Just because you can doesn’t mean you should
Before I get into it, here in California’s Central Valley we are trying to dry out but crops are still underwater. There’s no place for the water to go so levees break and fields flood.
Photo creds: Neill Callis, Turlock Fruit
Now today’s topic —
For those in the food supply chain getting pummeled with rising costs, you’ve probably thought about diversifying your product portfolio as a potential solution. If you’re thinking about consumer products as a way to gain margin, I can understand why.
For one, there are so many ways to enter consumer products – it’s never been easier to sell online or through a variety of wholesalers – and two, there seems to be a market for almost any version of food and food alternative.
Consumer products look attractive when prices on the shelf remain high in spite of volatile commodity markets. I’m not going to lecture you on how the great ag-founded brands of our time took decades to build – Wonderful, Ocean Spray, Fairlife, Niman Ranch, Tillamook, Blue Diamond, to name a few. You already know.
What you want to know is how to build a brand today. If you have a good idea, there are some things you should definitely do and some things you should definitely not do in consumer products.
Let’s get to the Do’s and Don’ts
Know the landscape.
I’ve worked with smart, successful, vertically integrated producers that went into consumer markets with products before knowing what the market size, addressable market, or competitive landscape looked like. Seriously – no idea. You cannot estimate growth or build budgets or know your value proposition without doing this work.
Install a line.
It’s OK to be inefficient and manual at manufacturing until you’ve proven your product/market fit. Build slow or outsource manufacturing to a co-man until you have proven out your proposition. I can’t tell you how many pieces of equipment end up at auction or in the bone yard because someone jumped the gun. Something will change about what you make or how you make it before scaling nationally, I promise.
Have fewer products.
Too many SKUs drains resources. Test and fail small, rank your winners and cut SKUs to just the best sellers. Drive those. For. A. Long. Time.
Compete on price.
This is probably the hardest re-teaching I have to do with ag brands. Unless and until you are the market leader, competing on price is a fool’s errand. The COGS advantage you have (because you own the input) are needed to fund promotions and marketing, which will only increase as you grow your brand (people always think spend goes down – wrong!) Keep your COGS advantage.
Understand the full cost of doing business.
Unlike ingredients, it’s not a sale when the product leaves the warehouse. Brands are responsible for the sell-through all the way to the consumer basket. There are a whole host of activities to fund to ensure that happens and it’s not uncommon for inventory to be billed back to you if you’re just filling P.Os indiscriminately.
Lastly, I know you want to move fast. The fastest way is making the right moves from the beginning. As a regular reader of this newsletter you’ll be getting a leg up on industry knowledge and tips to help you make right decisions.
All my best,