By Heather Farmbrough. Spring 2019
    Photography by Chris Close.
  2. The way we live is changing the way we eat. Tom Slater, joint manager of Scottish Mortgage Investment Trust, tells Heather Farmbrough how this is opening up investment opportunities.


    The value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested.

    This article originally featured in Baillie Gifford’s Spring 2019 issue of Trust magazine.

  3. Tom Slater is slicing vegetables and herbs with a sharp knife into neat piles on a chopping board. I wonder how much you can tell about a fund manager by the way they chop their vegetables. I imagine that the joint manager of the £6.5 billion* Scottish Mortgage Investment Trust would bring the same order and precision to the job. 

    Slater is preparing moussaka from a recipe that came in his HelloFresh delivery box. As he begins, I observe that I always find written lists of ingredients annoying. Pictures are much easier. A light comes on in Slater’s eyes. “The thing you are missing is that you don’t have to do any of this yourself with HelloFresh,” he says. “Everything comes in a recyclable pot or pack that is the right amount, so you don’t have to work out or measure all the ingredients.” 

    To make his point, he goes over to the box and pulls out the remaining green and grey paper bags containing the ingredients for two further meals, and a purple plastic pouch that disconcertingly turns out to be sour cream, packed in ice inside recyclable wool.



    There are a couple of other advantages in using HelloFresh, Slater adds. “There is no waste. When you go to the supermarket you rarely buy just the right amount. The other thing is that because of its size, HelloFresh has purchasing power. If it is delivering a million meals tonight and needs, say, 100 tonnes of carrots, it can buy them in bulk and negotiate a good price.”

    This is one of the reasons why you will find HelloFresh in the Scottish Mortgage portfolio. There are quite a few stocks there with exposure to the food market, as the managers believe that our food shopping habits are changing. “People are only tending to buy what they need for the next few days,” argues Slater. “That is linked to not having much storage space or such big kitchens, or not having a car.”

    At the same time, technology has moved so fast that it has opened up all kinds of possibilities. The ability to store big data has been a gift for the food retail business, which depends on sophisticated logistics for deliveries.

    I can remember the days when my mother used to ring up the butchers, fishmongers or greengrocers to order weekly shopping, which they then delivered. Have we gone round in some kind of food retailing cycle, albeit with better technology?

    Slater thinks not because it’s not comparable. He is not a fan of traipsing around big supermarkets and then having to find space to put everything away. Nor am I, and nor, judging by the figures, are plenty of other customers. The hypermarket model is falling apart and food retailers have been left with huge stores and big property costs.


    HelloFresh's most delivered items in UK market. Source: www.hellofresh.com


    Food retailing comes down to two simple questions: what do people want to eat and how do they want to buy it? Well, one clear answer is that more and more people want to eat restaurant meals, but they want to eat them at home, and quite often with friends. This trend has underpinned the success of two other Scottish Mortgage investments, the US company GrubHub and the German-born Delivery Hero.

    The success of GrubHub and Delivery Hero is built on driving down the cost of delivery by investing heavily in infrastructure and logistics. Their strategy when moving into new cities is to get a wide choice of restaurants onto their platforms, including ones that might not have offered takeaway delivery before. GrubHub says that after a restaurant has joined its platform, its takeaway order volume increases by more than 20 per cent.

    Volumes are important because success depends on getting more efficiency out of the logistical infrastructure. To do that, you need scale. So, in the US, GrubHub has teamed up with Yum! Brands, enabling the company to go into more cities and build up its network.

    Slater believes the US food delivery market is less developed than in Europe, but both are growing fast. According to Statista, a statistics database, revenues from online delivery services that provide customers with restaurant meals are expected to grow by 12 per cent annually over the next five years. However, it is China that is really ahead of the rest of the world. “In China there is much more of a culture of people cooking for you, rather than cooking yourself, of eating out and getting food delivered.”


    © Delivery Hero.


    The two biggest home delivery companies in China are Meituan Dianping and Ele.me, which is owned by Alibaba. Scottish Mortgage holds shares in both Meituan Dianping and Alibaba. It is difficult for Western food retailers to break into this lucrative market, where apartment blocks are even being built with facilities for Meituan and Ele.me to drop off meals for collection.

    Where is it all going? Slater reels off a list of possibilities, from more click and collect to HelloFresh offering wines with meal kits, or 5,000 square metre out-of-town kitchens for restaurants to supply home delivery. But the potential lies in exploiting the food retailers’ logistics networks in new ways to open up other markets.

    Over the next 20 years, Slater believes, the logistics companies with significant data advantages will move into physical retail infrastructure. Alibaba has already opened its first supermarket offering high-quality merchandise that whizzes around on high-speed conveyor belts. Online retail is getting physical.

    But for now, Slater has to content himself with what is possible. How does he shop? By way of reply, he says: “Alexa, get bread.”

    In the future, Amazon’s smart assistant Alexa, or her descendants, will put the order into Tom’s shopping list for home delivery. But for now, she has to put it on his app. Alexa has the last word: “I’ve added it to your shopping list.”

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    This communication was produced and approved in May 2019 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

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    Heather Farmbrough is a freelance journalist for several publications including The Telegraph and Forbes.com. Heather is a broadcaster and author, and used to be a fund manager.