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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 CPG category for its product (what food CPG 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 my focus is 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, wholesale 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.