Indexed: New Business Models

An ever-expanding summary of new business models explained on Consumer Goodies

Your local area no longer sees the once-a-day intrusion of the postal van, but is instead the backdrop for a web of connected logistics.

Your local restaurant is now a delivery hub for virtual restaurant brands.

Your local bookshop which went out of business (thanks Amazon) is now a micro fulfilment centre for rapid grocery.

Your neighbour (bless them!) is now a drop-off point for Prime delivery.

New business models surround us and thread into the pre-existing fabric of our daily lives, giving rise to a wonderful patchwork of consumer convenience but also creating cut-throat competition for the cash in our pockets.

This summary brings together the business models discussed here on Consumer Goodies and elsewhere, linking the innovation on the part of the end-user and the enablers across business models.

Superior Last Mile Fulfillers

In developed markets, the supply chain historically stopped when the consumer item was sitting in rows of similar items on shelf. Of course: postmen have been there to post letters through letter boxes, milkmen have been there to place milk on door steps. But this has not been for full assortments. The onus has been on the consumer (you and me) to complete the product’s last-mile by picking up from store.

Amazon began to shift that paradigm with its ever-expanding offerings. Grocers did have their own services (Tesco.com launched all the way back in 2000) - but these services were always bolt-on instead of built-in. That is why they tended to frustrate the consumer with their imperfections and lack inherent profitability even at scale.

Digitally native players have evolved models that mesh end-user offerings with the enablers needed to achieve it sustainably. The Milkman 2.0 model pioneered in the Netherlands offers consumers free narrow delivery slots (so they don’t hang around all day waiting), enabled by dropping bags of grocery along fixed delivery routes and by having vehicles optimised for delivery. Rapid grocery, which began in Turkey, offers app users ultra fast fulfilment (within 10 minutes), enabled by micro-fulfilment centres sitting close to the consumer.

Giving consumers last-mile fulfilment options to get exactly the item they want without requiring them to traipse to the store had already been earlier mirrored by the cooked food industry. Instead of the conventional catering model where the consumer walks the last mile to eat-in at a restaurant that suits their fancy, so tech-native companies have brought new levels of consumer fulfilment. Delivery apps such as JustEat in the US had already aggregated existing delivery driver networks to provide online food delivery.

These new app-based meta-malls in-turn facilitated the emergence of virtual restaurant brands - which offer consumers a branded proposition that only ever exists conceptually within an app. The physical infrastructure (food processors, convection ovens etc.) that is required to actually prepare the food does not sit in restaurants bannered with that brand but instead in ghost kitchens which prep multiple foods in the same small space.

Even where the consumer does complete the last mile themselves by going to restaurant or supermarket, technology has removed some of the friction in the way that the consumer eats or buys. It has been well-publicised that the coronavirus pandemic ushered in the instantaneous, widespread use of QR code menus; but anything which improves consumer satisfaction remains likely to stay around until long after we’ve forgotten about forgetting our masks for a trip to the shops. This is shown by the relative stickiness of Starbuck’s instamenus, where consumers can order the exact drink they want and pay for it without having to transact at all with the in-house barista.

This addition of a digital layer to existing models been paralleled by pay-in-the-aisle technology that allows shoppers to scan and pay for items on their smartphone while they shop, and then walk out of the store without visiting a till; and number plate payment technologies that facilitate the drive-through service station experience.

Superior Forecasters

An ever-present challenge for manufacturers in selling branded goods has been around forecasting - predicting the perfect amount of product to produce, pack and deliver. On an aggregate-level, forecasting can be done to a relatively high-degree of accuracy, but on an individual level forecasting is challenging because of the volatility in behaviours of individuals.

New business models challenge that paradigm. Amazon excelled initially at two-touch ordering (1. Select the product you want 2. Click to buy) and even one-touch ordering (excelling perhaps not the right word here) with its now defunct Dash buttons, tiny stick-on buttons that allowed customers to quickly reorder popular household items with a press and which have now been discontinued.

Flash-forward to 2022, and we are starting to see prescriptive analytics that lets the consumer receive new product without having to go through any steps. Combined with other services such as Amazon having a range of its own digital locks, this suggests an evolution towards in-home or zero-touch fulfilment, where the consumer’s shelves are replenished with the product they want without them having to ask.

Overcoming forecasting challenges to succeed comes not only from predicting at an individual level, but also having steps in place to mitigate against demand-spikes coming from sales through social. True “social commerce” seems to be a distinctly Asian model, where it is the interactions between buyers that generate trust, relevance, virality (although TikTok certainly seems to be impact Gen Z habits globally). The incumbent western version of social commerce tends towards social media marketing, where referral traffic is driven from social media to a website Yet both forms bring challenges associated with an unexpected push of a product by an influencer and where CRM systems that can control and forecast consumer behaviour are invaluable.

Superior Marketplaces

The existing overarching consumer goods model has been built on principles of mass - mass distribution, mass marketing, mass production. Marketplace platforms have driven the transition from one-to-one relationships to many-to-many relationships by facilitating connections between 3rd-party suppliers and end users.

If we take logistics as an example, the “old business model” would have put energy and effort into negotiations between large companies and large third party logistics providers. Now logistics-as-a-service distribution platforms offer smaller and even larger companies access to excess capacity in the market, enabled by tech platforms which connect the suppliers and the consumers.

B2B marketplaces likewise offer smaller mom and pop shops access to product portals where historically they might have been neglected in favour of large customers; and liquidation marketplaces offer pre-vetted retailers of all sizes access to end-of-lifecycle products that historically would have been harmfully and un-environmentally sent to landfill.

The marketplace does not only need to be a place for the transaction of physical products. The emergence of the metaverse has brought a whole new set of opportunities for retail and FMCG companies to delight consumers and monetise their brands.

Superior Portfolios

In developing markets, mass propositions with rigid portfolios have been like huge ocean liners - able to leverage their size to drive economies and dominate markets with their branded razzmatazz. But like slow-to-turn ships, these benefits also come with a downside - the lack of agility to adapt to changing market conditions combined with the the drum beat of margin improvement expectations from stock-markets has forced companies to vacate portfolio spaces, with new models splintering established paths to market.

One example of this is mushroom brands. They sprout up in cities, leveraging localised cost bases and on-the-ground relationships with trade retailers to offer consumers comparable products to national brands at prices which multinationals could never hope to come close to. The fun money section of the market is another model where local brands are advantageously placed to price against low denomination bank notes due to their relatively lower gross-profit imperatives.

A curious model developing in Africa is that of bulk-to-portion vending machines. Automated vending capabilities are able to break down large-size packs of oil or milk into super-small portion sizes which cost less and are fresher than packaged alternatives.

It seems that few established consumer goods companies have yet had a Kodak Moment where they lose market relevance and sink to the depths, but Titanic tells us that even the best and biggest can hit an iceberg if they are not careful…