latamen
Consumer trends in 2020: food delivery, humanization of pets and streaming wars

Consumer trends in 2020: food delivery, humanization of pets and streaming wars

21-01-2020 | Insight
New year, new investment ideas? As investors reassess the prospects for the global economy and financial markets in 2020, trend investors Jack Neele and Richard Speetjens highlight three major trends that are shaping consumers’ spending preferences globally.
  • Jack  Neele
    Jack
    Neele
    Portfolio Manager
  • Richard  Speetjens
    Richard
    Speetjens
    Portfolio Manager

Speed read

  • Food delivery is set for strong growth and consolidation
  • Pet-related products and services are booming
  • Streaming wars: new players in an expanding market

Online food ordering and delivery

Online food ordering and delivery is a relatively young market that, after a period of heavy investment, is now quickly consolidating. One of the main drivers of this move has been the low profitability of many players, as penetration still tends to be relatively low and traditional phone ordering often remains the number one competitor.

But in regions where concentration is high and penetration has been increasing, companies are now seeing their profits rising rapidly. This in turn should lead to further concentration and to the emergence of a small number of dominant players able to generate profits while their competitors probably keep struggling. Figure 1 shows the main players in different online food delivery markets.

Now also follow us on Instagram
Now also follow us on Instagram
Follow

Figure 1: Main players in different online food delivery markets

Source: Frost & Sullivan, Robeco

Winners will be those able to keep their delivery costs as low as possible, either because, in the country they operate, the cost of labour is low or because the density of their customer network is very high. In countries where the population is highly concentrated in big cities, like South Korea for example, online food delivery companies will obviously be at an advantage.

The online food delivery sector will keep growing and consolidating rapidly over the next couple of years

According to Neele and Speetjens, the sector will keep growing and consolidating rapidly over the next couple of years. Online food delivery penetration on average is around 10% to 12%, whereas in more developed markets, like the UK and the Netherlands, this can be as high as 25%. Therefore, potential growth remains substantial in many markets.

Last year saw a major consolidation moves in large food delivery markets, such as Germany, the UK and South Korea. These mergers gave birth to dominant food delivery companies able to generate high and robust profit margins.

Humanization of pets

The number of pet-owning households is rising globally while the amount of money people spend on their furry companions is also increasing. In the US, for instance, over 55% of the households own a pet, according to the American Veterinary Medical Association’s latest survey. Moreover, pet industry sales have been steadily rising over the years, even during the crisis of 2008-2009, as Figure 2 shows.

Figure 2: Total US pet industry expenditures (in USD billions)

Source: American Pet Products Association, Robeco

To some extent, the constant increase in global consumer spending in the household and pet care categories can be attributed to a ‘pet-humanization’ trend. Consumers increasingly see their pets as family members. Many consumers are therefore prepared to spend more on pet food and other pet-related products that may improve animals’ living conditions.

One way to benefit from this trend is to invest in either pet food providers, or companies that supply vaccines and medicine for pets. These food and pharmaceutical companies may not necessarily focus solely on pets, but in some cases, the pet segment can represent a very sizable share of their sales and profits. These also tend to be high-growth and high-margin businesses.

But there are also many other types of companies that could benefit from this trend, Neele and Speetjens say. For instance, online pet food delivery companies may be one example. As pet food is large and bulky, the online distribution model is very suitable for pet food. The online pet food and pet supplies market currently has approximately 15% penetration in the US, but this could easily increase to more than 25% in the next few years.

Streaming wars

Streaming wars is not a new topic, but the past few months have been marked by several initiatives that could reshuffle the deck. While Netflix has long been the dominant player, Apple and Disney are now also offering their own service. For these companies, the idea is to establish a direct link with the end consumer to help them decide on future investments in terms of content.

Figure 3: Streaming wars

Source: Getty

Of course, the increased level of competition may limit pricing power in the short term. But the market should be big enough for Disney and Netflix to co-exist, say Neele and Speetjens. Moreover, a more diversified streaming offering will probably lead a growing number of customers to replace their usual TV subscription with a combination of online streaming subscriptions.

A more diversified streaming offering will probably lead a growing number of customers to replace their usual TV subscription with a combination of online streaming subscriptions

Also related to the streaming wars are all the changes happening in the music industry. After two decades of decline, growth has finally come back over the past couple of years, in particular thanks to the success of a handful of streaming platforms. These days, streaming represents about 45% to 50% of the total music industry in terms of revenues. Owning streaming platforms or music labels is one way of benefiting from this comeback. But there are other ways. For instance, because the business model of artists has radically changed and streaming is now seen as a way to promote concerts, companies operating concert venues or selling concert tickets online may also represent attractive investment opportunities.

Conclusion

Given an uncertain future, with potentially slower economic growth and the current backdrop of very low global interest rates, we believe investors should focus on quality growth stocks. High quality businesses with valuable intangible assets, low capital intensity, high margins and superior returns on capital have historically delivered above average returns while offering downside protection in volatile market environments.

We believe our investments in food delivery, pet care and expenditures, as well as music and video streaming feature such characteristics. Therefore, we expect them to deliver healthy revenue and earnings growth and to generate attractive long term returns for investors. Moreover, we believe the above-average valuations of some of these businesses are justified, given the quality of their business models, the high levels of earnings growth and the sustainability of their franchises.

Logo

Important information

The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).

This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.

This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.

I Disagree