Trader Talk

Here's what's behind the sudden surge in products for millennials

Pisani: IPO fitness trend

What's with this sudden surge of interest in marketing health and fitness to millennials?

I know, it's been around for a while, but it seems to be picking up steam. Last week, we had Amplify and Planet Fitness, but there's a lot more likely IPOs likely on the way for the fall that want to get in on this trend.

This trend has not peaked yet.

When you are marketing these products to millennials, there are a few principles that these companies have in common, whether you are selling popcorn...or gym memberships...or high-end food for your dog...or diapers:

1) Establish an emotional connection with the brand; what the customers want is a relationship to the product. There's a lot that goes into the name of the product, and how you are supposed to feel about it.

2) Emphasize the products are "Better For You" (BFY) or at least "less bad"

3) Digital first: it's cooler, cheaper, easier

4) The company is on your side, doing the right thing, socially engaged and responsible.

Let's look at this by category. In fitness technology, Fitbit has taken off since its June IPO, but rival Jawbone is a strong IPO candidate for the fall. Millennials love tracking their health data.

Even the crowded gym business is seeing action. Planet Fitness, after a slow start on its IPO Thursday, has been strong for the past two days. It better not rest on its laurels: uber-cycling firm SoulCycle is likely to go public in early September. This is another company with a cult following around the instructors--a "rave on bikes" as one participant described it—and prices to match: $40 or so per session, roughly $1 per minute. Cycle that!

The whole "better-for-you" (BFY) category is also exploding. I wrote last week about the appeal of popcorn maker Amplify, which created a company with a roughly $1 billion market cap, largely around a catchy name (SkinnyPop) and the perception that their product was "less bad" for you.

Blue Buffalo, which sells natural pet care food, has also mined this same space successfully. They went public July 20 at $20, well above the price talk of $16 to $18, and is currently in the $27 range, with a $5.4 billion market capitalization.

That is a bigger market cap than Tenet Healthcare. Or Transocean. Or Owens-Illinois. For a natural foods pet company.

Coming next: a possible IPO of Chobani, the Greek yogurt company.

Greek yogurt? Do we really need another yogurt company? Isn't there enough yogurt in the world, with Danone and General Mill's Yoplait dominating the market?

But that's the whole point of these businesses...they find a small niche and then move in. In this case, it's "Greek" yogurt, which is more difficult to make than the usual yogurt, and is being cleverly marketed as "better-for-you." That is enough to give Chobani an estimated $1 billion in sales last year.

Millennials also are looking for new approaches to health care.. Teladoc, which also went public in July at $19, well above the price talk of $15-$17, and is trading around $30, provides phone and online medical consultation services in an effort to reduce doctor visits.

There you go again. Millennials have no problem doing business over the Internet.

Speaking of the internet, another likely IPO candidate is uber-hip eyeglass maker Warby Parker.

But wait, isn't the eyeglass business dominated by giants like Luxottica, which owns Rayban, LensCrafter, and Pearle Vision?

Yes, but once again they found the right niche, in this case with a series of vintage-style frames, mostly sold online to millennials, for $95, with free shipping and free returns. And they donate one pair of glasses for every one they sell!

There have already been several rounds of funding, with investments from American Express and Mickey Drexler, among others. The market cap is already roughly $1.2 billion.

This touchy-feely stuff, essentially an exercise in consumer branding, might be merely amusing if it hasn't been so successful recently.

In the case of Amplify, it's about selling the "natural" food trend. SkinnyPop is about a cute name and the claim they are taking out stuff that is not good for you like GMO ingredients and allergens.

Likely coming soon is Honest Company, Jessica Alba's non-toxic baby and cleaning products company, which like Warby Parker has already gone through multiple rounds of funding and likely has a market cap north of $1 billion, despite recent controversy about the effectiveness of the company's sunscreen product.

In restaurant, there's a whole new sub-category: "fresh" fast casual. Shake Shack was the groundbreaker, claiming to make a "better for you" (there's that word again) burger that is antibiotic-free.

On the horizon are several other competitors, like Smashburger, and Pret A Manger, a British company that claims to make a "better" sandwich, with all-natural ingredients, made on the same day. Any food leftover is collected by charities (naturally).

These companies have already proven that it is possible to break into previously closed ecosystems. What is harder is fending off the competition.

Amplify's biggest competitor, for example, is Frito-Lay (gads), which already has a competing popcorn product (SmartFood) that they are aggressively marketing and which already has a larger market share than SkinnyPop.

And Danone is not sitting still waiting for Chobani to eat their, er, yogurt. They also now have a "Greek" yogurt line.

Which begs the question: will any of these hip companies, those that have IPO'd and those still waiting, survive, or will they just be gobbled up?

It will probably be a little bit of both. There will be managerial missteps, some companies will break their trust with their customers and fade away, some will simply be displaced themselves by even more nimble competitors.

It's difficult to pick the winners. One thing is clear: first movers often have the advantage. Which is why you are seeing this big move.