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Digital. Influencers. Targeted. Social interaction. Experiences. These words, and many more, have been used to describe the habits and behaviors of millennials. Despite older generations adopting many of millennials’ behaviors, some of their inclinations are still unique. Take digital payments, for instance. Millennials tend to flock to apps like ApplePay, whereas baby boomers are more comfortable making payments using paper checks, or even online bill pay through their bank. This example is just one of many. While it’s fascinating to compare generational differences, it’s crucial to unravel how these differences impact investments.

Product of Circumstance

Getting to the heart of the millennial psyche is an important exercise to unravel what motivates their buying decisions and how those choices are carried out. Most prominent to this task is interpreting early life experiences. Research concludes that formative years—from birth to age five—form the basis of an individual’s belief system. In learning about the circumstances of millennials’ early lives, investors can formulate theories on how their beliefs will impact certain industries.

Millennials are products of affluence—their parents pursued degrees and careers, and delayed childbearing, which limited the size of their families. Millennials were often showered with praise, and because the basic needs for most millennials were provided for, they delayed onset into adult activities. Baby boomers, on the other hand, were the exact opposite. They were raised during the period following the Great Depression and World Wars I & II, and during the Korean War. The need to work and save was indoctrinated into boomers’ values. The dichotomy of the early lives of boomers and millennials is stark, and so are their habits and behaviors.

Investment Controversies

Millennials’ influence on many industries is well known; their penchant for “I want what I want when I want it” has spurred growth in many industries. Streaming media and e-commerce, adopted first by millennials, are experiencing strong growth while network TV and traditional retailers, still embraced by many boomers, are shrinking. But on other industries, their influence is less obvious, although often just as profound. Consider millennials’ sway over the food industry.

Boomers did not cause radical change in the food business, whereas millennials with their demand for immediacy, and focus on their own health, have forced grocers and restaurants to offer delivery of fresh, prepared foods. So much so that it appears that millennials like food prepared anywhere but in their own kitchens!

The fallout from the shift in behavior is vast. The immediate casualties have been packaged food companies. Grocery chains have had to redesign their stores and implement technology to offer online ordering and click and collect options. Larger chains, which have the financial resources to make these changes, are at a great advantage over smaller chains, which lack the necessary resources.

But the impacts go even further. Local restaurants are benefiting from the take-out and delivery trends to a greater extent than national chains. New third-party delivery businesses have been created that allow consumers to order food from a range of restaurants and have it delivered to their doors. Independent food-service distributors that serve local restaurants are also beneficiaries.

This seemingly innocuous desire for fresh, prepared food-to-go has widespread implications. That’s the power of one generation’s distinct proclivities.

A Far Reach

Similar disturbances are occurring in other industries—travel, everyday mobility, payments, healthcare, and even beauty products. For investment managers, it’s important to analyze millennials’ behaviors, likes, and habits, and incorporate these findings into every investment thesis. Why?

Patterns of behavior impact expected growth rates, sustainability of business models, and long-term profitability. It helps managers know which industries will be advantaged by trending behaviors, and which will suffer as the habits of prior generations fall to the wayside. This information factors into identifying companies that can deliver higher than expected results. Sometimes new industries will be the winner, other times incumbents will have the advantage. That’s the opportunity insights into millennials afford investment managers.

Coming back to the payment example, the impact of digital payments is a bit counterintuitive for investors. You might think that millennials’ use of payment apps is disrupting the payments business, when in fact, they are feeding more transactions through existing payment networks—like Visa and Mastercard—that process their transactions. So, despite the change in the way parties transact, the underlying infrastructure remains the same, and the incumbents—Mastercard and Visa in this case—win!

An information edge can mean the difference between getting ahead—or being left behind. That’s why many of our entrepreneurial clients look to us as a source of intellectual capital. For more insights on disruption, check out the related blogs here.

The views expressed herein do not constitute research, investment advice, or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.