This last week a number of companies assembled at the Morgan Stanley Global Consumer & Retail Conference in New York. The conference afforded the Montaka team an opportunity to hear from a range of companies, keeping our finger on the pulse of the U.S. consumer, as well as scouting for new investment ideas. Here are a few notable insights from the companies we heard from.
- When we heard from Domino’s Pizza a year ago, they had not really felt the impact from third party food delivery aggregators, and where they did it was confined to larger designated market areas (DMAs). What surprised Domino’s management team (as well as the market) was the penetration of 3P aggregators into a significantly larger number of cities in the US, the materially higher level of advertising spend from these companies, and the sustained level of discounting in the marketplace. The Domino’s CEO expects the food delivery market to continue to be a very competitive environment, and there was uncertainty as to when this heightened level of competition would settle.
- Harry’s, a disruptor razor brand that was started in 2013, launched in Boots stores in the UK in April 2019. In this six-month period it has now “taken a 30% share of handles”, referring to the razors sold in these outlets. Back in 2016, when Harry’s launched in Target in the U.S., the company achieved 50% share of razor handle sales and 10% share of the retailer’s cartridge sales, according to Nielsen data. The Harry’s situation highlights both the issues incumbent branded companies are facing from startup disruptor brands, as well as possible responses to these threats (with Edgewell announcing an acquisition of Harry’s earlier this year).
- Nike, a well-established global brand we likely all know, is focusing on increasing its mix of direct-to-consumer sales. In the process, it has an opportunity to capture the wholesale markup, providing a positive boost to margins, as well as having greater control over its distribution and the consumer experience.
- China is one of the most advanced programmatic ad markets, and for Proctor & Gamble, 80% of the company’s digital media was bought programmatically. This helped reduce digital media waste by 30% and increased the number of people reached by 50%. A recurring theme from the companies we heard from was their desire to lean into digital advertising to boost ad spend efficiency and ROI.
- Around 80% of the clothes in a woman’s closet are worn three times or less, and the closet holds the second largest amount of value in the home, second to only the garage. These were remarks made by Jennifer Hyman, CEO and Co-Founder of Rent-the-Runway, a company that rents out clothes to a mostly female customer. The sharing economy continues to solve consumer frictions, while also providing more choice and value for customers relative to pre-existing alternatives (in this case spending a lot of money on a garment that may only be worn once or twice).
- The macroeconomic environment for home improvement spend has improved recently, with four months now of existing home sales growth. This compares to 17 months of existing home sales declines. This improving housing turnover creates an environment conducive to house remodeling activity. Lower mortgage rates are also likely to provide a boost to remodel activity, a tailwind for companies operating in the home improvement space.
While there were many worthwhile themes that were highlighted by the companies we heard from, it was perhaps the theme of internet-enabled disruption that featured most prominently. These disrupter firms themselves have used the internet to forge new business models that in most instances negatively impact incumbent firms. Consequently, many old-world firms are facing pressures from these upstart competitors and are (in many cases belatedly) scrambling for ways to respond. As always, we continue to process this information and weigh up opportunities on the long and short side to maximize opportunities for our investors.
George Hadjia is a Research Analyst with Montaka Global Investments. To learn more about Montaka, please call +612 7202 0100.