Trend Following in Consumer Wellness
We are living through a transformational cultural unbundling of consumer preferences driven by the rise of the wellness-driven consumer. The wellness-driven consumer is more informed and more principled than ever before and is increasingly seeking to engage with products and activities that integrate and elevate the experiences of work, health, and community.
This shift has — and will continue to have — a profound shift on the global economy and on the way early stage companies are built and funded.
It is also such a dynamic, organic space crossing so many different industries and demographic boundaries that trying to understand it from a top down perspective with too many preconceived categorizations is nearly impossible.
Instead, I’ve tried to take more of a bottoms us “trend following” approach…deeply understanding a few key catalysts (people, behaviors, companies, etc.) that are driving an outsize change around how, what, and where consumers are engaging with wellness-centered lifestyles and hoping that those guide me towards more interesting people to work with and companies to invest in.
Here are 9 of the major waves I’ve been following closely.
1. Wellness Education at Scale
A day before Lambda School announced its large Series B funding round, I wrote about building the “Lambda School for Personal Wellness”, based on the idea that improved wellness has a strong impact on one’s long term earnings potential. While the tie between better health and career success is clear, I believe the impact of quality education and behavioral change at scale would blow us away in terms of it ability to drive increased collective productivity and, as a result, collective quality of life.
Within the wellness world, there are many forms an educator at scale could take but my guess is that companies will find success by bundling the product elements that have made so many digital fitness and wellness communities sticky and successful with an aligned business model that allows for scale beyond the 1% to close the massive impact gap that exists in the market today.
2. The Digitally Native Holding Company
Companies that own the relationship with their audiences by developing effective “audience loops” — scalable ways to engage customers via direct conversation and real-time demand identification that drives nimble distribution — have the potential to grow faster than ever from single product companies to Digitally Native Holding Companies capable of delivering a wide range of products and experiences to a core set of customers.
This is true for both digital and physical product companies and my expectation is that we will see a faster pace of new product development and vertical integration from early stage companies that find product market fit with a targeted customer segment as they prioritize selling new products to that core segment over scaling a single product to new consumer groups.
3. BIG Subscription
While the section above is mainly about startups expanding their product suites early in the company lifecycle to capture a bigger share of wallet, Lululemon seems to be taking a similar approach — going deeper with its core customers through a subscription model test after years of outward expansion to capture a broader set of demographic segments.
howardlindzon made the very interesting prediction that Lululemon or Nike will buy Peloton during 2019.
I think that is entirely possible but believe that the M&A aggressiveness Lululemon shows will be largely dependent on the success (or failure) of their subscription experiment as they roll it out to a broader audience.
If the subscription model has legs, it will be a strong indication that Lululemon’s ownership of the customer is strong enough that they can push through the product they want on their terms — without having to resort to an 11-figure M&A deal — and may even spur them to build out their own digital products.
If the subscription model is less successful, they’ll be forced into a more defensive position as it will indicate less of a stranglehold on the customer wallet.
Companies like Nike, Adidas, and others across the apparel, equipment, and wellness facility markets will take a similar approach…test out new business models and customer engagement strategies, then resort to aggressive M&A if those don’t work to buy direct customer interaction points if (more likely when) those fail.
4. Substance-Backed Influencers
In The Atlantic, Taylor Lorenz wrote a piece about the Wild West that the influencer market has become…especially in categories where those influencers are paid per post and let brands dictate their work.
On the other hand, many wellness-related influencers have done an incredible job of “leveraging followers as low-cost distribution to launch their own products and services” (as Brianne Kimmel put it in our Twitter discussion). People like Kayla Itsines (Sweat With Kayla) and Andy Puddicome (Headspace) are examples at the high end of the market.
There is also an exciting long-tail, micro-influencer opportunity to help coaches, instructors, and trainers “scale their time” by providing them tools to engage, grow, and monetize their client-base and gain control over their business and the impact of companies building in this space will continue to grow in 2019.
5. Boutique Fitness 2.0
The boutique fitness segment has experienced massive growth over the last decade and with the maturity of the market we are starting to see significant consolidation — both with the studios themselves being rolled up by players like Xponential Fitness and the increasing speed of M&A on the “picks and shovels” side of the market with the recent Mindbody acquisition by Vista and ABC Financial’s acquisition of Brazilian market leader Evolution W12.
We are also starting to get indications that increasing competition from digital players and direct competitors may be slowing some of the growth for market leaders like Soul Cycle.
There are a ton of directions in-person fitness experiences could go — Outdoor is one angle I’ve seen pick up pace, “Talent Platforms” not focused on any one activity type are another. Experiences that stretch beyond the four walls of a facility — wellness-driven travel, for example — is another exciting area. The multi-functional trend which incorporates wellness with work and social life (We Work, The Wing, etc.) should also spawn vertical focused entrants capable of picking off new adjacent segments over time.
Life Time Fitness’ CEO Bahram Akradi recently participated in an interesting interview with Tech Crunch which indicates that forward-thinking incumbents won’t cede ground and may have some built in advantages when it comes to building spaces that allow customers to live a more fully integrated life centered around wellness.
6. Legacy Experience Embedding
While Life Time Fitness, which occupies a slightly higher end of the market, has remained profitable over the years and is still experiencing double digit top line growth, the middle of the gym operator market has fallen out.
The gym operator market has very direct parallels to the retail market where discussion about the implications of Amazon and accelerating Ecommerce growth have been ongoing for at least a decade.
In the same way we have massively overbuilt retail space in the United States, we also have far too many underutilized gym and wellness spaces and there is an opportunity for taste-makers and community builders to scale their impact outside of city centers and into suburban and rural areas seeking in person community that is sorely lacking.
The model here would be similar to what b8ta has done with Lowe’s or…given that the instructors themselves are often the product that gets customers hooked and keeps them coming back, maybe there are some learnings to be drawn from the way a company like Faire has scaled its impact on Main St. America in such a short period of time.
7 . Internationalization
In my recent post about “Investing in Bien-Être”, I wrote that global distribution platforms, converging consumer tastes, more efficient business models, and emerging technologies are breaking down many of the geographic barriers to building passionate communities and as a result companies are being built and scaled around the world to capture value from this dynamic market.
This is a trend that will surely continue with content-related companies support different languages or cultures from the outset and a new group of companies springing up to support companies looking to go global with physical products or digital experiences.
Given my role as an investor based in Paris aiming to help companies make the Europe to USA jump (and vice versa), I’m particularly interested in this trend and will be following closely.
8. Stress and Sleep
Two books — Why We Sleep and The Upside of Stress — seemed to capture the attention of many influential technologists over the past year, which has driven a lot of conversation (within a niche community of investors and founders) around the opportunity for companies to improve our relationship to sleep and stress. I’m fascinated by the interaction of all of these core behaviors — sleep, exercise, proper nutrition, mental health, etc. — and am always trying to figure out (for myself and at scale) which are most impactful as a starting point for better health.
The fact that we’ve yet to see the “Headspace for Sleep” makes me think we’ll see a lot of company formation here in the coming years.
One prediction I will make here is that we will see a lot of companies in upcoming YCombinator classes tackling these areas :-)
9. The Digital Practice
Today, 64% of Americans want to lower healthcare costs but 80% don’t meet minimum exercise requirements. This inactivity costs the US economy nearly $30b per year in medical expenses and lost productivity. Globally, the figure is a staggering $70b. Similar figures can be pulled for nutrition, sleep, and other parts of the wellness puzzle.
It is clear that the traditional health care system is inadequate…that’s not a controversial insight to anyone.
This inadequacy is starting to be met more and more by entrepreneurs building “digital practices” that, while often still loosely tied to the existing system, are building experiences that will allow them to scale their impact beyond the limitations of the current paradigm.
Mental health seems to be the place many founders are starting but I’m also very interested in digital practices that leverage other behaviors or solutions (maybe around nutrition, fitness, relationships) as their keystone pivot point and grow from there.
Those are 9 of the major things I’ll be following closely over the coming months and believe will make significant impact on the way wellness-driven consumers live their lives…there are many more I’ve missed here to be sure.
If there is anything you’re working on or seeing that aligns with these 9 areas or that I missed and should be keeping an eye on, let me know on Twitter, in the comments, or via email (brett [at] technexus.com).