The discussion highlights the pitfalls of the meal kit and plant-based meat markets, examining why companies like Blue Apron and Beyond Meat are struggling despite initial excitement. An analysis of post-IPO challenges reveals issues with customer retention and competition from traditional grocery stores. Insights on the importance of understanding market dynamics are shared, alongside a look at Coca-Cola's need for innovation amid changing consumer preferences. The performance of Celsius in the energy drink sector is also analyzed, revealing competitive pressures and growth strategies.
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Quick takeaways
Understanding broader competition beyond direct rivals is crucial for companies to navigate potential market disruptions effectively.
Investors should be cautious of inflated prices amidst strong trends as they may lead to significant losses despite promising market signals.
The challenges faced by companies like Blue Apron and Beyond Meat highlight the risks of competing against well-resourced giants in the industry.
Deep dives
The Challenge of Adding Infrastructure to Apps
It's easier to integrate an app into existing infrastructure than to expand infrastructure around an app. Companies must recognize not only their direct competitors but also industry players with the capability to provide similar services at improved scales. This realization emphasizes the threat from established entities that can execute operations effectively without incurring the same risks as startups. By understanding this dynamic, companies can better prepare for potential disruptions from these broader competitors.
Investment Trends and Market Realities
Investors may accurately identify emerging trends, such as the migration to the Sunbelt due to remote work, yet they can still face losses if they invest at inflated prices. The phenomenon of overbuilding in sectors responding to trends often leads to disappointing stock performances when actual demand does not meet expectations. Past examples illustrate how strong trends can nevertheless yield lackluster returns if company fundamentals are weak. The importance of price points when entering an investment cannot be overstated, as overvaluation may lead to significant losses.
Blue Apron's Struggles in the Market
Blue Apron initially gained attention with impressive revenue growth, fueled by heavy promotion and discounted meal kits. However, their reliance on marketing and promotional strategies led to challenges in customer retention and competition from established grocery chains. The company's promise of a unique value chain has been undermined by competitors replicating its model with greater scale. Ultimately, Blue Apron serves as a cautionary tale regarding the difficulties of sustaining growth when reliant on transient consumer trends and aggressive marketing tactics.
Beyond Meat's Competitive Landscape
Despite its early success and strategic partnerships, Beyond Meat faces significant challenges from larger established food manufacturers like Cargill. These players possess vast resources and distribution networks, allowing them to replicate plant-based products and compete aggressively. The dependency on major distributors can pose risks, especially if those distributors opt to develop their own competing products. Beyond Meat's journey illustrates the necessity of evaluating the sustainability of competitive advantages in a crowded marketplace filled with established players.
The Role of Partnerships in Business Success
Strategic partnerships can provide growth opportunities but also come with risks of dependency, as seen in Celsius's relationship with Pepsi. While partnerships can yield mutually beneficial results, they may also introduce pressures that constrain a company’s growth potential. The ability of a partner to influence distribution and market presence can significantly affect a brand's sustainability. Investors should examine the nature of these partnerships to determine who truly benefits from the relationship and assess long-term viability.
Investors weren’t exactly wrong to be excited about the companies trying to make meal kits and plant-based meat cool. But they sure haven’t made any money from those bets. So … what went wrong?
Patrick Badolato is an Associate Professor of Instruction at the McCoombs School of Business at the University of Texas at Austin, where he teaches Accounting. He joins Ricky Mulvey for a conversation about companies that have opened the door for genuinely exciting opportunities, but haven’t yet been able to figure out a workable business model. They also discuss:
Expanding your definition of competition.
Why Blue Apron and Beyond Meat haven’t taken off like their IPO investors hoped.
Whether Coca-Cola is at risk of becoming a “Cabbage Patch concept.”
