Ben Lewis is the co-founder and CEO of Little Spoon, a startup that provides fresh, organic meals optimized for the nutritional needs of growing babies. Previously, he co-founded The Epic Seed, a Greek yogurt brand that he later sold, as well as an incubator for up-and-coming food and beverage brands.
When Hormel rolled out SPAM Snacks in select markets last year, it expected to give America’s favorite canned meat a new lease on life. Positioned to compete with brands like Slim Jim for space on gas station checkout counters, the bite-sized dried Spam slices were an obvious failure. But it took a six-month trial run of truly awful sales to finally convince Hormel to discontinue the snacks.
The distribution dilemma
The short and tragic life of SPAM Snacks isn’t unique. In fact, it neatly illustrates some of the trends that have caused CPG companies to slip in recent years. The market share controlled by the 25 largest food companies has dwindled to 63% over the last decade, costing them more than $20 billion in revenue.
What’s to blame for this shift? For one thing, an antiquated business model. Big Food’s guiding strategy has been to amass portfolios of trusted brands (like SPAM) and distribute them through complex networks of brokers, distributors and retailers. But those networks, while useful for maintaining national distribution networks, have some serious drawbacks.
The same size and complexity that’s great for sending Gatorade to Anchorage and Klondike bars to Tampa interferes with CPG firms’ information gathering. Just as products have to change hands repeatedly to reach shelves, consumer response gets back to Big Food headquarters by a roundabout way — and not always in a useful form. Because the decision-makers are insulated from their customers by so many layers, they don’t have a clear picture of who is buying (or not buying) their products and can’t always act before it’s too late. This might help explain why unsold packages of SPAM Snacks spent a full six months gathering dust before the project was abandoned.
This slow, low-information system was the only game in town for many years. But with increasing competition from lighter-weight digital competitors, the drawbacks of conventional distribution chains are becoming more and more costly. By focusing on information gathering, a new generation of food startups is even starting to outperform Big Food on its home turf: the grocery store.
Learning from Hungryroot
Hungryroot exemplifies how a focus on feedback can help avoid costly mistakes and keep product development agile. The company, founded in 2015, found early success marketing healthful versions of junk food (think chickpea-based cookie dough) directly to the consumer. From the beginning, the company’s founders prized consumer feedback, often letting their target market shape successive versions of a product.
Hungryroot’s origins as a DTC company equipped them with the infrastructure analytics they needed to address issues in a flexible way. Keeping an eye on reorder rates, for example, showed them when a product was catching customers’ attention but not winning them over. For specifics, they were able to turn to their customer reviews, which helped them tweak recipes in specific ways without throwing out the product altogether.
This listening infrastructure helped Hungryroot expand into the grocery store space and onto platforms such as Amazon Fresh and Fresh Direct with confidence. The company’s fine-grained analytics help it assess why products aren’t selling rather than just telling them that sales are down. This, in turn, lets it make proportional responses, such as placing the chickpea cookie dough with other prepared cookie doughs instead of the vegan section of Whole Foods, a decision that ended up benefiting both parties.
These feedback networks help both producers and retailers breathe easier. By eliminating the high-risk SPAM Snacks model and making constant, incremental changes instead, Hungryroot has shown a powerful new way to change the CPG equation.
What comes next
This must mean it’s over for Big Food, right? We’ll all be munching on Beyond Meat burgers and vegan pad thai from agile startups while Keebler and Nestlé and Lay’s dwindle down to obscurity? Well, not necessarily. Big Food is realizing that there’s less room than ever for costly errors, and it’s anxious to close the gap.
The gap in this case is the feedback infrastructure that DTC-based startups use so effectively. Now the question is how to develop comparable systems for companies with global distribution networks. In 2016, Nielsen unveiled Concept Quick Predict, a suite of services designed to give marketers quicker and more effective feedback for new product ideas. Larger brands are also turning product testing into an event of its own, offering limited-time-only trials of new flavors and encouraging customers to weigh in on social media.
Whatever form the feedback ends up taking, it’s clear that Big Food’s recent stumbles have shaken off some of the sector’s complacency. It’s had to face up to the fact that its "business as usual" wasn’t as fast, granular, or responsive as it needed to be.
But the challenges it has to face are substantial. It’s one thing for an in-demand startup with a couple dozen products to plan its placement in Whole Foods down to the shelf. It’s quite another for a CPG behemoth to ensure consistency and responsiveness throughout a sprawling, somewhat fragmented supply chain. It’s telling that early attempts at responsiveness tend to feature brands “talking” directly to consumers rather than trying to marshal the various stakeholders in the distribution chain to share information. It may be that "agility" as envisioned by the tech world may be out of reach for these giants, leaving smaller and savvier players to nibble away at their market share.