April 12, 2021
Food and Beverage Venture Capital: How to Position Your CPG Startup for Retail
By H Venture Partners
Food and beverage venture capital is a highly specialized segment of the consumer market, and it’s certainly different from software, sportswear and everything in between. “Food and beverage is so tangible,” says Tom Browning, an investor and advisor with H Venture Partners and former executive at Fresh Express, which sold to Chiquita for $800MM, Kellogg, Coca-Cola and WinterBrook, where he brought LaCroix into the stratosphere. “You can touch it, feel it, eat it, smell it.”
We all buy food and beverages, and that’s exactly what makes it so hard to compete in the space. “The hardest part is it’s tough to be new and novel in this space,” Browning says. “The world doesn’t need another version of the same, and the retailer doesn’t want to bring that on.”
So, how do you compete in food and beverage as a food or beverage start-up looking to grow your business and potentially take on venture capital dollars? You need to get your ducks in a row with a tight supply chain, omnichannel distribution presence, and great retailer insight. Here are some steps all startups can take to succeed.
Think of an Omnichannel Strategy
Browning says there are a lot of trends happening in the food and beverage space, and it’s a good idea to get a sense of what the consumer craves. For instance, especially over the past year, health has been at the forefront. Consumers also want “a fresher product,” and are inclined to buy locally-sourced goods.
It’s important to engage with your consumer through your social media marketing plan and channels, introducing your product to those who already have a proclivity towards it. However, it’s really important to have an omnichannel distribution plan that may include:
However, with food and beverage in particular, so much discovery happens on the shelves. Therefore, getting into retail (and staying in stock) becomes hugely important.
Consider Working with a Distributor
A lot of startup founders are tempted to go straight to Whole Foods or Ulta and ask for distribution. This strategy can be a slow roll; you might instead consider using a distributor, like Sysco or Performance Food Group (PFG) which is often the “gatekeeper” to retail. “Working with a national food distributor can be challenging, but very hands-on,” Browning says.
Make Sure Your Supply Chain Is Steady
The one thing retailers absolutely abhor? Out of stock. “Retailers are crushed when they have out of stocks,” says Jeff Schomburger, the former Global Sales Officer at P&G, who managed the relationship with Walmart for many years. “When a retailer has an item out of stock, they lose trust with their consumer - and there’s a lot of data around what consumers do when faced with an out of stock on an item they want to buy; they leave the store.” Keeping items on shelves, therefore, is a retailer’s brand equity. They will absolutely drop brands that can’t keep items in stock.
Whether it’s Kroger of Sephora, work with your retailer to make sure you know how much supply of your product you need. It starts with a forecast,” says Schomburger. “Fortunately, retailers have a lot of tools and data, where you can estimate your needs based on a market.” For instance, if a retailer thinks you’ll capture 5% share and make $1M a week in sales, you can get into the details of what you need to provide -- by size, flavor, SKU.
Be Strategic with Packaging
You can make a beautiful canned beverage, but if it doesn’t tell a story and play nicely with the other flavors in your line, it may not pop off the shelf in the eye of the consumer. “The whole packaging process is important,” says Browning. “The package must perform its basic function - protect the product inside - and then communicate to the consumer,” Browning says. “If the package is at all delicate, or needs to be handled in a certain way, the package needs to communicate that.”
Then, it’s all about what your brand communicates. Think about the “billboard” you are trying to create at the point of purchase, Browning says, not just the single packaging of a can, bottle or snack pack. Make sure the sister flavors have similar design elements, but differences that tell them apart and a color scheme that works to authentically communicate the branding. “Another thing is to meet certain standards and expectations,” says Browning. “Colors connote certain things, and it can’t look like everyone else.” If Coca-Cola has already taken red, you can’t go red. “You must consider the competition,” he insists.
Work on Great Retail Coverage and Execution
It’s not enough to have a plan with your retailer; you also need retail coverage to ensure the plan is executed. In an ever-evolving retail environment, you need boots on the ground to check out execution. “Getting in stores and developing relationships matters, understanding what’s happening beyond the data,” says Browning. “Founders really need to hear feedback and see things. Some say, ‘Well, we’re on the planogram,’ but that doesn’t mean it’s implemented. The product might have ended up on the bottom shelf or top shelf, not at eye-level like the picture the retail broker sent.”
Schomburger agrees that there’s no substitute for actually getting in store to make sure your plan is being executed properly; he says to make sure all items are tagged and in their proper place on the shelf. Small execution issues can make or break your sales.
Be Smart with the Details
Communicate with your customer through the details of your product and its display. It’s smart to keep consumers engaged, and make sure they know when you’re providing new offerings or a new launch. Look for ways to stand out. Schomburger says Olay does a great job of this. “When they have a new item, they place a little pedestal under the product so it sits up an inch higher on the shelf,” says Schomburger. That’s all it takes to draw the eye. “Similarly, Cerebelly has nice cardboard, shelf-ready packaging.”
Use every chance to communicate more about your brand with its consumer; take no piece of wrapping or packaging for granted. “Consumers like to look at the package once they buy it,” says Browning. “They engage with the product, look at it, learn more about it. So, tell your story. For instance, a brand creates a gum pack that has something written inside the wrapper to make you smile; smart folks are taking advantage of that opportunity.”
If you are a food and beverage brand looking to break into retail, it’s critical to your success that you consider all of these factors, especially supply chain and distribution. Your retailers are your partners and you share the same objectives - growing your brands and ultimately satisfying your customers.