Is The Company You've Invested In DC Or DA?BloombergQuintOpinion
Before the pandemic, I unwittingly became part of a social experiment in an almost-laboratory setting. Over one weekend, I watch the remake of a classic play and a stand-up comedy show. Both were in Marathi. Same venue. Same time of the day. Same ticket price. Same weekend. At the play, I was one of the youngest members of the audience. For the stand-up comedy, I was (by far) the oldest. My first thought was, how lucrative would it be if I could make this into a pair trade. Long stand-up; short plays.
As I thought more about it, I realised this applies to several other walks of life.
Cryptocurrencies are DA; Gold is DC. Haiku poetry is DA; ballads are DC. Wearables are DA; Stationery is DC. Joggers are DA; Formal shirts are DC. Spirituality is DA; Religion is DC. The reason this doesn’t get talked about enough is that the shift is gradual.
Things don’t get disrupted in DA-DC tug-of-war; they get sandpapered.
Most consumer categories aren’t on the extremes of the DA-DC continuum, which makes the change harder to notice. But I worry when corporates pay scant attention to this or worse, dismiss all new things as a fad.
I asked a senior media executive what she thought of over 10 million users attending a virtual concert by DJ Marshmello, hosted inside the popular game Fortnite. “It’s just some pipe music these kids are listening to,” she said. It may well be that but as somebody vying for the same share of time and attention, wouldn’t it be worthwhile speaking to one of those 10 million?
Tyler Blevins, with DJ Christopher Comstock, known as Marshmello, after winning the Fortnite: Battle Royale Celebrity Pro Am in 2018. (Photographer: Patrick T. Fallon/Bloomberg)
I ask consumer companies for a demographic split of their consumers and if they have any time-series data on it. They generally give me anecdotal answers or point me to their ‘youth portfolio’ which has Malaika Arora Khan as brand ambassador.
Not everybody is behaving like ostriches though. Former chief executive officer of Unilever, Paul Polman hit the nail on the head when he said “My biggest fear for this company, of which I have very few, is that we lose the connection with millennials”.
Investors tend to sniff out demographically challenged companies much before the business fundamentals start to wane and a swift de-rating ensues. Ask any listed newspaper publisher.
The real stimulation is not in enumerating DA and DC categories that have become consensus but to wonder what categories would go into these buckets in the future. Aversion to asset ownership amongst the younger generation is well known. That includes homes, cars, and even furniture. The pandemic may be bucking this trend in the short-term in India, but if it were to become pervasive and hold, one has to wonder whether a housing loan is DC. Today it’s a bread-and-butter product in the financial services industry that gives most loan books girth and stability. If as a consumer, I do not buy a house at all or buy it much later in life, my attractiveness as an asset-side customer goes down. Ticket sizes in credit card and personal loans cannot match up to housing or car loans.
By the same token, is there a juicy internal rate of return opportunity for entities with access to low-cost capital to benefit from this aversion? Think residential real estate investment trust or even REIT equivalents for cars and furniture. Are cigarettes and alcohol DC? They already are in some developed countries. Is health and fitness DA? Think of the athletic skills of the Indian cricket team today versus twenty years ago. Is environment-consciousness and hence products that genuinely work towards it DA?
A man jogs along Rajpath, as Rashtrapati Bhavan sits in the background in in New Delhi. (Photographer: Ruhani Kaur/Bloomberg)
The status quo-ist pushback for any such musing is, there is still a lot of ‘penetration-led upside’ for traditional products in India. I thought the same way too till I had to sit through a painful de-rating of a television company in our portfolio. And that happened with less than three million Netflix subscribers here. Once the market decides that a category or company is DC, no amount of cross-country comparison of per capita consumption can convince it otherwise.
Every consumer-facing corporate should do a periodic health-check up for this i.e., get consistent and reliable data. I would love to see a slide that shows ‘What percentage of our consumers are less than 25 years of age?’ and then be able to see this percentage for the past ten or twenty years. I realise it is difficult to get actual data for this given India’s layered consumer distribution system but a robust survey should do. Or put differently, ‘What volume of my product does an average 30-year-old consume today? What was the comparable number over last ten years?’ That would help companies place themselves on the demographic continuum and help investors make an informed judgment.
I also think ‘reverse mentoring’ especially for senior leaders and C-Suite should be mandatory.
Spend an hour every month with the management trainee in sales and do it with genuine curiosity. Within the first few meetings, try to create a pie-chart of your mentor’s time and money spent. Get as granular as you can. Try and break down screen time by apps or content. Compare the pie charts to yours at the same age; compare them to what you thought they would look like and let that become the starting point of questions, observations, and insights. Sample some of their experiences to see what makes them tick. Make a fantasy-league team, figure out how Twitch works and watch a tournament or read Rupi Kaur with an open mind. You might abhor the poetry and that’s fine but judge after giving it a fair trial. At family gatherings, rather than boring people with the umpteenth repetition of your teenage struggles, ask the young ones what their struggles are. If not anything else, listen to this Fortnite Marshmello concert from two years ago. I think it’s pretty cool. You will find it here.
Swanand Kelkar is an investor and former Managing Director at Morgan Stanley. Views are personal.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.