“It is safe to say that there is no getting back to normal after this public health crisis subsides,” Filipp Chebotarev, the COO of Cambridge Companies SPG, said.
“This event will help bolster the health and wellness industry, [and] immunity support will continue to flourish, and spur new new innovation across the sector.”
Immunity-boosting, non-discretionary products
Brands that claim they can help boost people’s immune systems, such as Zhou’s Elder-Mune gummies, have been reportedly out of stock. Immunity shots producer Vive Organic also posts skyrocketing sales, and doesn’t expect them to slow anytime soon.
“This could be a generational type event that may never happen again in our lifetimes,” Vive Organic’s CEO Wyatt Taubman said. “It’s possible that over the next three to ten years, concerns around the flu and boosting our immune systems will remain at a new high, and this will in turn drive purchase behavior and intent.”
Lifeaid Beverage Company also sees exploding sales for its immunity supporting products. “Our product ImmunityAid has traditionally been a number five SKU in our portfolio, yet in the past week alone, [its] sales at Whole Foods have quadrupled – it now sits number one in our category on Amazon,” CEO Orion Melehan said.
Non-discretionary products, which are considered as “highly defensive” assets, will also attract increasing investors’ attention since they are important to people’s daily lives and enjoy more resiliency during times of economic volatility, according to Chebotarev.
The struggle of accessing to daily essentials such as food is no stranger to Chebotarev and his sister Polina Chebotareva, who currently serves as the managing partner at Cambridge Companies SPG, as the two were brought to the U.S. from Russia by their parents in the ’90s when the local government toppled.
At the time, “even people who had money had a difficult time obtaining basic food necessities,” Chebotarev told me. “The Communist government was selling grains abroad and there was a significant food shortage, [which] led to civil unrest and violent protest.”
Keeping supply chain intact
Although similar scenarios are unlikely to occur in the U.S., Chebotarev believes ensuring consumer access to healthy foods should be part of investors’ responsibility.
“Our team started preparing in early February” by working with their two dozen portfolio brands and peer investment firms to keep supply chain intact from manufacturing and distribution, he said.
“We had no idea that the crisis would lead to a full-blown economic shutdown and social distancing, but we were cognizant of global supply chain impacts that stem from things, such as packaging production from China.”
Brands, including Once Upon a Farm and Vive Organic, have since secured packaging contracts in advance to ensure smooth productions.
“We’ve been working with our manufacturing plants to ensure that we are protecting capacity, expediting raw materials and packaging, and generally preparing for strong demand for our products in the months ahead,” John Foraker, the CEO of Once Upon a Farm, said.
“It’s a very volatile environment out there right now, and the key to navigating that is redundancy, speed and agility.”
Vive Organic has also diversified its supply chain to allow for more flexibility, and identified contingencies in critical business areas.
“With temporary uncertainty around packaging supplies, we’ve been working to secure three to four months of material supply from various U.S.-based warehouses and eliminate risks to any international sources,” Taubman told me.
In addition to insufficient packaging supplies, labor shortages in factories are also pushing brands to plans things ahead.
“Building weeks of inventory at five times what is typical is vital,” cofounder and co-CEO of Foodstirs, Greg Fleishman, wrote me via email.
“Turning on and stocking up home delivery services like Amazon, Walmart, Fresh Direct and Foodstirs will help service the marketplace as physical retail navigates around the crisis and cities shelter-in-place,” he noted.
“This means optimizing website product pages, shifting stock loads and dialing up third-party logistics fulfillment houses, and increasing digital ad spending.”
These efforts have helped Cambridge Companies SPG’s overall portfolio, which generates more than $500 million in annual revenue, grow by 20% to 100% in consumer demand month-over-month.
Foodstirs and Tosi Superbites, in particular, have seen their e-commerce revenues more than double recently. “Tosi Superbites are selling out on shelf in major retailers like Whole Foods and Pavilions,” the company’s CEO Stephanie Hults said.
Impact on long-term investments
Chebotarev expects the COVID-19 pandemic to have a long-term impact on the sales of newer CPG brands as it is driving consumer trials.
“Consumers are often buying products they typically don’t buy as they plan for quarantine,” he said. “This is turning into national demo program that our brands are getting paid for.
“Our hope is that we gain a lot of new customers who may discover us at the grocery stores during this time, bring our products home, have a positive experience, and later incorporate [them] into their daily or weekly routines when things stabilize.”
In the future, CPG investors will likely continue to focus on health and wellness-positioned daily products, according to Chebotarev.
“My prediction is that anything that has to do with health, wellness, immunity and supplementation will have prolonged growth over the next several years,” he said. “This event has cemented in our minds how potentially vulnerable we are as a species and I believe it will empower many people to attempt to take control of their health.”
–