There is a huge opportunity for passionate entrepreneurs to build serious businesses in the consumer packaged goods (CPGs) industry. Increasingly, consumers are demanding new, innovative, and transparent food products while incumbents are struggling to meet the shifting demands. This has resulted in significant acquisitions over the past few years, including Blue Buffalo for $8Bn, Bair for $1.7Bn, RxBar for $600M, Tate’s for $500M, and Core for $525M and is further amplified by the sector’s rapid growth, projected to reach over $14 trillion by 2025 (McKinsey & Company).
In this post, we will talk you through why we are so excited about packaged products as the way to build a successful business in food. Specifically, we’ll focus on why the route of packaged products will help you get the most out of your upfront capital, allow you to spend more time building brand awareness, and ultimately establish your repeat customer base quickly for sustainable sales. Let’s dive in!
#1. Upfront Capital Requirements
On average, Union Kitchen Accelerator Members launch packaged products in four months for less than $15,000. This is significantly less than a traditional brick and mortar where build-outs can reach over a million dollars.
The ceiling on gross sales is also a lot higher in packaged products than in a restaurant. A retail location has a natural limit on how much it can bring in. If you want to increase revenue after a certain point, you need to open a new location which means spending time raising more money to cover upfront expenses. Comparatively, in packaged products, you can increase your revenue by adding more accounts and there are well over 35,000 supermarkets in the US alone, not to mention the opportunities online.
Most importantly in the capital conversation is your ability to respond to your customers. At Union Kitchen, one of our core values is “Make Things People Want.” When you are tight on cash and constantly stuck in a cycle of raising investment, you are limited in your choices. You can’t buy new packaging or update recipes based on what you learn from your customers.
With lower upfront costs in packaged products, you can focus on making the right long-term choices for your customers rather than short-term, cash-focused decisions.
Consumer packaged goods (CPG) offer a more sustainable business model than restaurants when considering upfront capital requirements and the ceiling on potential gross revenues.
#2. Repeat Customers
By significantly lowering the upfront capital requirements, CPG companies can focus on what matters the most: making and delivering products that customers want.
A product people want, that is priced and positioned correctly, generates repeat customers, or customers that are purchasing the products habitually. It’s this type of market share that leads to the substantial exits we’ve seen over the past few years. RX Bar, for example, built a tribe of repeat customers out of the crossfit community after spending years iterating their product into something people wanted and purchased regularly. Similarly, before expanding nationally, Snacklins had to iterate from a vegan pork rind into an 80-calorie chip. People want 80-calorie chips.
Especially in a time where restaurant variety is at an all time high, the likelihood that consumers will continuously return to the same establishment is very low. We all as consumers want to try new things and see what else is out there. Packaged goods, on the other hand, are more habitual purchases - whether it’s the protein bar you go to after your workout, the diet soda accompanying your lunch, or the chips you can rely on to help you unwind after a long day. Here inlies the value of the packaged good product: with a quality product, you can build a repeat customer base that comes back to your product continuously as part of their routine. You can build sustained market share.
#3. Brand Awareness
Coke, Tostitos, Kellogg’s: why do we know these brands? Sure, each has billions of dollars to spend on marketing and are carried in stores around the world, but at the core it’s that they made great products that people wanted and then scaled through brand awareness.
This is a formula more easily replicated by packaged products than restaurants. As a packaged product, every store placement builds your brand. Consumers can feel, touch, and see the product prior to purchase. Restaurants, on the other hand, are restricted to their physical location. The customer is guessing on their experience. They are paying for the product without awareness of what it actually looks like.
Even more importantly, packaged goods remain on the shelf for large numbers of consumers to view, meaning you are building brand awareness, and exit value, every minute your product is in a retail environment.
Conclusion
With less upfront capital requirements, CPG businesses can focus on iterating towards what customers want. This, in turn, leads to repeat customers, that, when combined with brand awareness, creates sustained market share and potential exit options.
Focusing on these things will allow you flexibility in doing what you want in the long-term whether that’s running your own business, taking on serious investment to scale further, or securing an exit.
Union Kitchen is a food business accelerator in Washington, DC. Since opening in 2012, Union Kitchen has worked with over 500 local food businesses, helping them to launch locally, grow regionally, and scale nationally. These businesses include many DC favorites, from Compass Coffee and Snacklins to Eat Pizza, and M'Panadas.
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