The latter half of this week was certainly a fascinating one for the CPG and Retail world (Gruns x Unilever acquisition, to name one thing). I will definitely share more about those items next week. For this week’s issue, I am super excited to share this conversation with Matt Leeds, the founder of Forward Consumer Partners. Fresh off a new fundraise for his second fund, Matt shares some awesome insights around CPG, everything from brands to retailers to investors. Thank you so much to Matt for making the time!
This is the third conversation in an ongoing series with movers and shakers in the retail industry. Is there anyone you want to hear from? Please be sure to drop their names 👇
The following conversation has been lightly edited for context and clarity.
Takeaways:
It is crucial for brands to find retailers who are going to put their full energy behind the brand and not just leave it up to chance if consumers discover your product
Consumers are prioritizing products that offer convenience and better-for-you qualities
For CPG brands raising capital, a partnership is a two-way street, you need to find someone who will be in the long haul with you
The best brands are powerful, have deep resonance with their consumer, and are about products that are either delicious, highly effective, or deliver on their promise in many ways
The most important metric for brands from an investor POV is velocity
The exit will take care of itself, just focus on building the best possible business
Large CPG companies are being reshaped, but this is just part of the cycle of the conglomerates
Growth at all costs is not the way to build a business today
The biggest shift in grocery stores right now is customers looking for more convinience
Noah Sobel-Pressman: Matt, thanks so much for joining us. For those who aren't aware, could you tell us more about Forward Consumer Partners and your journey to founding it?
Matt Leeds: Of course! My journey started many years ago. I have [always] been a student of the consumer industry and consumer psychology, [which started] with a stint at Procter & Gamble, and consumer investment banking at J.P. Morgan. Then, I spent about 15 years investing in and around the consumer landscape. I had the chance to spend a better part of a decade at L Catterton. I learned so much about understanding the consumer and understanding category and thesis-driven investing. [What that really comes down to is] the ability and the importance of focusing on brands.
Forward Consumer Partners is a relatively new private investment firm. We focus on branded consumer products and powerful brands to make beloved products. A couple of weeks ago, we just closed our second fund at $500 million. We now manage $925 million across 2 funds. We have seven current investments in our portfolio. All branded CPG. We major in food, but we are also continuing to expand into other areas of consumer staples and branded consumer staples in particular.
At Forward, the way that we bring it to life is that we have a phrase that is our animating force. It's our trademarked phrase, and our mantra. We help build powerful brands that make up loved products. Everything we do is about brands that are powerful, that have deep resonance with their consumer, and are about products that are either delicious, highly effective, or deliver on their promise in many ways. That's the essence of what Forward is all about.
NSP: When you're looking at consumer brands, each one has many factors that make it stand out. However, on the retail performance side of them, what stands out from the top brands in terms of retail strategy and retail metrics?
ML: The core metric is velocity. We are looking for brands and products that turn and turn on a consistent basis. For us, the most attractive businesses for us to go after are brands that have superior velocity relative to their peers and superior velocity relative to their category. When that's the case, velocity is great on its own, but the purpose, or the real depth of velocity, is that there is consistent and repeatable consumer demand, number one. Number two is that the product is valuable to the retailer, and the retailer is able to make consistent and strong penny profit.
[It is also important that the retailer is] able to view the brand and the product as being incremental to their categories. Ultimately, you have to put yourself in the shoes and in the mindset of your merchant, of your category buyers. If we're able to invest in a company and the company that we invested in is able to drive growth for their retail partners, that's the core job that our brands are hired to do for the benefit of their retailers. We're very much focused on that.
Obviously, there are a whole host of metrics that you can study. Consumer is a beautiful space. Very much in the spirit of Moneyball in baseball because it is incredibly rich in data. You can learn from NielsenIQ, Spins, IRI, and more. We study deeply the metrics that come from a service called Numerator, which is a panel data provider. You can get incredible texture about loyalty, repeat rate, and a whole battery of data points that really help you paint a picture of the performance of a brand, the strength of the brand, and the white space that's available to the brand.
NSP: Shifting towards the retailer selection process, the brands you work with are sold in a variety of retailers. Many of the brands that read this newsletter on the CPG side are emerging brands, taking their first steps into retail. From your point of view, I would love to hear if there are any retailers you've seen really stand out with how they partner with emerging brands and what they are doing differently? Additionally, what are the brands doing differently to make that first step into retail or first nationwide rollout really succeed?
ML: I think there are a couple of standouts. Each retailer brings their own relative strengths to the party. I think you could look at a couple of the very scaled retailers and a couple of the more artisan/natural retailers. I would look at the way that Walmart and Target embrace new brands in their rollout. I think they are learning, and they are incredibly nimble in the way that they help bring brands to life. They understand that just dropping three SKUs in the middle of a very crowded shelf isn't the way to drive adoption. It isn't the way to really test what a brain is capable of. Look at the way have been built inside Target. Look at the way that Walmart has so many brands and has been able to democratize the food landscape and other categories as well. I think they're excellent in terms of supporting new brands and kind of coaching and guiding them onto a very fast-moving highway, which is a Walmart.
On the other side, I look at Whole Foods and Sprouts, and I think that both of those businesses have done amazing jobs of supporting, the next wave of better-for-you brands. Watching what Whole Foods did with Siete Foods is such a powerful case study, where you walk into a lobby of a Whole Foods, the little vestibule where they store the shopping carts, and for five years, they've had floor-to-ceiling displays beautifully designed by Siete. Whole Foods was really a core part of building Siete’s brand. The way that Whole Foods shows up for their partnerships, they lean in and find deeper ways to really build. Also, I watch what Sprouts has been doing, where they have a program of spotlighting emerging brands, and the way that they've launched things like Tractor Beverages and a few others. It is exciting to see the way that they get behind to put muscle, force, and energy behind some of the next iteration of brands, as opposed to taking a SKU, putting it in the middle of a shelf, and hoping the best happens.
NSP: To take a step back, the CPG industry is going through a big shift, especially when you look at some of these larger conglomerates. I know you have done some deals with some of them, but in a macro lens, there is so much transition, breakups, mergers, and acquisitions. As an investor, how do you go about navigating all this change in the industry? Is this something that you have seen cycle around from your time at L Catterton, too?
It is a fascinating moment in the consumer space. With all of the back and forth with breakups of large companies, you see pretty significant market share declines and share price declines of some of the larger CPG businesses. It creates a moment of incredible flux for the industry. [Simultaneously,] you have this wave of better-for-you new companies. You also have a very consistent share degradation that's taking place from some of the legacy players. If you go back over decades and decades, there is this constant cyclicality across, not just CPG, but across [all types of] companies. Conglomeration, build-ups into large aggregate businesses, and then decomposition into smaller, more specialized firms. I think where we are in that wave of the cycle is that there is a clear moment where companies and portfolios are being reshaped.
I think that's a trend that will continue for years, because focus is key. There is a real drive for focus, and being able to be deep, meaningful, effective, and powerful in the categories that matter most to you. I think that creates opportunity, as some brands come into the market, for people like our peers and us to be able to invest in a few or a single brand at a time, to be able to give them focus on scaling growth.
At the core, there is the cyclicality that exists. I learned this from my mentor at L Catterton, a managing partner, Andrew Taub, who always talked about, the exit will take care of itself, just build the best possible business that you can. That is very much the strategy that we focus on. I'm looking for timeless brands. The median age of a brand in our portfolio is 30 years, and we have one that's 144 years old, and we're working on one that's nearly 200 years old at the moment. In the way that we see the world, we want timelessness, we want proof points that exist across cycles, across presidencies, because those are the brands that stand the test of time, and those are the ones that are most likely to deliver high probability outcomes.
NSP: In addition to seeing these shifts at the large CPG conglomerates, we are seeing major changes with the large grocery stores. Sprouts is expanding nationwide, Amazon is pivoting its strategy, and Whole Foods is opening the small-format shops. From your perspective, what are you seeing that excites you in the grocery space? Simultaneously, do you think that the grocery store model is broken, or is it just something that needs a little reinvention?
I think at the core, the grocery store model has existed in a certain incarnation for many years, many centuries at this point, in various forms. I'm a believer [of the model]. There will be changes around the edges. The advent of new technologies around FreshDirect, click and collect, buy online pickup in store (BOPUIS), and others. However, if you look at the way that groceries are purchased in America, the vast majority, 80% plus, of grocery dollars spent are still spent inside the four walls of a grocery store. That has persisted for literally decades or centuries.
I think there are movements around convenience. There are movements around the grocery store being able to meet the needs of their consumers in different ways. At the core, we, as a firm, and as an individual, I'm a believer in the continued persistence of grocery stores. It will force evolution. It will force evolution in the way that they meet the demands of their consumer. [There will be evolution of] the products that they show and display, but at the core, we are a society that shops for groceries. I believe we will continue to shop for groceries inside of traditional brick-and-mortar stores.
NSP: Looking forward, what consumer categories are you most excited about right now? Also, are there any consumer behaviors that might be driving shifts across categories that you're also excited about?
ML: We assess the landscape, not just investing, to understand the different trends that are at play. We are less about making a particular outside thesis-driven bet on the growth of one specific vertical, or one specific product, category, or trend, or the like. We look at it maybe orthogonally, through the lens of, what are the enduring consumer demand fundamentals that will drive consumption over the next 15 years?
You will not come away from this comment thinking that I've cracked the atom. But, we look at things like better for you, and better for you is a one-way train. It comes in different forms. One year, it is keto, and one year, it is protein, which has endurance. And then perhaps it's fiber. Then, there are many other individual micro trends that all ladder up to a macro trend of cleaner, better-for-you products and offerings. I think that is very much a trend that will persist into the future. There is a clear trend toward convenience, and I think that finding ways to deliver and optimize for very busy, harried consumers in this modern world, to be able to give them quality products and better products that meet the need for convenience. I think that is [also a one-way train. Those are what I think are probably the two most important and impactful areas that we track.
NSP: There are a lot of emerging brands that that subscribe to this newsletter. Capital raising from LPs is a little different from VCs or PEs, but what would be your advice to people who are trying to raise capital in this market, and how to go about that process?
ML: I think there was a moment, seven or eight years ago, that was about growth at any cost, and clearly that moment is long gone. We have moved from growth at all costs to a focus on profitability many years ago. What I look for and what I think the market is looking for is a series of deeper proof points around what's possible. That could be performance within a retailer, that could be performance within a geography, or that could be performance within an assortment. I think the proof points of traction and success are very important in a way that is profitable, doesn't consume incredible amounts of capital, and not having to pay for continued consumer acquisition are important proof points for where brands are these days.
On the flipside, the world of building a powerful brand or a new consumer company is not for the faint-hearted. You want the person [or investor] to partner with you on your journey. You want them to be aligned, have a long-term focus, and be a good partner when things are great or not. These marriages are many, many years in duration. You have to find the kinds of people and test them and watch them enough times to understand what they're like when it's harder as well. I think it's a two-way street. You have to be putting out into the world, a brand that works, a product that is differentiated, ownable, and distinctive in that sense. You have to show proof points in a way that's profitable. You also have to be mindful enough to be selective about the partner that you bring in, as well.
NSP: Matt, thank you so much for taking the time. I really appreciate this conversation. For the last question, I would be remiss if I didn't ask. Is retail dead or alive? And why do you think that?
ML: Retail is very much alive. I think the form that it takes continues to evolve. The way that consumer demand is met continues to evolve. But at the core, there's a great quote, which is a bit of a paraphrase, but it comes from Warren Buffett decades ago. His comment was never bet against the American consumer. I think we have shown ourselves, over the better part of the century, and shown in a very persistent way, that this consumption is a core part of what drives the American economy. I think that it has proven over easier times and harder times. I'm a believer in the continued existence of retail. It may change, it may evolve, it may adapt, but it's part of the fabric of our culture.
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