True Today, True Tomorrow

Recently the seven-year old daughter of one of the team at True – the investment and innovation firm I co-founded – said she didn’t want ice cream for her pudding at school as it contained palm oil. She wanted a different ice cream. Not one that puts the homes of Orangutans at risk. The school has since overhauled its entire pudding selection.

This must be one of the only times on record a seven-year old has refused the offer of ice cream but, more importantly for the future of the retail and consumer sector, it also shines a spotlight on how consumers think and act.

Consumers today have access to as much information as they want or need. It is available through their smartphone or smart speaker in seconds. Subsequently consumers are enlightened in a way never seen before.

Yet, at the same time, it is easier than ever for them to vote with their feet. In investment terms their customer lifetime value (CLV) has never been so uncertain. Luckily for that seven-year old, her parents joined over half of consumers who are willing to pay more for products from businesses with sustainable credentials.

This is the world in which True invests; seeking out innovative, fit for the future retail and consumer businesses to partner with and help. We start with the consumer and their changing behaviour and go from there.

This doesn’t make it easy to make the right investment decisions. As the world gets ever faster what is described as ‘retail and consumer’ changes with each new technological advance, in turn accelerating and deepening the disruptive consumer trends. In turn, this demands a different investment model, a model that can truly help, a sector specific vertically integrated model.

“What is the future of consumer behaviour?”

Volatility has fundamentally altered the corporate world. The average tenure of an S&P company has shortened from around 60 years in 1958 to under 20 years. And is predicted to be around 10 years by 2027.

If this doesn’t scare leaders of large corporate businesses it should. Woolworths, the former British retail icon, posted record profits of £100m in 2000 but had disappeared from the UK High Street by 2009. Since then, churn and disruption have become the norm not the exception.

There are over 5,000 ‘High Streets’ in the UK – roads which became shopping hubs during Victorian times. 170 years later it is no great surprise that the way we buy and consume retail products and consumer services has changed. That hasn’t however stopped the ‘High Street’ being shorthand for retail or indeed for the media asking the perennial question, “Is the High Street dying?”

This is simply the wrong question to ask. The question we at True challenge ourselves with every day is “What is the future of consumer behaviour?”

It is the consumer. Stupid.

Good retailers – indeed all good businesses – have always been able to understand what motivates their customers.

It is difficult for large businesses to innovate and build a culture of innovation into all that they do. The best ones recognise this so actively seek out external, often disruptive ideas, to keep what they do relevant to their consumers. When this innovation is seamlessly integrated into a business the results can be revolutionary to that business. And sometimes even wider society.

If we take Tesco as an example, they launched the UK’s first retail loyalty card in 1995 which supercharged their growth for the next decade. Clubcard gave Tesco the power to talk directly to individual consumers in a way we had never seen. But Tesco could only do this because of a brilliant data company, Dunnhumby, who the then Tesco Chairman Lord MacLaurin described as, “knowing more about my business than I’ve learned in 30 years”.

Understanding consumers – what moves them, what motivates, what makes them spend their money – drives our decision making but also allows us to help those within our network to innovate and thrive, not just survive. In a world when a challenger brand can go from zero to category leader – think Charlie Bigham, our very own Lo Bros. Fevertree, Just Eat – in just a few years this is essential.

We look to invest in capitally efficient retail and consumer businesses. As an investor (and a chartered accountant) the raw numbers often excite but it is the disruptive, ‘Fit for the Future’ businesses that truly get the adrenaline pumping.

Fit for the future now is very different from even 6 years ago when True began. For example, the type of sustainable business model has changed dramatically, most notably the shift from retailers’ own websites towards direct to consumer brands and a direct data driven relationship with the customer.

Personalisation is a buzzword now but what Tesco did 25 years ago – a large retailer targeting customers with offers just right for them – was when personalisation through intelligent data use really began. Since then, data led decision making, data led propositions and data led marketing has grown exponentially and alongside the rise in online and mobile tech.

A great UK success story – and a business I worked with in its early days and ultimately floated on the public markets – is Ocado. To millions in the UK Ocado is an online grocer but its success in recent years has been in taking its operations, data handling and other tech driven services to countries around the world benefiting Ocado’s partners and allowing them to provide a brilliant, seamless experience to the customer at every touch point. Perhaps an example of intellectual property that can be leveraged into government trade negotiations as a genuine national asset.

In retail and consumer there is a rich seam of innovation that can be tapped into provided by fit for the future businesses. What is necessary is to look beyond the buzzword bingo of the latest blockchain enabled, data-driven, multi-channel business and focus on those businesses with a relentless focus on their customers.

How and why True can help.  

 As entrepreneurs, we built True because we wanted to provide more relevant help to ambitious entrepreneurs and executives and we felt a vertically integrated, sector specialist network-based approach was the right way to achieve that. This would enable us to win the deals we want to win and in turn deliver industry leading returns to our investors.

True wants to be the best investor and innovation partner in the retail and consumer sector while challenging convention wherever possible. Our model is unique in that it combines our own innovation lab, with a commercial partnership programme with an investment business that feeds off the two contributories. The ‘secret sauce’ for True is the fundamental of reciprocal advantage which runs through all we do and allows our relevant and focused network to scale.

Reciprocal Advantage. 

But what does reciprocal advantage actually mean? From an investment point of view, we seek out businesses that our sector specialist business model can actively help but it is much broader and deeper than this.

The True team sees over 4,000 businesses every year. Some we are able to help, others we might invest in, as well as help. All give us a perspective on how fit for the future continues to evolve. All help us to help our partners which in turn helps us be better at what we do.

Technology will blur the lines between the physical and digital worlds with those businesses adapting to this quickest likely to succeed in our ultra-connected world. Dynamic Yield, the AI-powered personalisation platform founded in Tel Aviv in 2011, was sold to McDonald’s for more than $300 million eight years later. We constantly look out for the ‘next Dynamic Yield’ as a potential investment but also because we want to be able to identify the next big game changer that will benefit True’s partners and wider network.

Commercial Partners.

From the other end of the spectrum we help our 14 commercial partners through providing a funnel of innovation to them but much else besides. These businesses are some of the world’s biggest, most recognisable brands on the British High Street, in the supermarkets, on Main Street USA and increasingly across the world.

They all benefit via focused Innovation Immersion Sessions, annual Trade Missions  bespoke Deep Dive Projects and Start-Up Challenges providing partner-specific material, ROI driven solutions to issues at a fraction of the cost of our partners building it themselves. Each partner leverages off the benefit of having the other 13 in the ecosystem.

As True has grown rapidly over the last few years the beneficial flywheel effect provided by True’s network to us and our network has accelerated. True now boasts partnerships in Israel, France, the US, South Africa and Australia amongst many others alongside the UK.

Technology-led disruption will also continue to accelerate. This fuels a level of complexity beneficial to consumers and potentially detrimental to traditional retailers with limited room for rapid change due to inflexible business models or other legacy issues.

But this complexity also creates opportunities for innovation. Just like seven-year-olds will always want ice cream, people will want to buy consumer goods whether it be fashion, the latest tech or home essentials. It is just that the why we decide on a particular product and the how we buy it will continue to change.

On the ‘Why?’ for consumers, one of the big drivers of our investment strategy has been to focus on the rapidly shifting Environmental Social Governance (ESG) trends alluded to with my earlier ice cream example. While purposeful businesses appear to be everywhere consumers – using the information freely, easily and rapidly available to them – are savvy enough to spot a ‘wrong-un’.

Frugi, one of our portfolio businesses from our £150 million private equity fund, is a fantastic organic children’s clothing brand that has led the way for years in its sustainable proposition building a loyalty witnessed through its ‘Frugi Family’ but standing still is simply never an option.

We expect this trend to continue at pace with significant implications across all aspects of retail and consumer from packaging, to sourcing, to energy consumption, modern slavery and much else.

Then there is the ‘How’ consumers buy their product or service. As in much of what we see now in retail the pursuit of ever shorter customer journeys and of frictionless online experiences is driven by Amazon’s phenomenal success and how they have shaken up global retail. We are also seeing customer service led retailers investing heavily in a consistent look and feel to eradicate the disconnect between online and in-store experience that has undermined many retailers’ hard-won reputations in the recent past.

‘How’ consumers buy their product or service.

As in much of what we see now in retail the pursuit of ever shorter customer journeys and of frictionless online experiences is driven by Amazon’s phenomenal success and how they have shaken up global retail. We are also seeing customer service led retailers investing heavily in a consistent look and feel to eradicate the disconnect between online and in-store experience that has undermined many retailers’ hard-won reputations in the recent past.

Artificial Intelligence and machine learning are increasingly being integrated at various stages of the sale process highlighted by two of True’s recent investments from our £13 million growth fund. From the digital space, founded in the US, FunnelAI connects businesses with customers in real-time from any online and social platform through its AI technology. While making significant returns on investment for bricks and mortar retailers another True investment, ThirdEye, understands human behaviour on the shop floor which allows potential shop theft to be automatically detected and alerted to staff members in real-time. We have helped Ribble, an iconic British cycling brand and another of our private equity investments to revolutionise its proposition. Ribble now offers a brilliant consumer focused range, through an aspirational and personalised e-commerce platform, supported by well targeted bricks and mortar destination shops to drive brand awareness. I am very proud we have shifted Ribble from a 3rd party led discount re-seller to an iconic, near super-bike brand in four short years.

Why True today?

The retail and consumer sector will continue to evolve as these examples illustrate. The product and its unit economics – the cost of acquisition, conversion and retention – will determine whether a business is a success but equally so will an understanding of what really matters to the consumer.

To that end this is why True exists, to challenge convention and to put ourselves in the shoes of the consumer now and for the future. The network that results will deliver true reciprocal advantage for our stakeholders and therefore continue to scale our ability to help organically and globally.

19 February 2020