CPG Startup: Your awesome product isn’t enough
January 05, 2018
By Brad Brinegar, CEO of McKinney
Blog Post for the AU/MCK partnership
At McKinney, we’re thrilled to be working with the American Underground to grow the startup community in Durham. As part of that, we’re particularly excited to partner with NC IDEA on the Startup Stampede for promising consumer products ventures. In addition to helping select and judge the participating companies, we’ll provide mentoring during the process and at least $100,000 in brand-building support to the winning team.
We’ve seen game-changing consumer brands such as Airbnb, Uber and Amazon disrupt legacy businesses by providing superior answers to existing needs and behaviors. They control the customer experience from end to end. So they have many levers with which to create distinctive brands, well beyond traditional marketing communications.
But as a CPG entrepreneur, if you hope to grow beyond your own site’s sales, you will be disintermediated from your end users by the channels you depend upon for distribution. So you’ll face a totally different set of challenges.
The first is extraordinary clutter. According to Michael Ruhlman, in his book Grocery: The Buying and Selling of Food in America, the average grocery store stocks 40–50,000 different products. That makes it almost impossible to get a new product into national distribution, especially if that product comes from a startup lacking the muscle of a major CPG manufacturer. And staying on shelf once you get there is equally hard, because before people can buy you, they have to find you. Online retail is hardly easier. Do an Amazon search for mustard and you’ll get 6,093 results.
The second challenge is that retailers are working hard to build their own brands: 365, Archer Farms, Kirkland and Trader Joe’s come quickly to mind. Today, private label accounts for one in every five grocery units sold. As a startup, you’re probably not in a position to offer your retail partners a store-brand version of your offering. So you better have a really amazing product if you expect them to take you on and support your growth.
And that sets up the third and biggest challenge: We have yet to meet an entrepreneur who isn’t irrationally in love with what she or he is making.
That love is imperative — without that faith to muscle through, no startup would survive. But it’s not enough. Because your product simply may not be as compellingly different as you think. A few years ago, Consumer Reports did blind taste tests, name brand versus store brand, for 23 different grocery food categories. The name brand won just six of the 23 contests, people preferred the store brand in four,and saw no difference in the other 13.
So what’s the way out of this labyrinth? What’s the good news?
Brands matter. And by brand, we mean not just the tangibles of the offering, but all of the intangibles of meaning that surround and transcend the physical offering. All of the things that can help that wonderful product you so love stand out, stand apart, and make it easy for people to want and find you.
How do we know that brands matter in CPG?
Despite perceived parity in product performance, the average name brand in that Consumer Reports study was able to justify a 43% price premium over private label. And we mean justify, because even though private label accounts for one of every five CPG purchases, name brands still earn the other four. And that proportion has remained pretty stable for years.
Finally, back to mustard. Condiments, including mustard, is one of the top 10 private label categories, according to the PLMA. But private label still accounts for less than 20% of this category’s unit sales. That’s because of the power of trusted brands like Grey Poupon.
To be clear, we very purposefully mean the power of brand. Venerable Grey Poupon failed to beat its private label challenger in the blind taste test. But it still was able to command a 67% price premium. And when you search for mustard on Amazon, Grey Poupon isn’t lost somewhere in the ether. It comes up an easy-to-spot fifthout of those 6,093 results, right after Heinz.
So, as a CPG entrepreneur, the question is not whether you have to build a brand that transcends your offering. The question is how. And the answer to that is the subject of future musings.