Metrics and Market Dynamics: The Blueprint for Success in the CPG Sector Revealed at Expo West

Table of Contents

1. Key Highlights
2. Introduction
3. Understanding Velocity
4. Building Strong Retail Relationships
5. Utilizing Data for Strategic Insights
6. The Opportunity Created by a Fragmented Retail Landscape
7. Emotional Connection: Marketing Beyond Functionality
8. Conclusion: Preparing for Retail Success
9. FAQ

Key Highlights

• Understanding Velocity: Velocity, a critical metric for Consumer Packaged Goods (CPG) brands, measures product traction and sales effectiveness.
• Strategic Retail Relationships: Early-stage CPG brands benefit from developing close ties with smaller retailers before scaling nationally.
• Trend-driven Innovation: Identifying trending attributes and whitespace opportunities can inform product development.
• Fragmented Retail Landscape: The shift to diverse retail channels, including social media, empowers emerging brands to compete with larger companies.

Introduction

In an ever-evolving marketplace, where consumer preferences shift as swiftly as trends surface on social media, understanding the mechanics of Consumer Packaged Goods (CPG) has never been more essential. A revealing encapsulation of this knowledge came from the recent Natural Products Expo West, an influential platform where industry leaders from Spins and NielsenIQ (NIQ) shared their insights. The spotlight was on fundamental metrics like "velocity" and "gross margins"—two crucial indicators of a brand's success in navigating the complexities of retail channels.

As it turns out, velocity is more than just a buzzword; it's a pivotal measurement that determines whether a product is resonating with consumers or languishing on the shelf. These insights are not just theoretical; they are backed by real-world experience from brands that have successfully charted their path in the competitive CPG landscape. This article aims to explore these foundational concepts, showcasing actionable strategies, real-life success stories, and the implications of a shifting retail environment.

Understanding Velocity

Velocity is defined as the speed at which products move off retail shelves, calculated using sales data against measures of distribution. According to Andrew Henkel, president of retail at Spins, this metric provides critical feedback on a product's traction within the market.

“Velocity is basically a measure of how quickly products are moving off of a shelf,” Henkel noted. “For an early-stage brand, it’s typically calculated as units sold per store per selling period.”

Establishing this metric requires meticulous attention to detail, particularly at the store level. Understanding patterns in sales, identifying voids, and determining out-of-stock instances are vital steps for founders seeking to refine their offerings.

For instance, brands that initially focused on a single store—like Siete Foods, which began in a Texas co-op—can gather invaluable data and consumer feedback that guide their development strategy. This iterative approach enables brands to hone their value proposition before expanding their reach.

Building Strong Retail Relationships

Developing strategic relationships with retailers is paramount for CPG startups. According to Henkel, fledgling brands should initially target one or two smaller retailers. This focused approach provides a manageable environment for experimenting with product offerings and promotions without the overwhelming pressure of national distribution.

As Henkel explains, “Figuring out and honing your proposition is key in those early days.”

This foundational strategy not only builds brand credibility but also allows emerging CPG companies to gather key metrics that validate their product's market fit. Retail partnerships offer direct insights into consumer behavior—insights that are instrumental for planning future expansion.

Case Study: Siete Foods

Siete Foods serves as a prime example of how grassroots retail success can fuel growth. Initially starting in a co-op, the brand had the opportunity to trial its products, learning what resonated with consumers. Over time, this focused approach enabled them to expand effectively into larger retail chains, leveraging their early success to establish a broader presence while maintaining quality and customer engagement.

Utilizing Data for Strategic Insights

Spins and NIQ stress the significance of pairing data with comprehensive in-store insights. Henkel emphasizes the importance of getting “down to the lowest common denominator of the data” to unveil business-critical insights.

Key actions for CPG brands include:

1. Store-Level Analysis: Regularly review and analyze data at the store level to identify sales patterns, stockouts, and consumer purchasing behavior.
2. Market Trends: Monitor both category metrics and broader retail trends to identify whitespace opportunities where consumer demand is unmet.
3. Product Attribute Analysis: Understand and track trends in consumer preferences, particularly for attributes like health benefits or sourcing practices, to inform product innovation.

This data-driven approach equips brands to innovate and align their offerings with consumer demands, ensuring that their products not only fit the current market landscape but anticipate future shifts.

Trending Attributes and Market Trajectory

Henkel pointed out that attributes trending in specific categories—like vitamins and supplements—often spill over into mainstream food aisles. Brands that stay attuned to these patterns can introduce timely innovations that align with consumer needs.

“Drill down to the attributes in your category, adjacent categories, and the total store,” he advised. “These attributes are usually early indicators of where shoppers are going overall.”

Tracking these metrics can fundamentally reshape product development cycles, making them responsive rather than reactive to market conditions. For instance, brands can release seasonal flavors based on current trends or enhance existing products to align with emerging health and wellness preferences.

The Opportunity Created by a Fragmented Retail Landscape

The fragmented retail landscape offers both challenges and opportunities for new entrants in the CPG market. With various sales channels now available—ranging from e-commerce platforms to social media—brands have more routes to reach consumers than ever before.

Kenny Juskowiak, managing director for emerging brands at NIQ, remarked on the changing dynamics: “This fragmentation creates an immense opportunity for emerging brands to thrive because consumers can expect to find and buy products in so many different places.”

Emerging brands that leverage digital platforms are uniquely positioned to capture the attention of consumers disillusioned with traditional marketing. As larger CPG companies concentrate their efforts on established channels, nimble startups can capitalize on trends in social media, influencer marketing, and direct-to-consumer models to engage potential customers.

Digital Shopping and Social Media Trends

In particular, platforms like TikTok are proving to be pivotal for brands aiming to connect with younger consumers. The ability to reach a vast audience on social media channels encourages innovative marketing strategies that blend engagement with authenticity.

For example, brands that use TikTok to showcase their storytelling—be it through behind-the-scenes glimpses of product creation or relatable lifestyle content—successfully foster a community around their products.

Emotional Connection: Marketing Beyond Functionality

Another critical observation from Expo West was the increasing emphasis on consumer emotions in product marketing. Juskowiak highlighted how brands are prioritizing emotion-driven messaging in their products, opting for appeals that resonate on a deeper level with consumers.

“Instead of talking about what is in the product, you are also talking about how this product is supposed to make you feel,” Juskowiak stated.

This shift toward creating an emotional connection can be a differentiator in crowded markets. Brands that focus on how their products can evoke memories, aspirations, or even self-expression are likely to foster loyalty and repeat purchases.

Case Study: LaCroix

LaCroix has adeptly utilized this strategy by introducing flavors that are designed to evoke a positive emotional response. By presenting their latest flavor—Sunshine— they invite consumers to associate their product with feelings of warmth and joy rather than just refreshing hydration. This method clearly illustrates the transition in consumer packaged goods from functional appeal to heartfelt engagement.

Conclusion: Preparing for Retail Success

As businesses prepare to expand into the retail sector, successful CPG companies must prioritize three core components: credibility, capability, and cash—collectively understood as the "three C's." Additionally, the “four P's”—product, packaging, positioning, and pricing—serve as essential guideposts for driving retail growth.

To thrive in today’s competitive landscape, brands must be agile, leveraging data to adapt and innovate while fostering consumer connections that go beyond mere transactions.

In a rapidly evolving market characterized by its fragmented retail landscape, understanding and wielding the right metrics effectively will separate the successful CPG companies from those that falter.

As the industry continues to adapt, Expo West remains a beacon for emerging brands, showcasing the latest trends, consumer insights, and the all-important emphasis on metrics and relationship building that lay the foundation for sustained success.

FAQ

What is velocity in the context of CPG brands?

Velocity measures how quickly products sell once they are in stores, typically calculated as the number of units sold per store over a specific period. It reflects a product's traction with consumers and is crucial for evaluating sales effectiveness.

Why is it important for early-stage CPG brands to develop relationships with smaller retailers?

Building strong relationships with smaller retailers allows early-stage brands to test their products, gather consumer feedback, and establish their brand presence before scaling to larger retail chains.

What key metrics should CPG brands monitor?

Brands should focus on store-level analytics, category trends, product attribute tracking, and velocity metrics. They need to understand inventory levels, sales patterns, and consumer preferences to guide decision-making and innovation.

How can emerging brands leverage digital and social media platforms?

Emerging brands can use social media to engage with consumers directly, showcase their storytelling, and promote their products creatively. This approach can drive brand awareness and customer loyalty, particularly among younger demographics.

How can CPG brands capitalize on emotional marketing?

Brands can create marketing strategies that resonate with consumers on an emotional level, using messaging focused on how products can enhance mood, evoke memories, or address deeper consumer desires. This tactic fosters stronger brand loyalty and repeat purchases.