3 CPG fundamentals to stay on top in retail in uncertain times

24-Apr-2023 - Last updated on 24-Apr-2023 at 14:23 GMT

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CPG food and beverage brands need to focus on three key business activities to survive the current economic climate, including marketing and innovation basics, cost-cutting measures and capital diversification, a panel of food and beverage experts shared in a Naturally webinar.

"The normal supply chain patterns that you need to really allow your systems to work effectively have returned,” said Brandon Barnholt, former CEO and president for KeHe. “I think that's going to help manufacture certainly. It's going to help the transportation world all the way through into distribution and out to the retail shelf.”

1. Focus on the basics from marketing to improving business relationships

While some pandemic-era factors are still in play and creating business pressure, CPG brands need to “push through that steady state of the business,” which includes listening to customer demands and innovating alongside them, and creating impactful marketing copy, said Adnan Durrani, founder and CEO of Saffron Road.

“I've been through five recessions, and the key is just having staying power getting back to the basics, so that's what's been working for us -- not losing sight of what our mission and values are around the brand, but at the same time, doing what we need to do.”

Part of those basics is working with manufacturers and distributors to ensure that brands understand their commitments and deliver on them, Barnholt said.

“You have to understand the commitments that you've made, and when those commitments are made. You have to make sure that you've got adequate margin, adequate cash flow,” Barnholt said. “We've seen 1000s and 1000s of brands come through, most of them been successful. The ones that aren't are the ones that aren't paying attention to the fundamentals, and they over-commit.”

2. Focus on cost-cutting measures: “Negotiate with everything”

When it comes to the financial side of the business, brands have opportunities in the current climate to re-negotiate expenses and save money, Durrani explained.

“We renegotiated a bunch of contracts with ingredients and poultry and produce, which we're now really benefiting from. We did a lot of that actually in the second half of last year when prices were escalating, and now we're seeing significant step reductions in some of those items.”

Brands also should renegotiate transportation costs and property rental, Durrani said. “Even though your lease may not be over, ... you can renegotiate this environment,” he added.

In addition to finding ways to cut expenses, brands need to focus on “opportunities that are going [to] positively impact the business longer term,” said Jordan Gaspar, managing partner at AF Ventures. “It's not just gaining points of distribution and hoping for the best,” she added.

“I think that the era of just sort of accepting the deal that's offered to you doesn't work anymore because it could put you out of business,” she said. “We've been very proud of our founders because they've been negotiating with everything that touches their business, and that sometimes means turning down great retail opportunities because the contribution margin wasn't high enough.”

3. Understand your capital options: Venture isn’t the only capital

While venture capital is still available in the current economic climate, “investors are more discerning,” which means brands looking for venture capital need to get granular on their forecasting and plan for the unexpected, Gaspar said.

“Investors are also becoming highly aware of how you’re forward thinking about potential impacts of the business that are unknown,” Gaspar said. “Investors will ask questions like, ‘Well, how are you building inflation into your P&L in your forecasts?’”

But just as investors are more discerning, “there was a lot of inbound capital from what you might call the tourist investors,” who entered the food and agriculture space and are now getting out, noted Chuck Templeton, managing director of S2G ventures.

In addition to understanding these dynamics, CPG brands should be realistic about whether venture capital is a good fit for their business and if they should even try in the first place, he noted.

"Not every CPG brand is a venture-backable brand,” Templeton said. "There's a smaller universe of actual CPG companies that should be raising venture capital. I think there needs to be an increased effort on more types of different kinds of capital that have different return expectations."