How to recession-proof your brand
3-min read
Last week, I made the distinction that premium/natural food startups in the period around 2008 (Great Recession period) faced different challenges in growing their brands compared to those in today’s post-Covid downturn. Back in 2008, premium priced products overall suffered declining sales along with all of food. Many brands shuttered. The brands that did succeed were the exception to the trend, marketing narrowly to the high-income natural foods shopper.
Today, natural foods are doing well relative to overall food sales. So, why is it still so hard to grow your business as a premium/natural brand?
I think it’s due to increased competition in the space and the seemingly never-ending rise of supply chain costs.
First, let’s look at why this trend in shopping behavior is happening, then tackle how to grow as a brand given current headwinds.
Why is the premium/natural segment doing well during this downturn?
The argument is smartly laid out by SPINS and Whipstitch Capital in The State of Natural & Organic Industry Today published by New Hope Network.
They say natural foods are doing well because:
1. We are not in a recession but a regression towards the mean
2. Consumers have cash
3. Low income wage gains and the broadening demographics of the natural consumer is bringing in dollars
While these are real and compelling reasons to feel optimistic, rising tides do not ensure success. The big difference for brands between the last recession and this downturn is that one, the competition is fierce: SPINS tracked ~3600 new brand introductions in the past year. That’s a new brand every 2.5 hours. And two, the long-tail effects of supply chain problems.
How to face these foes and position yourself for growth requires two things:
1. a high product need-state
2. economic staying power
How do you know if you have a high need state?
Ask your consumer how they’d feel if your product got taken away. I learned that consumers who felt in the range of very disappointed to very strongly disappointed if Barney Butter was no longer available was a more powerful indicator of loyalty than consumers who had high purchase intent.
One of the best ways to achieve a high need state is by moving up the hierarchy of needs. If you haven’t read the latest thought piece on The Elements of Value by Harvard Business Review, it’s worth the read.
The more you can move from functional to emotional to life changing, the more consumers will feel like they need your product and will be willing to make sacrifices to get it.
Economic staying power
You’re also going to need economic staying power to survive as a brand. Everything costs more these days and if you have a complex supply chain or are a frozen or refrigerated brand, you’re feeling the impact of rising costs more acutely than other brands.
Access to a capital cushion is critical and you will go out of business if you are making negative profit margins and have no funds to draw from.
If you have the ability to raise capital now, even if you don’t need it, do it. This can be in the form of debt or equity. Debt seems expensive with rising interest rates and giving up equity early forces unwanted dilution. But it is better to do one or the other in order to survive than risking running out of money. Talk to your financial advisors and other key stakeholders for guidance.
The natural foods industry is resilient. Your brand can survive these times. Make yourself indispensable to the consumer and work your finances to weather the storm!
All my best,
Jennifer
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