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by EOS Intelligence EOS Intelligence No Comments

Luxury Brands Become Collateral Damage of Hong Kong-China Conflict

Talk to any top executive at Gucci, Prada, Tiffany (or any luxury brand for that matter) and they will tell you the importance of Hong Kong as a market in their business. For years, Hong Kong has ranked among the top five luxury hubs and accounted for about 5-10% of the estimated US$285 billion luxury goods market. However, the recent pro-democratic protests in Hong Kong against China have left luxury brands grappling, with many undergoing store closures. With the situation seeming to worsen by the minute, luxury brands must act fast and with prudence to limit their losses, formulate strategies, and identify other regions that may help them offset loss of revenues from Hong Kong.

Hong Kong has been one of the top destinations for luxury brands with several leading brands operating multiple stores in this small area encompassing 427 square miles and housing a population of 7.5 million. Hong Kong achieved this cult status due to a large number of visitors from mainland China (as well as other Asian countries) who travel to Hong Kong to shop. This is due to Hong Kong’s tax-free policy and an assurance that the products purchased are genuine (unlike in China where stores are distrusted).

Most of the leading luxury retailers derive a significant portion of their sales from Hong Kong. Richemont Group (which owns brands such as Cartier, Chloe, Dunhill, Jaeger-LeCoultre, Montblanc, Panerai, Piaget, and Roger Dubuis, among many other) derives about 11% of its global sales from Hong Kong, while Burberry derives about 8-9% of its global sales from the territory. Brands such as LVMH and Prada attain about 6% of their global sales from Hong Kong. Despite having one of the highest real estate costs, brands have always been bullish about Hong Kong, opening multiple stores and stocking their best and most recent collections.

Recent protests impact luxury retail sales

However, since mid-2019, Hong Kong’s retail market has taken a big hit. What started as a protest over an extradition law has translated into a full-fledged pro-democracy movement challenging China’s grip over Hong Kong and has brought the latter to a standstill.

Along with a large fall in visitors from China, several other countries have issued travel warnings against Hong Kong. Visitor numbers declined by 39% in August 2019 (compared with August 2018), with visitors from China falling more than 42% during the same period. In addition to fewer tourists, the local population is also avoiding malls and other public places owing to the ongoing protects. In fact, about 30 shopping malls shut down across Hong Kong in October due to violent protests. These closures have come around the peak festive time (the Golden Week holiday) and have continued to remain closed during the otherwise well-performing Thanksgiving week.

This has converted one of retail’s best performing markets into one of the poorest. Brands such as Burberry, Hermes, Prada, and Tiffany have been forced to shut down few of their stores in Hong Kong. The sales of premium goods, such as jewelry, watches, and other high-value items plunged by nearly 50% in August 2019, when compared year-on-year.

This has converted one of retail’s best performing markets into one of the poorest. Brands such as Burberry, Hermes, Prada, and Tiffany have been forced to shut down few of their stores in Hong Kong. The sales of premium goods, such as jewelry, watches, and other high-value items plunged by nearly 50% in August 2019, when compared year-on-year.

Brands are estimated to suffer a 30-60% quarterly drop in sales in Q3 2019 and considering how the protests are widening and worsening, the sales are expected to drop further in Q4. For instance, as per UK-based financial services firm, Jefferies, Burberry’s sales from Hong Kong are expected to fall by about GBP100 million (US$131.6 million) in 2019. While the brand is expected to offset half of the loss from growing sales in other regions, the remaining loss will be incurred by the luxury retailer.

Given the steep fall in sales and high real estate cost, brands are now revaluating their presence in Hong Kong. In October 2019, Prada announced its plan to shut down one of its flagship stores in Causeway Bay. The company used to pay HK$9 million (US$1.2 million) monthly rent for the 15,000 square feet store and could not justify the high costs anymore. While a few brands are shutting down stores, few others, such as Burberry, are talking to their landlords about rent reduction to cope with the gloomy sales in the short run.

The impact on luxury sales may not be just short term in Hong Kong. Several brands are re-strategizing their approach towards Hong Kong, especially with regards to the Chinese customer. Chinese customers are increasingly going for shopping trips to Japan and South Korea instead of Hong Kong.

Moreover, the Chinese government is also encouraging customers to shop in mainland China by reducing taxes and thereby narrowing the price gap between China and overseas. In 2018, the Chinese government reduced import taxes on luxury goods and followed it with a cut in value-added tax in April 2019. Post this, several brands such as Gucci and Hermes reduced their prices by about 3% in China. This might show that several brands are trying to offset their losses in Hong Kong by targeting the Chinese consumer in their home country.

Brands are also shifting their marketing investments from Hong Kong towards the mainland. Hermes and LV have been extremely bullish about the Chinese market and have opened new stores in the region. Hermes opened its 26th store in China in 2019 and has been expanding its e-commerce presence in China since launching it in 2018.

Luxury Brands Become Collateral Damage of Hong Kong-China Conflict by EOS Intelligence

Brands are extra careful about their design and communication

In addition to focusing on reaching the Chinese customers (in their home market as well as new travel destinations), brands are also being extra cautious about not supporting Hong Kong in the conflict. China has been prompt at bringing brands to task if and when they identified Hong Kong as an independent country in any of their designs or brand communication.

Brands such as Givenchy, LVMH, Versace, and Coach have publically apologized to the Chinese nationals for their clothing designs that labeled Hong Kong as a separate country (from China). Moreover, they removed all such designs from their collections, globally, to ensure they remain in good books of the Chinese customers.

The Chinese have also been very sensitive about any support or sympathy shown to Hong Kong with regards to the conflict. For instance, Tiffany received significant backlash for one of its print ads, which showed a female model covering her right eye with her hand. The Chinese saw this as a sympathetic shout out to the Hong Kong protester who was shot in the eye in August 2019. While Tiffany clarified that the campaign was not a political statement and was conceptualized and shot much before the incident, they eventually removed the image from all digital and social media platforms.

Although not directly related to luxury brands, in October 2019, the Chinese government sanctioned the NBA for a pro-Hong Kong tweet by Daryl Morey, who is the GM of Houston Rockets team. The NBA and Tiffany cases show China’s lack of tolerance towards any pro-Hong Kong message by any brand or organization and thereby brands must ensure that they distance themselves from any pro-Hong Kong sentiment (real or perceived).

Thus it is quite possible that Hong Kong market may lose its luster for luxury goods for good, especially if the Chinese customers stray elsewhere for their shopping. In that case Hong Kong market will only remain relevant for its own residents, which may not justify more than 2-3 stores for a brand in the city.

Thus it is quite possible that Hong Kong market may lose its luster for luxury goods for good, especially if the Chinese customers stray elsewhere for their shopping. In that case Hong Kong market will only remain relevant for its own residents, which may not justify more than 2-3 stores for a brand in the city.

Most brands are currently following a wait and watch strategy, where they are not sending large amounts of their inventory to Hong Kong as has always been the case. They have temporarily shut down shops and given unpaid leaves to their employees. They will wait and gauge if the Chinese consumers do return to Hong Kong when the situation settles and decide the future course accordingly. In case the Chinese customer takes a fancy to other shopping destinations (such as Japan) or start shopping domestically, Hong Kong may lose its position as the luxury hub of Asia.

Opportunities that may arise

In case the Hong Kong conflict has any permanent impact on luxury sales in the region, brands will have to go back to the drawing board to ensure a strong position in Asia. In addition to identifying and developing new shopping hubs for the Chinese customers, brands will also have to alter their strategy and approach to retain Hong Kong’s resident customers. Hong Kong’s resident customers are also avid shoppers but they are more price sensitive in comparison with their Chinese counterparts.

Targeting solely the local residents may also widen the scope of e-commerce in luxury retail sales. Unlike most other markets, e-commerce has not been a major driver of sales in Hong Kong. This is due to the fact that a large number of shoppers are travelers and therefore prefer to make their purchases from retail stores. Moreover, the presence of multiple stores within a small area further reduced the need for e-commerce.

However, if brands plan to reduce their footprint in Hong Kong (only to cater to local residents), they may look at shutting down few stores and promoting e-commerce sales. Hong Kong residents are also more likely to purchase from online multi-brand aggregators (such as Farfetch and Net-a-Porter) that offer deals and discounts. Thus working with such aggregators to promote their brands may also be a good avenue for luxury retailers.

A growing focus and investment towards developing the e-commerce part of the business may also result in growing demand and thereby investments in the mobile payment technologies (which are used for easy payments for purchases) in Hong Kong. While this technology never really took off in Hong Kong as it did in China, this may help in providing the push that it needed.

EOS Perspective

While it is yet to be determined if the ongoing conflict will have a permanent effect on Hong Kong’s position as a prime shopping destination, it is safe to say that the situation will remain unfavorable for the next few months. While some brands such as Prada are already shutting down stores permanently and limiting their exposure in Hong Kong, others such as Burberry are a little more optimistic and want to wait before taking any such decision. This is due to the fact that Hong Kong previously faced a similar situation in 2014, when the umbrella revolution disrupted sales. However, sales bounced back shortly after and Hong Kong continued to be one of the most important luxury markets.

That being said, current protests have become much more intense than anything Hong Kong has endured before and do hold the ability to permanently contract Hong Kong’s role as a leading travel and shopping destination. This may force brands to rethink their strategy for the region with increased focus on e-commerce. This in turn could create opportunities for Hong Kong’s e-commerce and its ancillary markets.

by EOS Intelligence EOS Intelligence No Comments

Coworking Shakes Up Traditional Office Space Rental

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Touted as the future of real estate rental, the coworking model is rapidly taking over the traditional office space rental. In less than a decade, there has been a sudden rise in the number of operators offering space-as-a-service. Driven by more and more people looking to work flexible hours, while still having access to space and services offered in a traditional office setting, coworking space market has experienced a steady growth. Coworking space operators have come up with new ideas to explore secondary sources of revenue generation rather than just relying on offering memberships. While the ideas are successful and earn profits for the business operators, the road ahead is not all rosy.

Coworking space is growing

Globally, the number of coworking spaces are forecast to cross the 30,000 mark by 2022, more than double from a little more above 14,000 spaces in 2017. It is expected that in 2019 alone, approximately 1,700 new spaces will open worldwide with more than 40% of these sites coming up in the USA. In terms of members who use coworking spaces, between 2017 and 2022, the number is expected to increase nearly three times, from 1.74 million to 5.1 million.

A decade ago, when the concept of coworking space was still new to many, the demand for such spaces was limited, as it came mainly from freelancers. However, with the upsurge in entrepreneurial excursions, growing instances of corporate employees working from remote locations, and proliferation of other independent professionals, coworking spaces started to offer not only a place to work but also a platform for the users to grow and exchange ideas.

Enhanced work flexibility, emphasis on work-life balance, and better networking opportunities are some of the key factors that drive the coworking market growth. Easy availability of these spaces at cost-effective prices also contributes to the soaring demand.

Future of coworking spaces is promising

According to the 2018 Global Coworking Survey* conducted by coworking magazine Deskmag, 42% of all coworking spaces reported being profitable. Larger coworking spaces occupied by more than 200 tenants are reported to be nearly twice more profitable than coworking spaces used by 50 or fewer occupants.

Between 2014 and 2018, the number of coworking spaces housing more than 200 members increased 2.5 times, while spaces that rent out more than 200 desks have increased six times.

Coworking spaces operators have robust expansion plans. One out of four is planning to expand their current location by adding more desks. Every third player plans to expand operations by opening new spaces. In comparison to the existing size, operators plan to expand their area by an average of 70% in the future.

Coworking space operators are capitalizing on members’ needs

Memberships and space rentals

The primary revenue stream for any coworking space is providing services at a fee. This includes, but is not limited to, renting out desks (open or flexible), renting out space (conference halls and meeting rooms), virtual offices, private cabins, etc.

Coworking space operators are currently offering fixed and tier-based (one day pass or monthly pass) memberships to tenants. Apart from these, the operators’ revenue stream comes from membership packages for using particular spaces such as conference halls and meeting rooms for fixed duration charged per head and from virtual memberships granting the users access to a virtual address and mailbox.

Promotional events and pop-up set ups

Coworking space operators are using common working areas for promotional activities, marketing campaigns, or other pop-up shops over the weekend when tenants are not utilizing the space for their work.

They rent out space to exhibition organizers who set up booths for showcasing and marketing their products or utilize the space for arranging pop-up retail for small-scale entrepreneurs such as artists, jewelry suppliers, toy sellers, and others. For instance, WeWork often organizes external events where it invites non-member hosts (not having a WeWork space membership) to conduct events in their premises, for which it signs an external event agreement.

Coworking space operators charge the hosts (both member or non-member) for such events in multiple ways – fixed price a day or price per square meter of the area occupied in addition to charging a percentage of commission for the sales made by the stall or pop-up shop.

Ancillary services

Rather than just offering a place to work, coworking spaces are also offering additional amenities to members such as nursery, gym, or pet daycare facility. Cuckooz Nest, a based in London 36-desk coworking space, offers onsite childcare service for children up to two years of age at a chargeable fee while employing certified nannies. In October 2018, The Wing, a women-focused coworking space, announced that it would start offering on-site childcare across all its current and upcoming locations – the service will be staffed by certified babysitters at an extra cost.

Similarly, Work & Woof, a coworking space based in Austin, Texas, offers free pet daycare with each membership starting from US$30 a day. WeWork also has a pet friendly policy wherein members can bring their pets to work, though they are permitted only in private offices or be leashed in common areas. These add-on services act as diversified revenue streams for the space operators.

Coworking Shakes Up Traditional Office Space Rental by EOS Intelligence

Challenging times ahead

Even though the future of coworking space looks positive, the players operating in the coworking space market do face some challenges and threats.

Pure-play coworking space operators face competition from hotels doubling as coworking spaces while offering a place to stay. For instance, Dubai-based Hotel Tryp by Wyndham offers hotel guests and walk-ins easy access to its coworking space called ‘Nest’ at a fee charged hourly, daily, or monthly, depending on the length of the guest’s stay.

Another hotel, Hotel Schani Wien in Austria, has transformed its lobby into a small space of 12 desks for coworking purposes; while in-house guests can utilize the space for free, others can choose a coworking pass (priced at € 90 for 10 days or € 150 for 30 days) or rent a coworking desk for €190 a month.

Another mixed-use infrastructure development that could hurt the coworking space players are unused or empty shops in shopping malls. According to a survey conducted in 2018 by Jones Lang LaSalle IP, a Chicago-based commercial real estate services firm, it is estimated that coworking space in retail properties will grow at a rate of 25% annually by 2023. The need to generate revenue from vacant spaces has forced retail landlords to find new ways to fill the space with alternative tenants; offering this space for coworking purposes seems to be a feasible option.

The concepts of hotel or retail coworking are unlikely to become the next big thing in the near future. However, with individuals exploring easily accessible work spaces, it would be interesting to see how these ideas unfold and how they affect the players in the coworking space.

EOS Perspective

Since its inception over a decade ago, coworking space has grown from an idea to a full-fledged industry reshaping the entire work landscape. Coworking space has had a striking and multi-dimensional impact on the commercial real estate industry.

Coworking space has reformed the commercial real estate industry for good. Players are remodeling and utilizing old abandoned buildings, warehouses, and factories to set up new premises. In 2013, Amity Packing Co., a 40-year-old meatpacking facility (with an area of 83,000 square feet) based in Chicago, was acquired by WeWork (along with other partners) and was renovated into a mixed-use commercial building with 77% of the space being used as office space.

The impact of coworking has not been all positive for the real estate developers (who play in the traditional office space development) since they are losing out to developers inclined to the concept of coworking. Such players should modify their real estate portfolio to fit both traditional and coworking users, since the demand for traditional office space is not extinct, but only diminished.

For real estate agents, the increasing number of coworking spaces does not paint a rosy picture either. As tenant and space provider deal with each other directly, the role of middlemen will gradually cease to exist. However, not all is bad as agents can sign commission deals with coworking spaces for recommending new members. Brokers also see advantage in making connections with start-ups or businesses in their incubation stage at these places, hoping to benefit while they expand and search for new premises or coworking space.

Nonetheless, unlike developers and agents, real estate landlords seem to benefit from the coworking space. Their flow of revenue is constant – when the premises are occupied by multiple independent tenants in a coworking space, steady income is guaranteed. Coworking also eliminates issues such as losing money during phases of vacant property (in case the tenant moves or closes operations) and pulling out money from own pocket (such as agent fee to look for new tenants or operational costs of the facility while it lies vacant, which in traditional rentals can stretch over longer periods of time).

Banks and financial institutions also seem to be optimistic about the coworking concept. Banks consider coworking spaces to be a low risk investment because of multiple and diversified income coming from many tenants. Single-occupant office spaces are dependent on the success of the business – in case the business fails, the banks are stuck with limited options to recover the investment. In case of coworking spaces, the premises will never go empty all at once.

Coworking spaces are agile and are likely to prosper as they adapt to the changing needs of the users, who demand flexibility at work. Other than offering flexible office space, unrestricted work hours, and a place to connect with like-minded people, coworking spaces have transformed the way many people work. It is clear that the future belongs to coworking spaces provided the space keeps evolving and upgrading to meet the ever-changing demands of the occupants.

*All results indicated for 2018 represent year ending 31st Dec, 2017. (n=1980, including coworking spaces (operators or staff members), coworking members, planned/future coworking spaces, former coworking members, and people who have never worked in a coworking space).

by 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.

by EOS Intelligence EOS Intelligence No Comments

Blockchain Paving Its Way into Retail Industry

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Blockchain technology, which initially became popular with cryptocurrency (especially bitcoin), is now making its way into many other industries, including retail. Though still in its infancy, blockchain holds tremendous potential for retailers and has applications across supply chain data management, customer retention through loyalty programs, digital advertising, among many others. While several industry experts have proclaimed blockchain to be the next revolutionary technology in the retail sector, it is yet to be seen if these applications gain commercial acceptability (or remain niche solutions for niche products).

While the financial services industry has been one of the early adopters of blockchain technology, other sectors are also increasingly realizing the potential that blockchain can unlock for their businesses.

One such sector is retail, which is increasingly going digital – shedding its paper-based and centralized way of doing business. With an increasingly demanding customer and growing need for transparency, blockchain technology is expected to play a big role in the retail sector.

In addition to its inherent application as a payment-medium supporter (i.e. increasing acceptance of cryptocurrencies as a payment mode by retailers), blockchain has several other applications in the retail space – encompassing supply chain management, customer loyalty programs, and digital advertising.

Blockchain in supply chain

Blockchain helps improve transparency

Blockchain technology makes it possible to record every touchpoint of the product’s life as it moves through the supply chain – from manufacturer to shipper to supplier to seller – adding blocks of verifiable record to the product’s heritage.

For instance, if a supermarket is selling a box of cookies, blockchain data would record exactly when, where, and by whom the cookies were made, as well as what ingredients were used during manufacturing. By placing the cookies supply chain on the blockchain, the process becomes more transparent through inerasable tracking of how cookies have been handled at each node all the way up to the store shelves. This makes any affected ingredient traceable faster. For instance, if milk or eggs used in the cookies were affected due to poor storage, the affected ingredient (or its batch) could be traced back to the storage location and could be withdrawn from the warehouse without the tedious and error-prone process of checking each supply chain node. This ensures greater food safety and helps hold suppliers accountable throughout the chain. This is also useful in case of tracing of organic products where it is particularly important to trace whether each ingredient used to make a product is organic and matches the claims made by the producer.

There are several players in the industry who are already taking advantage of the benefits brought to their operations by blockchain. One of the largest retail giants, Walmart, has partnered with IBM and has been working together since October 2016 to develop a food safety blockchain technology called, IBMs Food Trust, to facilitate the digitization of the food supply chain process. The technology, which was previously in its testing phase, was launched for commercial use in October 2018. With the help of this technology, the source of the product can be tracked in 2.2 seconds, which previously could take up to seven days (with the use of paper-based ledgers).

In September 2018, Walmart announced a Food Trust Initiative, under which it has requested all its greens suppliers to upload data about their produce on the blockchain and ensure end-to-end traceability by September 2019. It is likely that the company extends the use of this technology to other fresh foods and vegetable suppliers in future.

Post the commercial launch of the IBM Food Trust platform in October 2018, France-based retail giant, Carrefour, also announced that it will be using IBM’s blockchain technology to track animal and vegetable product lines. Furthermore, it expects to expand this technology to other fresh products by 2022.

Blockchain Paving Its Way into the Retail Industry

Blockchain effectively combats food-related fraud

Another issue that blockchain helps combat in the retail space is food-related fraud, i.e. the misrepresentation of product contents by substituting the ingredients with cheaper alternatives. It is estimated that the global food industry suffers losses of about US$40 billion annually due to food fraud. An example of such a fraud was the Tesco horsemeat scandal in 2013, where some of Tesco’s packaged beef meals were found to include 60% horsemeat (undeclared on the label).

To fight such frauds, one of the world’s largest e-commerce players, Alibaba, has partnered with four Australian and New-Zealand-based companies, among whom are Blackmores (an Australian health supplement company) and Fonterra (a multinational dairy co-operative) to create a food tracing system built on blockchain technology. The project entered into its pilot phase in 2018. Through this system, Tmall Global’s (Alibaba’s international online marketplace) customers in China will be able to trace the goods that they order online (from partnering companies) across each node of the supply chain before the goods are finally delivered. The partnership is not only expected to help customers track the supply chain of food ordered online but also to prevent food fraud thanks to greater visibility and traceability of such fraudulent actions potentially attempted by producers.

Blockchain helps bring down the counterfeit luxury goods market

As a digital ledger where multiple stakeholders share and authenticate the same information, blockchain also makes counterfeiting more difficult. Counterfeiting is a big issue in the luxury and premium goods market owing to high prices and limited availability. The scale of counterfeiting in the luxury retail segment is overwhelming and it is sometimes nearly impossible to distinguish legitimate goods from the counterfeit ones. Forbes estimated the counterfeit luxury goods market in 2018 to be worth approximately US$1.2 trillion.

However, the use of blockchain technology can help luxury brands fight against the menace of counterfeiting. By using blockchain, companies can track every link in their supply chain and customers can access information to ensure the origins of the product and its authenticity.

Greats, a US-based premium sneaker brand, has been using blockchain and embedding smart tags in its footwear since 2016. Customers can use their smartphones to scan the tags to verify the authenticity of the sneakers.

The use of blockchain technology can help luxury brands (and other retail companies) fight against the menace of counterfeiting. By using blockchain, companies can track every link in their supply chain and customers can access this information through smartphones to ensure the origins of the product and its authenticity.

In 2018, a Paris-based blockchain company, Arianee, announced that it will be building a registry to combat counterfeiting of luxury brands, where every product will be classified with a unique token that differentiates it from the rest of the products.

Another example of this is De Beers, one of the world’s largest diamond producers, which along with five other diamond players (Diacore, Diarough, KGK Group, Rosy Blue NV, and Venus Jewel) has developed a blockchain platform, called Tracr in 2017. Through this platform, a diamond can be tracked from miner to end customer, i.e. throughout its complete value chain, using ethereum blockchain technology. In 2018, De Beers announced that it has successfully tracked 100 high-value diamonds along the value chain during the pilot run of its blockchain platform. The platform is expected to bring transparency in the diamond trade through physical identification of diamonds. A diamond could be tracked through its unique number from mining to cutting to polishing and to retail, which will ensure its purity.

Owing to its ability to empower companies to track, trace, and authenticate their products from the point of origin to the retail shelf, blockchain is likely to become the standard in supply chain tracking for the retail sector. However, this application is currently in its nascent stage of development and is being experimented on by only few large and niche players before it reaches industry-wide adoption.

Blockchain in customer loyalty programs

Customer loyalty points is another area where blockchain could be considered very useful. Loyalty programs generally work by awarding points to customer account for each purchase, which later can be redeemed for discounts on future purchases. While it follows the principle that retaining existing customers is less expensive than attracting new customers, loyalty programs are not always successful.

Most loyalty programs are centralized, where the customer could only redeem its value with the same retailer (or in some cases a small group of retailers), thereby limiting their use and appeal. Moreover, in many cases, loyalty programs also have stipulations that further restrict the use of the points and reduce the program’s perceived value, which in turn results in lower loyalty of the customer. According to Colloquy Loyalty Census 2017, there were approximately 3,000 loyalty programs in North America, where 6.7 trillion points were issued every year and about 21 trillion points were dormant or not used. This suggests that more often than not, customers find loyalty programs more exhausting than benefitting, defeating the entire purpose of having loyalty programs.

Blockchain technology allows customers the flexibility to use their loyalty points when and how they please. Blockchain-based loyalty programs award customers with tokens or cryptocurrencies instead of points, which could be redeemed by customers during future retail purchases and could even be redeemed for fiat currency (as the value of tokens grow overtime and do not expire).

This can be seen in the case of Rakutan’s loyalty program. In 2018, Rakutan, one of Japan’s largest retailers, announced an alt-coin, called Rakutan Coin, with which customers could redeem reward points for gifts at all Rakutan Group companies and also for other cryptocurrencies. The company has moved US$9 billion worth of existing Super Points (customer loyalty program points) into the blockchain to provide a boost to the Rakutan Coin.

Blockchain-based loyalty programs award customers with tokens or cryptocurrencies instead of points, which could be redeemed by customers during future retail purchases and could even be redeemed for fiat currency.

In another example, in 2017, University of New South Wales in Australia partnered with LoyaltyX, an experimental loyalty agency for a blockchain loyalty research project, wherein students and staff earned US$5 of ether (cryptocurrency ethereum) for every ten transactions made at any of the eleven campus retailers including Boost Juice (Australian fruit juice and smoothie retail outlet) and IGA (Australian chain of supermarkets). It was found that 86% of the participants were more attracted to earn cryptocurrencies where they had the option to redeem them for fiat currency.

Thus, blockchain-powered programs seem to encourage customers to engage in the loyalty programs as they not only curb the problem of set expiration of traditional loyalty points but also give the power to the customer to use the tokens as and when they require with any retailer. This is likely to help retailers renew customer interest in their loyalty programs, which in turn is likely to improve brand loyalty.

In addition to adoption in the retail space, players from other related industries are also experimenting with blockchain-based loyalty programs. In 2018, American Express (an American financial services company) partnered with Boxed (an American online wholesale retailer) to make its membership rewards program more versatile by integrating blockchain. With blockchain, merchants will be able to create custom membership rewards program for American Express card holders. The power to structure the offers will be with the merchants, whereas American Express will have the right to regulate the products or brands being promoted.

Also in the same year, Singapore Airlines partnered with KPMG and Microsoft and created a blockchain-based digital wallet KrisPay, where customers can turn travel miles into units of payment that can be used with partner merchants such as eateries, beauty parlors, gas stations, and some retailers, including LEGO store outlets within Singapore. This shows that some large brands are experimenting with this technology for their loyalty programs.

While integration of blockchain seems to be the ideal solution to invigorate the fading customer loyalty programs, it is still in its embryonic stage. Such applications need mass adaption to be successful and this will require significant time and investments.

Moreover, the adoption and success of blockchain-based loyalty programs to an extent also depend on the overall sentiment towards cryptocurrencies – their value and ease of transactions.

Lastly, scalability is also an extremely critical point for the smooth running of such loyalty programs. With numerous retail transactions happening every second, it is yet to be seen if blockchain can cater to these huge numbers without a slag time.

Blockchain in digital advertising

Another space where blockchain technology is likely to have significant potential is digital advertising, which is used by numerous retailers as a medium to reach their prospective customers. However, the process of buying online advertising is susceptible to fraud, especially with the increasing use of automated real-time bidding through ad-exchanges (programmatic advertising).

Under real-time programmatic advertising, publishers (themselves or through ad vendors) showcase their inventory along with details about the kind of visitors that their site targets. The advertisers then bid for these ad impressions and the highest bidder gets to display their ad on the site.

The entire process and ad marketplace lacks a sufficient level of transparency. Sometimes vendors misrepresent remnant inventory for a publisher as premium inventory, thereby charging higher fees from advertisers. In other cases, fraudulent sellers enter the exchange, claiming to represent publishers and having access to their inventory, in turn selling fake inventory to advertisers.

Blockchain has the potential to make the online ad marketplace more robust and legitimate by providing transparency, which is currently missing. Since blockchain is a peer-to-peer online ledger where all transactions between the participating parties are recorded (and cannot be deleted or changed), the advertisers can see for themselves where the inventory that they are bidding for has originated and who has access/authority to sell it.

Some examples of implementations are already found in the market. In June 2017, MetaX, a blockchain technology company, along with DMA (The Data and Marketing Association) launched adChain, an open protocol built on the public ethereum. adChain is an open access ledger that tracks and reports the origin, sale, resale, and publishing of an online ad.


Explore our other Perspectives on blockchain


In December 2017, MetaX also launched a blockchain-based solution ‘Ads.txt Plus’ to improve transparency in the digital advertising space. Ads.txt Plus is based on a technology by IAB Tech Lab, called Ads.txt, which helps prevent fraud in the industry by allowing publishers to broadcast a list of authorized sellers of their ad inventory. By bringing this technology to ethereum blockchain, MetaX aims to further improve efficiency and transparency for its users.

If blockchain is adopted successfully in the digital advertising space, the advertisers can see exactly where their ad dollars are being spent, which players made commission, and how much of the total amount paid by them for the ad reached the site publisher.

Further, with the help of blockchain, buyers and sellers (advertisers and publishers) can enter into smart contracts for the sale and purchase of digital ads without the need for intermediaries, eliminating them from the ad bidding process.

Alternatively, buyers and sellers can choose to add other verifying parties/service providers to the smart contracts, such as measurement provider, ratings provider, payment provider, and arbitrator. In 2017, Kochava Labs (the R&D subsidiary of Kochava Inc.) launched XCHNG, an open and unified blockchain-based framework for the digital advertising ecosystem. Through the use of smart contacts, XCHNG aims at reducing the number of middlemen in the digital advertising ecosystem by facilitating transactions between the buyer and the seller and measurement providers.

While blockchain-based solutions fit perfectly in the digital advertising space on paper, the practicality and adaptability are yet to be seen.

One of the key issues challenging the adoption of blockchain in the digital ad space is scalability. The process of chaining and verifying on a blockchain takes much longer, especially, when compared with the current speed of real-time bidding transactions. It is yet to be seen if blockchain technology can evolve to offer faster processing speed, which is critical for industry-wide adoption.

While blockchain-based solutions fit perfectly in the digital advertising space on paper, the practicality and adaptability are yet to be seen. One of the key issues challenging the adoption of blockchain in the digital ad space is scalability.

While few blockchain solutions, such as XCHNG (which claims it can handle 180,000 transactions per second per smart contract composed of multiple insertion orders), refute this challenge, the other challenge in this area is that of intent. Since blockchain is expected to make transactions more transparent and also reduce the number of intermediaries, industry players may not fully embrace the technology and despite its inherent benefits, blockchain may take time to gain ground in the digital advertising industry.

EOS Perspective

In an era where businesses are becoming more customer centric, blockchain helps bring the customer and retailer together on the same platform and promises a future with more transparency. It is clear that blockchain technology has the ability to transform the retail sector just as it is likely to transform several other industries (such as healthcare, car rental and leasing, or aviation).

However, despite holding immense potential and promise, most applications in this space are still to move beyond just being proof-of-concepts. Several issues, such as high investment requirements, scalability, and to an extent, willingness to change, remain to be addressed before there is an industry-wide acceptance for these solutions.

That being said, executives are definitely keeping an eye open for the latest developments in this space and several of them are open to testing and investing in blockchain-based solutions, hoping for them to be the key differentiator/value-proposition that attract the customers towards them. While most investments currently are being seen in the supply chain space (since its benefits seem most achievable and tangible), solutions in the space of loyalty programs and digital advertising may take a little more time to gain traction.

It is safe to say that retailers cannot afford to ignore the benefits of blockchain technology anymore. Many retailers lack specific understanding of this concept and its potential across different areas of their operations. This could cost them dearly in terms of customers. Technological innovations are happening at light-speed in today’s day and age and while blockchain technology currently may lack commercial acceptability and scalability, it is expected to seep into the operations of the real sector in a significant way in the coming future.

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The Smoke around Legal Cannabis

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Till date, 31 countries and 41 states in the USA either legalized cannabis in various forms, including making it legal for medical or recreational use, or decriminalized it while still maintaining its illegal status. Few countries are preparing to legalize or decriminalize the use of marijuana for all purposes while many countries are still debating over the legalization of this plant only for medical and not for recreational use. With the rise in education about cannabis and its benefits for humans, economies, and culture, chances of positive changes in laws around cannabis are growing across the world. As legalizing cannabis is still a topic of debate with variety of business, political, and cultural views involved, we are looking at how the legalization of cannabis might impact the economy and businesses in the countries taking the step towards less restrictive approach to handling the issue.

Cannabis – a controversial medicinal plant

Cannabis or marijuana plant and its alleged benefits and risks for human body have been a difficult topic of debate amongst law makers, medical professionals, researchers, economists, politicians, and (of course) cannabis users. In many parts of the world, it still has negative connotations with a narcotic drug, due to presence of psychoactive substance tetrahydrocannabinol (THC) which brings an intoxicating effect to human mind.

In many countries, cannabis has been treated similarly to other chemical drugs, such as cocaine, heroin, etc., in terms of its legal status, by banning from legal cultivation, purchase, or selling for any purpose. However, there has been a continuous development in spreading awareness by the medical professionals, researchers, and scientists on the benefits of using cannabis for medical purposes. This has been followed by voices being raised on people’s right to legalized cannabis also for recreational purposes, comparing it with alcohol and tobacco, which are claimed to have far worse impact on human health, yet are enjoying legal status in many countries.

In addition to this, many economists too are coming forward in favor of legalizing cannabis to bring a boost to economies. As a result of such strong petitions, more and more countries are considering legalization of cannabis and the future might see countries such as USA (including all 50 states), Mexico, New Zealand, The Netherlands, Columbia, France, Spain, Italy, Czech Republic, Jamaica, and Portugal legalizing the plant for all purposes, along with legalization of personal cultivation of cannabis with an aim of bringing cure or relief to several diseases, helping to control healthcare costs, curbing illegal drug businesses, and stimulating country’s economy through adding another taxable business activity.

The Smoke around Legal Cannabis

Countries signal green light for marijuana

The league of countries with full legalization of cannabis for all purposes is still a small, two-member club, which was most recently entered by Canada (in October 2018) with more than 100 legal cannabis retail stores running across the country. After Uruguay that started this league in December 2013, Canada is the second country in the world to completely legalize cannabis, and it does not seem that the club will expand any time soon.

The USA are considering to gradually legalize cannabis for recreational use along with medical use. As of November 2018, The District of Columbia and 10 states including Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington have legalized the recreational use of cannabis. An addition of 30 states along with US territories of Puerto Rico and Guam allow the use of cannabis only for medical purposes.

Amongst the European countries, none of them has legalized smoking cannabis or using it for recreational purposes yet, but there are several countries which have legalized the medical use of cannabis under a treatment process, while also decriminalizing the use of cannabis for recreational purposes. Malta, Greece, Luxemburg, and Denmark are amongst the European countries that legalized medical cannabis in 2018 adding to the group of other European countries such as Italy, Norway, Poland, The Netherlands, France, Spain, Slovenia, to name a few.

Some Asian countries are also moving towards legalizing cannabis but exclusively for medical purposes and that too with strict policies. Recently, in November 2018, Thailand legalized medical marijuana, but with very stringent rules to get access to marijuana plants. Also, in November 2018, South Korea became the second Asian country to legalize medical cannabis, while Malaysia is expected to be the third nation to fall into this group. Interestingly though, India, known to be the origin of cannabis sativa plant, has not legalized the use of cannabis for any purpose yet, although the country runs a huge illegal trade of marijuana as well as hashish (a drug made of cannabis resin). There are many petitions already submitted by various Indian economists and politicians in favor of legalizing cannabis for use in cancer patients and even hemp cultivation for horticulture use, but due to changing political environment in India, the petitions are still pending to be considered by the relevant law-making bodies.

Cannabis business – boom in economies

According to a report published in 2018 by Brightfield Group, with the on-going trend of countries moving towards legalizing cannabis, the global legal cannabis market is expected to reach US$ 31.4 billion by the end of 2021, owing to the growing adoption of medical cannabis in treatment or relief in a range of diseases and ailments, such as cancer, mental disorders, chronic pains, and others.

Apart from medical applications, the recreational use of cannabis too has led to a continuous rise in sales of cannabis for direct and indirect use, thus giving a push to retail businesses as well as tourism sector in countries that moved towards legalization. As a result of the rise in sales, governments of these countries and states have registered increased tax revenues and a boost to local economies. For instance, California that legalized cannabis for recreational use in January 2018, generated US$74.2 million of tax revenue during second quarter, with a rise of 22% over the first quarter. In another, more hypothetical example, according to a report by Canada’s Parliamentary Budget Officer, Canada could generate US$463.74 million in tax revenue by 2021 if the projections of nearly 734 metric tons of legal cannabis to be consumed by that year are correct.

Similarly, according to a study by New Frontier Data, if cannabis was legalized in all American states, it would generate a combined US$131.8 billion in federal tax revenue between 2017 and 2025, considering 15% retail sales tax, payroll deductions, and business tax revenue. In fact, according to a research study by Ameri Research Inc. in 2017, in the USA, tax revenues from legal cannabis are now comparable with revenues from other products, such as draft beer and e-cigarettes, a fact highlighting the recent growth of sales in legal cannabis market in the USA.

Apart from tax revenue generation, creating new business opportunities is also one of the reasons for countries to seriously consider legalization of cannabis. States such as Colorado, for example, have registered some 431,997 new business entities between 2014 and 2017. In 2017, it also experienced a 17.7% rise in employment over 2016 with 17,281 full-time equivalent jobs. Also, in 2017, across the USA, there were 9,397 active licenses with slightly more than 3,000 licenses active in Colorado. These licenses were made active for cannabis businesses dealing with cultivation, manufacturing, retailing, distributing, delivering, and even lab testing that generated 121,000 jobs in 2017 across the District of Columbia plus 10 US states. This number is expected to reach 1.1 million jobs by 2025, if cannabis is legalized in all 50 states, across all ends of cannabis industry supply chain, from farmers to transporters to sellers.

It is expected that through legalization of cannabis, several countries, especially Mexico, USA, and Canada, are also expected to witness significant drop in illicit activities related to drugs industry. According to a study by Deloitte in 2018, cannabis users in Canada are willing and in fact looking forward to pay more for legal purchase of cannabis grown and processed under federal laws and sold through legal channels rather than going for illegal drug purchase options. This goes hand in hand with Canadian government’s hopes to crack down on illegal drug trade while also finding new sources of stimulation to the country’s economy.

Impact of legal cannabis market on other business sectors

The emergence of legal cannabis market has raised many business opportunities in various sectors such as retail, food and beverages, real estate, and even tobacco and alcohol industry.

Amongst these sectors, real estate has been developing strongly in many countries allowing for legal cannabis for medical as well as recreational use. Properties and facilities that are well-suited for cannabis-related operations are experiencing rise in industrial rents and sales price premiums owing to the rise in demand for warehouses, industrial and storage facilities, agricultural, and other properties.

In Canada, legalization of growing and sales of recreational cannabis has fueled a six-fold surge in plant-growing facilities to 8.7 million square feet in 2018 according to data from Altus Group, Canadian real estate company. Aurora Cannabis, one of Canada’s leading cannabis companies, has already started its project for cultivation of cannabis in a new 8 million square feet facility in 2018. Canopy Growth, market leader in cannabis industry of Canada, has announced plans in October 2018 to develop 3 million square feet of greenhouse space in British Columbia through October 2019, which will be more than double its production surface as of 2018. With the legalization of cannabis, the demand is also rising for commercial real estate thus giving an opportunity for struggling retailers to make a move into a new market. Alberta, where cannabis industry is fully private, has experienced a sharp surge in demand for 1,200 to 3,000 square feet retail real estate to set up cannabis shops and dispensaries in malls and street-front locations.

Similarly, within the USA, Colorado, experienced a rise in real estate sector through increase in housing values by about 6% owing to increasing development in retail sector through legal cannabis pharmacies, dispensaries, cafés, and retail shops. Going beyond real estate, the retail industry is also likely to receive a push thanks to opportunities in auxiliary businesses such as accessory shops, cannabis cafés, weed gardening products stores, bakeries, and candy shops, contributing to rising demand for retail locations.

The impact of cannabis legalization is visible also in food and beverage industry thanks to new products such as cannabis-infused edibles such as cakes, candies, and drinks. In 2017, California reported sales of US$180 million of edibles, whereas Colorado has seen about a 60% rise in edibles sales volume (with 11.1 million edibles unites been sold in the same year). The future of food and beverage industry with cannabis-infused edibles is projected to be promising due to the benefits of cannabis plant for using it in food products. According to a food and beverage industry expert, Sylvian Charlebois, cannabis offers good nutrients (proteins, vitamin E and C, to name a few), hence for food products manufacturers looking for new avenues of growth, cannabis could be deemed the next ‘superfood’.

On the other hand, the legalization of cannabis has affected alcohol industry due to the emerging inclination of people towards choosing the “green high” over alcoholic drinks.

According to a study by Deloitte in 2018, in Canada, cannabis is likely to be increasingly perceived as a substitute to beer, spirits, and wine which could negatively impact the alcoholic beverages-related revenues for governments, liquor companies, and retailers. This is already observed in the USA, where a joint recent research study of 10 years conducted by two US-based universities, namely University of Connecticut, Storrs and Georgia University, Atlanta in cooperation with Universidad del Pacifico in Peru, has suggested that the counties located in medical marijuana states showed almost a 15% decline in monthly alcohol sales between 2006 and 2015.

At the same time, some industry experts believe that since it is part of American and European food culture to drink alcoholic drinks such as beer and wine with food, the legalization of cannabis is not going to affect the demand for such food-complementing alcoholic drinks. In fact, cannabis legalization is also coming out to be a stepping stone for large alcohol brands to enter the cannabis industry with cannabis-infused alcoholic beverages, mostly through mergers and acquisitions with leading cannabis growing companies. In August 2018, New-York based Constellation Brands acquired more that 50% stake of Ontario-based Canopy Growth for US$4.0 billion, the largest investment registered in cannabis industry so far. The received investment is believed to help Canopy Growth strengthen and expand its leadership position in Canada and other countries with legalized cannabis. It is expected that in the future, other alcohol industry leaders will also consider getting involved in cannabis industry in order to expand through cannabis-infused drinks, creating a new segment of products with combination of alcohol and cannabis.

EOS Perspective

The benefits of cannabis on human body in diseases such as cancer, acute and chronic pains, or neurological and mental illness, have resulted in a growing count of countries legalizing use of cannabis. On the other hand, the legalizing of cannabis for recreational purpose is still receiving mixed views by industry experts and public opinions in several countries. The only way to make this experiment work, is to follow the steps of those countries that have legalized recreational cannabis and are simultaneously focusing on implementing a completely regulated system to scrutinize the whole supply chain in order to curb illegal drug activities and over-dose of cannabis by the users.

For this purpose, the leaders – Uruguay and Canada – have created systems of registration cards with a specific limit to purchase a quantity of cannabis for recreational use per month. As a result of this, the situation is expected to be under control and authorities believe that this will help in curbing illegal trade activities while keeping check on personal consumption of cannabis.

It is also recommended to consider the fact that legalization of cannabis for recreational and medical purposes is likely to reduce the use of other, more harmful and addictive drugs, as well as curb (at least to some extent) the over-consumption of alcohol that is associated with serious health hazards and many deaths, generating huge social burden and healthcare costs in many countries.

Considering all these factors, the success of legalizing cannabis for all purposes in any country depends on how the processes across cultivation, distribution, retail, all the way to the end buyer is regulated and scrutinized by the law makers and law enforcers of the country. There surely are both pros and cons of legalizing cannabis but with solid work towards improved awareness, and, more importantly, a regulated system with proper (enforced) laws, it can give the countries a boost to their economies along with rise in employment, better medical treatments, and decline in illegal drug activities.

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Commentary: Walmart Acquires Flipkart – The India Scenario

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Putting an end to all rumors and speculations making the rounds about the Walmart-Flipkart deal, Walmart, America’s largest retail chain, on 9th May, 2018, finally closed the deal at US$16 billion by acquiring Flipkart, India’s largest e-commerce platform

What’s the deal?

The buyout, touted as one of the biggest e-commerce deals, has led Walmart to own 77% stake in Flipkart. The association of the two players comes at a time when the Indian e-commerce market is bourgeoning and is expected to reach US$200 billion by 2026 (up from US$15 billion in 2016), increasing at a CAGR of nearly 30%. For Walmart, this is a great opportunity at the right time to grow its foothold in the Indian market.

As part of the deal, US$2 billion was the definite amount invested in Flipkart, and remaining US$14 billion was used to buy out other stakeholders which sees Softbank’s (Flipkart’s largest shareholder prior to the deal) exit from Flipkart, among others. The remaining 23% of the company stakes will stay with Binny Bansal (co-founder of Flipkart), China’s Tencent Holdings, Tiger Global Management, and Microsoft.

Flipkart and Walmart offer each other a strategic and valuable partnership. By acquiring Flipkart, Walmart adds Jabong and Myntra (fashion retail players), PhonePe (payment platform), and Ekart (logistics and supply chain provider) to its portfolio. Walmart can use them to its leverage in understanding the Indian e-commerce ecosystem and gain insights into Indian consumers’ online shopping habits. In return, Walmart’s experience in logistics and supply chain will come in handy for Flipkart to strengthen its operations, even further, in India.

What does it mean for e-commerce landscape and players?

Walmart acquiring Flipkart may prove to be a turning point for e-commerce in India. Small and medium sized enterprises are expected to gain from the deal. As Walmart grows in India, the company plans to procure products directly from local businesses and offer them growth opportunity by exporting their products to other countries via e-commerce. Even grocery suppliers and ‘kirana’ stores owners could benefit in the long run as Walmart may merge its cash and carry business with Flipkart, which aligns with Flipkart’s move to invest and grow its online grocery business – it launched a pilot program to sell groceries on its platform in Bengaluru in July 2017.

However, the deal has not been welcomed by online sellers on Flipkart and they are concerned about the future of their businesses. There is a speculation that with Walmart entering India, it may bring with it the already existing line of labels via Flipkart to the Indian market. This may not only increase competition among sellers but may result in eliminating some of the smaller sellers already present on the Flipkart platform by offering products at much lower prices.

But the most difficult challenge brought by the acquisition will be faced by other players, such as Snapdeal or BigBasket, operating in the e-commerce space. As Walmart and Flipkart ally together, having a proficient knowledge related to retail, supply-chain management and logistics, and with its tiff with Amazon, already a front runner, it is most likely that the competition in the e-commerce sector is going to intensify and players, especially small ones, will have to offer top notch service in terms of quality, price, on-time delivery, and possibly vertical or niche specialization, to survive the heat of the competition.

What does it mean for consumers?

With fierce competition expected to rise between the many e-retailers, it only means good news for consumers. Consumers can now expect new brands, better variety, and more options to choose from. In order to stay ahead of its competitors, players will be likely to offer better discounts which the consumers want.

Apart from better promotional offers, consumers can also expect better customer service and quicker product deliveries. Also, as the e-commerce sector grows in coming years, it is most likely that large players such as Walmart and Amazon would broaden their reach in Tier II cities, Tier III cities, and even rural areas, as consumers in these parts of the country represent a huge untapped potential for online sales.

What can be expected in future?

In the current scenario, this move brings with it both good and bad news. From a consumer’s point of view, evolution in the e-commerce space is great as they will now have more options at better prices to choose from. However from a supplier’s perspective, the pressure to offer good quality products at low prices, while surviving competition, will be intense.

The deal is expected to revolutionize the dynamics of online and offline retail sector in India. The e-commerce boom is relatively new to India and a merger like this signifies the enormous potential of the sector by offering new opportunities to suppliers and delivering more value to customers.

The deal is expected to revolutionize the dynamics of online and offline retail sector in India.

With the deal being finalized, one thing that is bound to happen is a head on collision between Walmart and Amazon to emerge as the leader in the Indian e-commerce landscape. To outrun its competitor, each player will rigorously work on improving its supply chain infrastructure thus can be hoped to create a good number of jobs. As the consumer demand increases, farming (through new grocery stores that Flipkart plans to open) and infrastructure sectors are expected to benefit in the long run.

At this stage, only speculations can be made about how much benefit Walmart will have by acquiring Flipkart. However, this deal has definitely paved the way for the growth of the Indian e-commerce industry.

by EOS Intelligence EOS Intelligence No Comments

Infographic: Tailored Cosmetics – Customization Is a New Trend

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In the last five years, the beauty and cosmetics industry has witnessed a considerable demand for bespoke or tailored beauty products, which offer an alternative to “one-size-fits-all” cosmetics. The bespoke cosmetics companies allow customizing ingredients, colors, and fragrances, among others, to provide products tailored to an individual’s skincare routine or requirements. With consumers being increasingly selective, more engaged, and aware about ingredient and formula benefits, the appetite for customization to meet their distinct needs has grown.

Presently, the market for tailored beauty products is relatively small, dominated by small-sized players and start-ups, with a few established beauty brands such as Estée Lauder, Shiseido, Lancôme, among others, operating in the market. As demand grows, several other players are expected to venture into the market.

Despite challenges such as limited accessibility and high product prices, bespoke cosmetics market has tremendous growth potential and is certainly more than just a fad. The concept of customization catering to every individual’s requirements is increasingly luring more customers and could take bespoke cosmetics from being a novelty to mainstream sooner than later.

tailored cosmetics


Headquarter locations of tailored cosmetics manufacturers (refer to the infographic)

  • Function of Beauty and Kiehl’s – New York, USA
  • Ittsē and eSalon – California, USA
  • Cover Girl – Maryland, USA
  • Skin Inc. – Singapore
  • GeneU – London, UK
  • Ioma and Lancôme – Paris, France
by EOS Intelligence EOS Intelligence No Comments

Five Technology Trends to Reshape Retail in 2017

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Today, retail and technology have become inseparable, driven by the need to digitalize services to offer convenience to shoppers and elevate their shopping experience. Retailers are slowly shifting focus towards being phygital, and to digitalization of in-store experience, supported by disruptive technologies (social, mobile, cloud, and analytics) continuously transforming the face of retail sector.

Besides enticing customers and creating a unique shopping experience, digital retail integration is increasingly simplifying supply chain management, payment systems, and tracking of inventory and sales data, among others. Some retailers are using technology to get insights into hard-to-capture customer behavior data, which is then used to take effective measures to improve sales.

Clearly, technology has become an indispensable means to empower the retail sector and will continue to do it in 2017 with innovations such as Internet of Things (IoT), smart mirrors, big data analytics, chatbots, robotics, etc., sweeping every possible domain of retail.

By the end of 2017, insights captured using big data analytics will be increasingly used by retailers to devise business strategies, which is likely to help them to stay abreast of retail trends. Big data analytics are expected to play a key role in predicting sales and trends, conducting consumer sentiment/behavior analysis, forecasting demand, achieving price optimization, and devising customized promotions.

Interactive mirror, a smart mirror that helps to virtually try-on clothes, is an interesting digital retail innovation, which is likely to gain more popularity in 2017. Interactive mirrors’ application can be customized according to the needs of individual retailers. For example, companies such as Ralph Lauren (a US-based retailer) are using these mirrors to show consumers how a particular outfit will look during different times of the day by changing the lighting of the fitting room along with providing suggestions on accessories, which are displayed on the mirror, to encourage more purchase. Companies such as Lululemon (a Canadian athletic apparel retailer) are using interactive mirrors to suggest places to exercise and provide information on healthy living. These mirrors are not only a means to attract shoppers by offering unrivaled shopping experience, but can also be used to gather consumer behavior data. With the help of interactive mirrors, Rebecca Minkoff (a US-based luxury retailer of handbags, accessories, footwear, and apparel) store was able learn that a leather jacket was tried on 70 times in a week but never purchased. Most shoppers asked for different sizes using the interactive mirror, indicating that there was a fit issue.

Chatbots, another invention to continue gaining traction throughout 2017, act like a virtual concierge service, guiding customers through the shopping process, providing detailed information on product and stock level, and allowing shoppers to place an order and track it in real time. Chatbots are also a great tool for retailers to get insights on shoppers’ tastes and preferences – for instance, all first-time shoppers on Sephora’s (a French cosmetics manufacturer) chatbot are required to take a short quiz that helps the bot know about personal preferences of a user – this information is used to recommend products. The bot also provides reviews on certain products.

In 2017, IoT is likely to become an integral technology for the retail sector to build smart stores. IoT’s significance is expected to grow in retail with about 70% of retailers in the USA ready to adopt the technology in 2017, according to a survey conducted by Zebra Technologies. IoT will be the key to interconnect in-store smart devices and sensors with Internet, which will enable better data-driven business decisions and ease of operation.

For the past couple of years, big box retailers such as Staples, Walgreens, Amazon, and Gap have been using robots for warehousing and logistics operations, but 2017 is expected to witness an increasing implementation of robotics for customer facing in-store operations as well. While use of robotics for distribution center operations will still hold importance, the launch of Amazon Go stores, Amazon’s robot-powered supermarkets, Lowe’s customer-assistance robots, etc., will increase foothold of robotics in front-end tasks such as customer assistance (we wrote about Amazon’s latest efforts to digitalize the grocery market it in our publication Amazon: Prepared to Digitalize Grocery Business in the USA? in April 2017). In the coming 5-10 years, robots can be expected to become an integral part of the complete retail value chain including both front-end and back-end operations.

Five Technology Trends

EOS Perspective

In the medium term, in-store shopping is not going to fade away due to competition from online retail, but instead it is likely to witness an upgrade with retailers enthusiastically integrating technology into physical stores. The key focus of all retailers in 2017 will be to enhance personalized customer interaction, offer innovative in-store experience that rivals the convenience of online shopping, and use the gathered insights on customer shopping patterns to conduct effective predictive analysis. To achieve these objectives, retailers are likely to use technologies such as big data, IoT, and robotics, and employ interesting innovations such as chatbots and smart mirrors to offer seamless services to attract customers as well as use these innovations to capture valuable insights on consumer behavior.

Over the years, technology has tremendously contributed to the success of retail sector – starting from browsing, point-of-sale, shipping, checkout, supply chain, to payments, and so much more. This will not change in 2017, as technology will continue to digitalize retail, with top retailers prioritizing technology to improve sales.


*key sector of operation for each retailer included in the infographic

  • General merchandise: Amazon, Tesco, Macy’s, Kohl’s, and Kroger
  • Footwear: Nike
  • Fashion (apparel, fragrance, cosmetics, sunglasses, handbags, shoes, etc.): Burberry, Rebecca Minkoff, Nordstrom, Sephora, Van Heusen, H&M, and Ralph Lauren
  • Electronics: Anker
  • Online retailer: eBay, Ocado
  • Food: Godiva
  • Home Improvement/appliance: Lowe’s
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