CONSUMER GOODS & RETAIL Archives

26/08/2021by EOS Intelligence EOS Intelligence No Comments

Beauty Tech Giving Beauty Industry a Facelift

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In recent years, artificial intelligence and virtual reality have been adding an additional dimension to the beauty industry, quite literally. With consumers increasingly embracing and demanding personalized offerings and precise results, leading brands, such as L’Oréal and Shiseido are investing heavily in the space. Just as in many other industries, AI is revolutionizing beauty products and how they are conceptualized, created, and sold. However, it is a long road from being perceived as gimmicky promotions to improving customer engagement to becoming commercial go-to solutions.

Artificial intelligence (AI) has been greatly integrated in our lives through different sectors and now the beauty industry is no exception. The use of AI, augmented reality (AR), virtual reality (VR) as well as complex beauty devices has revolutionized the way consumers perceive, apply, and select beauty products. Moreover, in the age of online retail, it enables companies to maintain a similar personalized level of service that would otherwise require a physical interaction with a beauty consultant. Technology is creating new experiences for the consumer, both in terms of beauty products’ features as well as purchasing process.

Beauty industry is also one of the most competitive sectors, with consumers always being on the lookout for new products and having low brand loyalty. Beauty tech seems to address this issue as well, as it elevates consumer engagement through enhanced personalized offerings, which in turn is a trend that has been driving the beauty industry for several years now.

The three main aspects of beauty tech encompass personalization through AI, virtual makeup using AR and VR, and smart skincare tools/beauty gadgets.

Personalization through AI

Across the retail sector, the key to consumer’s heart and pockets for a long time has been personalization of products and sales experience. Beauty industry is no exception. Consumers have been looking for the perfect skincare product that work best for them or the lipstick shade that goes perfectly with their skin tone. Moreover, consumers want this all from the comfort of their home. This is where AI comes in.

Through retail kiosks and mobile apps, AI enables companies to offer personalized shade offerings that are especially curated for the individual user. A number of companies is investing and capitalizing on this technology to differentiate themselves in the eyes of the consumer. One of the leading market players in the beauty industry, L’Oréal, has been one of the first companies to invest in AI- and VR-based beauty tech and acquired Toronto-based, ModiFace, in 2018. There are several different ways companies, such as L’Oréal, have incorporated AI into their product offerings.

Beauty Tech Giving Beauty Industry a Facelift by EOS Intelligence

Lancôme (a subsidiary of L’Oréal) has placed an AI-powered machine, called Le Teint Particulier, at Harrods and Selfridges in the UK, which creates custom-made foundation for the customer. The machine first identifies ones facial color using a handheld scanner, post which it uses a proprietary algorithm to select a foundation shade from 20,000 combinations. Following this, the machine creates the personalized shade for the user, which can then be bottled and purchased.

In addition to physical store solutions, AI-powered apps and websites also offer consumers personalized recommendations. In 2019, L’Oréal applied ModiFace’s AI technology to introduce a new digital skin diagnostic tool, called SkinConsult, for its brand, Vichy. The AI-powered tool uses more than 6,000 clinical images in order to deliver accurate skin assessment for all skin types. It analyzes selfies uploaded by users to identify fine lines, dark spots, wrinkles, and other issues, and then provides tailored product and routine recommendations to the user to address the skin concerns.

My Beauty Matches, a UK-based company, offers AI-based personalized and impartial beauty product recommendations and price comparisons. The website asks consumers diagnostic-style questions about their skin and hair type, concerns, and preferences, and uses AI to analyze the data and recommend products from 400,000 products (from about 3,500 brands) listed on its website. Alongside, the company runs Beauty Matches Engine (BME), which is a solution for beauty retailers using consumer data and AI algorithms to identify consumer purchasing and browsing patterns as well as their preferred products by age and skin or hair concerns. This helps retailers predict and stock, which product the consumer is likely to purchase, improving sales, increasing upsells, and providing a personalized solution to customers.

On similar lines, another app, Reflexion, uses AI to measure the shininess of skin through pictures and offers personalized product recommendations. The app claims to provide much deeper analysis than regular image analysis apps and provides additional features such as testing if products such as foundation are evenly applied. The app works by measuring a face surface’s Bidirectional Scatter Distribution Function (BSDF), which is a measure of light reflected on the user’s face.

Nudemeter is another such product, which uses AI to personalize makeup choices and foundation shades for a full spectrum of skin tones, including darker skins. The app uses color analysis and digital image processing along with its AI algorithms that ensure accurate color measurement irrespective of background lighting, pixels, etc. The app is currently being used by Spktrm Beauty, a US-based niche beauty company targeting shoppers with dark skin.

Virtual makeup through AR and VR

In today’s world where consumers prefer to shop from the comfort of their homes, AR and VR are enabling beauty companies to provide experience similar to that of physical retail to their consumers. AR and VR technologies-based apps let users experiment virtually with a range of cosmetics by allowing them to try several different shades, all within minutes and through their smartphone. This elevates the users shopping experience and improves sales conversion.

Sephora’s Virtual Makeup Artist enables customers to try on thousands of shades of lipsticks and eyeshadows through their smartphones or at kiosks at Sephora stores. While many such apps and filters have been in use for some time now, they are increasingly becoming more sophisticated, providing accurate color match to the skin and ensuring the virtual makeup does not move when the user shakes their face, changes to a side angle, etc. In addition, such apps also provide digital makeup tutorials to engage customers.

On similar lines, L’Oréal uses ModiFace’s AR and AI technology to provide virtual makeup try-on on Amazon and Facebook. The technology enables customers using these two platforms to try on different shades of lipsticks and other make-up products through a live video or a selfie from an array of L’Oréal brands such as Maybelline, L’Oréal Paris, NYX Professional Makeup, Lancôme, Giorgio Armani, Yves Saint Laurent, Urban Decay, and Shu Uemura.

Moreover, AR-based try-on apps helped brands connect with their customers during the previous year when most customers were stuck home and could not physically try on make-up. LVMH-owned Benefit Cosmetics has been investing in AR tech, and launched Benefit’s Brow Try-On Experience program (along with Taiwanese beauty-tech company, Perfect Corporation), which helps online shoppers identify the right eyebrow shape and style for them and then choose products accordingly. The company uses facial point detector technology for the program. The app witnessed a 43% surge in its daily users during April and May of 2020 (as compared with January and March 2020), when people were confined to their homes owing to the COVID outbreak. This helped connect with consumers in a fresh manner and increased brand loyalty. Moreover, Benefit claims that brows products have been their strongest category post-COVID outbreak.

One of China’s leading e-commerce players, Alibaba, also partnered with Perfect Corporation to integrate the latter’s ‘YouCam Makeup’ (an AR-based virtual makeup try-on technology) into Alibaba’s Taobao and Tmall online shopping experience.

Smart devices

In addition to AI and AR based apps and solutions, smart devices is another category in the beauty tech space that is gaining momentum. A certain section of premium consumers are increasingly open to invest heavily into smart beauty gadgets that not only improve skin and hair quality but also help them quantitatively measure the results from using a certain product. While these products are currently expensive and for a niche audience, they have been gaining popularity, especially across the USA and China.

One such smart skincare device is L’Oréal’s Perso, which is based on ModiFace’s AI-powered skin diagnostics and analysis technology. Perso uses AI, location data, and consumer preferences to formulate personalized moisturizer for the consumer. The product is further expected to extend into foundations and lip shades. Perso is expected to be launched in 2021.

On similar lines, in July 2019, Japan-based Shiseido, launched its smart skincare device called Optune, which measures a user’s location-based weather and air pollution data, sleep data, stress levels, and menstrual cycles to create a custom moisturizer. Optune is available on a subscription basis and costs about US$92 per month.

In 2020, P&G also launched a premium skincare system, called Opte Precision. The skincare device uses blue LED light to scan one’s skin and applies a patented precision algorithm to detect problem areas and analyze complexion. Post this, the device releases an optimizing serum that is applied to spots to instantly cover age spots, pigmentation, etc., and to fade their appearance over time. The device has 120 nozzles and works on a technology similar to that of a thermal inkjet printer. The device targets a premium niche audience and costs US$599 with refill cartridge costing US$100.

In 2018, Johnson & Johnson’s drugstore skincare brand, Neutrogena, also launched a smart skincare device – a skin scanner, called Skin360 and SkinScanner, which uses technology from FitSkin (a US-based technology company). The scanner comes in the form of a magnifying camera that gets attached to a smartphone. The camera, which has a 30-time magnifying power helps scan the size and appearance of one’s pores, size and depth of fine lines and wrinkles, the skin’s moisture level, and also provides a score to the skin’s hydration level. The data is processed in a mobile app, which in turn provides a complete skin analysis and offers expert advice and product recommendations. While most smart skin devices are relatively expensive, this one retails at around US$50.

EOS Perspective

While AI and AR have been embraced by a lot of industries in the past, beauty tech is still in its infancy. That being said, there is a lot of potential in the space, especially with the consumer becoming increasingly comfortable with technology. While till recently, most technology-based products in the beauty sector were gimmicky and more for fun and consumer engagement, brands have started taking this space seriously, and started launching products that offer real sales growth opportunity.

Moreover, while AI and AR-based technologies have been accepted fairly easily by the consumers and industry players alike, smart devices is still a very niche category, with most products focused on a niche affluent clientele, who are willing to spend more than US$100 on products that may help improve their skin. There is a lot of potential for this segment to innovate, collaborate, and launch products at a more affordable price point in order to reach the masses.

Over the next couple of years, we can expect new niche players, exploring the benefits of beauty tech to enter the market in addition to greater number of partnerships between traditional beauty giants and technology companies. As personalization continues to be the mantra for consumers, beauty companies cannot look to ignore the space in the coming future.

05/08/2021by EOS Intelligence EOS Intelligence No Comments

Industry Game for Diversifying Monetization Pathways

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Currently, gaming industry is believed to be bigger than any other popular entertainment mediums such as films and music. IDC estimated that global gaming revenue reached US$180 billion in 2020. Another research firm, Newzoo, indicated that global gaming industry generated US$159.3 billion in revenue in 2020. On the other hand, the global film industry surpassed US$100 billion in revenue for the first time in 2019 according to the Motion Picture Association. And, as per MIDiA Research (a firm specializing in digital content research), global recorded music industry generated US$23 billion in 2020.

Gaming industry has been on a continuous growth trajectory

Gaming industry has enjoyed a steady growth in the past few years with increasing its reach by each year. As per Newzoo’s analysis, the number of gamers increased from 2 billion in 2015 to 2.7 billion in 2020, indicating annual growth rate of over 6%.

Games are generally played through mobile devices, personal computers, or gaming consoles. In 2020, 2.5 billion were playing games on mobile devices (including games played via smartphones and tablets), 1.3 billion on personal computers, and 0.8 billion using consoles. Mobile gaming was the largest revenue segment in 2020, accounting for nearly half of the total gaming industry revenue, followed by gaming on consoles and PC which represented 28% and 23% of the market share, respectively. These estimates are from Newzoo Global Games Market Report 2020 which was based on a survey of 62,500 people from 30 countries (representing more than 90% of the global games industry revenue) conducted between February and March 2020.

Gaming on smartphones generated US$63.6 billion in annual revenue in 2020, recording 13.3% growth over previous year. Increasing number of smartphone users and improving internet connectivity are driving growth in this category. Gaming on tablets generated US$13.7 billion, indicating a moderate growth of 2.7% over previous year.

Mobile gaming has seen unprecedented growth due to coronavirus outbreak. According to Sensor Tower, a research firm providing insights on mobile app ecosystem, global downloads of mobile games from Google Play and iOS App Store totaled 28.5 billion in the first half of 2020, an increase by 42.5% as compared with the same period in 2019.

Newzoo’s analysis concluded that console gaming generated US$45.2 billion in 2020, representing 6.8% growth compared with 2019. While there was an increased demand for gaming consoles amidst coronavirus outbreak as more people turned to games due to stay-at-home restrictions, the manufacturing and distribution of gaming console providers were affected because of global supply chain disruptions, and as a result, the increase in demand for gaming consoles could not be met. For instance, Sony sold 118,085 PlayStation 5 consoles within four days of its launch in November 2020, but this figure was approximately one-third of the volume of PlayStation 4 sold over its launch weekend in November 2013. PlayStation 5 consoles were in high demand and were sold out within minutes after being made available in retail outlets. In October 2020, Sony’s Chief Financial Officer indicated that the company was not in capacity to fulfil pre-orders for PlayStation 5 consoles because of supply chain bottlenecks created by coronavirus outbreak.

PC games, including browser-based as well as downloaded versions, clocked US$36.9 billion in annual revenues in 2020, representing 4.8% year-on-year growth. Though PC games market is not declining, it shows the smallest growth compared with other categories, mainly because there is more deflection towards mobile gaming which is comparatively more convenient and less expensive.

Further, the number of gamers worldwide is expected to cross over 3 billion mark in 2023 contributing nearly US$200 billion in annual revenue for the global gaming industry.

Gaming Market Breakdown by Region

Asia Pacific

North America

Other Regions

Asia Pacific represents the largest gaming market with a total of US$84.3 billion in annual revenues in 2020.

China, Japan, and Korea are among the top five revenue generating countries worldwide. In 2020, China’s gaming industry raked in about US$41 million in annual revenues, while gaming industry in Japan and Korea recorded annual revenue of US$18.7 million and US$6.6 million, respectively.

North America represents the second largest gaming market which generated about US$45 million in annual revenue in 2020.

The USA, the second largest gaming market worldwide by revenue, accounted for majority of the share of the North America gaming market, with about US$37 million in annual revenues in 2020.

Europe was the third largest gaming market with revenue of US$32.9 billion for 2020, followed by Latin America in the fourth place, with revenue of US$6.8 billion.

MENA represented the smallest region in terms of revenue with US$6.2 billion.

With rising popularity and wider reach, gaming industry looks to unravel multiple monetization strategies

Historically, gaming used to be an entertainment medium for a niche segment, mainly gaming enthusiasts and children or teenagers. At the time, ‘game-as-a-product’ was a go-to monetization strategy for most game developers, where gamers paid one time to purchase the physical or digital copy of the game.

Today, however, gaming attracts a much wider audience, enticing people from every age group. Business strategy has also evolved from upfront-based revenue model to ongoing-based revenue model where game developers seek monetization avenues from various transactions during the lifetime of a game. For instance, retail sales of Ubisoft (a French gaming company) were 98% of total sales revenues in 2010, and in 2019, this was less than one-third of the total revenue. Gaming companies today are increasingly looking to diversify their monetization avenues beyond upfront retail sales.

The most widely used monetization strategies nowadays include:

In-game purchases

In-game purchases refer to virtual items such as new features, functionality, upgrades, aesthetic elements, or content that gamers can buy to enhance their gaming experience. Newzoo estimated that in-game purchases accounted for nearly three-fourth of the global gaming revenue in 2020.

While in-game purchase seems to be a good monetization strategy, it also involves high cost to acquire paying users. Based on analysis of 992 apps between September 2018 and August 2019, Liftoff (a mobile app marketing firm) found that game developers spend an average of US$86.61 to acquire a user who will make in-app purchase. Moreover, the median average revenue per paying user for free-to-play games was estimated at US$6. However, there was high variance in the amount spent by the gamers and a small set of gamers, who were grossly engaged in games, expectedly spent US$35 to US$70 per day, thus creating high returns for the game developers.

In-game ads

In-game ads is a widely used monetization strategy, especially for free-to-play games. According to a report released in June 2020 by Omdia (a UK-based technology research firm), worldwide game developers earned revenue of US$42.3 billion in 2019 through in-game ads. Based on analysis of top 1,000 games by downloads by App Annie (app analytics company), 89% of them used in-game ads as one of the revenue streams.

As per a 2019 survey of 284 game developers conducted by deltaDNA (a consultancy firm for gaming industry), 94% of the free-to-play mobile games carried in-game ads. Rewarded ads are most popular: 82% of game developers in the deltaDNA survey indicated that they deployed rewarded video ads, compared to interstitial video ads (57%) and banners (34%).

As per the same survey, 30% of game developers showed more than five ads per gaming session. While in-game ads seem like a lucrative monetization opportunity, there is also a risk of affecting gaming experience and thus loosing gamers’ interest. deltaDNA survey suggested that display of too many ads might result in gamer churn (30%), affect gamers’ playing experience (27%), and scare off potential gamers that might be willing to spend on in-game purchases (16%). Hence, game developers need to strike a balance and control the frequency of ads.

Subscription

Witnessing the success of subscription streaming service such as Netflix and Hulu, many game developers have started exploring subscription-based model generating regular revenue stream.

Console gaming companies have been diving into the subscription model for a few years now, for instance, Sony’s PlayStation Now offers on-demand streaming of PlayStation games for a monthly subscription of US$9.99 in the USA. Some of the leading mobile and PC game developers also offer subscription service, for example, Uplay Plus by Ubisoft and EA Play by Electronic Art (creators of world-renowned FIFA game). Subscription-based model is more suitable for large gaming companies who have multiple games under their umbrella, thus offering a wide selection range to the gamers.

Based on a survey of 13,000 people in 17 countries between May 2020 and June 2020, Simon-Kucher (a global consultancy firm) suggested that over one in three gamers opted for at least one gaming subscription. Moreover, hardcore gamers who typically dedicated more than 20 hours per week on gaming would spend US$19 to US$40 per month on gaming subscription service, and casual gamers who played fewer than five hours per week were willing to shell out US$10 to US$30 for monthly subscription.

Gaming industry ecosystem is expanding with advent of new services

As gaming is more and more perceived as mainstream entertainment, there is an increased effort to capitalize on the industry’s wider reach, thus giving birth to eSports and games streaming services. Moreover, with increased demand from gamers to reduce reliance on hardware and access their favorite games anytime anywhere, advancement of cloud gaming service is encouraged.

eSports

eSports includes games played in highly organized competitive environment. As per estimates of Valuates Reports, an India-based research firm, the global eSports market was valued at US$692 million in 2019 and it is expected to reach US$1.9 billion by 2026.

eSports demand cross-industry collaboration including key players such as eSports organizations, tournament operators, digital broadcasters, etc. eSports offer monetization opportunities through advertising and sponsorships, media rights, ticket sales, merchandise sales, as well as in-game purchases.

Game streaming services

Game streaming services allow live broadcasting of gaming sessions by players. Game streaming services have been welcomed by the community of gamers as a medium to learn, connect, and get entertained.

Gaming video content was valued at US$9.3 billion with a viewership of 1.2 billion in 2020. The content may include pre-recorded or live gaming sessions by individuals as well as live broadcasting of eSports events. Game streaming service segment has particularly seen high involvement from Tech giants. Amazon’s Twitch and Google’s YouTube Gaming are the top two players in this space with annual revenue of US$1.54 billion and US$1.46 billion, respectively, in 2019.

Cloud gaming services

Newzoo projects cloud gaming to grow from US$585 million in 2020 to US$4.8 billion in 2023. Cloud gaming ecosystem typically includes game developers, cloud gaming platforms, as well as content service providers. Google launched its cloud gaming platform ‘Stadia’ in November 2019. For a monthly subscription fee of US$10, Stadia offers access to 152 games. Microsoft launched cloud gaming platform xCloud for its Xbox user base in September 2020. China-based gaming giants Tencent and Netease started beta testing of their cloud gaming platforms in 2019.

A Deloitte survey of over 2,000 US customers conducted between December 2019 and May 2020 indicated that 23% of gaming respondents were multiplatform players, playing games via all three mediums, i.e. mobile, console, and PC. Cloud gaming services could offer good value proposition for these gamers which look for seamless play between platforms.

EOS Perspective

As mobile gaming started to gain more traction, there is an increasing demand for casual games which target mass audience. As per analysis of top 1,000 games by downloads in 2019, casual games accounted for 82% of all game downloads, and remainder were hardcore games. Casual games are for on-the-go fun, which requires less time and low skillset, while hardcore games demand high commitment from the gamers who willfully spend comparatively more time and money on gaming.

Usually, casual game developers prefer ad-supported business model. Since these games require low skills, attracting masses, they are likely to generate more revenue through in-game ads than in-game purchases. As the level of skill set required goes up, a hybrid monetization model is preferred. Beyond that, the main monetization method is in-game purchases, especially for role-playing and strategy games which demand gamer’s higher engagement.

The role of gaming is evolving from a medium of entertainment to a social engagement platform. Games such as PUBG enables social interaction and networking as it allows to connect with different players and chat with people in the game. As per Sensor Tower, PUBG was the highest-grossing mobile game globally in 2020, earning US$2.6 billion in annual revenues. Rising popularity of such games shows how the gaming culture is transforming and pushing game developers to design games allowing players to socialize within the virtual environment.

‘Cross-play’ is another interesting trend which is likely to be the way forward for gaming industry. In September 2018, Fortnite became the first game to allow cross-play between mobile, PC, and all major consoles (Microsoft XBOX, Nintendo Switch, and Sony PlayStation). Between March 2020 and June 2020 more than 60% of Fortnite players paired up with a player from another platform to cross-play. The average monthly revenue-per-user who cross-played Fortnite was 365% higher than non-cross-players.

Multiplayer gaming is becoming a cultural phenomenon, and thus, the industry needs to focus on offering easy on-demand access and development of platform agnostic games.

20/08/2020by EOS Intelligence EOS Intelligence No Comments

Beyond the Low-cost Price Tags – the Real Price of Fast Fashion

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Gone are the days when consumer bought a pair of jeans and wore it for years. Fast fashion culture has conditioned consumers to expect a constant stream of new clothing that feeds their desire to buy more in order to keep up with the changing trends. Owing to fast fashion, affordable clothes are being manufactured at a warp speed, worn, and quickly discarded, making clothes disposable commodities rather than keepsakes. About 100 billion clothing items are manufactured globally each year and consumption has increased by 400% in the last two decades. Fast fashion has undeniably democratized high fashion by providing affordable apparel for everyday shoppers but it comes at an enormous cost, not reflected in its bargain-basement price tags.

Fast fashion is the fashion now

Selling large quantities of inexpensive clothing has made fast fashion a dominant business model in the garment industry. Another reason for its popularity is the taste of luxury clothing that it offers to shoppers without paying the full price. Fast fashion brands, such as Zara and H&M, are able to produce low-cost mimics of high-end fashion brands. The moment a model walks down the ramp wearing clothes of luxury brands such as Louis Vuitton, fast fashion brands mass produce replicas of a similar design and sell them at astonishingly low prices.

While established luxury clothing brands take months to design and distribute a clothing item, Zara is able to design, produce, market, and distribute a new piece of clothing to its stores located across 93 countries in mere two weeks. This enormous efficiency in producing mass clothing at an economical format provides an edge to fast fashion companies that traditional clothing brands will always struggle to replicate.

Fast fashion has transformed dynamics of the whole fashion industry, changing the traditional four-season fashion calendar to 52 micro-seasons. Fast fashion companies such as Missguided launch about 1,000 new products monthly, while Fashion Nova rolls out 600 to 900 new styles every week.

The blindingly fast pace at which clothes are being manufactured and discarded has its consequences. The manufacturing process is environmentally damaging and speedy supply chains depend on underpaid and overworked factory workers.

Environmental cost of fast fashion

The environmental menace linked to manufacturing and consuming fast fashion is hidden across the lifecycle of each piece of clothing. The production process is tremendously polluting to begin with, as factories indiscriminately dump toxic chemical-laden wastewater into rivers and tonnes of greenhouse gases are emitted while manufacturing – about 1.2 billion tonnes of CO2 is emitted annually by the global textile industry, which is more than aviation and shipping industries combined.

Even the choice of fabric for manufacturing fast fashion garments is posing environmental risks. Proportion of synthetic materials, such as polyester in our clothing has increased two-fold since 2000, rising to 60% in 2019. These fibers are oil-based and a single polyester shirt has 5.5 kg of carbon footprint, as compared to 2.1 kg from a cotton shirt. Moreover, polyester generates vast amounts of greenhouse gases, sheds microfibers that cause plastic pollution in oceans, and when disposed, it does not naturally decompose, compounding the waste problem.

A major ramification of fast fashion is that clothes move from consumer’s wardrobes to garbage as fast as they are manufactured. It is likely that within 7-8 uses, a jeans or shirt would be discarded for clothing that is newer and trending. The shorter lifespan of garments is not only generating enormous amount of waste but is also putting strain on production resources such as water that is extensively used in the manufacturing process.

Globally, about US$ 400 billion worth clothing is discarded prematurely and 21 billion tons of textile is sent to landfills annually. The ecological cost associated with these garments is tremendous – 3,000 liters of water is required to manufacture one cotton shirt and a pair of jeans needs about 8,000 liters of water, almost the amount of water an average person drinks over two years is utilized in production of garments that will be quickly discarded.

Social cost of fast fashion

With rise of globalization, supply chains have become international, which has led to increased outsourcing of textile production to countries that offer low-cost labor. Fast fashion’s low price tags largely depend on even lower production costs. Hence, countries such as USA produce only 3% of its garments, while the rest is outsourced to developing countries, such as Bangladesh, India, Vietnam, etc.

Low-cost production means factory owners need to cut down costs, which is usually done at the expense of safety and results in providing appalling working conditions for factory workers. Fast fashion production uses 8,000 synthetic chemicals, several of those chemicals are carcinogenic affecting health of factory workers. Moreover, workers are constantly exposed to fumes of toxic chemicals, which pose serious threat to their lives.

Fast fashion frenzy has led retailers to indulge in unfair labor practices in an attempt to keep production costs low and simultaneously increase production. About 85% of textile factory workers are women, who work overtime and are highly underpaid. Lack of regulation has given way to exploitation of labor in countries such as Bangladesh, where retailers pay as little as US$ 2-3 per day to garment workers, a larger portion of them are engaged by fast fashion brands. Even in developed economies such as the USA, companies such as Fashion Nova have been found to pay employees far below the minimum wage – the brand was reported to pay US$ 2.77 an hour to its workers in Los Angeles.

Additionally, cases of child labor have been registered in countries including Bangladesh, Brazil, China, India, Indonesia, Philippines, Turkey, and Vietnam.

A move towards sustainable production

In the past decade, changing consumer attitudes associated with sustainability and corporate transparency have propelled fast fashion retailers to rethink impact of their production processes.

Notable steps have been taken by some of the largest fast fashion brands such as Zara and H&M. Zara aims to use 100% organic, sustainable or recycled material in its clothing line by 2025. Also, it has plans for its facilities not to produce any landfill waste by 2025. Currently, Zara has a sustainable clothing collection, Join Life, which uses sustainable raw materials such as organic cotton, tencel (cellulose fiber), or recycled polyester.

H&M also has a similar vision of using 100% sustainably sourced or recycled materials in its garments. It also aims to reduce water consumption and CO2 emissions in production processes. The company already has a clothing line, Conscious, which uses sustainable materials for manufacturing garments.

Both companies also claim to be striving to provide better working conditions for workers and pay fair wages.

EOS Perspective

Thanks to fast fashion, for many consumers, what used to be a thoughtful and occasional purchase, has turned into a series of impulse buys at shorter intervals. The rate at which garments are being produced is not environmentally sustainable and putting profits ahead of workers’ welfare has led to abuse and exploitation of laborers globally.

Fortunately, the number of eco-conscious consumers is on the rise, a fact that has pushed fast fashion retailers to reevaluate strategies and focus on sustainable production. However, a question still remains how much of those sustainability pledges and greener production goals actually hold true.

Can fast fashion really be sustainable?

The fundamental problem lies in the business model of fast fashion that is based on selling more products. The industry’s profitability hinges on luring consumers to fresh stream of new clothes and designs that are launched almost weekly. A business model that is based on over-production is far from being sustainable.

Fast fashion companies are often criticized for greenwashing and distracting consumers from their harmful practices. For instance, H&M’s recycle program encourages shoppers to donate their old clothes, which H&M claims to recycle to create new textile. However, only 0.1% of all collected clothing is believed to be actually recycled, while the rest is most likely dumped in landfills. H&M’s clever marketing tactics make shoppers believe that it is a green company, but in reality, H&M offers discount vouchers to shoppers in exchange of their donated clothes, which pushes consumers to buy even more clothes.

Claims made by fast fashion companies on using 100% sustainable fabric have been questioned by various experts and critics, as all fabrics utilize enormous amount of natural resources and energy in the production process. Fast fashion companies might be shifting to fabrics with lower environmental profile but it cannot be completely sustainable, as claimed.

Moreover, H&M and Zara’s sustainable clothing lines, Conscious and Join Life, have been called out for misleading consumers with vague sustainability claims. It is unclear to consumers why these companies are labelling their clothing lines as sustainable. The companies have never defined terms such as ‘sustainably sourced’ or ‘sustainable materials’, used to describe their clothing lines. Hence, it is ambiguous how they source the materials, what is meant by sustainable materials, and what portion of garments they actually constitute.

While making an effort to use environmentally-friendly materials is definitely a step towards better production practices, it is not enough to compensate for the overall damage that fast fashion companies impose on the environment, hence, consumers also need to do their part.

Time to slow the fast fashion

Fast fashion thrives because companies create demand for clothing. To curb this demand, consumers need to make changes in shopping behavior to reduce their own environmental footprint.

A conscious choice needs to be made to purchase less clothes and to use the existing ones for longer time period. Solely wearing a garment for nine months longer can reduce carbon footprint of that garment by 30%.

Buying used clothes is another way to reduce environmental impact. Wearing used garments is a sustainable way to recycle clothes which would otherwise be discarded in landfills. If every shopper purchased one used item in a year, it could save CO2 emission equivalent to pulling out half a million cars from roads for a year.

Nonetheless, if consumers make mindful choices and fast fashion brands commit to doing business differently, we would be able to produce and consume less.

05/05/2020by EOS Intelligence EOS Intelligence No Comments

Influencer Marketing Redefining the Fashion and Beauty Industry

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Social media users are increasingly reliant on and influenced by what they see online, particularly, when it comes to marketing done by fashion and beauty brands. Social media provides immense marketing opportunities to the fashion and beauty industry by allowing them to closely interact with customers and influence their buying decisions like never before. To tap such opportunities, about 78% of global fashion brands incorporated social influencers in their marketing strategy in 2017, according to a survey conducted by Launchmetrics. Influencers are slowly becoming an integral part of marketing campaigns for fashion and beauty brands – for high-end brands such as Becca Cosmetics and Yves Saint Laurent, as well as affordable brands such as Maybelline, for whom influencers have been pivotal in driving sales.

Why beauty and fashion brands are adopting influencer marketing?

In the past, to launch new collections or promote products, fashion/beauty brands invested heavily in celebrities and television models gracing magazine covers, billboard and television advertisements, among others. These efforts were effective but as technology progresses, fresh marketing tactics are born. While most of the traditional forms of advertising are still being used, brands have started to realize how laborious it is to employ traditional methods in promoting products, hence, majority of brands are going digital and starting to work with influencers.

How influential is influencer marketing?

Undoubtedly, influencer marketing is one of the fastest growing digital marketing tools, providing unparalleled access to real-time word-of-mouth targeting. For marketers, today’s social media influencers are yesterday’s celebrities and socialites, only with a more persuasive voice and greater power to reach audiences.

Beauty and fashion industry has understood the power of influencer marketing quite well. Cosmetics brands such as Smashbox have completely abandoned the use of traditional print media for advertising while luxury cosmetics companies such as Estee Lauder have significantly reduced spending on traditional media to focus on digital.

Fashion and cosmetics brands are using various types of influencer campaigns to promote products, foster brand awareness, and boost sales. For example, Maybelline (an American cosmetics company) in China used the influence of beauty bloggers and 50 celebrity influencers to do a 20-minute livestream video for a newly launched lipstick in 2016, which led to sales of 10,000 lipsticks in two hours.

On the other hand, Olay (an American skincare company) introduced a skincare campaign, Olay 28-day Challenge, which urged influencers to document their four-week experience of using company’s products while updating their followers simultaneously across various social media platforms. Influencers also gave away free samples and offered discounts to followers to encourage them to buy the products to join the skincare challenge. In 2018, the campaign was able to increase engagement rate by 20% and there was a significant increase in Google searches for the brand name.

There is no end to innovative social media campaigns that brands are launching. For example, in 2018, H&M (A Swedish clothing retail company) engaged in conversation with consumers on Instagram to come up with new designs for its brand Nyden, which is targeted at millennials. H&M worked with nine influencers, who used Instagram stories’ polling feature to understand followers’ preferences for certain designs, such as using zippers versus buttons, among others. Over a period of two weeks, the polls attracted more than 425,000 viewers and generated 35,000 votes.

For brands such as Fashion Nova (an American fast fashion retail company), with 14 million Instagram followers and ranked as the most Googled fashion brand of 2018, marketing through Instagram has been pivotal in its rapid ascent in the fashion industry. Fashion Nova is known for betting big on Instagram and use of celebrity influencers – as of December 2018, the company had worked with 3,000 influencers on Instagram. Using celebrity influencers, it claims to have generated sales up to US$ 50,000 per post and selling out a whole collection of clothing line within 82 minutes. With about 20 to 30 posts per day on Instagram, Fashion Nova knows how to keep its audience engaged and generate brand awareness.

What challenges are obstructing growth?

Influencer fatigue

Influencer marketing is not as impeccable as it sounds to be. With more and more businesses adopting influencer marketing, threat of influencer fatigue increases, which could result in disengaged audiences and reduced impact. According to a study conducted by Bazaarvoice in 2018, about 47% respondents claimed to be fatigued with repetitive influencer posts on Instagram.

Promotional content is already beginning to clutter consumer’s news feeds. With beauty and fashion influencers recommending every other product that enters the market, audiences will eventually lose trust in them, feel disengaged and overwhelmed. Consumers, after some time, are bound to get tired of having their buying behavior manipulated. Just like people started using ad-blockers when websites became loaded with advertisements, there’s a probability that they may also turn away from beauty/fashion influencers.

Absence of standard metrics/parameters to determine success of campaigns

There is uncertainty regarding what constitutes a successful influencer marketing campaign and how to calculate ROI on marketing spend. Beauty and fashion companies are unable to accurately calculate profitability of influencer campaigns. According to a study published by Celebrity Intelligence in 2018, 46% of respondents (from the beauty industry) faced challenge in evaluating ROI of an influencer collaboration.

Driving purchases is not always the key objective of influencer marketing, rather it focuses on softer goals like growing brand awareness or boosting engagement, which makes ROI far more complex to determine.

Influencer marketing does not guarantee results in terms of sales, brand reach, or number of clicks. No standard metrics have been set for the industry to measure success, instead brands end up speculating whether the campaign was successful or not. Some beauty and fashion companies monitor the comments or number of likes on the posts, while others determine views on videos or track campaign hashtags, all of which are not very effective methodologies.

Fraudulent practices

Much like other industries, beauty and fashion market has also fallen prey to influencer frauds. According a report published Points North Group in 2018, cosmetics/skincare companies suffered losses due to fraudulent engagement – 46% of Raw Sugar Living’s influencer marketing budget was squandered on fake followers, Clarins lost 45% of its budget on influencer frauds, while L’occitane blew 24% of its budget, among various others. Such deceitful practices have taken a toll on marketers, who invest in influencers to drive brand awareness and sales, but their campaigns fail to reach the actual target audience.

Another inauthentic social media activity plaguing the beauty and fashion industry is staging fake promotional posts by aspiring influencers. Companies want to see promotional abilities and references of past campaigns of influencers before hiring them to do paid sponsored posts. Hence, aspiring influencers, particularly from the beauty and fashion industry, have started to publish posts with brand hashtags and captioning it in a manner such that it seems to be a promotional or sponsored content. While this leads to free publicity for brands but most of them complain that this also results in inferior quality sponsored content posted without approval, which could harm brand’s reputation.

EOS Perspective

If there is any market that qualifies to be an early adopter of influencer marketing, it is the beauty and fashion industry. It is an extremely dynamic industry and to stand out from competitors, brands need to constantly evolve, be creative, and promote products extensively – all of which is easily achieved through influencer marketing.

Equipped with social media savviness, influencers have the power to eloquently persuade consumers to make purchases. There is no limit to the creativity that they bring to the table – fashion/beauty influencers design compelling marketing campaigns for the brands by reviewing products, conducting polls and contests, offering huge giveaways, sharing their experiences of using products through videos or photographs, attending events organized by brands and promoting such events, among various other tactics.

Is influencer marketing here to stay?

There is no doubt that influencer marketing is becoming the mainstay of beauty and fashion industry, far from a passing fad. The personal nature of influencer campaigns is one of the reasons why it is proving to be effective for the beauty and fashion industry. According to a survey conducted by Celebrity Intelligence in 2018, 98% of beauty companies believed that influencer marketing is effective for the industry while 68% thought beauty segment has a natural affinity with influencers. Even though difficult to calculate, surveys have determined that influencer campaigns could also provide high ROIs – for every US$1 spent on influencer marketing, brands received average ROI of US$10.7 in 2017. Fashion and beauty brands have gauged the power of social media and know that with the right influencer endorsing to the right community/audience, it can translate into clicks, conversions, and actual sales.

Find out more about drivers and challenges in influencer marketing adoption here

For fashion and beauty brands, influencer marketing has become a multi-million-dollar investment, with considerable portions of their budgets dedicated to influencers. For example, Estee Lauder (a US-based cosmetics company), in 2019, revealed that 75% of its marketing budget will be spent on digital marketing, particularly on influencers, while Shiseido (Japanese multinational personal care company) increased its influencer marketing budget by 50% in 2019. On the other hand, in February 2019, Benefit Cosmetics (a US-based cosmetics company) formed an in-house dedicated influencer agency in the UK to streamline influencer marketing operations and manage influencer relationships. In the future, it plans to expand the in-house influencer agency to other locations as well.

Undoubtedly, influencer marketing has dramatically changed the fashion and beauty industry, by allowing real people to narrate a brand story, demonstrate product, and provide honest and credible product reviews. In order to make it a sustainable marketing strategy, measures are being taken to overcome some of the existing challenges. In pursuit to engage with authentic influencers, beauty brands are adopting more sophisticated, data-led approach to selection process. According to Celebrity Intelligence survey, in 2018, about 67% of beauty brands identified social media analytics (including audience insights and engagement metrics) useful to choose authentic and suitable content creators.

Another ongoing challenge is to accurately determine success of campaigns, which some companies (including lifestyle and cosmetics brands such as Daniel Wellington, L’Oréal, and Olay) are tackling by providing influencers with a unique URL or a discount code, which followers can use and brands can easily track conversions. If the campaign does not entail discounts, various metrics can be used to evaluate ROI such as traffic driven, social reach, social media impressions, engagement rate, cost per impression, and cost per engagement, among others.

Nonetheless, opportunities that influencer marketing provides for the beauty and fashion industry outweigh all downsides. While brands have achieved success with sponsored posts and brand hashtags on social media, there is still a lot more for them to explore and innovate through influencer marketing.

16/04/2020by EOS Intelligence EOS Intelligence No Comments

Influencer Marketing: A Powerful Marketing Tool on the Rise

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Influencer marketing, until fairly recently a new marketing tool, is now on the frontier of becoming a mainstream marketing channel. The real, relatable, and reaction-stimulating content created by influencers, distinguishes this form of marketing from traditional marketing channels. Influencer marketing offers effective means for brands to communicate and engage with customers on social media, a fact that is driving its popularity. Laden with potential to drive sales and grow brand awareness, the influencer marketing market is likely to reach US$22.3 billion by 2024. However, certain challenges do exist in the market, and if not addressed, they can potentially hinder market growth.

Influencer marketing started shaping up around 2005 with mere video blogs on YouTube, but quickly grew in prominence as marketers took notice of its potential. Growing at a CAGR of 28% between 2019 and 2024, the industry is becoming a marketing mainstay for brands across various markets. This is driven by the fact that influencers generate a sense of proximity with their audiences, which helps in molding their shopping behavior under discrete suggestions and recommendations.

What is driving adoption of influencer marketing?

Consumers, especially millennials, are embracing a different approach to making purchasing decisions. Consumers are relying on Instagram models, Twitter personalities, and YouTube influencers to seek recommendations or to understand which brand or product is trending in the market. This has resulted in brands endorsing products through various social media channels using influencers.

Moreover, it is a proven fact that word-of-mouth marketing leads to twice as high sales as paid advertising, and influencer marketing is nothing but a form of word-of-mouth marketing. Studies also suggest that shoppers purchasing product through word-of-mouth have a 37% higher retention rate, another reason why brands want to reach their consumers through influencer marketing.

Additionally, the way that we consume media has changed. Social media boom is slowly driving consumers away from traditional forms of advertising and marketing. More than ever, social channels are becoming means to start a conversation with consumers and build direct relationships with them. With traditional advertising being sidelined by consumers (about 65% of people skip ads posted during or before online videos), influencer marketing has become an integral channel to connect with them.

How have influencers assisted companies to increase sales and grow brand awareness?

Engaging with influencers is proving to be an effective way of getting a sale, hence, brands are investing considerable budgets in influencer marketing. Brands are partnering with influencers to launch various types of innovative campaigns, with primary focus on increasing brand awareness (84%), reaching new audience (71%), and generating sales (64%), according to a survey conducted by Mediakix in 2019.

For example, YouFoodz, an Australian food chain, used Instagram to promote the launch of its 2017 winter menu. It collaborated with 81 influencers, who posted 162 Instagram stories and 176 pieces of content, which reached 1.5 million Instagram users. The campaign was a huge success, generating 70,000 direct engagements and over 500,000 impressions (number of times particular content is displayed, regardless of if it was clicked or not).

Relying on influencer marketing, Bigelow Tea (an America tea manufacturer) was able to showcase healthy aspects of drinking tea and promote its product to a large audience. Influencers incorporated Bigelow tea into their content in various ways. Culinary influencers developed different recipes to use tea in innovative ways, while craft bloggers turned packaging into DIY arts, for example, creating flower pots from the tea packaging. The campaign led to more than 44 million impressions and increased sales by 18.5%.

Further, M&M (a product of US-based confectionary and food company, Mar Incorporated) launched an innovative campaign in 2016 to let audience decide its new peanut flavor (a choice between Honey Nut, Chili Nut, and Coffee Nut) by running a mini-election. It partnered with a television personality and a team of influencers to encourage people to try the flavors and cast their votes. Finally, coffee nut flavor was selected, and the campaign generated 269 million impressions, 216 influencer posts, 14.4 million social engagements, and more than 1 million votes.

Is influencer marketing cost effective?

Influencer marketing has proven to be quite budget friendly, allowing large brands and small start-ups to launch compelling marketing campaigns. Traditional forms of advertising campaigns, through television commercials, magazines and newspaper ads, etc., require substantial investment.

On the other hand, influencer marketing is cost effective and simpler to execute. Companies with limited budget can engage with micro (comprising 1,000-5,000 followers) or nano (comprising less than 1,000 followers) influencers and still achieve remarkable results without spending a fortune.

In fact, according to a study conducted by Takumi, micro and nano influencers can generate high engagement rates – influencer with up to 1,000 followers could generate about 9.7% engagement rate, while influencers with 1,000-4,000 followers could provide 4.5% engagement rate. Micro and nano influencers tend to build strong trust and authenticity, and are relatable to their audience, which enhances their ability to engage an audience. According to a study conducted by Experticity, 82% of consumers have higher probability of listening to suggestions provided by micro influencers than those provided by influencers with large number of followers.

Moreover, surveys have determined that influencer marketing could yield a decent average ROI of US$ 5.20 for every dollar spent, which makes it an appealing option for marketers.

What challenges are hindering growth?

Lack of stringent regulations leading to poor compliance with guidelines

Current regulations and guidelines pertaining to influencer endorsements are not stringent or comprehensive, leading to malpractices. In the USA, the FTC (Federal Trade Commission) requires influencers to provide disclosure in case of sponsored content, however, no fines are applied for violations. As a result, most influencers do not adhere to the endorsement regulations, either due to lack of knowledge or in fear of losing followers. In 2018, out of 800 Instagram accounts from UK, USA, and Canada, only 25% fully complied with local regulations pertaining to sponsored content, according to a study released by Inkifi.

Such misleading conduct on influencer’s part could raise questions on their authenticity and lead to mistrust among their followers, who demand transparency. Moreover, large corporations such as Unilever (a consumer goods company) have strictly refused to work with influencers who indulge in fraudulent activities. Influencers are at risk of losing trust of their followers as well as of companies if they continue to indulge in misleading activities.

Fraudulent engagement

Typically, brands use the number of followers on an influencer’s account to estimate campaign results in terms of ROI, engagement rate, brand awareness, earned media value, among others. To seem more appropriate or popular, some influencers purchase their followers using bots – software designed to automatically like, comment, and share posts, increase views on videos, and inflate number of followers on accounts. Influencers have also started to fake their engagements by joining a community of real users to trade likes and comments. Despite these followers being real people, they are not likely to be interested in influencer’s content. Consequently, brands fail to meet the desired campaign result or reach the target audience.

In 2019, fraudulent activities were estimated to cost brands US$1.3 billion, about 23% of allocated budget for influencer marketing. Fraudulent practices are inhibiting market growth, as brands are increasingly becoming cautious of investing in influencer marketing – as of January 2019, about 53% of brands stated that fraudulent impressions were obstacles to increasing digital advertisement budgets.

EOS Perspective

Influencers are no longer an extra asset to marketing campaigns instead they have become a critical element of storytelling and building direct relationship between brands and customers. Influencers have positioned themselves as authentic gurus rather than simple advertisers, with 92% of consumers making purchasing decision based on influencers’ posts in 2018. Their relentless savviness to promote brands is what keeps audiences engaged and brands coming back for more.

Nonetheless, challenges do persist but the industry is continuously evolving and coming up with solutions. Measures are being taken against inauthentic engagements. Platforms such as Instagram have started to strictly regulate fraudulent activity and began to threaten offenders with fraud penalties, account suspension, and brand reputation damage. Companies have also become mindful and vigilant while engaging with influencers and started to thoroughly vet them to check for fake followers or use of bot to increase followers. On the legal side, a New York Attorney General has stated that selling fake followers on social media will be considered as an illegal activity in the state.

Further, in November 2019, FTC launched guidelines for sponsored content under ‘Disclosures 101 for Social Media Influencers’ that encompasses when and how influencers should disclose their engagement with brands, regardless of whether or not it includes payment. FTC has not made any major changes in the guidelines but the new guide is more user-friendly with abridged language, and photos and videos illustrating the correct way to endorse products on social media.

Find out how influencer marketing is reshaping fashion and beauty industry here

According to the guidelines, when partnering with brands, disclosure is mandatory when there’s a financial, employment, personal, or family relationship with a brand. Disclosure language should be simple and clear, and the disclosure should be hard to miss (for example, disclosures on Instagram are required to be placed at the beginning of the post’s description and before the ‘more’ button). FTC’s aim is to foster transparency in sponsored content by placing more liability on brands and influencers to explicitly reveal their relationship while recommending products.

Influencer marketing has well-established itself in the advertising industry and is moving towards becoming a mainstream marketing channel, and such measures taken by regulatory authorities, social media platforms such as Instagram, as well as the brands will further strengthen its position as a marketing channel. In future, not only will influencer marketing continue to grow in popularity, but is also likely to become a more purposeful and effective way to communicate and engage with audiences. Allured by endless opportunities, brands will continue to collaborate with influencers and the industry is poised to grow.

13/02/2020by EOS Intelligence EOS Intelligence No Comments

Is Sustainability Just Another Buzzword in Food Packaging Industry?

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Sustainable food packaging has recently received an increased attention within the food & beverage sector. Most players try to make sure not to miss any chance of communicating their concern over plastic waste to the general public, showcasing their initiatives taken to curb the waste. Are such initiatives taken out of actual concern or are they just a move to position the brands right in the ‘environmentally-concerned’ market?

It is assumed that packaging is considered sustainable, if it meets three criteria of sustainability. First, it should be economically viable for the consumers as well as the manufacturers. Second, it should be socially acceptable in terms of ease of use, transporting, sorting, and storing. Most importantly, third, the packaging must be eco-friendly through the use of materials that are responsibly-sourced and reusable/recyclable, to reduce the environmental impact of the packaging.

Change fueled by multiple triggers

Food and beverage (F&B) and related packaging industry players have been under a growing pressure to be more transparent and to introduce changes to the way food products are packaged. Considering that a significant share of non-sustainable, non-biodegradable waste, especially plastic, comes from food industry, improving the packaging and transitioning to more eco-friendly solutions is becoming imperative, rather than optional, for increasing number of F&B companies.

At the same time, the pressure to reduce waste and protect the environment from non-biodegradable substances is creating new opportunities for the packaging materials producers and for F&B companies with regards to more relevant brand positioning in this highly competitive industry.

While a lot has been changing in the packaging sphere under the heat from environmentalists and legal requirements introduced by regulators, the role of an aware consumer exerting pressure through product scrutiny and shopping choices should not be underestimated in this process.

According to a report published in April 2019 by Globalwebindex, a market research company, there has been a rise in the number of consumers globally who are willing to pay more for eco-friendly/sustainable products (including their packaging), from 49% in 2011 to 57% in 2018. Consumer awareness is growing fast thanks to governments’ initiatives, educational media, and activists’ social media efforts, all of which have triggered an increased sense of responsibility amongst many consumers, who start to understand the importance of switching to eco-friendly and sustainable packaging.

Increasingly, consumer awareness is going beyond just passive understanding and translates into actions which have a real power to change F&B sector’s approach to food packaging. Consumers vote with their spending dollars and exert pressure by switching their loyalty to other brands, both of which approaches appear to be quite effective. According to the same survey by Globalwebindex, 61% of consumers are likely to switch from their currently-used brands to more environmentally-friendly ones if the latter score better on the environmental friendliness front. This shows that F&B companies really do need to re-think their product and packaging choices and start putting money and effort in sustainable solutions, if not from real concern over the environment, then for retaining consumer trust and maintaining brand values.

Big F&B brands appear to show initiative

The increased scrutiny over F&B companies’ packaging choices has already started bringing some results. Several major players are looking to invest in transforming their packaging materials to sustainable ones. Despite the challenges in bringing innovations into packaging materials and designs, and altering their supply chain, several F&B players are claiming to strive for their sustainability goals. Some claims may surely be genuine but some could possibly be a strategy to get the ‘sustainable company’ tag to stand out from the competition in the F&B industry.

Understandably, players are very vocal about their initiatives targeted at improving their eco-friendly standing to appeal to the environmentally-concerned consumers. F&B brands such as Coca-Cola, PepsiCo, Unilever, Nestle, to name a few, have already announced time-bound plans to revolutionize their packaging models.

For example, in January 2018, the beverage giant Coca-Cola announced a goal to collect and recycle the equivalent of every bottle it sells globally by 2030. The company with its bottling partners started an initiative with a plan called “World Without Waste” that is focused on entire packaging cycle from designing and manufacturing of bottles to their recycling. For the execution of this plan, the company plans to educate the public on what, how, and where to recycle, teaming up with local communities, NGOs, industry peers, and consumers. Furthermore, under the plan of “World Without Waste”, the company aspires to create packaging from at least 50% recycled materials by 2030 and continue pursuing the goal to make all consumer packaging 100% recyclable by 2025.

In addition to this, in October 2019, Coca-Cola European Partners (CCEP), the largest independent Coca-Cola bottler, announced it would switch the carriers on its multipacks from shrink wrap to paperboard to reduce packaging waste. The company claims that with this switch it will remove about 4,000 metric tons of single-use plastic per year from its current supply chain. The paperboard packaging is planned to be certified from either the Forest Stewardship Council (FSC) or the Program for the Endorsement of Forest Certification (PEFC). Similarly, in January 2019, Coca-Cola packaging partner, Coca-Cola Amatil Australia, announced to cease the distribution of single-use plastic straws and stirrers, and distribute biodegradable Forest Stewardship Council accredited recyclable paper straws.

According to a report by Packaging Gateway, Coca-Cola claims to have made 88% of the consumer packaging recyclable, while its packaging used 30% of recycled material by the end of 2018. Also, about 58% of the equivalent of bottles and cans introduced by the company into the developed markets were refilled, collected, or recycled during 2018. Overall, the company’s recover and recycle rate was said to be 56% in 2018 as compared to 59% during 2017 or 61% in 2014. This proves that with growing sales, Coca-Cola’s efforts might not make as much impact as the company would want the public to think.

Nevertheless, the company is undertaking further initiatives to improve its environmental score. It committed to invest US$15 million in Circulate Capital, an investment management firm dedicated to incubating and financing companies and infrastructure that work upon curbing the plastic waste thrown into the oceans. Further plans of the company include increasing the use of recycled plastic in Australia by 2020.

In another example, PepsiCo also talks about becoming an environment-friendly company, announcing to use 25% of recycled content in its plastic packaging by 2025. In order to meet its target, in September 2018, the company announced its participation in the World Economic Forum’s Global Plastic Action Partnership (GPAP). The partnership focuses on stakeholders located in coastal economies, such as those in Southeast Asia, and its purpose is to help businesses, communities, and local governments redesign waste management to create circular models that include collecting waste and recycling or composting it to reduce waste streams to the oceans or landfills.

PepsiCo also announced other targets for improved sustainability to be achieved by 2025. These include to re-design all of its packaging to be recyclable, compostable, or biodegradable, to reduce virgin plastic content by 35% across its beverage portfolio, and to amp up investment to increase recycling rates in key markets.

Apart from individual targets, another initiative was also launched in October 2019 jointly by a few beverage players. As reported by a publishing firm, William Reed, three beverage companies, Coca-Cola, PepsiCo, and Keurig Dr Pepper, announced their partnership with World Wildlife Fund, The Recycling Partnership, and Closed Loop Partners under the “Every Bottle Back” initiative. This initiative, starting in late 2020, will include investment of US$100 million and will focus on sorting, processing, and collecting discarded plastic bottles in four US regions. The initiative also targets to educate consumers that PET bottles are 100% recyclable, easily remade into new plastic, bottles, shirts, shoes, coats, park benches, and playground equipment, by introducing pack label messaging.

Smaller players are emerging with packaging innovations

The pressure to embrace sustainable packaging is even greater for smaller and mid-size F&B companies, if they want to stay relevant to the customers, grasp their attention, and grow own market share. Smaller players in the industry seem to understand this and have proven to be more agile in introducing new products that focus on organic ingredients with sustainable packaging, while challenging big brands’ prices.

For example, in March 2016, Alter Eco Foods, a San Francisco-based chocolate-centric, healthy indulgence, and sustainability-oriented food brand, launched the first stand-up pouch made from renewable plant-based materials, designed for storing quinoa grain. This innovative pouch named “Gone 4 Good”, is not meant to be recycled but to be thrown in a composting bin where it will disintegrate within three to six months. Made from eucalyptus and breech trees for the exterior and compostable resin called “Matter-Bi” for the interior, the pouch has several green certifications. Apart from this, in early 2019, the company also transitioned its chocolate truffles packaging from non-recyclable plastic pouch to a recyclable paper box and claims to be looking for solutions to replace its current plastic Coconut Cluster pouch, since it is yet not recyclable or compostable. The company is determined to make all its products packed in 100% recyclable or compostable packaging by December 2020.

Another player, B.O.S.S. Food, a Texas-based nutrition bar company, started selling its premium nutrition bars in compostable wrappers made by TIPA (an Israel-based compostable packaging company) in 2017, focusing on ensuring the products’ packaging is environmentally safe. TIPA’s packaging is a bio-based blend with all the properties of normal plastic but is certified for both home and industrial composting through OK Compost mark by the TUV institute. The packaging also complies with food contact regulations in Europe and the USA.

Similarly, a UK-based beverage company named Earlybirds launched a 100% plant-based packaging for its breakfast drinks – bottles and lids made from sustainable sugarcane, over the span of two months of September and October 2019. The launch made the packaging 100% compostable as per EU biodegradability standards. The company’s advertisements claim that, under the right conditions, the bottle will breakdown in twelve weeks and it can be thrown in food waste bin and then composted at an industrial composter, reducing it back to soil. The company is the first in the UK to launch sustainable packaging for beverages.

These are just a few of several smaller F&B companies, which are focusing on bringing new packaging solutions to improve their rating as environment-friendly companies in the eyes of consumers. The initiatives are worth the effort, even though players face quite a few challenges in embracing sustainable packaging over traditional packaging.

Such challenges include higher costs, choosing the right material for packaging that must comply with the standards of environmental safety, as well sustaining the quality of the food product. It is estimated that the companies are required to spend nearly 25% more on the sustainable packaging than on the traditional packaging. This higher cost is attributed to major shifts in supply chain, including (but not limited to) procuring the raw material for packaging to collecting the used packaging for recycling. Another major factor contributing to higher costs of sustainable packaging is the R&D expenses that must be borne by the companies. The solutions still require a lot of research, as there are still very few commonly-used technologies and packaging products, thus a lot of players need to invent them. The companies need to invest considerable sums in developing an environment-friendly packaging material that is viable for their food product to sustain throughout the supply chain as well as shelf life, and (equally importantly) has the aesthetic appeal to grab the consumer’s attention.

But despite being smaller in size and having to deal with challenges, companies such as Alter Eco, B.O.S.S. Food, or Earlybirds have been investing extensively in R&D, a fact that resulted in several of them coming out with better and innovative packaging solutions. In fact, at times, smaller scale of operations works to these players’ advantage, as they do not have the constraint of having to convert the existing large-scale traditional packaging lines to ones suited to deliver new format or feature of packaging. Therefore, many efforts undertaken by smaller players seem to be converted into tangible solutions and launched more quickly and easily, also giving the companies a great marketing advantage over large F&B brands.

EOS Perspective

With the rise in awareness about plastic waste and environment safety among consumers, along with regulations formulated by governments across many countries to curb plastic waste, it has become paramount for F&B companies to enter the path of sustainability. At the same time, sustainability is becoming an important element of many companies’ marketing strategy to get ahead of the competition (or, increasingly, not to stay behind other players). The latter reason alone makes it no longer a matter of choice for F&B companies whether to keep assuring the public about efforts undertaken towards improving own sustainability rating across the supply chain.

Certainly, it is doubtful whether all these F&B companies are capable of actually achieving the claimed sustainability. On the one hand, there is a doubt if the scale of their efforts is relevant enough to bring about an actual change and not remain just a PR tool. On the other hand, the doubts seem to be really justified considering the challenges associated with achieving true sustainability goals.

The challenges range across many aspects. These include the complexity of the required changes in the supply chain, which involve both radical and incremental change, from manufacturers to users, owing to alterations in packaging materials and designs.

Another major challenge is the higher cost associated with changing the packaging materials from plastics to renewable or compostable materials. This starts with the development of the right product’s packaging material to ensure stable and long shelf life, and safe transportation with minimal waste, all of which is particularly challenging when dealing with food products. The costs and complexity of the task is further increased by the responsibility of creating an infrastructure for recycling of the packaging materials and taking the onus of collecting and recycling the packaging of own products, if not directly then through well-planned network of third-party entities.

Considering the complexity of these challenges and the high cost of going up the sustainability ladder, many F&B companies are likely to not be able (or to not want to) work towards full sustainability across their supply chain. In the midst of the growing pressure to meet the sustainability criterion, it is possible that some of the players might quietly opt for less sustainable solutions or stick to only those changes that are most visible to the consumer’s eye.

16/01/2020by EOS Intelligence EOS Intelligence No Comments

Social Commerce Reshaping How Brands Sell and Customers Buy

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Today, social media is at the core of many brands’ marketing strategies. The growing value that customers (especially the younger demographic) place on social media content and the increasing use of social media to gain information about a product or brand have made social media an essential part of a customer’s purchase decision and experience. However, till recently, the use of social media was limited to being an advertising tool or referral channel for retailers, who used these channels to drive traffic to their e-commerce sites. This is expected to change in the future. With social media giants, such as Facebook, Instagram, and Pinterest offering direct sales options, it is quite likely that these apps will move from being mere marketing tools to becoming the final destination for sales, creating a new retail category – social commerce.

It is no secret that visual content social media apps, such as Instagram and Pinterest, offer a more engaging shopping experience for customers, who now look at these apps as an integral part of their purchase experience. Visual content on social media is known to significantly improve discoverability for brands, deepen brand trust and value, and increase sales conversion.

Retailers, both large and small, have been using social media extensively as a part of their marketing campaigns and are investing huge dollars in the platforms. Retailers are increasingly offering quick access to their e-commerce websites via social media apps, through which they aim to drive traffic to their sites and in turn convert it into sales.

Visual content on social media is known to significantly improve discoverability for brands, deepen brand trust and value, and increase sales conversion. Retailers, both large and small, have been using social media extensively as a part of their marketing campaigns and are investing huge dollars in the platforms.

This has paid off well for retailers, with reports stating that in 2017, the top 500 retailers globally earned about US$6.5 billion through sales that were a direct result of social media presence/marketing. This has increased by about 24% when compared with sales resulting from social media for the same set of retailers in 2016. This clearly demonstrates social media’s increasing influence in a shopper’s purchasing decision.

While it has become critical for retailers to have presence on social media, it is expected that social media will play an even bigger role in the consumer shopping experience in the future. Several social media platforms have been experimenting with direct selling options, wherein users do not have to leave the social media platform to make a purchase. While platforms such as Facebook and Pinterest have been offering direct selling options for a few years now, Instagram has recently joined the bandwagon.

As per a study by Bazaarvoice in 2019, the number of users who wish to discover and purchase directly through social media platforms has risen by 38% in 2018 over the previous year. Due to this, several social media platforms are forging their way into the e-commerce space, creating a new category, known as social commerce.

Facebook

Facebook was one of the first social media pages to move to direct selling, having introduced in December 2015. Facebook has a huge active user base (about 1.6 billion daily users) who visit the platform to engage with friends as well as brands.

The main premise behind introducing direct selling by Facebook was to streamline the purchase journey by reducing the number of clicks/page redirects a user needs to do to purchase a product. It helps facilitate impulse buys, which sometimes are abandoned in cases where multiple page redirects are required. Moreover, it provides an overall integrated shopping experience for users, who can rate, review, and comment on the products that they have purchased. This in turn increases overall engagement for the retailer, which in response may facilitate better visibility and credibility for them.

The main premise behind introducing direct selling by Facebook was to streamline the purchase journey by reducing the number of clicks/page redirects a user needs to do to purchase a product. It helps facilitate impulse buys, which sometimes are abandoned in cases where multiple page redirects are required.

Facebook store (its direct selling feature) is free to set up for retailers, however, most retailers setup their Facebook store with e-commerce website builders such as Shopify, Ecwid, and BigCommerce for ease of checkout and payment options.

While Facebook has been undertaking direct selling for a couple of years now, the response has been slightly underwhelming. This is due to several shortcomings. Firstly, the ticket size of products sold on Facebook is on the lower end, primarily due to encompassing mostly impulse or low consideration products. The average order value of referrals by Facebook is US$55, suggesting that the value of products ordered directly through Facebook would not be much higher than that. Moreover, the interface for a Facebook store is standard for all retailers, with no room for customization at their end. This also limits their opportunity to upsell/cross-sell other products. Lastly, the rights for ads shown on a retailer’s Facebook store remains with Facebook. Thus it is very likely that a competitor is advertising its products on the retailer’s page.

Thus, while Facebook store may be ideal for small and medium businesses with limited presence and scale, it may not be used by large retailers who sell high-value products and wish to provide an engaging and enriching shopping experience to their customers.

To further strengthen its hold on the social commerce aspect, Facebook launched Facebook Marketplace in 2018, which provides a destination for users to discover, buy, and sell items. However, the Marketplace differs from the Facebook Store and is more similar to eBay and Craigslist, wherein users can list products and conduct transactions through the platform. While it started as a peer to peer shopping marketplace, it has expanded to include merchant selling. As of October 2018, about 800 million people globally used Marketplace monthly to browse, buy, and sell items. This presents a unique opportunity to retailers who can drive sales of products at a platform where customers are already shopping.

While Facebook may not be the one-point solution for retail sales, it is definitely not to be ignored, especially for small to medium businesses. As per Ecwid, one of the largest e-commerce platforms, merchants who sell through this platform drive 15% of their sales from Facebook (as of 2017). Moreover, with people becoming more open to shopping through social media apps (as per a 2016 survey by BigCommerce, one of the largest e-commerce platforms in the USA, about 30% consumers are willing to make purchases directly from social media pages) and an increase in mobile shoppers, direct selling through Facebook presents a great number of benefits to retailers.

However, in 2018, Facebook announced a big change to its News Feed algorithm, which will now prioritize content shared by one’s friends and family instead of content shared by businesses and media outlets. This may further impact direct sales on Facebook, since going forward, business-related posts will feature less on the News Feed.

In June 2015, Pinterest also entered the social commerce space by introducing ‘Buyable Pins’, which are Pins that allow customers to buy products without leaving Pinterest. Since Pinterest is widely used by close to 250 million users, who visit the platform to discover new products, designs, and ideas, an option to buy pinned products seems like a natural extension for the social media player.

Buyable Pins help retailers streamline the e-commerce experience and improve conversion rates. As per a research by Shopify (another leading e-commerce platform) in 2014, Pins with prices get 36% more engagement compared with those without. Moreover, according to a 2016 survey by BigCommerce along with research firm, Kelton Global, 26% of the GenXers and Millennials surveyed claimed that they are more likely to purchase a product directly from Pinterest if given an option.

While Pinterest does not take any commission from retailers for sales through their platform, it makes money through advertisements as retailers promote their ‘Buyable Pins’ to users. Moreover, Pinterest lets the retailers handle the order processing, which includes processing payments, shipping, and customer service. This further helps retailers obtain and retain the customer’s information, which can be used in the future for sending follow-up mails, sharing promotions, and making future sales to the customer (unlike on Amazon and eBay).

‘Buyable Pins’ are currently only available in the USA and to few selected merchants. They are also available to merchants who use a listed range of e-commerce platforms, which include (but are not limited to) Shopify, BigCommerce, and Salesforce Commerce Cloud. However, the platform has been expanding, and over time will include a greater number of merchants.

Post the introduction of ‘Buyable Pins’, Pinterest also introduced a shopping cart option which is integrated across the mobile and desktop platforms, and which helps users to purchase multiple ‘Buyable Pins’ at a time.

Several retailers, especially small and medium size enterprises, have achieved significant success with ‘Buyable Pins’. FlyAway BlueJay, an online retailer selling artisanal products such as beauty products and small jewelry, attained tremendous success by using ‘Buyable Pins’ during the holiday season in 2015. All of their ‘Buyable Pins’ sales came from new customers, with ‘Buyable Pins’ driving 20% of their overall sales in the last quarter of 2015. In the beginning of 2016, Pinterest drove about 28% of their overall website traffic. Thus, it helped the company reach new customers and reduce their customer acquisition rate. Another small-scale retailer, Modern Citizen (a San-Francisco based women’s fashion and home goods retailer), introduced Buyable Pins shortly after they were launched by Pinterest and witnessed a 73% increase in their sales from Pinterest by using ‘Buyable Pins’.

Direct selling on Pinterest appears to be a must consideration for small to medium businesses that are selling unique and new products. With women making up 85% of Pinterest’s user base, brands selling to female audiences are expected to achieve higher success rate when compared with male-centric products sellers.

Instagram

Owing to its visual and interactive content, Instagram is one of the most widely used social media apps for discovering new products and inspiring purchase decisions. As per statistics shared by Instagram in June 2018, it had 500 million daily users. Moreover, as per an Instagram user survey (November 2015), 60% of its users claim that they leverage Instagram as a product discovery platform and 75% of these users have taken an action based on the products they discovered via Instagram (such as visit the website, purchase the products, or tell a friend). This puts the platform in a strong position to leverage its role (in the purchase process) and further extend brands’ offerings to include direct shopping from Instagram’s app.

While Instagram had not entered the direct selling market up till very recently, in 2017, it launched ‘shoppable posts’ (in a testing phase), wherein brands tagged their products on their organic posts. When a user clicked on a tagged product, they could see the pricing and a streamlined path to purchase it.

‘Shoppable posts’ received significant success on Instagram and the company launched them across the platform in 2018. In addition, it also launched ‘shoppable stories’ (stories offering the same tagging features as shoppable posts) and ‘shoppable collection’ (which allowed users to bookmark ‘shoppable posts’ to in turn create a shopping folder for the user).

Several companies that were part of the testing phase of ‘shoppable posts’ achieved significant increase in sales and Instagram-driven traffic to their websites. During the beta testing phase, participating brand, Natori (a US-based upscale woman’s fashion brand) posted 61 ‘shoppable posts’ and achieved a 1,416% week-over-week increase in traffic from Instagram and a 100% week-over-week increase in revenue from Instagram. After the testing phase, BigCommerce merchants using shopping features on Instagram witnessed a 50% increase in their Instagram referral traffic to their website.

In March 2019, Instagram launched a testing phase for a checkout option on the platform to tap on the potential of direct selling. Under this feature, Instagram allows users to buy directly (without leaving the app). Instagram aims to monetize this by charging a small fee from the retailers who look to offer this service to their Instagram followers/customers. Instagram will process the payment and store payment information for future purchases, enabling a more streamlined and frictionless purchasing experience for the user.

Instagram will share a small fee from the retailers looking to sell directly on Instagram and in turn offer an option to the user to purchase and checkout through Instagram without leaving the app. Instagram will process the payment for the user and store payment information for all future purchases, enabling a more streamlined and frictionless purchasing experience for the user.

This is likely to facilitate impulse buys and convert abandoned shopping carts into actual sales, since customers will not need to fill in their details again and again (as is case of shopping directly at different retailers with shoppable posts and signing in/logging in separately for each retailer/purchase).

This is expected to provide the perfect blend of social media experience and frictionless e-commerce experience (such as Amazon). However, unlike Pinterest, where social media platform is only the facilitator and the transaction in terms of payment and service is completed by the retailer, Instagram will be handling the payments itself and only sharing the basic details necessary to fulfill the order with the retailer (i.e., contact information and shipping address). This is expected to be a slight downside of selling on Instagram vis-à-vis on one’s own website as the retailer will receive less data and may not be able to build a relation with the customer.

Instagram is currently running a testing phase of this feature with a few brands across the USA, including Adidas, Anastasia Beverly Hills, Balmain, Burberry, ColourPop, Dior, Huda Beauty, H&M, KKW Beauty, Kylie Cosmetics, MAC Cosmetics, Michael Kors, NARS, Nike, NYX Cosmetics, Oscar de la Renta, Outdoor Voices, Ouai Hair, Prada, Revolve, Uniqlo, Warby Parker, and Zara. Payments will be processed through PayPal and customers can pay through PayPal, Visa, MasterCard, American Express, and Discover. The retail merchants can also integrate their e-commerce tools and partners, such as Shopify and BigCommerce, with the checkout feature.

While it is currently in its testing phase, the company is bullish on the success of this new feature. Although checkout option is currently only available for organic posts, Instagram will look to roll it out for ad-based posts as well in the future. It is expected that Instagram is likely to make US$10 billion in shopping revenues by 2021.

Instagram has been one of the most successful social media platforms with regards to consumer purchase decisions and unlike other social media apps that are apt for small to medium businesses, it also has a huge market for high-end and upscale products.

Challenges ahead

While social commerce seems to have a major role to play in the retail landscape in the future, it still has a long way to go. Social media pages have already showcased their worth as product discovery platforms, but exhibiting their potential of converting discovery into sales is a different ball game altogether and may also require a different strategy. Users will need to be organically cajoled to complete sales on these platforms and social media platforms must constantly work towards improving their buy-button experience, otherwise success is not guaranteed for them.

Twitter introduced a direct selling option in 2014 but retracted it by 2017 due to poor reception. Facebook’s initiative has also been met with moderate success with regards to direct selling, which lead the platform to change the direct selling features and strategies over the years to engage both retailers and customers.

Moreover, retailers who focus on selling on Instagram and other social media apps run the risk of alienating followers/users with constant promotions of their retail and shoppable posts, instead of their current subtle engagement posts that are working and preferred by users.

EOS Perspective

Social commerce is often being pegged as the future of online sales. While this may be true, there is a long road ahead for this to happen. Currently, the social media giants are applying different strategies to enter the space of direct selling, however, for most of them the focus is not on revenues from commerce but from ads. Therefore, till the time direct sales do not become a key revenue stream for social media apps, their focus on the apps will also remain limited.

That being said, the emergence of social commerce cannot be ignored by retailers, both large and small. Customers have taken to social media apps and use them extensively to learn about new products. Retailers are in a unique position to leverage this space and work towards reaching a new customer base, converting impulse sales that are otherwise being missed.

However, the social commerce experience needs a lot of shaping. Today, customers greatly rely on user-created content on social media (which includes content by influencers as well as other users’ reviews and product ratings) for their purchase decisions. Social media features must include direct selling not just from a retail’s social media page but also from influencers’ and bloggers’ pages. Till the time direct selling on social media apps is not a fully integrated solution, it will not reap results for users, retailers, nor for the social media platforms.

In the end, it is safe to say that social commerce is currently in a very nascent stage of development but nonetheless, it is here to stay. With the consumer’s attention span constantly reducing and people spending great amount of time on social media, social commerce undoubtedly offers great potential.

10/10/2019by EOS Intelligence EOS Intelligence No Comments

Growing Appetite for Plant-Based Foods Disrupts the Meat Market

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Not many years ago, veganism or consumption of only plant-based foods, was considered an extreme form of lifestyle. Food options that were available for vegans were very limited and meat alternatives were based mainly on tofu, tempeh, and nuts. However, this is not the case anymore. Not only has the mindset regarding vegan food changed in the recent times, but also plant-based alternatives have become the fastest growing food category in the USA. This is also driven by a greater number of meat eaters experimenting with plant-based meat alternatives, whether due to health benefits, growing awareness regarding animal cruelty, or environmental reasons. Moreover, tremendous amount of investment and research in this space has resulted in wide range of food options, including vegan cheese and vegan meats that taste similar to animal-based proteins.

Vegan food has been around for quite some time now, but it was largely considered to be a niche market having a separate shelf in the supermarkets or being served in vegan-only restaurants and cafes. Moreover, it was considered an extreme lifestyle by many. However, over recent years, vegan meal options have found their way into the mainstream, with more and more people embracing veganism and meat-eaters adding plant-based food options in their diet. This is clearly evident from the steep growth witnessed by this food category, especially in the western world.

As per a study commissioned by the Good Food Institute (GFI) and the Plant Based Food Association in the USA, the retail market for plant-based foods was valued at about US$4.5 billion in April 2019, registering a year-on-year increase of about 11% and a growth of 31% in the two-year period from April 2017 through April 2019. The largest segment of vegan food market in the year ending April 2019 was the plant-based milk segment, which comprised about 40% of sales (US$1.9 billion). This category witnessed a y-o-y increase of about 6%. To put this in further perspective, animal-derived milk sales for the same period declined by 3%. While plant-based meat alternatives, cheeses, yogurts, eggs, and creamers are relatively new and smaller categories, they are driving growth in the vegan food segment too.

The growing sales across most vegan food segments indicate a momentous shift towards a vegan diet, which is not only propelled by an increasing number of people turning purely vegan but also a rise in meat eaters that prefer plant-based alternatives in some food categories, such as milk and milk-based products. This is due to growing lactose intolerance among consumers, with about 65% of the world’s population estimated to be lactose intolerant. The environmental benefits (i.e. lower carbon footprint) of maintaining a vegan diet and a growing uproar regarding animal cruelty have also driven conscious consumers to adopt a vegan lifestyle.

The environmental benefits (i.e. lower carbon footprint) of maintaining a vegan diet and a growing uproar regarding animal cruelty have also driven conscious consumers to adopt a vegan lifestyle.

The trend is further supported by the launch of vegan meat substitutes that resemble meat products in taste, look, and even texture. US-based players, Impossible Foods and Beyond Meat, are leading this space with the latter having received investments from the likes of Bill Gates, Leonardo DiCaprio, and Twitter co-founders Biz Stone and Evan Williams.

Industry players are diversifying into plant-based foods

Understanding that this trend is more than just a fad, several food companies (including large meat producers) have started entering this space, by either buying or investing in plant-based food start-ups.

Tyson Foods, USA’s leading meat producer, invested in Beyond Meat in 2016 and 2017, by acquiring a 6.52% stake in the company. However, in April 2019, Tyson Foods sold its stake in Beyond Meat with an intention to develop its in-house line of alternative (plant-based) protein products.

Nestle, which is one of the largest food companies globally, has also been expanding its portfolio with a keen focus on plant-based alternatives. In 2017, the company purchased Sweet Earth, a California-based producer of vegan meals and snacks, while in 2018, it purchased majority stake in Terrafertil, a plant-based organic food player that was founded in Ecuador and has presence across the USA, UK, and Latin America.

In January 2019, Nestle expressed its plans to launch its in-house vegan burger patty, called the Incredible Burger under its Garden Gourmet brand. The company is also looking to develop a portfolio of dairy-free beverages, such as purple milk (which is made with walnuts and blueberries) and blue latte containing spirulina algae. It is also adding vegan options to its existing brands, such as Haagen-Dazs (which launched a range of dairy-free ice creams in July 2017) and Nescafe (which introduced vegan protein-based coffee smoothies in December 2018).

Similarly, Marfig, Brazil-based leading meat processor, also entered the plant-based food alternatives market through a partnership with Archer Daniels Midland in August 2019. Under the partnership, Archer Daniels Midland will produce the raw material while Marfig will produce and sell the end product through foodservice and retail channels.

Canada-based Maple Leaf has also made significant investments in plant-based food players to expand its product portfolio and brand positioning. In February 2018, it acquired US-based plant protein manufacturer, Lightlife Foods, for US$140 million. Through this acquisition, it added Lightlife’s refrigerated plant-based products, such as hot dogs, breakfast foods, and burgers, to its portfolio and garnered a strong footprint in the US plant-based food market. To further strengthen its hold in this market, in December 2018, the company entered into an agreement to buy US-based Field Roast Grain Meat Co. for US$120 million. Field Roast Grain Meat supplies grain-based meat alternatives (including sausages, burgers, etc.) and vegan cheese products to the North American market.

Danone, a global food company with large number of dairy products is also bullish on the growing popularity of plant-based foods. In April 2017, it purchased WhiteWave Foods, a US-based leading player in plant-based food and beverage for US$10 billion. It rebranded the company to DanoneWave and in October 2017, further invested US$60 million into its plant-based milk operations. In 2019, the company expressed plans to triple its revenue (to about US$5.6 billion) from its plant-based food line by 2025.

In addition to these, many other large food processors and retailers have entered the plant-based food market either through acquisitions or the launch of in-house products and brands. These include Brazil-based JBS Foods, US-based Smithfield Foods, UK-based Hilton Food Group, Germany-based Wiesenhof, UK-based Heck Food, Canada-based Saputo, and US-based Dean Foods Company, among many others.

In addition to these leading food producers, many other large food processors and retailers have entered the plant-based food market either through acquisitions or the launch of in-house products and brands.

Fast food chains have also joined the vegan bandwagon. In April 2019, Burger King introduced a vegan version of its classic sandwich, called the Impossible Whopper. Similarly, Dunkin introduced a vegan breakfast sausage made by Beyond Meat, while KFC launched vegan fried chicken also made by Beyond Meat. In 2017, McDonald’s launched a vegan burger in Finland and Sweden and has plans to launch the same in Germany. In 2016, UK-based café, Pret a Manger opened a vegan pop-up store in central London and later made it permanent in 2017. Over the years, it opened three more stores (two in London and one in Manchester) under the name Veggie Pret. In April 2019, the company purchased rival food chain, Eat, and aims to convert about 90 of its stores into its vegan chain, Veggie Pret.

Just like the food producers and quick service restaurant chains, supermarkets have also been quick to respond to the vegan trend. In 2018, Tesco, a leading UK-based supermarket chain, launched its own range of vegan foods under the name Wicked Kitchen. Similarly, British department store chain, Marks & Spencer has also introduced a vegan food range in its food department. Vegan options have been introduced and are easily available across a wide range of US-based departmental stores such as Whole Foods, Target, and Kroger.

However, the key shift seen in departmental stores regarding plant-based meals is their placement. Traditionally, vegan food including plant-based meats and dairy were stocked together in a ‘vegetarian’ or ‘vegan’ isle or section. However, recently, these options have begun to be stored alongside their animal-based counterparts. For instance, plant-based dairy has now been moved to the beverage or dairy case. This exposes shoppers to a wider range of options for milk and increases the shopper’s chances of trying plant-based alternatives. This thereby opens the category to shoppers who otherwise would have not explored the separate vegan section in the store.

Similarly, plant-based meat options are also being increasingly stored along with traditional meat items, widening the choice for consumers who are flexitarians (i.e. consumers who are not completely vegan but do also consume vegan food from time to time). UK-based department chain, Sainsbury, was the first supermarket in the UK to place vegan products that are designed to look and taste like meat within the meat section.

Challenges ahead

While the number of vegan consumers is on the rise, it is still very low when compared with people consuming a meat-based diet. Moreover, while a great number of people are exploring vegan options, vegan meals are still largely perceived as offering limited nutritional value when compared with traditional meat-based meals, especially with regards to protein intake. While there is limited truth to this, companies offering vegan options have to invest substantially to educate consumers regarding the nutritional value of vegan meals.

In addition to this, vegan or plant-based meal options face another mindset block. Meat eating has long been associated with masculinity. This by contrary gives vegan meals a perception of being less ‘manly’ and thereby limiting the number of men who are open to embracing this meal option. To counter this, market leaders such as Impossible Foods and Beyond Meat have been avoiding terms such as vegan and vegetarian in their marketing strategy and have been promoting their burgers at male-centric locations such as sports events. Instead of pushing men to eat less meat, they are working towards expanding the definition of meat in the consumer’s mind to include plant-based options. They have also included ingredients (such as beet juice) in their burger to resemble a bleeding beef, making it clone the beef burger in terms of appearance, texture, and experience of consuming.

Other than mindset, price is also currently a considerable barrier for consumers. Plant-based meat substitutes are more expensive when compared with animal meat. While the Beyond Burger sells for about US$12 a pound at Whole Foods (a leading retail chain), its beef counterpart retails for about US$5. Similarly, Beyond Meat’s, Beyond Sausage retails for US$10.30 a pound, charging a premium of about 70% over a comparable pork sausage. Higher price points are off-putting for a big chunk of consumers, who may otherwise be willing to change eating habits owing to health or environmental reasons. While currently, the prices differ greatly, it is expected that the price difference will reduce in the long run (or be wiped off completely). Understanding price to be a big limiting factor, companies such as Beyond Meat are researching and investing into alternative plant protein sources that would lower the cost.

Price is also currently a considerable barrier for consumers. Plant-based meat substitutes are more expensive when compared with animal meat. While the Beyond Burger sells for about US$12 a pound at Whole Foods (a leading retail chain), its beef counterpart retails for about US$5.

However, one of the biggest roadblocks faced by the vegan food producers in making them mainstream is the backlash from the meat industry, which has in some cases resulted in labeling regulations that are damaging for the growth of the plant-based food sector.

In 2017, the EU banned the use of the term ‘milk’ and other dairy products, such as ‘cheese’, ‘yogurt’, etc., for plant-based alternatives (however, traditional versions such as almond or coconut milk and peanut butter are excluded from the ban).

In April 2018, France banned meat names for plant-based alternatives, such as vegetable ‘steak’, soy ‘sausage’, and ‘bacon-flavored strips’. Similarly, in May 2019, the European Parliament’s agriculture committee proposed a ban on the use of meat-related terminology on their labels and product description for vegetarian or vegan products. This includes terms such as ‘steak’, ‘sausage’, and ‘burger’. The proposal will be voted upon by the Members of the European Parliament in autumn 2019 and if passed, will be a big setback to the vegan industry as they would be required to remove the word burger from any product that does not contain meat.

In the USA, a Dairy Pride Act, which requires FDA to stop all plant-based dairy alternatives from being labeled as ‘milk’, was reintroduced in Congress in March 2019 (after being squashed earlier in 2017). While the chances of the bill being passed remain slim, if passed, it could seriously dampen growth in the vegan dairy market in the USA. Most of these legal actions are likely to have stemmed from strong meat and dairy lobbies that are directly impacted by the growth witnessed in the vegan market.

EOS Perspective

There is no doubt that the plant-based food market is growing exponentially and the food industry is taking notice. Meat producers and animal-based dairy companies are currently at a fork, where they may face some level of cannibalization of sales (especially in case of dairy) when they introduce vegan alternatives to their portfolio. The cases of Kodak and Apple are important examples when discussing the prospects of cannibalization of sales. While Kodak failed to innovate at the time of camera digitalization due to a fear of cannibalizing sales of its then popular camera films, Apple has made this one of its strength by innovating and launching new products that have (to an extent) cannibalized its own sales (IPhone for IPods and IPad for Mac).

While most players in the food industry have been quick to understand the potential of plant-based food market and have started to invest in this segment, several others still remain resistant to change. This may cost them dearly. Moreover, evaluating the future prospects of this industry, it may be prudent for meat producers to be focusing more on their plant-based food section than their long existing meat business. In a first of its kind case, in May 2019, Vivera Foodgroup, a leading European meat company sold off its meat business retailed under the brand name, Enkco, to Netherland-based Van Loon Group so that it could solely focus on its vegan food line.

However, while plant-based foods seem to be the future now, things may stir up again when clean meat (also known as lab-grown meat) goes mainstream. Currently, a lot of industry players (such as Tyson Foods) and business tycoons (such as Bill Gates) have begun investing in companies that are researching and developing lab-grown meat. It is expected to become a reality very soon, however, it may still take some years for lab-grown meat to match the prices and volume of farmed animal meat as well as obtain the required regulatory approval. While clean meat will definitely upset sales of farmed meat, it may also have a considerable impact on the plant-based food market as several consumers (who turned to vegan options due to animal cruelty and environmental reasons), may switch to clean meat instead of vegan alternatives. Thus vegan companies must stay ahead of the curve in terms of pricing as well flavors and product range to not only thrive but also survive in the coming times.

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Personalization through AI

Virtual makeup through AR and VR

Smart devices

EOS Perspective

Gaming industry has been on a continuous growth trajectory

With rising popularity and wider reach, gaming industry looks to unravel multiple monetization strategies

In-game purchases

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Gaming industry ecosystem is expanding with advent of new services

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Cloud gaming services

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Fast fashion is the fashion now

Environmental cost of fast fashion

Social cost of fast fashion

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Can fast fashion really be sustainable?

Time to slow the fast fashion

Why beauty and fashion brands are adopting influencer marketing?

How influential is influencer marketing?

What challenges are obstructing growth?

EOS Perspective

Is influencer marketing here to stay?

Find out more about drivers and challenges in influencer marketing adoption here

What is driving adoption of influencer marketing?

How have influencers assisted companies to increase sales and grow brand awareness?

Is influencer marketing cost effective?

What challenges are hindering growth?

EOS Perspective

Find out how influencer marketing is reshaping fashion and beauty industry here

Change fueled by multiple triggers

Big F&B brands appear to show initiative

Smaller players are emerging with packaging innovations

EOS Perspective

Facebook

Pinterest

Instagram

Challenges ahead

EOS Perspective

The environmental benefits (i.e. lower carbon footprint) of maintaining a vegan diet and a growing uproar regarding animal cruelty have also driven conscious consumers to adopt a vegan lifestyle.

Industry players are diversifying into plant-based foods

In addition to these leading food producers, many other large food processors and retailers have entered the plant-based food market either through acquisitions or the launch of in-house products and brands.

Challenges ahead

Price is also currently a considerable barrier for consumers. Plant-based meat substitutes are more expensive when compared with animal meat. While the Beyond Burger sells for about US$12 a pound at Whole Foods (a leading retail chain), its beef counterpart retails for about US$5.

EOS Perspective