We are living through a massive global experiment. Countries across the globe became relatively synchronized with respect to a specific range of actions, i.e., population lockdowns, which in turn generated a number of measurable behaviors and outcomes, some transient, some more permanent, which gave us insight into both what the impacts of current human actions are and what the future might hold for us.
Images from the European Space Agency measurably demonstrate the anthropomorphic generation of greenhouse gases in the atmosphere. Images from two countries, France and Italy, will suffice to illustrate the point (see below).
Source: European Space Agency, Copernicus Sentinel-5P satellite Tropomi images
As noted by experts, accumulation and associated measurements are functions of atmospheric conditions (dispersion, concentration) and therefore nonlinear. But these serve as the basis for global calculations of greenhouse gas (GHG) emissions.
Just to level set what we mean by GHG emissions, here is a pie chart courtesy of the U.S. EPA:
According to the Global Carbon Project, global CO2 emissions decreased 7%, or 2.4 billion tons, in 2020, down from 34 billion tons in 2019. That 7% is significant because it is the figure that the UN Environment Programme believes needs to be hit every year for a decade to achieve the limit of 1.5 °C set by the Paris Agreement for global warming. So, it can be done; it just takes a synchronized global lockdown!
However, others point out that in the rebound that is 2021, many areas of the world appear to be back to business as usual, with the International Energy Agency (IEA) predicting global carbon emissions to surge 5%, or 1.2 billion tons, undoing most of 2020’s reduction. Some point to the possibility that weather patterns might make satellite readings unreliable, e.g., an unusually rainy season around Los Angeles might give the city the appearance of significant pollution reduction. Others, by correlating activity changes with gas emissions, show just how the 7% shift happened across discrete sectors like residential power (no change), industry (some change), and aviation and mobility (much change). Figure 2 in the linked article contains a nice activity chart. Interestingly, a slightly different approach to estimating fossil fuel CO2 (FFCO2) emissions taken by a group of researchers – correlating actual fuel transport with GHG measurements – shows a glimmer of potential hope (see figure below).
Source: Preprint: https://eartharxiv.org/repository/view/2266/
By correlating time, degree of lockdown, GHG emissions, and actual fuel consumption across sectors, the authors claim a more drastic reduction in specific sector FFCO2 generation activities than estimated by more aggregate studies. They note that at the height of the momentum for lockdown, an aggregate close to 20% reduction in FFCO2 was transiently seen, and for 2020, they estimate an overall 10% reduction in contrast to the generally agreed-upon 7%. By sector, they state that the three biggest decliners were gasoline transportation, aviation, and electricity generation, mostly for industrial applications. Interestingly, they note that surface transportation did not decline as much as expected, speculating that normal commute activities were replaced by direct-to-consumer (D2C) home deliveries and supporting container ship activities.
In summary, it is possible to achieve the UN-recommended reduction of 7% or more, but so far only through drastic and draconian methods. The question is whether any permanent lessons have been learned that can be carried through post-COVID, and if so, where and how.
Acceleration of D2C
Amazon can be used as a good proxy. Numbers from Statista indicate that in 2019, Amazon Logistics shipped 1.9 billion packages. Multiple sources measuring the rise of Amazon Logistics vis-à-vis UPS and other incumbents indicate that 67% of all Amazon packages might be shipped by Amazon itself, giving us a 2019 number of 2.8 billion packages shipped. Further numbers from Statista show that shipping costs for Amazon rose from $37.9 billion in 2019 to $61.1 billion in 2020, a 61% increase. Assuming a linear dollars-per-package relationship and no gain of efficiencies, this translates to an estimated 4.5 billion packages shipped via Amazon as a proxy for D2C demand. Through the third quarter of 2021, Amazon’s overall revenue grew 27%, a slowdown from the COVID-stimulated 45% ramp-up during the same period last year, sufficiently robust for us to conclude that D2C remains strong.
Discussions with some of our CPG clients indicate that the COVID-19 pandemic contained within it lessons for future growth. Some realized, in yet another death knell for the predominant brick-and-mortar retail outlets, that D2C provided tremendous data analytics potential about consumer-packaging and consumer-product interactions that were previously missed and opaque to them via sales through traditional outlets. “Omnichannel” distribution and sales is now a strong strategic option to pursue, with even food brands aggressively exploring D2C business models, an interesting development given long-standing relationships with retail outlets. But the lure of data, and the potential to measure and modify the customer user experience from package to product and engender greater experiential loyalty, is too great a siren call to ignore. We expect to see a surge in consumer data capture, analytics, and machine learning as CPG companies begin to apply predictive analytics, previously reserved for equipment monitoring and maintenance, to not only measure but also drive new types of consumer demand. In the physical domain, we expect to see innovations in packaging, materials, thin films, inks and dyes, and printed electronics – all to enhance packaging, consumer engagement, data gathering, and finally, recyclability.
According to the EPA, in 2018, the U.S. alone generated more than 81 million tons of container and packaging waste, of which just over 50% was recycled, the rest being burned or landfilled. According to a December 2020 Washington Post article, a litany of facts serve to illustrate the tremendous growth in packaging and waste, driving the need to ameliorate and solve the issue: 1) corrugated box shipments increased 9% in March 2020, 2) e-commerce squeezed two years of growth into nine months during the pandemic, 3) the cardboard box and container industry raked in $67.3 billion in the first 10 months of 2020, and 4) prior to the pandemic, the paper packaging industry consumed 3 billion trees per year. Now consumers are seeing this dynamic play out on their very doorsteps. According to Accenture, 83% of >25,000 people surveyed responded positively to the statement that the pandemic had caused them to challenge their purpose and meaning in life. McKinsey measured this in sustainability terms; up to 70% of >2,000 respondents surveyed claimed that sustainability concerns factored strongly into their personal purchasing decisions. Based on this data and conversations with our clients, we see a strong sustained interest in new packaging materials, physical and chemical recycling technologies, and new business models to stimulate increased effectiveness of recycling. See below for some further information and insights.
- Lux 2021 predictions on digital transformation trends
- Companies engaged in deep learning (artificial intelligence) of real-world data
- Impact of increased e-commerce on packaging
- Keeping track of materials and packaging
Healthcare, telemedicine, and mobile health
In OECD countries, especially the U.S., after decades of consolidation, hospital bed eliminations, staff reductions, and systems cost reductions, the majority of global health systems were unprepared for the onslaught that was COVID-19. Insufficient beds, insufficient staff numbers, insufficient equipment inventory, and a supply chain weaned on lean, just-in-time operations were overwhelmed with demand surge, literally spelling death for many of the unfortunate afflicted. Eighteen months on from the initial lockdowns, what have we observed, what have we learned, and what might become new permanent facets of our healthcare landscape?
According to a MedCity News article from August 2021, in the current quarter, six more telehealth companies joined the unicorn club (companies with private valuations exceeding $1 billion), bringing the total to 27 companies with an aggregate implied value of $55 billion. Thus, though fueled by an infectious disease, telemedicine is not anticipated to fade away as COVID-19 eventually transitions from pandemic to endemic (chronic, low, persistent infection) status. With the rise of biologic drugs (think insulin and diabetes, Remicade and rheumatoid arthritis), pharmaceutical companies have been working toward the vision of a patient-administered or helper-administered application of advanced biologics in the comfort of home to improve and extend the range of the patient experience. Thus, we see telemedicine moving beyond simple telephonic communications, with empowered patients actively taking greater control of health, wellness, and illness via advanced technologies. Some technologies and markets we anticipate benefiting are as follows:
- Health at home, mobile health, and aging in place will become dominant trends with implications for home design and construction, as most people cannot afford the cost of assisted living outside the home.
- Combined 5G communications and edge AI for Bluetooth and smart devices monitoring patient status and behavior will be developed.
- Predictive analytics models moving from industrials to healthcare and from machines to humans and novel payer-provider business models will arise.
- MRNA therapeutics, first postulated in the late 1980s and experimental until recently, have been massively implemented and in many ways validated in the past year (unknown potential long-term effects notwithstanding). Expect to see this emerge as a new therapeutic platform, now that liposomal formulation and delivery challenges have largely been overcome and the technology has managed to scale, with a plethora of new entrants.
- Having said the above, microfluidics and biologic/chemical interfaces will vastly improve (and need to in order to scale) with the demand for faster, accurate, on-demand, cheaper diagnostics and liposome mediated drug delivery; which in itself will become a technology platform.
- We will witness a revolution in wearable and environmental sensing, with on-body, in-home, and in-building monitoring technologies creating tunable meshed sensing networks.
Some relevant Lux resources:
- Interview of a microfluidics company targeting at-home diagnostics
- Primer on point-of-care diagnostics, which we believe will increasingly move from clinic to home
- Discussion on new business opportunities and models in healthcare
- Interview with Respifit, a company using predictive analytics to better manage chronic respiratory care
To summarize (for now) what we see permanently changed and accelerated in the landscape ahead with COVID-19 as the catalyst (see the Lux presentation on constructing a catalyst responsive strategy):
- Direct-to-consumer delivery is creating a new vista for CPG companies, with myriad knock-on effects:
- The rise of analytics and AI applications designed to gather and monetize all unstructured data around the user experience
- Further problems for brick-and-mortar retailers
- Interactive packaging and smart packaging, with tremendous opportunities for novel materials and combinations
- Heavy focus by consumers on recyclability and sustainability; creating the two-edged sword for brands in terms of customers expecting sustainability to be part of the UX and product value proposition
- As a result, big brands will struggle to transform as they try to leverage data and analytics coming from the front-end user experience to regulate and control an already challenging supply chain to be more nimble and agile to demand and in turn use that data to manage demand(!); this will put tremendous pressure on traditional operational management thinking and processes
- Expect to see big brands outsource key operational assets to focus on the two ends
- Big focus on physical and chemical recycling technologies in response
- Gamification and further UX evolution aided by AI to drive toward 100% circularity by incenting consumers to recycle
- The challenge for innovation has never been greater, nor the rewards as big, but only those that can think and solve in terms of total emissions – materials, energy, and supply chain management (being responsible for all your partners and customers mutually is the new expectation!) – will win in the mind’s eye of the empowered, concerned mass consumer
- Healthcare is now forever changed, and for the better, with more mobile telehealth advancements
- The graying population (see here for our blog post on this) will demand technology and business model solutions that enable “aging in place,” “mobile health,” and “health at home” trends
- The possibilities for materials and biologics plus electronics have never been more exciting
Stay tuned as we continue to chronicle our journey through our COVID-impacted world.