Axios Future

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January 29, 2019

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1 big thing: The future of baby food

Photo: Lambert/Getty

One of the most visceral experiences in anyone's life is conceiving and raising a baby, and some of the world's biggest companies revolve around an increasing parental obsession with getting the first couple of years right.

But now, one of the central businesses in infant care — the $7 billion-a-year U.S. baby food market — appears ripe for disruption by startups that are changing how business value is defined.

Driving the news: What is happening in baby food reflects the shift in retail, in which a new brand's value is increasingly not based purely on revenue, but on its reliable fan base — how much traffic it can bring a store at a time when shoppers are fickle.

Baby food has long been dominated by two brands: Gerber remains No. 1, and Beech-Nut is the second-biggest seller.

  • But a huge chunk of baby food consumption is homemade, experts say — a reflection of a mania for organic, fresh products and an increasing rejection of processed brands.
  • This is what has created a threat to the legacy brands. Because many parents simply don't have the time to prepare every meal for their babies, those wanting something fresh are open to upstart organic food brands that will do it for them.

Angela Sutherland is co-founder of Yumi, a California-based organic baby food startup that markets direct to consumers. Sutherland sends overnight shipments of freshly made baby foods to its clientele weekly.

  • In 2017, Sutherland and her partner raised $4.1 million in venture capital. Since then, she tells Axios, they have shipped about half a million jars of mixtures like banana with kale and black beans; kiwi combined with coconut milk, quinoa and banana; and standard spinach.
  • They are around $5 a jar, more or less double the cost of processed brands, depending on the type.
  • The business has grown by 30% month after month, Sutherland says, and has built a fanatical base of "megafans."

Sutherland says that big retailers have begun to circle the company in hopes of a distribution deal. "It shows how much retailers want brands with connection to a fan base," she says.

  • Kimberly Greenberger, an analyst with Morgan Stanley, agreed. To differentiate their merchandise from competitors, brick-and-mortar retailers today are looking to secure exclusive products. "The more exclusive and proprietary, the more the retailer can capture that consumer demand," she says.
  • "Something like baby food, where there is a monopoly or a duopoly — anything that disrupts that duopoly with a natural label will disrupt the market," Barbara Denham, chief economist at Reis, an analytics firm owned by Moody's, tells Axios.

Yumi is fulfilling two current market fads — making organic foods and shipping them to customers' doorsteps. The business is subscriber-based, and it tries to be highly customized, arriving in a box with a card listing nutritional studies validating a particular mixture of ingredients, Sutherland says.

"Now we ship to New York and the tri-state area. We are rolling out nationally this year," says Sutherland, a former investment banker. "We didn't realize how fast the business could grow."

2. The invisible AI future

A pixelated illustration of a brain blurs vibrates in place
Illustration: Rebecca Zisser/Axios

Yesterday, Michael Esser, a Future reader in Los Angeles, emailed about our report that digitalization is speeding up the disruption of the global political and economics system, Kaveh writes.

"If you look around — even as a person who is deeply interested in the issue — there’s just almost nothing that announces what you describe is soon to come," Esser wrote.

Why it matters: Without an idea of how society will be reshaped by these emerging technologies, there's little chance for the public to agitate for solutions to pressing problems just around the corner, like biased AI systems that can keep minorities out of jobs or in jail.

Survey after survey shows that Esser is right. AI, despite being a near-universal buzzword, often seems detached from everyday life, and it is difficult to know how important it will eventually be.

  • When political scientists at Oxford asked Americans to point to which common products and services use AI, the majority incorrectly passed over social networks, search engines and translation software.
  • Last summer, Intel asked Americans what technologies they think will be most important in everyday life after 50 years. Their top answers: smartphones, PCs and smart homes — technologies that are popular today but will likely be upstaged by AI, robots, virtual reality and other yet-unimagined developments.

The danger is that the public will be blindsided by the effect of new technologies when they hockey-stick into prominence, says David Schatsky, a technology analyst at Deloitte. And by that time, it may be too late to address the unsolved ethical questions that still plague AI.

"The biggest issue with this, in my opinion, is that technology shapes our lives in ways that most do not anticipate. And it invariably has unintended consequences. If more of us were better at futures thinking, we might be able to wrangle those consequences before they do much harm."
— David Schatsky, Deloitte

3. Two startling stats on China's retreat

A gold dragon in a cage
Illustration: Lazaro Gamio/Axios

China — and Chinese money — appear to be dramatically retreating from the West, according to two new numbers, Erica reports.

  • Chinese investment in Europe and the U.S. dropped a whopping 73% in 2018, per the Economist.
  • And China's net purchases of U.S. real estate last year plummeted to their lowest since 2012. All told, Beijing spent $2.68 billion on U.S. properties in 2018, compared with $19.1 billion in 2016, reports WSJ.

The big picture: We've entered an era of hostility in the U.S.-China fight, with the two gargantuan powers unequivocally opposing one another.

  • China's retreat is yet another symptom of this new order — a Cold War-style "rebordering," through which Washington and Beijing attempt to cordon off swaths of the globe for themselves.

4. Worthy of your time

Data: Brookings Institution and Climate Impact Lab; Chart: Chris Canipe/Axios
Data: Brookings Institution and Climate Impact Lab; Chart: Chris Canipe/Axios

Can technology fix the housing market? (Emily Badger — NYT)

Climate change's red-state toll (Ben Geman — Axios)

Low-skilled UK workers stuck in ‘vicious cycle’ (Robert Wright — FT)

The new lithium great game (Mitra Taj, Michael Nienaber — Reuters)

No country for old Koreans (Kim Jaewon — Nikkei Asian Review)

5. 1 fun thing: The golden toy

A lego hotel
City of Legos. Photo: Oscar Gonzalez/NurPhoto/Getty

Forget stocks, bonds and even gold. Savvy investors should be looking at Legos.

Erica writes: According to research from Russia's Higher School of Economics, reported by Vox, resold Legos yield a higher return than any of the investments listed above.

  • Victoria Dobrynskaya, the researcher, found that the average Lego is sold secondhand to collectors and enthusiasts for 11% more than retail price. Some, she found, are sold for 600% more.