.g. Nutriati) vying for dominance.
So What? Last week, a new documentary called Spaceship Earth dropped on Hulu. The program focuses on the people and drama of Biosphere 2. For those of you that don’t remember, Biosphere 2 was an ambitious scientific experiment that took place in the Arizona desert in the late 1980’s/early 90’s to understand how humans might survive one day on other planets. The experiment consisted of a group of seven volunteers who agreed to live and work in a large self-contained environment for two years. Like a giant terrarium, people, animals, insects and all sorts of plants were sealed up in a 10,000 m2 enclosure, to be observed and studied.
Things did not go well; most people remember the front-page stories about animals dying, volunteers starving and quitting and the company that owned the Sphere going bankrupt mid-experiment. However, behind the headlines (and questionable science) some interesting things were learned; one was about trees. 
The Sphere was built quickly, all the flora and fauna put in right before the doors were sealed shut. Each of the trees that were planted throughout the property grew with amazing speed. However, within a year the trees began to fall over, they literally snapped in half. It wasn’t some blight, insect or even the soil; it was the lack of wind. In the artificial environment of the Sphere, the trees grew straight and fast but without wind they never developed stress wood. Sometimes called reaction wood, this is hardened plant material created by a tree early in its life as it is battered and beaten by driving winds. Scientists now know that if a tree isn’t exposed to stress early in its life, it fails to thrive.

IBM. Disney. General Electric. Instagram. Square. Trader Joes. Alibaba’s Taobao. FedEx. Microsoft. All of these are companies that were started either in a recession or a crisis (i.e. Alibaba launched Taobao during the SARS outbreak). While it might seem foolish to start or invest in a company during a worldwide pandemic or a crushing economic recession, perhaps it’s the best time. The companies that make it through the next two years will likely be stronger than anything built two years prior. Why? Because these are companies that have survived the howling winds of a crisis. Written into their DNA will be a strong unpinning of healthy paranoia, a culture of frugality and the comfort of knowing that they not only survived but thrived in tough years.
The Lighter Side
The fact that five people sent me this link last week tells me that we’ve collectively reached peak procrastination and pandemic fatigue (and potentially confirms the rise in nostalgia!). This link is to a website called My 90’s TV (there is also a My 80’s TV and My 70’s TV) and it is exactly as advertised: a graphic of a television that you have to power-on and then flip through the channels, reliving the programs, music videos and ads of your childhood. WARNING: do not click these links if you are on a deadline!
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