2021. Are we nearly there yet?
Originally published on LinkedIn Sep 23, 2020
Part #1 of a multi-part series on Growth, Velocity and Distribution for Emerging CPG Brands
Here is the skinny. COVID-19 has accelerated the shifts in shopping and consumption behavior that would have occurred in the Consumer Packaged Goods industry anyway. Falling barriers-to-entry and category fragmentation have spurred the proliferation of emerging brands. Yet, constrained shelf-space and rising consumer acquisition costs have significantly dampened growth aspirations. The failure rate for emerging brands is high. For those brands that have succeeded, it was the relentless and steady obsession with velocity growth that allowed the compounding effect to double sales again, again and again.
COVID - The Great Accelerator
Infections, deaths, shelter-at-home, heightened hygiene habits, social distancing, business closures, layoffs, travel restrictions, work-from-home, on-line meetings, out-of-stocks, quantity restrictions, virtual college and school classes. A long list indeed, not to mention, social and political dysfunction. And, it is was only September, 2020.
CPG executives and insights experts, for both incumbent and emerging brands, will affirm that COVID-19 has fundamentally altered category dynamics and consumer behaviors for good. A consensus view, also expressed by Scott Galloway (a serial entrepreneur and Professor of Marketing at NYU) goes something like this:
Trends and changes in shopping, category and consumption dynamics were on a steady transformative path that many predicted would take place over 10 years. COVID has amplified, accelerated and actualized these dynamics within a matter of months.
This consumer-driven acceleration is now overwhelmingly favoring brands and retailers that are embracing e-commerce, touchless commerce, health & wellness, ultra-convenience, ingredient transparency, at-home occasions and issue advocacy. The evidence is there. Rodney McMullen, the CEO of The Kroger Co., validated these shifts in his Q2 2020 earnings call [1]:
“Our data insights show customers are rediscovering their passion for cooking at home and have an aspiration to eat more healthy foods as a result of COVID.”
“As we talk to other companies across America, we believe return to work will look very different with many employees working part of the week from home. And finally, while the full economic impact of COVID-19 is yet understood, our data shows that during the periods of lower economic activity, we see a structural shift from food consumed away from home to food consumed at home.”
“Our customers are increasingly turning to our e-commerce solutions for their grocery and household essential needs. Many of our customers are ordering groceries online for the first time as a result of COVID-19 and the majority of them tell us they plan to continue to do so in the future.”
New Habits in 60+ Days
According to research [2,3] published by University College London in the European Journal of Social Psychology, it took participants 66 days (the median) to form a single healthy habit. Depending on how big that life-style change was for those participants, the range was from 18 to 254 days.
From the beginning of March to the end of October 2020, shoppers and consumers will have clocked 245 days of some form of new repetitive behaviors. If just 30% of these new shopping and consumption behaviors stick, the changes and implications for brands and retailers will be significant.
Incumbent Brands are Fighting Back
Over the past 10 years, the assortments on shelf sets has evolved fairly significantly. Emerging brands have innovated a myriad of offerings in order to satisfy the high level of fragmentation that is being experienced across many consumer categories. Consumers' voracious appetite to discover new brand or flavor experiences, coupled with the shift of dietary habits towards better-for-you foods, has fueled the proliferation of brands and SKUs.
Food and beverage entrepreneurs entered the category in droves as barriers-to-entry dropped. Contributing factors included Direct-to-Consumer (DTC) channels, excess co-packing capacity and easier access to CPG-focused accelerators, venture capital and private equity funding. Yet, it always remained hard to launch, scale and grow a new emerging brand beyond familiar local market and geographic boundaries.
While very few individual emerging brands managed to profitably scale on a national basis, it was the cumulative impact of the huge numbers of emerging brands and SKUs that ultimately pressurized the large, national incumbent brands. Death by 1000 cuts, you might say. A 2018 IRi study [4] found that about $15 billion worth of total retail sales had shifted from large U.S. CPG companies (over $5.5 B in Annual Sales) to small and extra small companies from 2013 to 2018 (in multi-outlet grocery/supermarket and convenience channels).
The COVID period brought some relief to large incumbent brands, as retailers scrambled to reduce out-of-stocks. Retailers concentrated their sourcing and placement efforts on the larger brands that were able to use their scale to smooth out supply chain disruptions. Consumers shifting back to the "known and trusted" legacy brands of their past, certainly helped certain large incumbent brands over the COVID period.
Interestingly, data [4] from IRi from the end of February up to to mid June 2020, showed that smaller brand-owners and "smaller" brands had actually grown share at the expense of the larger companies and brands.
Source: IRi
So why is all this relevant. Large-brand incumbents, with stagnating performance, have increased their urgency and efforts to protect and transform their own long-term viability. The sleeping giants have been stirred and they will be using their overwhelming scale and muscle to dominate the shelves again.
Kraft Heinz serves as an interesting analog for how large companies and incumbent brands have fared these last few years in the face of market changes that have taken place. Their $15 billion brand write down in early 2019 [5] and the halving of their stock value was testament to how consumers and investors viewed the value of their brands. Enter, Miguel Patricio, the new CEO. A year later, Patricio and his team presented their new business model and consumer-driven platform to drive growth approach at their Sep 2020 Investor Day [6]. It will certainly be impressive if the team can pull this off.
If you are an emerging and challenger brand, you will recognize that these are the very platforms that entrepreneurs and emerging brands are innovating and pioneering. Big companies are now wanting to eat your lunch!
The point is this. For the next year or so, and for the post COVID-19 period (yes, there will eventually be one), launching and scaling emerging brands by scrappy entrepreneurs is going to get tougher.
When the Going gets Tough
This does not mean that entrepreneurs should give up. All is not lost, and your emerging brand does not have to be destined towards a “doom and gloom” scenario. Large corporates certainly have the funding and scale to launch their new brand and SKU innovations. But "being big" in itself does not guarantee success, as will be highlighted in forthcoming articles.
There is a playbook that has consistently worked for those emerging brands and great founders that have succeeded. The playbook has to do with the simple, but not simplistic, approach of intentionally nurturing velocity (rate of sale) and pragmatically managing distribution expansion and roll-outs over a sustained period of time.
Biome Botanica...Notes to Self
At first, I started to collect, save and write down CPG-related insights so that I could clarify my own thoughts about the tough decisions Biome Botanica was having to take. Many of these decisions revolved around the pending launch of our first commercial brand in the market.
In October 2019, we conducted in-retail consumer tests for our plant-based probiotic offering. The four variants tested extremely well, and we were scheduled to have them placed in a multi-outlet natural food store during Q1 of 2020. Then COVID hit, and we took the hard decision to delay our launch. Our main concern was not related to the potential success with our first customer and geography. Rather, it was about ensuring that the brand would have a pragmatic and fundable growth pathway to be a successful at our next ten regional retailer chain targets. As frustrating as it was, this was a good decision in hindsight. We are now in the process of resetting and re-initiating our go-to market approach.
Over the past few years I had also started sharing some insights and related tools with companies with who I was also working with on various growth initiatives. More recently, this project-related work has helped to cross subsidize our startup venture! As a result, I have received a number of requests to share those more widely with other emerging brand founders and companies.
The information presented in this series serves as a beacon and as guardrails for guiding our own pathway for Biome Botanica. Hopefully, some snippets might be useful to you too. Much of the content has been gleaned from a number of journalistic sources and industry experts who have uncovered data-based insights and/or who have interviewed founders to document trends, failures and successes. I have added some of my own thoughts, opinions and “growth” constructs. These have been learnt, the hard way, from lessons of failures and successes from my own corporate and entrepreneurial journeys.
The Five Growth Imperatives
My core lessons, in this series of articles, centers around Five Growth Imperatives. These imperatives underpin many emerging brands that have achieved sustainable and profitable scaling success. There are two foundational imperatives, where it goes without saying, any successful CPG brand needs to possess:
Superior functional performance and emotive benefits versus the competitive alternatives. (For food and beverage brands, a superior taste is an absolute must!)
Distinctive assets that, with persistent trade and other omni-channel marketing, will instantaneously convey the brand proposition and, over time, aid recall to capture lasting mindshare.
But, for emerging brands to achieve the type of growth that could one day make them a $25 million, $50 million or even a $100 million dollar brand they have to execute the Multiplier Effect of:
Solid, category-leading velocity gains,
Pragmatic, defensible distribution expansion, and
Measured price competitiveness and “easing”
Talk is Cheap. Money Buys Whiskey
The CFO of the company that acquired my business in the late 90s used to hammer this saying to us, every time the portfolio companies reported monthly financials. When it comes to the achievement of The Five Imperatives, executing against these imperatives are easier said than done. I get it. To launch and scale an emerging CPG brand you don't just need a big idea. You also need persistence, resilience and patience.
A big shout-out goes to Dr. James Richardson's ground-breaking research in CPG exponential growth trajectories. His sharp consumer insights, have solidified and influenced how I now think about scaling within the CPG industry.
Even, if Biome Botanica wants to bite-off a $10 million retail sales target as a first goal, we know that this will take a few years of hard slog. Richardson’s insights have helped us to right-size our own growth aspirations and go-to-market strategy. His 2019 book, Ramping Your Brand [7] is excellent and well worth the read. In subsequent articles, I will be covering more commentary, lessons and growth analogs that reference his work and insights.
References
Seeking Alpha; The Kroger Co. (KR) CEO Rodney McMullen on Q2 2020 Results – Earnings Call Transcript; seekingalpha.com; Sep 11, 2020
Aleisha Fetters; How Long Does It Really Take to Make Healthy Eating and Exercise a Habit?; U.S News; Apr 28, 2017
Phillippa Lally, Cornelia H. M. Van Jaarsveld, Henry W. W. Potts And Jane Wardle; How are habits formed: Modelling habit formation in the real world; European Journal of Social Psychology; Jul 16, 2009
IRi; Part 7 – The Changing Shape of the CPG Demand Curve: U.S. CPG Growth Leaders; Aug 7, 2020
Mark Ritson; Kraft Heinz’s new CEO needs to deliver a much-needed dose of tough love; Marketing Week; Jul 4, 2019
Kraft Heinz; A New Model fort Growth; Investor Day; kraftheinzcompany.com; Sep 15, 2020
Richardson, James; Ramping Your Brand: How to Ride the Killer CPG Growth Curve; PGS Press; 2019