Farewell to the golden age of consumer choice

Anyone who has walked into a supermarket recently knows that groceries are more expensive. The prices of many items, from cat food to coffee, are rising, and they are harder to transport quickly around the world in an era of high inflation and congested supply chains.

There was a more subtle warning from consumers this week as investors feared tech companies and stocks continued to fall. “In times of uncertainty, investors seek security. . . By funneling Jerry Maguire, we have to show them the money,” Uber chief executive Dara Khosrowshahi told staff.

Shoppers have enjoyed a dramatic premium for more than a decade – not just in the price and availability of everyday goods and services, but in an explosion of consumer technology and innovation. This experience is now called into question: if the golden age of the consumer is not yet dead, it looks rather bad.

A combination of high inflation and rising interest rates, which is disrupting many high-risk investments, from cryptocurrency to venture capital, is already having an effect. But the impact of the latter has yet to sink in and will create more pain.

Inflation and the affordability crisis have caused many shoppers to go back to basics. With soaring energy bills, the question isn’t what new brand of coconut milk yogurt or craft beer they’ll try, but how to feed their families or heat their homes.

More and more people are now buying from discounters, from Walmart to Aldi and Lidl. They also favor the ordinary and the familiar over the experimental. Shares of Beyond Meat, a pioneer in plant-based burgers and sausages, fell below its 2019 float price this week, while those of stalwarts such as Kraft Heinz and Campbell Soup rose during the month. latest.

Even Danone, the multinational food and drink company that expanded into healthier lines, is adapting. Antoine de Saint-Affrique, its managing director, told me this week that it would put the emphasis back on its essential products, such as the yoghurt from which it takes its name. “We’re going to go back to basics, rather than what was in fashion at one time or another.”

This implies that the extraordinary proliferation of groceries and other products – with greater space in stores and supermarkets occupied by innovative products and smaller brands – faces a reckoning. As more buyers retreat, start-ups will find it harder to push or pay their way to the shelves.

But there is a distinct threat to the ecosystem of new products that has sprung up around us – not just groceries, but also grocery delivery, online fitness apps, maps and entertainment. Much of it was speculatively backed by investors who prioritized growth over immediate cash flow in the belief that dividends would emerge in time.

This is the philosophy of the exchange-traded funds managed by Cathie Wood at Ark Invest. She trusts in replacing incumbents with innovation and “a constellation of connected devices that will inform us, entertain us, connect us, protect us, and mediate our perceptions of the world”, as the 2022 Big Ideas Report puts it. Ark.

It looked like a plausible bet until recently, and it could still happen one day, but Ark’s funds have meanwhile fallen sharply in value amid the tumult. More investors want money now rather than alluring visions of the future, as Khosrowshahi told Uber employees: “Market size doesn’t matter if it doesn’t translate by profit”.

Uber is still burning cash, as is Rivian, the electric pickup truck company that slumped to less than a quarter of its market value when it went public last November. By contrast, Ford, which just launched its own F-150 Lightning electric truck, has been around since 1903 and has billions of dollars in free cash flow.

Uber is mature enough to adapt and survive, and Airbnb is making money. But the break will complicate the life of start-ups with bright ideas that would take time to blossom. Tiger Global, a hedge fund that has been eagerly pumping money into start-ups, has lost $17 billion in value and VC portfolio valuations are falling.

A small example of what’s at stake is Bounce, an American start-up that offers travelers short-term luggage storage in stores and offices via a phone app. It’s a modestly useful consumer innovation, and in April it raised $12 million in a funding round led by Silicon Valley venture capital firm Andreessen Horowitz.

Bounce won’t change the world on its own, but consumers have enjoyed thousands of these tiny inventions, backed by eager investors, over the past decade or more. They made travel, shopping and entertainment easier and more convenient, at a cost invisibly subsidized by cheap capital.

It’s hard to appreciate things in the moment, and the wealth of innovation that’s been targeted at some consumers hasn’t always been available to everyone. But empty shelves have appeared in supermarkets, and we might one day pick up our phones and notice that the App Store looks slimmer. When this happens, remember the limitless choice we once had.