Fad or Trend? The Art of Investing in Consumer Companies
Andrew Crawford, Global Head of General Atlantic’s Consumer sector, recently sat down with Vittorio Colao, Vice Chairman of the EMEA region and Senior Advisor1, who spent 20 years as Group Chief Executive at Vodafone and served on the boards of Verizon and Unilever, to discuss changing consumer preferences and how AI will affect the consumer sector.
Crawford: Something we think about a lot is how to distinguish between a fleeting fad and longer-term secular trends in this hyper-connected world. What’s your perspective?
Colao: In my experience, the only way to distinguish a fad from a trend is to talk to customers. Many things look like trends just because they get repeated digitally by different people. I had a wonderful meeting with Jonathan Ive, who was then the designer of Apple. He told me that he spent less than 20 percent of his time in the office because he needed to be with customers to understand whether the things that his people were telling him were true or just fads that they kept repeating.
Crawford: That resonates with our approach. A beauty company today may remind us of a food company we looked at a decade ago. It’s about finding patterns and applying those lessons to what’s next. We’re largely focused on brands with a much younger customer base. They’re typically challenger brands going after established incumbents, and typically those incumbents have an older customer following. We’re more typically attracted to brands that have the following of a 20-to-30-something year old and are leading with product innovation.
Colao: During my time at Vodafone and Unilever, I saw young companies skipping phases and launching completely new products with extended reach very fast. I saw it in mobile money, in education, in logistics.
Crawford: We’ve observed that phenomenon with companies from developed markets in our portfolio. A number of beverage brands have also grown extremely rapidly, mostly through a wholesale business model. They’ve leveraged social media to create strong sell-through for their retail partners and have built multi-$100 million businesses in just two or four years from launching. That didn’t exist 10 years ago.
Colao: The balance of competitive strengths between the incumbents and the innovators has dramatically changed in the last 15 years. No one at large incumbent firms should be reassured when they have good results, because they can evaporate quickly.
Crawford: The consumer has never been smarter. They can do research while shopping at the grocery store or at Walmart or Target and fully understand all the ingredients that go into the product. In many categories, the customer wants to know that it was made in a fair and honest way throughout the supply chain.
Colao: There is always this discussion of what in a local brand makes also a good global brand and how can a global brand also be accepted locally. What’s your experience?
Crawford: I think the magic sauce is outstanding product. Joe & the Juice has product that’s great to eat in store and great to be delivered by a third party and consumed 30 minutes after it’s made.
We love going after incumbents that are global. Vuori is going after the global athleisure market. They lead with wonderful product.
Colao: I like to analyze what creates a good repeat business. What motivates a customer to come back is of course giving a flawless experience at the first purchase.
That’s why word of mouth is so important. At large companies especially, there is always a temptation to spend more on acquisition than on retention, and they end up treating loyal customers worse than new ones. This is deadly.
Crawford: I completely agree. Technology plays a big role in driving retention. With companies in the US, specifically, you need to be providing a more efficient experience to the consumer.
Colao: Everything these days is around AI and the possibilities that AI gives you. Many people think that AI is essentially reducing costs. It is reducing costs, of course, but more importantly AI is trying to create that link between my experience today with that brand and my experience in three or five years. That to me is the most important thing.
The basis behind this all is the correct profiling of all customers. No matter what sector you’re in, the ability to understand your customers’ preferences and behaviors and then link to a strong AI engine with a strong voice interaction platform is going to be crucial. Not just an opportunity, but a strong need.
Contributors
Andrew Crawford
Managing Director
Global Head of Consumer
Vittorio Colao
Vice Chairman of EMEA
1 Senior Advisors are independent contractors that are advisors to General Atlantic and its portfolio companies. They are not employees nor affiliates of General Atlantic entities.
Subscribe and stay up to date with the latest news.
