Despite the explosive growth of online e-commerce and its widespread use for buying and selling products, selling products through retailers continues to be the most important mechanism for consumer product companies to earn revenue.
The problem with a consumer product company selling at retail is that it is getting harder and harder to secure retail shelf space and stay on shelf. Consider the following:
- Innovation has exploded. Technology has made it easier, cheaper and faster to design, test and produce products. On top of that, the Internet has made it easier, cheaper and faster to get information, whether its finding out what competitors are doing, locating outsourced manufacturers to produce a product and anything in between. As a result, anyone with an idea can start a company and create superb products.
- Capital is relatively available. Compared to previous decades of the twentieth century, many more sources exist. Whether its personal sources such as credit cards, second mortgages, family or friends, or institutional sources such as angel investors, private equity firms and government-supported funding entities, it is far easier to raise capital than ever before, even with the great recession of 2008-2009. Crowdsourced funding is the latest iteration, with the likes of Kickstarter allowing anyone with very small amounts of investment to participate in funding a company’s growth.
- Vertical integration is a thing of the past. Start-ups and small consumer product companies don’t need to own their entire business. They can outsource almost anything and keep that which they do best in-house.
- Markets are sliced into more and more niches. Marketing has fragmented by opening up more channels for reaching customers and niche groups. Think of just TV, which is not just hundreds of channels that can be further targeted to specific geographic areas, but is now being leverage with the rise of second screen marketing that allows viewers to watch TV and interact on their device about the TV program. It is getting easier to reach these niche customers with products that only appeal to them.
- Entrepreneurs are the new rock stars. Even since the deep recession of 2008, there is increased interest in starting your own business because people are not happy with their current work and feel starting and owning their own companies will give them more of what they want in their professional and personal lives.
- Retail may be shrinking in some categories. Retailers find that 80% of profits come from 20% of products, so there is a move towards smaller stores with more focused product selection (what retailers call “SKU rationalization”).
- Success is defined by a small group of early adopters. I just read an interesting report, where just 1.5% of shoppers decide the success of new CPG products. If your product marketing, packaging, pricing, features and benefits don’t hit what appears to be a pretty small target of consumers, you’re out.
Well, why not just focus online? In fact, many companies are doing that and many because they can’t get to retail. The biggest difficulty I see with online is that the competition to get your customer’s attention is that much more than on shelf.
For example, I was doing some retail research recently in the condiments category. For BBQ sauce, I found 15 brands at Whole Foods to choose from and 20 brands at Safeway. But, online for “BBQ sauce” at Amazon, and how many brands do you think will come up? I stopped counting at 50.
I love online and part of my background was doing Internet start-ups for 10 years and every consumer product company has to be there, but securing retail shelf space is still where it’s at.