This post presents a small established CPG food brand that I recently worked on. What follows are some general facts about the company, its current state and my recommendations.
Background
Company
This company is a family run operation started by the current owners and is more than 10 years old.
Product Innovation
The company has a relatively large line of products that it produces for a small CPG brand. Its main retail buyer stocks at least 8 of its SKU’s. Current product are continually tweaked to maximize taste and quality, while new products are always in the development hopper. The company watches its competitors and its overall category to see what new products are coming out that it can adapt and develop for sales through its retail buyers. It also has its own retail store at its plant, which it uses to test new products and gather direct consumer feedback.
Production
The company owns and operates its own production plant with excess capacity.
Logistics
The company owns its own transportation vehicles for delivery of product.
Marketing
The company has done no marketing to build its business. Sales have come from word-of-mouth. The only marketing the company occasionally participates in is trade shows and in-store marketing.
Sales/Retail
Sales come predominantly from regional retailers, with the majority of sales from one retail chain. Wholesale and online business is very small and an insignificant source of revenue.
Finance
The founders have supplied all capital to date.
Goals
The company wishes to grow, but not certain in what direction it should expand and is concerned that with growth, product quality will suffer. The company is known for its product taste and quality and does not want to compromise these key brand pillars.
Pros:
- The company is established, profitable and has built an excellent brand reputation among its retail buyers and consumers.
- The company controls production and has excess capacity.
Cons:
- Expanding production without proper oversight can easily compromise product quality. Since the owners directly manage production, product quality is dependent on their constant hands-on expertise.
- Sales are not diversified, as the majority of revenue comes from one retailer.
Recommendations
Brand loyalty in the category the company sells is dependent on maintaining a high quality and good tasting product. Brand name really does not carry much weight among consumers. The company is correct in maintaining its vigilance in this area.
Production
If something were to happen to the owners, the company would have a difficult time because the owners directly manage production and cannot readily step away from the business to focus on sales, marketing, or even to take vacations. The company needs to try to find employees it can groom to assume some of these responsibilities.
Marketing
The company has wondered it should develop a more visual brand via its logo and packaging. They don’t need to. Since brand is dependent on product quality, the visual elements count for less. In addition, the company’s visual brand is already distinctive from competitors in its own way, so there is no need to do this.
The company should update its website to include some basic information about it and its products and it should include a URL on its packaging that customers can use to find out more about the company and its products.
It would be wise for the company to build an e-commerce component, not just on its website, but also it should sell through Amazon and several other online food-focused marketplaces. These websites would simply take orders, while the company would provide fulfillment. These websites also handle customer reviews, which is important for the company to have.
Sales
The company really needs to diversify into other retailers. There are many ways to grow in retail: focus on specific channels, a multi-channel approach and target specific retailers in each channel and/or target geographically.
It is recommended that this company seek other retailers that I would call the under-the-radar leaders and do so in adjoining geographic areas to where it is currently located. These are companies that are smaller and tend to operate by city or region and are excellent at retailing and capturing consumer’s loyalty. By focusing on these retailers, the company will likely sell more product per store to a more discerning consumer who values quality and taste over price and it will stay under the radar of larger direct competitors that are seeking distribution through national retailers.
The company has tested selling via wholesale to institutions, such as schools. I can’t really provide a judgement on whether this is a good channel or not, since I have little direct experience in these sales channels. I think it could be because the product the company sells to this channel is much easier for it to produce. As a result, it could expand production in this area with less risk of product quality degradation.
Finance
Economic shocks in the current unstable environment that we live are a threat to any companies lines of credit. As long as this company has access to cash to sustain temporary shocks, which it appears it does, it should be OK.
Summary
My overall concern is that the company needs to pay attention to protecting the wealth of the owners, which is largely in the business, primarily by diversifying its sales as already described above. The company is currently not in a great position to self itself, which is a long-term goal of the owners. Its revenue is in a lower range that would not capture the attention of investor buyers, yet revenue is in a higher range that would make it difficult for a new owner to finance the purchase without some significant seller financing. The company needs to grow to make itself more attractive, yet it needs to grow strategically, capturing sales from where it knows it can compete and from buyers who value the company’s attention to taste and product quality.
