Ben W's Profile
Hi Meredith, good points!
1) I think you’re right here, and with time, there will be many more competitors. I think the long-run defensibility comes from massive scale that lead to a position of cost leadership and a brand that gives the company some pricing power. A lot of people look at these meal replacement products with suspicion, so being in market for a while, generating a strong track record of healthy users, provides some differentiation. It’s also such a cheap product that consumers aren’t likely spend a lot of time price-checking. There’s some potential for technical differentiation on the manufacturing side (like moving to algae production).
2) I think we’re early in the adoption curve. Based on the comments, it sounds like there are a few users in the section. It’s likely that as there’s broader awareness around meal replacement alternatives, people will appreciate the convenience of replacing one or two of their meals each day. Speaking personally, I would have been all over this in high school and college. I was super broke, and I used to go to McDonalds or Taco Bell, order two dollar menu items and eat for $2.17. My guess is that there’s a big group out there that will gravitate toward this option out of preference, necessity, or some combination of the two.
3) Absolutely. Even now, Soylent has an “open source” project that encourages people to try combinations of different sources of nutrition. Many people use Soylent as the backbone for this mix and then add in other sources of nutrition (or flavor) to tailor to their preferences. I think it’s consistent with their current positioning. You can check out the forum here: https://diy.soylent.com/
I agree that this is a really exciting opportunity in the long run. In the next few years however, I think the company will be much more focused on acquiring customers with the greatest lifetime value–essentially its target market today. These consumers generally have a lot of disposable income, and because they are adopting Soylent for its functional benefits (rather than survival) they are likely to be developing much more durable habits.
Finally, even if Soylent is cheap, someone still needs to pay for it when delivered to the developing world. This could be very challenging in the setting described above.
Thus far, Soylent has done a lot of their product testing in a distributed fashion. There’s a huge section on the Soylent site dedicated to new recipes submitted by users and feedback on various changes. That said, I think the focus on functional benefits will eventually give way to an interest in improving the flavor. When that happens, I think the company will transition to the more sophisticated flavor trials that CPG companies has employed for decades: a combination of blind taste tests, focus groups, and distributed consumer surveys.
Thanks for your response.
Yes, I think in the long-run, a more traditional approach to marketing and advertising will be necessary elements of competing here — to complement the more traditional approach to distribution.
In time, there will be less focus on educating the consumer on the benefits of meal-replacement and more investment in differentiating Soylent relative to competitors.
Very interesting post – thanks!
I’m a little more skeptical that a marketing-led organization will continue to win in consumer packaged goods much longer. I think this model becomes a little unraveled because consumers are increasingly aware and sensitive to what they’re putting in their bodies. This trend has weighed enormously on the soda manufactures in the last several years, and I think the general trend toward higher-end and healthier categories (e.g., coldbrew coffee, kombucha, and cold-pressed juices) will begin to bleed into RedBull’s business as well. Furthermore, bu pushing really hard on the marketing of a specific theme (action sports) RedBull has build an enormous amount of fragility into their positioning. Much of RedBull’s core millennial consumer demographic is beginning to age out of their interest (even, respect) for action sports. While the company has tried to back fill with other categories like music and art, it’s still not really credible there.
A very large piece of RedBull’s sales come from mixed drink sales in bars and at parties. I believe this category is on the edge of being up-ended, mainly because no one has felt cool ordering a RedBull / Vodka in the last few years.
I’ve seen a lot of RedBull’s business recently running a similar business in Brooklyn http://brooklyn-mate.com/. I think RedBull’s most differentiated capability has been their ability to build a bullet-proof distribution network and keep competitors locked out of their highest-value bars and events. RedBull has exclusivity agreements with most bars and events that serve the drink, and their incentive compensation structure encourages their distribution organizations (all the way down to the staff that delivers the drink) to form strong bonds with these venues and keep other beverage companies locked out.
In the long run, it will be a company that has a sufficiently differentiated product and a positioning that’s cooler in each of these high-value setting that will finally begin to take share.
Agreed – this is a great breakdown! I’m biased, but I’m glad you chose this one.
Accretive (LLC, not health) spent a lot of time thinking about the right value-capture approach to best align incentives with customers–especially large institutions that have are by nature very risk-averse. The gainshare contract (in which the NewCo only gets paid out of savings) was borne out of that push.
Going forward however, there’s a big question in my mind whether the model should pivot to a more predictable, fee-based approach? Perhaps more comparable to other providers in the industry? How did your clients think about the risk-sharing contracts? Should it shift over time to secure the contract renewals?
Also, Accretive Health’s model is really a bundle of software and services. Do you think they should remain tightly bundled or should the software platform be offered separately at some point?
Zenefits is an awesome model. I think some of the more interesting long-run opportunities come not from the value capture model (charging the broker rather than the consuming company) but rather the way the company creates value relative to HR outsourcing companies like ADP. Zenefits (and indeed other HR tech companies like JustWorks and Namely) have really broken new ground by building great software product. It’s roughly as intuitive to use as turbo tax and employees can actually perform a lot of the enrollment and onboarding work themselves–it’s self-service. This reduces the need for a big internal HR group or relying on an HR outsourcing firm like ADP. Additionally, the employee has a much better experience, much higher satisfaction with their benefits, than when they experience them through an ADP-like service.
I think that while Zenefits has used their value-capture model to penetrate the market and get to scale, it’s likely to evolve to a more traditional model as the current brokerage model that dominates HR benefits begins to be dis-intermediated.