No. 33: Impressions from the US, The Purpose of Hellman's Mayonnaise, Brands and Platforms
Happy to be back into writing again after travelling to the US. There were several impressions gained on the trip. I’ll share a few highlights here.
McDonald’s
The restaurant chain is obviously a very different business in the US than in Europe. Restaurant density is much higher in the US, where I counted about one location every 5 minutes – as opposed to Europe where they are heavily present in city centres, airports and railway stations – but almost nowhere else. Prices were of course much lower than in Europe – which makes McDonald’s not only available, but also a cost-effective way of eating vs. in Europe where neither condition is true.
I also saw massive wage inflation in the form of job advertisement posters, showing hourly wages 2X of what I had seen them only 5 years ago. And it’s yet to be seen whether McDonald’s can even attract people with the current wage hikes.
San Francisco
It was amazing to meet with many friends, investors and tech employees over the trip – but was also rather strange to see the darker sides of the city. There were places like Tenderloin, which we were advised not to go. We ended up on the edge of the district there and saw streets lined with used needles from drug users. In fact, this was a common sight in other places too, along with human defecation – sometimes right in the middle of an otherwise rich district.
I was also told that stealing under $1000 worth of goods in SF has been decriminalized. This led (obviously) to higher rates of thefts in stores.
I guess SF, like many large cities, is a city of haves and have nots. The disparity seems to be accelerating from all accounts. But that doesn’t change the fact that the city is an amazing melting pot – and attracts some of the best minds on the planet. Not to mention, the food is amazing due to the large immigrant population – and therefore hustling restauranteurs looking to make it in the big city.
Uber
I have been curious about Uber for a long time, but larger European cities are not the right place to use it – given the cost-effectiveness and ease of public transport. I was in Illinois and SF – where the cities are very large and not dense at all. This combined with a lack of public transport investment meant that Uber was my only way to get around without a car.
Naturally I chatted to a few drivers. Every person came with their own story. But what was interesting was some full-time drivers talked about making $200-600 per day in revenue. A few of these drivers had lost their jobs and turned to Uber to make a decent income while they searched for alternatives. I was surprised that it wasn’t just a good living – but a great one, for most of these drivers. Of course, this is not exactly a random selection of drivers, but most of them told me they don’t work more than 8 hours per day, and Uber lets them have a lot of work-life balance. Far from being some sort of evil capitalist enterprise, Uber cushioned a lot of families from the stress that redundancies and job losses can create. Part of this is because drivers can simply join the fleet and build a customer base if they pass the background checks.
As a result, I was able to see how strong the Uber mobility model was – whereas I was unable to see this sitting in my home office in Europe.
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The Purpose of Hellman's Mayonnaise
It's been a while since I wrote about consumer goods.
I chuckled at fund manager Terry Smith's opinion that Unilever should concentrate on its business, rather than philosophizing about the purpose of Hellman's mayonnaise.
I tend to agree with Terry's stance - and I wish Unilever's management was more focused on serving consumers a great value proposition.
However, despite my general dislike of what I'll call "ESG language", I believe Unilever was correct to spend energy articulating the purpose of Hellman's mayonnaise. You see, Terry Smith has probably underestimated talent flows in the industry.
People, young and old, like to be moved by a message a bit more poetic than "we make condiments - and by the way, you need cash to feed your kids, so just do your job!". Unilever, by articulating its devotion to purpose, sustainability etc., has created a nice message for employees. Despite being functionally equivalent (in my opinion) to almost every other CPG firm, Unilever, has somehow created a brand image that by working for them, one would be on a crusade for sustainability. This helps - especially in a labour-constrained environment.
Well played, Unilever!
Brands Begging for Platforms? Or Platforms Begging Brands?
Nike's early investments in digital commerce and pole position in sportswear have driven huge volumes to its direct-to-consumer business. This has enabled it to harvest huge amounts of data and invest in better product offerings.
From Nike's latest earnings call transcript:
Number one, our brand tracking tells us that our brand is still the #1 cool and favourite brand in all 12 of our key cities around the world, and it's strengthening and strengthening against our historical competitors. In fact, the only people that are coming close are technology companies. And so that continues to be one evidence.
But I think even more fundamentally and longer term is the foundation of having a direct connection with the consumer. We are in an era where that is the liquid gold for any brand is to have a direct connection with the consumer so that you can understand that consumer, you can engage that consumer and then you can serve them in a personalized way. And if you have a leadership position, you have more information with which to do all that, more data, more information.
And so our digital penetration is at an all-time high. Matt mentioned at 25%. Our Direct Digital and mono brand penetrations at an all-time high, that gives us that direct connection. And frankly, the partnerships like DICK'S allows us to have that direct connection, whether it's direct or with a wholesale partner, and that allows us to serve that consumer in a more personalized, engaging and sustainable way. And we believe that is going to be one of the key indicators of future success. And not every brand in our industry or other industries is to be able to have that direct connection with consumers. And so that's the best leading indicator. And that's why we're putting so much focus on our full consumer funnel, bringing new members into the top of the funnel, engaging the mid-funnel and then obviously, translating that into strong and deep relationships.
Nike is the kind of brand that platforms would love to have on board. However, the very reasons that make it desirable to e-commerce platforms are the same reasons it makes more sense for Nike to go direct.
I can't say the same for the B and C brands, or some specific product categories though. Quite a few of them have to beg E-com platforms to take their product, taking margin concessions to do so. Or they could set up their own watered down D2C stores which no-one bothers going to anyway.
Clearly, all consumer products are not born equal.
The first principles stay the same. It continues to be important to embrace channel shifts early, as well as investing in brand health and relevance. Easy as an armchair analyst in hindsight - hard as a manager in practice. It's hard to conduct experiments with resources and talent in nascent areas when crown jewel channels and brands are gushing cash and paying the highest bonuses. Managements must be foresighted and trusted by their boards to pour investment into unproven moon shots. That’s why it’s even more remarkable when such investments work.