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The Quarantine Effect: Impact of the Pandemic on DTC Food & Beverage Companies

Alex Malamatinas
Alex Malamatinas

Founder of Melitas Ventures: Venture Capital Fund that invests in early stage food & beverage companies through the entire value chain, focusing on better-for-you food & beverage products.

The social distancing measures imposed on citizens by governments has resulted in a surge of grocery sales (both online and in stores) with consumers stocking up for the next few weeks. Grocery stores struggle to keep up with the increased demand and consequently have many empty shelves. Amazon has announced significant disruptions to its supply chain and delivery schedules due to unprecedented demand. Meanwhile, delivery apps (such as Walmart Grocery, Instacart, Shipt) have begun seeing record numbers of daily downloads, according to new data from app store intelligence firm, Apptopia. We expect that longer-term online grocery shopping trends will only accelerate from here, especially in the US, which is behind many other markets in this respect. According to Euromonitor, US Direct-To-Consumer (DTC) and online sales of packaged food items represented a mere 4% of total US packaged food product sales in 2019, with the remainder being sold by brick-and-mortar grocery retailers, club stores, dollar stores, etc. This pales in comparison with countries such as South Korea and China (14% and 10%, respectively), and even the UK (7%). We believe that food will catch up to these much higher online shopping penetration rates of other countries over time, and that consumers’ current desire to buy groceries online to avoid potential infection with the Coronavirus will only accelerate this trend as more consumers learn to appreciate the convenience of online grocery delivery. 

At Melitas Ventures, we partner with founders building better-for-you early stage food & beverage brands. The trend towards increased buying of packaged food online bodes well for the short-term and long-term growth opportunities of our portfolio companies, which generate all or a substantial portion of their Food & Beverage (F&B) sales online. With consumers spending more time at home in recent weeks, there is an increasing need to purchase food online – for themselves, their children, and their pets, which has resulted in continued growth for our portfolio companies with DTC exposure. Melitas Ventures has exposure to each of these categories through the following companies: Magic Spoon (DTC cereal company), NomNom (DTC fresh pet food company), and Nurture Life (DTC baby food company).

Consumers’ concerns over COVID-19 has also resulted in an increasing awareness of the ingredients and products which individuals should consume to strengthen their immunity. These types of companies have seen an acceleration in sales over the past few weeks. We believe that increased self-awareness regarding immunity boosting ingredients and products is evolving into a more permanent consumer behavior, which will continue to bolster sales for these types of brands for years to come. Our portfolio has exposure to consumers’ increased demand for immunity boosting products through Beekeeper’s Naturals, which has ambitions to redesign the bathroom medicine cabinet with more natural medicinal products sourced from the beehive, and GEM, which provides consumers with natural immunity boosters through essential vitamins.

As we all gradually return to our new state of “normal,” we will certainly resume old habits, yet many of us will also form new ones, including increased purchases of food & beverage products online.

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