Voice shopping in retail expected to grow to $40 billion by 2022

12 April 2018 Consultancy.uk

Voice-controlled shopping is set to explode in popularity over the next four years, according to a new report. While the nascent technology currently has relatively low market penetration and sales, voice shopping is expected to be the “next big thing”, like mobile and apps before it.

Bizarre commands such as “Alexa, please buy me some underwear,” are likely to become common place in consumers’ homes, over the next four years, as voice shopping technology is set to take off. In a recent study, consulting firm OC&C believes that voice shopping sales will surge from a forecasted $2 billion this year to an estimated $40 billion in 2022. This massive growth (1900%) will be driven by increased use of smart speakers at home, like Amazon’s Echo and Google Home. OC&C predicts that the smart speakers will penetrate 55% of US households by 2022; currently 13% of households use a smart speaker.

Amazon, the current market leader in voice shopping, is likely to dominate the growing market. The Amazon Echo is 10% of US homes, while Google Home is in 4% and Microsoft’s Cortana is in 2%. Amazon benefits from the seamlessness of providing its own dominant e-retail store with the Amazon Echo speaker and Alexa AI engine. Amazon is also willing to sell Echoes at a cheap price in order to get them into more homes and get consumers hooked on their e-commerce option and register for their Prime service.

In contrast, Apple is lagging behind in the AI home speaker segment. The technology giant’s Homepod was only recently released, missing the critical holiday season, where Amazon and Google slashed prices to expand speaker sales. In addition to Apple’s late arrival to the market, analysts at OC&C believe that Apple’s AI, Siri, lags behind the capabilities of Amazon’s AI, Alexa. Apple clearly has an uphill battle to fight in the voice assistant and voice shopping market.

Voice shopping expected to grow to $40 billion by 2022

While home speakers, as well as the use of AI assistants on smartphones and tablets, figure centrally into the voice shopping market, there is also great potential in the automobile market. A study by marketing research and consulting firm Parks Associates reveals that 57% of US broadband households are interested in voice control features for their car. With a shift to automated cars approaching, a future where consumers shop using the voice control features of their Artificial Intelligence (AI)-enabled cars is easy to see. Consumers can buy their groceries and shop for new shoes from their onboard, voice controlled AI systems, while their automated car does the driving. Talk about a productive commute!

Indeed, automobile manufacturers such as BMW are already working to integrate Alexa into their onboard systems. A partnership between IT consultancy Accenture and auto parts leader Faurecia is also currently working on a project where multiple occupants of a vehicle can utilise the Alexa voice assistant to perform separate tasks. Amazon, as such, figures to reap even wider market penetration due to its early technological supremacy in the field of AI assistants.

John Franklin, Associate Partner, OC&C, commented, "Voice commerce represents the next major disruption in the retail industry, and just as e-commerce and mobile commerce changed the retail landscape, shopping through smart speaker promises to do the same. The speed with which consumers are adopting smart speakers will translate into a number of opportunities and even more challenges for traditional retailers and consumer products companies."

The market dominance of Alexa and Echo will reap benefits for Amazon’s e-retail shop as voice shopping expands in popularity. According to a Bain & Company study, when voice shopping through Alexa, Amazon will suggest an “Amazon Choice” recommended product more than half the time to first-time purchasers, provided that no brand is specified. Products with an Amazon Choice designation (ostensibly based on some combination of price, popularity, and user reviews) will see their sales triple. Indeed, 85 percent of Amazon customers already choose these recommended items.

Quote John Franklin, OC&C

Bain also found that Alexa will recommend an Amazon private label product 17% of the time if an e-retailer offers them. With two of the most popular product categories for voice shopping currently being groceries (20%) and electronics (17%), Amazon stands to boost the purchase of AmazonFresh groceries and AmazonBasics electronic accessories, along with their tablets and e-readers. There, thus, exists a strong potential for Amazon to funnel voice shoppers toward products from its e-store, as well as its own branded products.

Rather than being technology pushed by companies that mistakenly think they know what their customers want, consumers are apparently quite interested in voice control and voice shopping. According to a study by consultancy Capgemini, about a quarter of shoppers said they would prefer to use a voice assistant instead of an app or physical store. Furthermore, 40% of consumers expect to use a voice assistant instead of an app or website 3 years from now.

Bhavesh Unadkat, Principal Consultant in retail customer engagement at Capgemini, said that voice shopping will win over even more adherents through ease-of-functionality and added value, stating, “If you type something into Google, you get a million generic search results. Smart assistants should be capable of looking at your previous searches and order history to offer relevant products. Say, for example, I’m searching for child’s clothing. This assistant should know enough about me to know I have a toddler and show me products for that age group.”

Related: Retail stores risk losing consumers to digitally prepared competition.

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Consumer goods start-ups grow interest from venture capital

23 April 2019 Consultancy.uk

Funding the latest consumer goods start-up has been a real money-spinner for venture capitalist firms, with a number of $1 billion companies – or unicorns – having emerged in the space in recent years. New analysis has explored the resulting corporate consumer products activity in the acquisitions space.

Consumer products have enjoyed years of strong growth as new markets opened in developing Asia. China in particular has enjoyed strong growth across a range of consumer good types as the country’s middle class expanded. Private equity firms have been keen to pick up targets in the space as they expand their portfolios to include additional local capacity as well as customers in new markets.

As a result, a study from Bain & Company has found that interest from PE firms in the consumer product space grew sharply in 2018, hitting 6.1% of all invested capital for the year, and making it the third most sought-after category. It is now only behind financial services (23.9%) and advanced manufacturing and services (13.9%).

Corporate venture capital investment

The ‘M&A in Disruption: 2018 in Review’ research found that growth in the segment reflects key changes in the segment as a whole. This is particularly true of insurgent brands, which often leverage local expertise in order to take on international giants in domestic markets.

Short change

The market changes have led to shifts in motivations for consumer goods company investments from PE firms. The number of strategic investments stood at 50% in 2015 compared to deals that increased scope. This has shifted significantly, with 34% of deals focused on strategic outcomes in 2018 compared to 66% for scope. The move towards scope reflects companies seeking out fast-growing products that enable stronger revenue growth streams.

Acceleration in scope-oriented M&A in consumer products

However, there were other motivations for deal activity in the space. Activist investors have put pressure on companies to expand their portfolios in recent years, with the trend expanding from just US targets to Europe.

Further trends

The other key shift in the space regards outbound deal activity. The study found that outbound deal activity has increased significantly in the Americas (up 363%) with total deal volume up only slightly (15%). Key deals included Coca-Cola and Costa, Procter & Gamble and Merck’s consumer health unit, and PepsiCo and SodaStream. In the Asia-Pacific region, outbound deal activity rose 195% while total deal activity fell sharply, by -36%. The EMEA region saw both a sharp decline in outbound deal activity, at -68%, as well as lower overall deal activity, which fell by 32%.

Cross-regional deal making

Deal-making in the current environment is increasingly fraught with uncertainties, as business models change on the back of new technologies, new consumer sentiments and wider market changes from new entrants. As such, acquisitions are increasingly useful as possible hedges on changes in market direction. As such, companies are increasingly pressed to take a future-back position, making sure to incorporate a vision of how the company needs to look in five years into acquisition strategy.

The firm notes that certain acquisitions which enhance a remembrance of a nobler mission, revive a sense of entrepreneurialism and engage directly with consumers may be necessary qualities in acquisitions that transform a company to fit market expectations in the coming decade. While going forward, focus on innovation, partnering with retail winners, reducing cost base and constantly reallocating scare resources will be necessary to protect market share in areas where insurgent local and strategic competitors are active.

Related: Private equity asset growth top priority for 2018.