I met with a small CPG food start-up recently and the discussion focused on the company’s growth strategy. Only 6 months old, the start-up is generating online sales and is looking to retail distribution, which is the primary reason why I was there. It is entering a crowded and competitive category for its product (what food category isn’t crowded with competitors these days?), and needs help in figuring out how to hit retail with a line or two of products that provide compelling features and benefits and which afford the company some competitive advantages.
While nothing was decided in the meeting, I think I may have convinced the company to not go the consumer route, which also means they won’t be hiring me, since I my expertise is more in consumer products and brands. Here’s why:
1. What’s important to the company owners? The founders/owners place a high priority in sourcing their raw materials from farmers that have sustainable environmental and labor practices. This is so important that one of the founders spends 6 month a year traveling overseas to develop sourcing relationships with farmers and their communities.
2. What value is the company creating? The company has spent generous time and resources cultivating its supply chain. Most small consumer companies focus more on the consumer brand by carefully developing the features, benefits and competitive advantages of the products. They go to suppliers who have the systems, processes and expertise to source the raw materials from farms. The raw materials purchased by this company include unique crop varieties not found anywhere else, which they can further blend to create distinct flavors.
3. Where can this value be most profitable to the company? To answer this question, its critical to understand where the industry is going. In this case, the industry that this company operates may be moving in the direction that coffee and tea have already been. In the last few decades, these industries have seen a proliferation of demand for blends and flavors that are further differentiated by where they are geographically sourced. As a result, the industries have fragmented with many competitors, large and small, fighting for the consumer’s mindshare.
In the final analysis, the company may be better off becoming a raw materials suppliers to other brands, wholesales and institutional buyers and take a pass on directly developing a consumer brand and products. It appears that they may have developed some competitive advantages with their ability to source raw materials that have unique flavor characteristics not found anywhere else in the world. With this advantage, why not sell to other brands and let them duke it out in the marketplace for a share of the consumer’s wallet. For a small CPG start-up, it is difficult enough just focusing on developing the consumer brand and retail products. Trying to also develop and own the supply chain and manufacturing spreads management too thin and requires far more investment that may not yield the ROI.
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Two links came across my Twitter stream earlier in the week that are worth posting about:
The first link shows the most important data sources for help in purchasing decisions. A swtich occurred from 2010 to 2011, with customer reviews on retailer sites and online professional reviews moving up, while all other sources moved down. The lesson here, which I’ve been advocating for awhile, is that CPG companies need to have positive product reviews of their products at online retail websites, especially Amazon.
The second link summarizes a study that shows consumers’ usage of brand websites positively affects their purchase of the CPG brand’s product in retail stores. The study says that the website features most important to influencing in-store spend are persuasive reasons to buy the brand, fresh content and content that engages people to participate. So, its not just a website, but one that effectively communicates the features and benefits of a company and its products and stays top of mind with the consumer, either with new content or with different ways to engage the customer.
The problem I see from some small CPG companies that I come across is that they don’t effectively engage online like they should. They stick up a website and then don’t do much of anything else with it and also don’t do much online at other sites (i.e;: social networks, Amazon reviews, etc).
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Posted by Ed in Business, Training, Weather, tags: Amazon, Aurora Borealis, avalanche, backcountry, Berthoud Pass, Branding, Chocolate, Colorado, Delhaize, Echo Mountain, Fancy Food Show, Food, Google Offers, green, Keystone, local, Meijer, organic, Save-A-Lot, Ski, startup, Target
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Channel Conflict
General-Uncategorized and Public
Retail/CPG (Consumer Packaged Goods)
Training (run, ride, hike, alpine-telemark-XC ski, shooting, weightlifting, rock climb)/Outdoors/Health/Food/Weather/GPS
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Target recently sent a letter to vendors asking them for help in battling rivals and the lower-priced online market. This letter has made its rounds through the news and social media circles, with plenty of discussion and opinion about whether it will do any good. It sounds like Target is steering towards a product assortment from vendors that is exclusive to target so that the ability for consumers to compare the same product across different retailers is reduced.
My first reaction is that Target is shifting the burden onto its suppliers, forcing them to help it stem sales loses. This is not a bad strategy, I suppose, if I were Target. If suppliers want to sell products to Target shoppers, they must give Target exclusive products and packaging. The downside to the supplier is that they will have to add SKU’s, thereby increasing the investment required to hold inventory for these additional SKU’s.
Channel conflicts have always been an issue and will become more accute, especially between offline and online retailers The Internet, coupled with the increasing use of smartphones, makes it easy and just plain common sense to see who gives you the best value for your money. Since I work with small CPG suppliers and manufacturers, I tend to look at how things like this will affect this group and their ability to sell in retail. I believe that products that have wide distribution are most prone to channel conflicts and retailer angst. Small CPG companies typically do not achieve such wide distribution due to the investment required to manage inventory and sales to many different retailers, so they probably have less to worry about. That said, a relatively cost-effective way to eliminate conflicts between offline and online is to sell a higher quantity pack – like bundling 2 cartons of your product together. Consumers are use to paying more for a product online to justify the shipping or to reach the minimum order to get free shipping.
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Posted by Ed in Business, Training, tags: aAmazon, avalanche, Branding, candy, coupons, crowdsource, electronic cigarette, Pacific Natural Foods, QR codes, Retail, Square
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Links
General-Uncategorized and Public
- Nice little case study here on how someone started an online subscription service shipping Japanese candy: ow.ly/8vIQl
- Great way for @garyvee to use subscriber base to crowdsource suggestions for start-up. A few good ideas/feedback. ow.ly/8vJ4r
Retail/CPG (Consumer Packaged Goods)
Training (run, ride, hike, alpine-telemark-XC ski, shooting, weightlifting, rock climb)/Outdoors/Health/Food/Weather/GPS
- High avalanche danger in all Colorado mtns but South San Juans:ow.ly/8C3o9 In backcountry? Be careful! (Inbounds ski resorts OK)
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