10 Forces That Have Caused the Packaged Food Startup Explosion
The consumer packaged goods (CPG) industry today is seeing an explosion of innovation and revolution. It’s an amazing thing to watch, and even more thrilling to be a part of it. But, where is it all coming from? Here are 10 forces I’ve seen guiding the latest in CPG.
1. The ability to build a consumer following quickly and cost effectively via social media and influencers
Ten years ago, when I was launching new innovation at multinational manufacturers, such as Kellogg’s, all retailers cared about was how many millions of dollars we were spending on brand launches via television and mass media.
Fast forward to today, and time and time again when I speak with major retailers I hear how important social media is in terms of groundswell, and the real consumer influence these brands are having in the market. Smart new brands are able to launch -- virtually free -- viral social media campaigns to get their name out there, compared to the millions of dollars required five to 10 years ago to buy time on television or in mass media. Arguably retailers are now recognizing the pull that effective social media campaigns have is much more attractive and effective than traditional push media.
2. Access to capital and accelerators
Many CPG brands are joining crowdfunding platforms like CircleUp or Indiegogo to more easily secure initial financing. There has also been a rise in CPG-focused accelerators, which give small brands access to mentors, manufacturers and networking relationships to get their brand in front of people. For example, Austin, Texas-based Incubation Station boasts mentors such as Sweet Leaf Tea Company founder Clayton Christopher, who built his company to $53 million and sold it to a division of Nestle. The incubator is a program of a local law firm, Moster Wynne Resler. Chosen participants get up to $20,000 in seed funding, as well as a bit of free legal help.
3. Access to co-manufacturing and the outsourcing of production
For multinational companies, innovation has to be produced within the confines of existing machinery and production facilities. If it falls outside the scope, changing machinery and processes is timely and costly and often a real hindrance to a project getting off the ground. Small businesses can design the product they want to create and literally have access to thousands of co-manufacturers to produce products based on their specifications
4. Access to co-packers and the outsourcing of packaging
Similar to outsourcing production, when it comes to packaging we are seeing truly innovative brands really break the barriers and norms to set their product apart from the competition. Think about water that now comes in cardboard milk-like containers, or morning smoothies that come with fresh nuts and seeds sealed around the neck of the bottle. These are just a few examples of innovative packaging hitting the shelves through access to co-packers that have the flexibility to package the products in unique formats. Again, not so easy to achieve for larger suppliers confined to existing functionality.
5. The ability to start small and selling online initially
Small brands starting out have the flexibility to produce smaller quantities, test the market, and sell direct to customers. Fresh local markets, direct-to-consumer selling, and even through Amazon are simple, accessible, and cheap channels where brands can start out. These channels are direct to the customer and offer high margins, which is particularly important for brands in the earlier days.
6. Localization trends at the retail level
Localization is a huge trend that has been adopted by larger retailers; even the likes of Sam’s Club and Walmart have local buying strategies and teams to place relevant local products in certain markets, making it easier for smaller brands to stay local and manage the supplier chain in the earlier days and scale slowly.
7. The ability to outsource end-to-end with best in class
Just like co-manufacturing and co-packing, every end-to-end requirement of putting a brand on shelf can be outsourced to third party providers, from incorporating the company and creating a tax ID via the likes of Legal Zoom or Rocket Lawyer, to accessing to packaging design crowdsourcing platforms where for little money you can get a company logo done. This outsource model has made it possible for brands to launch, grow and thrive, which leads me to . . .
8. The ability to better manage fixed costs
A lot of the early stage CPG brands consist of the founder or founders and maybe one or two part-time assistants at most. This is because everything else is simply outsourced in the early stages. And that enables startups to manage fixed costs to help them get off the ground.
9. Discovery is on trend (and here to stay!) with consumers and retailers
Consumers are changing more than ever before. In fact, more than 30 percent of consumers are selectionists. They are shopping based on trends, not brands, and as a result retailers are hungry and open to innovation from smaller emerging brands. And these brands are now more widely accepted and often preferred by today's consumer. This has opened doors for smaller brands, making some of them famous in short order, which wouldn't have been possible 10 years ago.
10. Higher price points for smaller brands vs. generic or market-leading brands
Brands in the CPG space that are more efficacious, organic, natural, fair trade, have a specific ingredient, are cause-related or have a unique story can often demand a higher price point than the industry staple brands. It’s a win for the supplier and retailer.
There is so much activity in CPG these days, and we’re just getting started. These 10 forces are just the beginning, and we can’t wait to see where we’ll go next.