Issue #95: Every Great CPG Brand Needs Specialty Retail
As we inch closer to the second half of the year, one of my goals for this newsletter is to grow the connection between members of the community. Interviews were the first part (everyone interviewed so far is part of this community!). That was just one step, there will be a lot more coming on that front in terms of new initiatives to strengthen the community.
This week, I wanted to test out a 1-on-1 conversation with another reader. So, if you are interested in connecting with another like-minded, retail-interested person, please respond to this newsletter Yes, or click Yes in the poll. I will do the rest to connect you with someone I think would be a great fit!
Vitamin Shoppe, for instance, offers a specialty channel for supplement brands and adjacent brands as well, looking to target similar customers
Every Great CPG Brand Needs Specialty Retail
This week, I had the pleasure of interviewing Sivan Gompers for my interview series, where I chat with those in and around the retail world. Sivan is the Head of Strategy and Operations at Squared Circles, a venture studio with several CPG brands in its portfolio (my personal favorite is Algae Cooking Club, it’s amazing for frying!). We had a terrific conversation, and I highly recommend reading the full thing if you have not yet, but one quote stood out in particular:
Another underrated area, which ties into retail, is the clinician channel. They are often pushing their consumers to retail or have their own retail or have their own retail hubs. With everyone fighting over the same shelves and fighting over the same Meta auction, building through and being approved by clinicians is another area that retail is expanding to.
Specialty retail and alternative channels are something I have been thinking about as well, so I figured it was a sign I should go deeper on this subject this week as well. I think I am willing to say that every brand, early on, should have a super alternative channel that they can win and build scale in. If they do not, it makes everything much harder. As Sivan mentioned, every brand is fighting for the same shelf space at the same retailers, whether it’s online or in-store. As an emerging brand, the amount of capital it requires to force your way into these crowded categories is not something you typically have at your disposal.
However, that does not mean you can just apply the tactics and products that are working in your existing channels to specialty retail and call it a day. These channels are called specialty for a reason. You need to really evaluate and understand the mechanisms of these channels. Who are the customers, how do they shop, what messages resonate with them, and how do they respond to deals are just a few things that come to mind. It will be more work up front to determine how these channels work, but it will give you a base to start off, which will allow you to keep up with the big players in the category in other channels. I think it is better to go this route than rush into very competitive channel right away.
Another aspect to keep in mind is the pack size and formatting of your product. With specialty retail, the core of your product should remain, but the packaging will be different. If you are trying a club, you may want many of the existing sizes packaged together or larger versions of your side. If you are trying a food service, you will probably need one large container of your product. If you are trying a military base, specialty retail like Vitamin Shoppe, fitness centers, or a clinician like Sivan mentioned, there may be modifications you need to make. This formatting is all part of the up front research to determine the right alternative channel up front.
Ultimately, the success of this endeavor will be due to the work you do up front before launching the channel. I am not recommending entering it if you are not going to make money, but if you can build scale and loyal customers in a non-traditional way, this can give you a huge advantage. In today’s world, everything is so competitive. You need to zig when everyone else zags. Fun fact, one of the reasons Coca-Cola is so popular today is due to them building out a loyal base of American soldiers since Coca-Cola built bottling plants overseas to service them. This example is obviously not going to happen for everyone, but every CPG brand early on can find a specialty channel where it can dominate, and establish a baseline that allows for the ability to compete in the crowded mainstream channels.
Amazon, Temu, Alvaraz & Marshall, and more!
Amazon Puts A Spin on Upfronts, Combines Media Properties & Tech
Like many industries, the television industry has its own unique calendar, with Week 1 of the 52-week year containing January 1st. The goal is to align it with the week going from Monday to Sunday. Like many industries, television makes most of its money from advertising, so it is important to lock in as much revenue as early as possible. Traditionally, this revenue strategy has occurred in the spring for the spots in the coming year, where the budget gets locked in. That puts us squarely in the “traditional” upfront season right now.
Amazon, like with many things, is turning the traditional upfront upside down. Unlike many legacy advertising players, Amazon has 24/7 content in addition to its big windows that command attention, like NFL games. When you can advertise to someone 24/7, it is super important that the tools and technology are present for optimal targeting. Amazon feels that this technology is an advantage for them, so they are pivoting the conversation to look more like an enterprise software sales pitch, since that is, in some ways, what they are offering. One feature being highlighted is the ability to almost put this on autopilot; you put in some objectives and creative, and AI takes care of the rest. Since Amazon has the content and the commerce, it gives them a big advantage, as opposed to a Disney or a Roku that lacks that data. In fact, I happened to walk by their kickoff event at the Beacon Theatre this week, and the main tagline plastered everywhere was content to commerce. Shows a lot where they are thinking. However, for many retailers, this is an amazing opportunity given the data you have at your disposal. The ability to use purchase data to build audiences and target is a huge advantage, don’t squander it!
Shoppers Trading Down Retailers Instead of Brands
Traditionally, people have been pretty loyal to their grocers, and instead trade down or up within a category at that grocery store after they have selected. Alvaraz and Marshall run a consumer sentiment survey that tracks this, among other topics. They found that 35% of consumers said they will turn to cheaper brands at their current grocer. That is 14 percentage points lower compared to the same survey in the fall. Instead, shoppers are switching retailers. 42% of surveyed shoppers said they plan to switch to less expensive stores this spring, compared to 31% who said the same about their shopping habits in the survey last fall.
The core reason is value, but the underlying metrics are that consumers don’t find other advantages at the more expensive stores. 68% percent of surveyed consumers agreed that low-price grocers are as clean as traditional grocers, and 63% said customer service at low-price outlets is as helpful as traditional ones. If the higher-priced stores aren’t offering a superior product, it is not worth in for consumers to spend extra. This survey is a big warning for many retailers; it is time to step up your game or risk being left behind. Value isn’t purely price-driven, but if you can’t offer additional benefits to cover for price, like a great experience, you are going to be left behind. In the next year, there is going to be a big opportunity where consumers are re-evaluating their grocery mix. It is very apparent in the data from this survey that more customers are shopping around. For retailers, the question is whether you can retain existing customers and win new ones. For CPGs, the question is, can you find the right not club or low price retailers, since they are able to make more money on the regional grocers. As always, it is going to be a fascinating year for grocery retail!
Temu Launches Groceries?
If you need something cheap, and don’t mind waiting a long time for it to get to you, Temu or Shein has been the preferred option for many Gen Z and Millennials over the past five or so years. These businesses started shipping directly from China, but due to tariffs, are now looking to move everything to more US-based merchants. As part of that shift, Temu is now offering groceries. You may think it is just pantry items and other items that do not require refrigeration or freezing. Nope, that is not the case; you can literally buy a steak on Temu. The sellers appear to be a mix of specialty merchants and individual resellers from top low-priced retailers in-store, offering without the retailers’ consent. Temu’s sister company Pinduoduo, a very popular group buying app in China. Pinduoduo followed the same path in terms of expanding to food a while back after focusing on general merchandise. It will be interesting to see if consumers will trust food from Temu, but I totally see why this model is interesting to both the suppliers and consumers, cutting out the middle entities to save money. Let’s see if the theory pays off!
Additional Links:
Walmart launches new data product that will transform the retail media industry, with hundreds of data elements available (read more here)
Level99, the social gaming venue, announces a new location in Orlando - you will never guess where (read more here)
UberEats, after being neutral for its entire existence, has chosen a side in the POS wars (read more here)
A restaurant expert breaks down Sweetgreen’s new wrap (here is his take)
New to CPG promotions in retail? Want an expert buyer’s guidance? Read more here.
The Devil Wears Prada 2 is actually boosting luxury retail sales (Advan broke it down using their data here)
Elizabeth Street in the Nolita neighborhood of Manhattan might be an underrated place to incubate a new store to scale (read more here about all the neighborhoods that have spawned from there)
How do you balance revenue from retail media without damaging the customer experience (read more here)
Whole Foods is expanding its new store concept to more cities (find out which cities here)
Eli Feldman, one of the most tech forward restauraunt opperates, breaks down Toast POS’s new AI tooling (read more here)
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