- Ryan Caldbeck, founder and CEO of early-stage investor group Circle Up, said that lower distribution costs, start-up friendly retailers, digital marketing avenues and demand for authentic products have made it easier for smaller CPG brands to thrive, according to Project NOSH.
- CircleUp research revealed that some of the biggest CPGs in the food industry spend up to six times more on marketing and advertising of older products than they do on innovation of new products. Much of this innovation (61%) is centered on making incremental changes to existing products, while only 39% is geared toward new products.
- “Consumers want innovative, small brands. That is translating into retailers [and investors] wanting those brands as well,” Caldbeck told Project NOSH. “We are even seeing companies now that are getting to $50 million in revenue in only a couple of years without having to pay a dime in slotting fees. If you talk to any kind of entrepreneur, that wasn’t possible 10 years ago.”
As consumer demand for healthy, locally sourced food grows, so does distrust of major manufacturers. This change in consumer sentiment has given small, upstart food companies the opportunity not only to break into the market, but to take market share from slow-moving legacy companies.
This trend is evidenced in the meteoric rise of KIND Snacks, a company successfully identified what consumers were wanting from the overcrowded snack bar space that other companies weren't delivering. A short ingredients list consumers can see and pronounce, transparent packaging, and commitment to both health and taste made the company's fruit and nut bars stand out from established competitors. The company has captured 10% of the snack bar market in just five years.
And while larger companies tend to rest on their laurels and update existing products rather than formulate new ones, companies like KIND continue to bring new food products to market. For example, KIND has launched a line of fruit bites, and is innovating with trendy flavor profiles like sesame seaweed wasabi and pistachio cardamom fig.
While many manufacturers are also experimenting with new flavor and ingredient combinations, they are slow to roll out new products, and are less likely to be viewed as "trendy" by consumers looking for unusual CPG offerings. To keep up, many major brands look to diversify their portfolios through acquisitions of smaller health-focused companies. General Mills, for example, bought Annie's Homegrown for $820 million three years ago.
Many consumers are likely unaware of these types of acquisitions, but some may be wary that ownership by a "Big Food" brand could undercut a small company's dedication to natural ingredients and healthy products. Still, these kinds of partnerships can give small brands financial opportunities and access to markets they wouldn't have otherwise.
It will be interesting to see if major brands learn from these numbers — and smaller brands — and kick their innovation strategies up a notch, or if they continue their M&A strategies.