Why Money Is Pouring Into CPG Startups

  31617   CPG is a monster. billig nike air norge Adidas buty męskie It’s worth $7 trillion a year. And it’s dominated by a couple of giant conglomerates like Unilever, Proctor & Gamble and Nestlé. Canotte Orlando Magic nike air force 1 low hombre I’m into this story because I’ve found a couple of smart little companies which have found a way to break into the business. Mochilas Kanken Infantil And now they’re gorging themselves, like mosquitos on an elephant. Nike Air Max 90 Heren Zapatillas New Balance Online On Tuesday I wrote about the CPG giant Unilever, one of Britain’s biggest companies for over 100 years.

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  • Yesterday I wrote about CPG giants’ big advantage over the rest, and the three reasons they’ve stayed on top for so long.

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  • Maglie Utah Jazz Today I want to talk about what’s changed. adidas gazelle homme blanche Purdue Boilermakers Maglie San Antonio Spurs I want to talk about the cracks in CPG’s business model, and the opportunity for startups.

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  • A weird deal

    A recent deal tells the story. Nike Air Max 90 Femme Noir Nike Air Max 2017 Heren wit Last summer, Unilever bought a startup called Dollar Shave Club for $1bn. negozi new balance milano Dollar Shave Club isn’t a typical $1bn CPG company. It’s only four years old. Nike Air Max 1 męskie Człrne Adam Wainwright Authentic Jersey It’s not yet profitable. It doesn’t have a big ad budget. Madison Bumgarner Authentic Jersey It doesn’t have a fancy high-tech product. And it doesn’t have any relationship with supermarkets. That’s really weird! Recall from yesterday that I said big CPG companies have three big advantages: they have strong brands which are expensively developed, mostly on TV; they spend big on R&D to come up with innovative products; and they have strong relationships with supermarkets. new balance 2017 asics gel kinsei 5 peso Dollar Shave Club didn’t need any of that stuff because it figured out how to sell directly to consumers online. The company launched with a famous viral video explaining its business model (which has since been viewed 24m times). asics gel kinsei 4 homme asics onitsuka tiger mujer The video goes like this: Dollar Shave Club’s blades are basic, but they’re good enough. Adidas Pas Cher They only cost $1. Gillette charge you $20, and $19 of that goes to Roger Federer. Dollar Shave Club was able to build a great brand with smart viral videos, social media campaigns, and direct advertising (more on that last part later).

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  • And it shipped directly to consumers. All of those things are cheap enough for a startup to afford, and can be scaled up to serve lots of customers if needed. Back in the day it wasn’t so easy for CPG companies to get their brand out there. New Balance 990 femme Nike Air Max Dames CPG companies had to literally invent soap operas in order to flog soap and detergent. Building a brand took a lot of money. But not any more. new balance 998 black teal

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  • Venture capitalists smell money

    Dollar Shave Club isn’t a once off. As the following chart shows, money is pouring into CPG startups.

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  • The size of deals has tripled and the number of deals is up around 80%. Fjallraven d’Occasion There’s something moving here. Nike Air Max 90 Pas Cher Canotte Chicago Bulls So specifically, what’s changed for CPG startups? How are they doing it? Three things have changed. new balance 574 nike air max 1 essential mujer The first and most important is the growth of digital advertising.

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  • Nike Dames A small brand can now target a specific customer with a specific message. That’s great news for the brand because digital marketing is cheap. Zapatillas PURE BOOST You only pay for what you use. No need to blow millions on a big TV or radio campaign which may or may not work. In fact, digital advertising does more than just level the playing field. Kyrie 2 Scarpe Alabama Crimson Tide It actually gives the little guy an advantage. New Balance 373 hombre cheap adidas shoes uk That’s because there’s diminishing returns to scale in digital marketing: it’s harder to spend £100m well on Facebook than it is to spend £1m. Unilever doesn’t rely on Facebook to spread the word about Dove soap because Facebook isn’t the best way to reach huge numbers of people.

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  • But a startup soap company can run a Facebook campaign with a small budget, and a targeted audience, and have a lot of success. Authentic College Jerseys The second thing to change is the retail environment. New Balance 1500 homme Nike Air Max 2016 Heren wit As I’ve been saying, CPG’s relationships with big retailers like supermarkets is one of their greatest advantages. nike air max 2016 heren It’s hard for a small startup to get a look-in with the likes of Tesco. But supermarkets aren’t as powerful as they once were. A.J. McCarron Alabama Football Jerseys People are spending a bigger and bigger chunk of their money online. nike air jordan 1 uomo nike air max 2016 blauw And in a world where people are buying online, the scarce shelf-space at supermarkets doesn’t matter any more.

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  • Instead Amazon can stock 1,000 different soap brands in their warehouse and customers can choose the one they like (or the one Facebook ads have convinced them to like). It’s like supermarkets and CPG companies are symbiotic.

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  • They need each other to survive. And the last thing that’s going against big CPG companies, and towards small startups, is customers’ tastes.

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  • Basically customers are dividing into smaller and smaller niches. Canotte Houston Rockets Scarpe Adidas NMD Runner That’s bad news for big CPG companies because there are only so many different brands they can manage. mochilas kanken baratas They are able simultaneously to sell the Dove brand for young women and the Lynx brand for young men. But selling four brands for each gender gets unmanageable. Adidas Superstar Blu Uomo

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  • Nike Air Max Thea damskie That’s an opportunity for small focused startups, like Dollar Shave Club. This fragmentation of the market is showing up in retail, too. UA Curry One
    In the past the big national chains sold a bit of everything, like supermarkets or big chemists. nike air max 90 pas cher Now there are many more national chains serving specific audiences. Again, good news for startups. Again, bad news for big CPG. I’m taking a couple of days over this story because it demands a bit of time.

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