Fun, fulfilling and fast-paced. The classic buzz words that we all hope will represent our entrepreneurial journey. While that is what we aim for, there are many pitfalls along the way. I hope the following overview gives some insight into the food entrepreneurs journey and helps you achieve your aims in the startup food space!
There are many misconceptions about the sexiness of the CPG world and you should certainly take account of all aspects of the industry before you dive into your entrepreneurial adventure!! Let’s explore the areas that I commonly talk to early stage food entrepreneurs about.
The food industry in the US is very complex with numerous layers that feature literally hundreds of retailers and brokers, large gate-keeper distributors and widely varying margin and route to market models across conventional grocery, natural stores, club, alternate and convenience channels. This presents both enormous opportunity and enormous complexity for the young food entrepreneur…. let’s dive in.
“I would advise learning the economics side of the business inside out to set off on the right foot.”
Getting Started and The Opportunity
The specialty food and beverage space offers enormous opportunity – incredibly low barriers to entry, endless room for packaging and design innovation, the ability to trend set, educate and inspire, and large valuation multiples for exit if that is the aim. The dark side can be the enormous costs of scaling a brand which is often crippling for the start-up who, initially, just want to make a product and sell it. The lack of founder understanding of complex distribution models, margin model pressure, unforeseen trade selling costs and store promotional budget burdens, and the sheer cost of trying to educate consumers and keep their business and brand loyalty are just a few of the larger challenges faced.
While naivety breeds creativity there are always two sides to the coin – the other side being that naivety can prove disastrous if your launch plan and margins are well off from where they should be. So while naivety will no doubt help on the creative process for the product, brand, and marketing, I would advise learning the economics side of the business inside out to set off on the right foot.
How To Differentiate Yourself
There are so many ways to differentiate yourself within a food category which is an incredibly fun process – whether it be color, size, shape, label texture, the tone of voice or packaging material just to name a few. However, you must assess with ruthless scrutiny to determine the difference between what is doable and what should actually be done i.e. maybe you could create a custom shape iconic glass bottle while everyone else has a stock shape plastic bottle, but have you considered the initial investment cost, the high minimum runs on custom work, the custom labelling machinery for unusual shapes, the extra freight for shipping glass, the challenges and risk with increased damages and so forth. My point is that a key pillar of success here is after your product research is complete you need to understand what adjustments you can make to differentiate yourself most impactfully for the dollars spent, while not introducing new problems that could prove tough and expensive to solve.
What Are We Trying To Achieve?
It’s all about getting consumers interested, keeping them engaged and getting their repeat business to show in-store growth, brand loyalty, and market penetration. This requires an incredibly strategic approach and realizing that every touch point of the brand will affect this over-arching aim… whether it’s color, shape, even the placement and size of key logos, or price, frequency of usage occasions, the categories competitive landscape or your online approach to targeted advertising – the key is to make all these elements sing the same song and work together to create a solid brand, rather than a set of products. The consistent understanding and intertwined business planning across Strategy, Sales, Marketing & Operations is absolutely central to success, these are not silos that operate individually, they work together to form a functioning machine.
“Growing a food brand and making a profit are rarely the same thing,..”
Don’t Over Simplify – The Common Misconception
Growing a food brand and making a profit are rarely the same thing, the idea of starting a home based food brand and hitting it big in a large natural chain is very much a fallacy for most new brands. Even if you managed to get the chain nationally then the cost of launching and adequately supporting that launch and growth is unlikely to leave you in a cash-positive position for the near future. So, if the growth path is grocery then the significant investments in store slotting (the cost to get placement), intro promotions, demo’s, bill-backs and so forth will most likely destroy the margin in the first 18 months, at least. You must be able to sustain the business either with personal cash, outside investment, or by bringing in higher margin sales channels (online, alternate, etc) to support the cost of the grocery sales model.
This understanding of the margin models across varying sales channels is another central pillar for success.
Get Down and Dirty With The Data
Understanding the category you are in is absolutely crucial – this starts, of course, with simple secondary research and detailed review… photographing every shelf you come across, deep diving into every competitors brand image, selling points and social media pages is a start which can give you a great understanding of what’s working, what’s not, what could you do differently and what will stand out on the shelf, but this must then escalate to a true understanding of the category, economics – what are the turn rates of competing products at shelf (i.e. how many of a product does the average store sell per week, per product) – this varies enormously from beverages to condiments to snacks and everything in between. You cannot possibly begin to build a budget and projection if you do not conservatively know the turn rate numbers for your product category. Whether your project to sell 1 or 2 units per store, per week, clearly can put you off by 100% in an Excel model – so averaging category data, competitor data and so forth is crucial in developing a strategic and, most importantly, a realistic, plan. Of course, this also varies by type of retailer, i.e. the same product in Walmart or Whole Foods will have a very different sales landscape, and again this will vary by region or city. This is why the focus for launching a brand should be in a demographic you can understand and feasibly analyze… launching in a city or state and focusing marketing dollars in one region on starting is far wiser than trying to launch nationally and having no ability to understand key accounts and drive the shelf turns.
High surface level category data can usually be found by scouring the internet, annual specialty food reports and similar publications but the actual deep metrics by product, category, and store type can be bought through IRI, Neilson & Spins.
Pieces Of The Puzzle
Remember that having a great product and packaging is literally one fraction of the puzzle to building a successful food company – scalable supply chain, credible team, accessible market data, disruptive marketing plan, keeping overhead low, having strong market knowledge, and 100+ other factors are all fundamentally important to building a sustainable brand that can survive the inevitable unforeseen risks and issues. The best thing you can do as a new food and beverage entrepreneur is to gather knowledge and relentlessly learn and adapt – subscribing to daily news blasts, such as newhope360, and reading all the Specialty Food Industry reports, listening to podcasts like How I Built This, and reading books from the founders of brands like Honest Tea and Kind will immerse you in data and enormously help your understanding on the path to growth.
“My advice to most people who tell me they are starting a food brand is to really think about the why.”
What Is The Aim?
My advice to most people who tell me they are starting a food brand is to really think about the why. The strategic path will be very different for someone who is trying to make a small second income from farmers markets and a few local stores to someone who is trying to make the next Vitamin Water and get acquired by a conglomerate, and that differs from someone entering the perishable space to the online space, to the natural or convenience channels and so forth. Every piece of this puzzle and every piece of advice offered will vary based on why you are doing this, what you want to achieve, why you think you can do this better than the current brands and, most importantly, what you see this vision of yours becoming. Once you have a clear idea you can then start to build a cohesive plan and it will become clear which route is the path of least resistance, where the low hanging fruit is, what is right for the business now compared to in 24 months, and what are the valuable milestones to accessing whether this is working as you grow.
At Montana Mex we have focused on creating clean label condiments to help you eat well and stay smiling – a simple aim but as you can see from the above the aim is barely even to step one, the trajectory of your business will come down to understanding every element, building a solid clear plan and team, and executing to the highest achievable level.
Of course feel free to schedule a mentor session with so we can discuss any questions or specific points of confusion and then I can follow up with another blog post!
Montana Mex Co-Founder & CEO & DEC Mentor.