From the Ground Up: Episode Summary - "The Year of Disappearing Brands"

Podcast Information:

• Title: From the Ground Up
• Hosts: Diana Ransom (Executive Editor) and Christine Lagorio-Chafkin (Editor-at-Large)
• Episode: The Year of Disappearing Brands
• Release Date: November 25, 2024

Introduction

In this episode of From the Ground Up, hosts Diana Ransom and Christine Lagorio-Chafkin delve into the troubling trend of disappearing consumer packaged goods (CPG) brands. Drawing insights from a compelling article by Tom Foster, they explore the underlying factors causing brands to lose shelf space and discuss strategies for entrepreneurs to navigate these challenging times.

The Decline of CPG Brands

Tom Foster's Investigation: Tom Foster, an editor at large, uncovers why numerous supermarket brands are vanishing from grocery store shelves. He highlights that the era of rapid growth through similar strategies, akin to tech startups, is fading. The co-founder of Oura Bora, a sparkling water brand, emphasized to Foster that "it is astronomically harder today" for new brands to gain visibility and sustain themselves compared to a year earlier (02:28).

Impact on Specific Brands:

• Kombucha and Kind Bars: Christine notes the disappearance of brands like Kind Bars and fluctuating presence of Kombucha brands, such as GT's Kombucha (02:28, 02:45).
• Hope Hummus: Diana shares her experience with the disappearance of a favored hummus brand, attributing it to potential missed sales targets (02:45).

Role of Venture Capital and Funding

Decline in Funding: A significant factor in the decline is the reduction in early-stage venture capital (VC) funding. According to Tom Foster:

"At the end of last year, the total amount of early stage VC funding for CPG brands was down about 60% from its 2021 high" (03:29).

Additionally, new product launches have plummeted by approximately 70% within the same period (03:29).

Shift from Growth to Profitability: With funding drying up, brands must shift their focus from aggressive top-line growth to achieving profitability. Diana encapsulates this shift:

"The investors are... talking about profitability now" (14:04).

Strategies for CPG Brands to Survive

Sustainable Growth Over Hypergrowth: Tom advises brands to aim for sustainable growth rather than chasing hypergrowth fueled by excessive funding:

"Aim for sustainable growth...you probably don't have the money to do it. Don't do it" (29:55).

Building Authentic Relationships with Retailers: Successful brands like Me and the Bees have navigated challenges by fostering genuine partnerships with retailers. Tom explains how Me and the Bees reduced their footprint from 7,000 to 6,000 stores by:

"Building a real brand partnership...doing bee education events" (31:01).

Leveraging Existing Partnerships: By aligning brand values with retailers, companies can create mutually beneficial relationships, as demonstrated by Me and the Bees' collaboration with HEB (31:01).

The Grocery Store as a Marketplace

Analogy of Grocery Stores: Tom Foster presents an enlightening metaphor comparing grocery stores to apartment buildings:

"The store itself is like an apartment building. The company that owns the store... is the landlord. The shelves are the apartments and you're the tenant" (21:09).

Costs and Challenges:

• Slotting Fees: Brands pay slotting fees to secure shelf space (22:43).
• Premium Placement: Prime locations (e.g., near store entrances) incur higher costs (21:09).
• Velocity Requirements: Maintaining shelf presence demands meeting certain sales thresholds (22:53).

Vicious Cycle of Marketing and Shelf Space: Diana articulates the cyclical challenge:

"You want to sell out of the product on the shelves is to put a bunch of money into marketing...you can't even stay on store shelves" (24:16).

The Future of the CPG Market

Predictions for Recovery: Tom Foster anticipates that in one to three years, the CPG market may stabilize and return to pre-boom conditions:

"One to three years, maybe things will start to return to normal... more healthy growth" (34:26).

Potential for Roll-Ups: Some brands might merge to create synergies, providing them with the runway to adapt and thrive:

"Companies might merge...find synergies by rolling up into one entity" (34:07).

Takeaways and Lessons Learned

Emphasis on Profitability: Brands must prioritize profitability over mere growth to ensure long-term sustainability in a tightened funding environment.

Niche Targeting and Sustainable Practices: Focusing on niche markets and adopting sustainable business practices can help brands maintain their presence despite financial constraints.

Authentic Branding: Authenticity and alignment with retailer values can differentiate brands and foster stronger partnerships, as evidenced by Me and the Bees.

Avoiding Tourist Capital: Brands should seek patient capital rather than relying on venture funding expecting rapid returns:

"Raise patient capital... not just tourist money from the tech world" (30:09).

Notable Quotes

• Tom Foster on VC Funding Decline:

  "At the end of last year, the total amount of early stage VC funding for CPG brands was down about 60% from its 2021 high." (03:29)

• Diana Ransom on Profitability Shift:

  "The investors are... talking about profitability now." (14:04)

• Tom Foster on Sustainable Growth:

  "Aim for sustainable growth...you probably don't have the money to do it. Don't do it." (29:55)

• Christine Lagorio-Chavkin on Direct-to-Consumer Challenges:

  "And the cost could be like upwards of a million dollars just even land on store shelves." (30:09)

Conclusion

"The Year of Disappearing Brands" offers a profound look into the challenges facing CPG brands today. From dwindling venture capital to the high costs of shelf space and the necessity of shifting focus from growth to profitability, the episode provides valuable insights for current and aspiring entrepreneurs. By fostering authentic relationships, targeting niches, and emphasizing sustainability, brands can navigate these tumultuous times and secure their place in the competitive marketplace.

For a deeper dive into Tom Foster's full article titled "The Great CPG Rapture," visit inc.com.