Following is part 2 of 2, focusing on commerce, consumer & market dynamics, and the implications on go to market strategies. 

In part 1 of 2, we assessed the pandemic’s implications on capital accessibility & financial management for CPG, especially for emerging brands. Read Part 1 here.

For context, part 2 begins with the same opening paragraph as part 1.

As I write, events continue to unfold before our eyes, the flow of information is constant, and the entirety of what’s happening is fluid. We know the COVID-19 pandemic has created an unprecedented time of uncertainty, a range of emotions, and behavioral changes. Take a moment to breathe (like right now). The disruption we’re experiencing is extraordinary, but it is temporary, and we will return to normal even if a new normal is yet to be defined. ​ 

What’s happening with commerce/sales dynamics:

• Retailers are pausing, postponing or cancelling their category review schedules, resets, and promotional calendars. Buyers and related teams are working from home or are in stores to just help keep shelves stocked
• Ingredients, packaging and other parts of the supply chain before production may be harder to obtain due to closed ports and worker furloughs 
• Co-manufacturers may be forced to reprioritize and reschedule production runs to accommodate higher demand products or for larger customers
• Consumer shopping, spending and eating habits are changing (for now? For good?): less in-store shopping and more ecommerce and delivery
• Panic buying resulting in out of stocks for consumer favorites can translate into “buying what’s left” instead of “just go without”, meaning natural products that might not have been considered or did not have the awareness previously are getting new trial.

What it means:

• New product introductions and new distribution at retail may/will be delayed
• Consumers are glued to their screens for entertainment and information for the next several weeks/months. Digital advertising is exposed to more eyes.

As I write, events continue to unfold before our eyes, the flow of information is constant, and the entirety of what’s happening is fluid. We know the COVID-19 pandemic has created an unprecedented time of uncertainty, a range of emotions, and behavioral changes. Take a moment to breathe (like right now). The disruption we’re experiencing is extraordinary, but it is temporary, and we will return to normal even if a new normal is yet to be defined. 

This is part 1 of 2, where we’ll assess the pandemic’s implications on capital accessibility & financial management for CPG, especially for emerging brands. 

Part 2, here, focuses on commerce, consumer & market dynamics, and their implications on go to market strategies.

What’s happening with capital:

• Among the early stage investors I spoke with, the vast majority of deals & transactions that were in play are moving forward. However, middle and upper middle market deals are on pause.
• Potential investments are being considered more thoughtfully, including more downside scenarios. Capital continues to be available but will be slower to obtain, in addition to the many other considerations outlined below
• Many PE firms & investors are prioritizing their attention to support their current portfolio rather than seeking new investments. Investors are pushing their portfolio companies to focus on collecting their receivables and enforcing cash terms to maintain cash flow.
• Stock market volatility (declines) have forced many angels, private investors and others who rely on asset stability & growth to make investment decisions to defer new investments for now.
• Many angel & seed investors are tightening their criteria and lowering their tolerance for risk. Where they may have previously bet solely on the founder of a brand with little market proof or traction, angels are now likely to need a clear and compelling proposition and line of sight to success as a key criteria
• Market uncertainty is forcing downward pressure on valuations in general, but liquidity remains in the system (there's still money to invest). 
• While some investors are retreating for the short term, they are positioning themselves for a buyer’s market on the other side of this event
• Reliable asset based lenders continue to lend for working capital secured by receivables, and in some cases, inventory. PO financing is still an option for larger PO’s.

Note that the above applies to “many”, not all. Several investors assured me they are still actively seeking deals and to deploy capital as close to the pace as they have been, and are maintaining the same criteria as before.

What it means:

• Sales velocities and consumption patterns during this period are volatile and are anomalies. Neither brands, investors, nor trade partners should consider spikes or declines right now as indicative of trends or future potential. For investors in particular, this means it’s harder to take action with confidence, so many will simply wait things out until there is a longer post-event horizon to assess. For brands, cycling this period next year means speaking to the context of today’s unusual events and using a longer horizon to speak to the strength of the business. The potential silver lining here is that brands that obtain trial due to out of stocks of existing consumer favorites may stick post trial. 
• Companies that are insulated from or a part of the solution to COVID-19 could experience an uplift in valuation.
• Funds with “dry powder” (money to still invest) will be shopping for good businesses who exit the crisis with strong potential
• Some investors may shift from top line opportunities to bottom line sustainability & capital efficiency
• Investors will make the distinction between a bad business and business being bad.  Good business models with solid, experienced leadership will be more likely to prevail during times of uncertainty.