Five secrets of success for food and drink start-ups
Post by Jon Goldstone, Managing Partner, Global based in London
In a Campaign column published today, I look at how start-ups are having an increasingly disruptive influence on what was once a very stable food and drink industry. In many categories news brands are driving category growth, breaking category marketing conventions to challenge once-dominant brand . Think Fever-Tree in drinks mixers, Propercorn in popcorn, Pip & Nut in peanut butter and a myriad of craft beer brands. Big companies such as Unilever and Nestlé are responding by launching start-up accelerators.
Three big shifts have created the conditions for disruption: i. a channel shift away from traditional supermarkets, ii. a media shift away from traditional media to include low-cost digital media choices and iii. a consumer shift away from brands that are perceived as being processed or artificial.
However, it’s not that easy, or we would all be doing it! For every Fever-Tree, there are dozens of start-up food and drink brands that fail. Below I suggest five secrets for start-up success, drawing on my experience as Unilever’s VP of Marketing for foods and the brandgym work we have done on hundreds of food and drink projects.
1. Choose a big category with an obvious source of business
Peanut butter is a good example. The category is surprisingly large, the incumbent brand (Sun-Pat) has been relatively dormant, the consumer sees nuts as being an important part of a healthy, natural diet and the retailer wants to jazz up the category. Bingo!
2. Ensure that product quality is sensational
Shortcuts are easy, especially when working with third-party suppliers and in a hurry. It is very tempting to take “off the shelf” solutions that are often no better than the current own-brand offering. However, ensuring you have a great product “sausage” is important to complement the emotional “sizzle” of s start-up brand. The quality of Propercorn’s product is fantastic and makes the incumbent, Butterkist, look very ordinary.
Many start-up brands are starting to look like they use the same design agency and are conforming to a new “Food 2.0” convention. The real successes do their own thing and are inspired by a founder’s story and vision that are authentic and compelling. Innocent is an old example, but still a good one in terms of creating a whole set of distinctive assets to bring the brand to life, including the Innocent Foundation (that gives 10% of profits to good causes), the Big Knit wooly hat promotion (to raise money for old people at Winter) and the use of ‘packvertising‘ to tell the brand story via packaging.
4. Outsmart the competition
Category leaders are typically owned by big businesses and so move quite slowly, including figuring out how to use social/digital channels. Start-ups have the edge on speed, and can lead in digital channels to make the competition appear slow and anachronistic. A great example is the tea category. Almost all of the category growth is being driven by brands such as Clipper, Pukka and Teapots, which invest in smart digital marketing to help them sell more stuff – a sharp contrast to the campaigns from PG Tips and Tetley.
Many food and drink start-ups think they will only start making money when they achieve scale. But the definition of scale is often ambiguous and, even when defined, often not achieved. It is possible to ‘follow the money’ from the start. On the income side, a great product and distinctive proposition should allow you to command a significant price premium. On the cost side, keep the supply chain super simple, minimise overheads and use cost-effective marketing that makes the most of digital/social channels. Finally, it’s critical to negotiate trade margins as competitively as possible – once they are set, they are unlikely to come down.
There is no denying that the world of food and drink is changing just as quickly as most other industry sectors. Wherever you stand, it is critical to understand the shifts and respond to them. The only certainty in this period of rapid change is that those who stand still will lose.