Launching a new brand in the hypercompetitive food and beverage space requires specific nonnegotiable issues—and expert advice. What you need to know, to start and grow.
Starting a business is a formidable task in any industry, and none more so than the hyper-competitive food and beverage space. To position themselves for ongoing success, businesses need to consider:
- Tax planning
- Risk management
- Budgeting and financial forecasting
- Strategy and operations
The right strategy and plan can help with avoiding costly, brand-breaking regulatory mistakes. As the business grows, look for ways to improve operational efficiencies, refine goals, and formulate an exit strategy.
Following are key considerations and steps to take for growing a new food and beverage business.
Know the Industry
As the overall consumer packaged goods (CPG) industry continues its meteoric rise, the food and beverage sector is arguably the most crowded and dynamic.
The natural and organic space is especially vibrant, showing an estimated 7.1% increase in sales in 2021, with some projections expecting sales to soar past $220 billion by the end of this year.
Meanwhile, robust M&A activity and well-publicized stories of successful exits fuel the allure for first-time food and beverage founders.
But of the thousands of new products launched every year in the grocery sector, as many as 70%–80% fail. For smaller food and beverage companies, the outlook is dismal—only about 11% make it past the one-year marker, and fewer than 20% survive beyond five years.
Why Do Start-Ups Fail, or Fail to Scale?
The most common reasons include insufficient funding, manufacturing and sourcing issues, conflicts between founders, and the sheer magnitude of producing and selling a finished product. Inexperienced entrepreneurs may underestimate the complexities of manufacturing, distribution, supply chain management, and regulatory compliance.
Understand the Market
Limited industry knowledge—from market trends to regulatory requirements—steepens the learning curve. A lack of network and industry relationships hampers access to retailers and distribution opportunities, collaboration and partnerships, and mentors who can help navigate challenges and avoid pitfalls.
Know Your Field
Connections also play a prominent role in securing funding, and in the absence of a network, founders may face obstacles in attracting investors and capital to support product development, marketing, manufacturing, and distribution. Passion and vision alone won't compensate for a fundamental lack of business savvy.
While every entrepreneur follows a unique path, there are certain nonnegotiable points along the way to launching and building a successful food and beverage brand. Here's what you need to know, from start to scale to strategic sale.
Learn from the Competition
Most founders already have a recipe, formulation, or idea in mind—one they’re committed to and are ready to create. Before you begin investing in perfecting and packaging your product, do a little investigating. Educate yourself on trends and consumer desires and be sure your brand’s aligned with current demands.
Check out what the competition is doing. Preliminary market research needn't be sophisticated or expensive. Just see what's out there in a variety of outlets—from local grocery stores to big online retailers—and honestly assess how your product stacks up.
Go Shopping
Consider such aspects as shelf placement, categorization, price points, and branding. Pay attention to competitors' packaging, including materials, sustainability attributes, and claims like non-GMO or vegan. Scrutinize their ingredient lists as shoppers do and take note of what they feature and what they avoid.
Buy a variety of products and try them out to see how they compare in flavor and sensory appeal. Be brutally honest, no matter how committed you may be to your original vision. A reality check at this stage can save you significant time and money further down the road.
Refine Your Recipe
Use your market research to make your product better, with modifications to improve the flavor, texture, ingredients, or process.
As you refine your recipe, keep careful, organized notes, with dates and details of the primary changes made for ongoing iterations. Factors like shelf life and stability are critical—be aware of the complicated logistics and additional expenses involved in refrigerated or frozen goods.
Thoroughly assess your ingredients. Consider what needs to be changed, added, or avoided to accommodate claims or attributes.
Think Ahead for Quality Control
Be sure you can consistently source the raw materials for your products. A long list of costly, hard-to-find or exotic ingredients may hamper your progress and impact competitive pricing. Do some research on suppliers, including availability, minimum order quantities, costs, shipping, and lead time.
Make modifications now, to account for any constraints. Again, do a reality check. A product that relies on expensive ingredients with inconsistent sourcing and few substitutions or a complex manufacturing process is a recipe for disaster.
Tell Your Story
Effective branding begins with the story behind the product—your business' values or purpose, its history and vision, the unique features that differentiate your product from a sea of competitors.
A carefully crafted story evokes emotion, authentically conveys the essence of your products, and connects with your target consumer in an ultra-crowded industry.
Brand Visuals
The story informs various components of branding that collectively shape the perception and identity of your product—visual elements like logo, typeface, and color palette; voice and tone of communication; messaging, taglines and descriptions; and overall persona.
Brand Voice
Defining your brand's personality—traits and characteristics like traditional, adventurous, innovative, or honest—facilitates an emotional connection with your core audience. The name should be memorable, easy to pronounce, aligned with your brand’s positioning—and available.
Do an initial search to be sure your ideal name is legally available and doesn't infringe on trademarks or create confusion with existing products. As you proceed to packaging and website design, remain consistent with your brand identity across all platforms, materials, and assets, from packaging and website design to social media, advertising, and in-store displays.
Stand Out in the Crowd
As the first thing a shopper sees, your product’s package should make a compelling impression.
Every aspect of the design—colors, typeface, patterns, shape, size—must convey your brand’s story.
Your packaging is likely to go through various iterations as you grow, so the first attempt may not win any awards, but it should be professional, clean, and maintain your brand identity. Unless you're a designer, seriously consider hiring one. It's usually worth the investment.
Embrace Your Values
Physical packaging also differentiates your brand while supporting your stated values. Even if sustainability isn't front and center of your company's message, consumers can expect products to be environmentally friendly. Avoid excessive packaging, minimize plastics, emphasize recyclable materials, and strive for greener alternatives.
The product label and nutrition information must include such information as ingredients, product weight, serving size, nutrition labeling, and allergens, and comply with specific regulations. Have a legal consultant review labels to protect yourself from costly packaging changes or fines.
Connect with Consumers
Your business' website is the face of your brand and will also play a key role in sales and distribution.
As with packaging, the design should remain true to your brand identity, and must be as polished and professional as possible. Sloppy mistakes, content full of typos, or blurry images diminish credibility, trust, and customer loyalty.
Site Details
Other essential aspects to consider include responsive design, clear and intuitive navigation, detailed product information with ingredients and nutrition facts, sourcing and suppliers, and sustainability efforts.
A blog or recipe section engages readers and encourages interaction. Make it easy for visitors to reach out with clear contact information and integrated social media.
Besides providing details about your product, your website should offer an online store no matter what sales channel you ultimately choose. Be sure the shopping experience is user-friendly, with clear product listings, pricing, and a secure checkout process.
Analytics tools that track website performance, user behavior, and conversion rates generate valuable insights for improving your website and marketing strategies. Professional advisors experienced in food and beverage can help you choose an e-commerce platform and enhance checkout process and security.
Business—and Money—Matters
First-time founders with limited business knowledge may overlook the importance of comprehensive planning, budgeting, and financial forecasting.
Strategic Planning
Without a solid business foundation that encompasses developing a competitive pricing strategy, creating a robust marketing and distribution plan, skillful cash flow management, and financial forecasting, your brand will struggle to gain traction.
Inexperienced founders may not have a realistic understanding of the financial requirements involved in launching a new product, including capital investment for manufacturing, marketing, sales, and distribution.
Hidden and unexpected costs like trade shows, sampling programs, and retailer expenses can become a crisis. Many smaller companies also fail to account for regulatory and compliance costs related to certifications, safety and quality standards, and labeling and packaging regulations, and noncompliance can lead to substantial fines, recalls, and a damage to your brand's reputation.
Invest in professional help. A financial advisor experienced in the food and beverage industry can guide you in strategic business planning, managing your brand's finances and preparing for future growth.
From Vision to Reality
The manufacturing process catapults your product from big idea to physical reality, and choosing the right path or partner is critical for your startup's success. There are two basic approaches, each with specific advantages and challenges.
Self-Manufacturing
Your company is responsible for making the product—from ingredient sourcing to distribution—using your own equipment, facilities, and labor. This scenario allows complete control over the entire process, enormous flexibility for scheduling or product modifications, and greater quality control.
But overseeing all facets of manufacturing, from hiring and managing workforce to facility and equipment maintenance, is complex, time-consuming, and risky, and requires significant capital.
If you choose to self-manufacture, you'll also lose out on the expertise of seasoned professionals.
Contract Manufacturing
Contract manufacturing is when you outsource production to a manufacturer who handles every aspect of making and packaging your product.
Contract manufacturers—or copackers—can do many things, including:
- Distribute product
- Order ingredients and packaging materials
- Help with R&D
- Test shelf life
Start-ups that use contract manufacturers can focus on other areas of their business and benefit from experienced professionals who can streamline manufacturing and help with compliance, certifications, and regulatory requirements.
On the downside, ongoing costs add up, and you’ll give up some control over quality, flexibility, and production schedules.
Get the Brand in Shoppers’ Hands
Making your product available to consumers means a carefully considered sales and distribution strategy.
There are a few primary channels.
Website
Selling directly to the end user without an intermediary allows you to establish a direct connection with your customers, control the entire consumer experience, gather insights, and enjoy flexibility for running specials and targeted promotions.
Logistics and shipping can be complex, and running an effective e-commerce store requires meaningful investments in customer acquisition, marketing, website optimization and maintenance, payment processing and security, and ongoing customer support.
Online Marketplaces
With an estimated base of 150 million shoppers, e-commerce greatly expands your reach and exposure to a diverse audience. Selling through a third-party platform simplifies logistics, order fulfillment, and customer support. But you'll sacrifice some control over customer satisfaction and brand presentation. You'll also lose out on valuable data, and marketplace fees eat into margins.
Retail Stores
Consumers crave experience, and many say they buy products in-store instead of online because they appreciate the sensory and tactile experience of shopping in a physical market. But retailer expenses like slotting fees, free fills, discounts, and promotions add up fast, and larger retailers also require that you work with a distributor, further cutting into margins.
Alternative Channels
Starting with independent retailers, specialty shops, or alternative channels like farmers' markets or fitness studios gives you more flexibility and the ability to interact with customers through product demos and in-store sampling. The negatives: reach is limited, coordinating logistics and deliveries for multiple retailers is complex and time-consuming, and you'll miss out on marketing support offered by national chains.
Most brands choose a combination of channels to maximize benefits and minimize downsides. Which approach is right for you depends on your overall business strategy; an experienced advisor can help guide your decision.
Grow the Business: From Scale to Sale
Expanding operations, production, and presence allows your business to penetrate new markets, improve operational efficiency, and boost profitability with economies of scale.
A strategic approach to scaling also builds a stronger, sustainable foundation for your company, attracts investors, and sets the stage for a successful sale—and as major players prepare to ramp up M&A in 2024, the forecast for food and beverages brands is sunnier than ever.
After pandemic-driven M&A pullbacks, the appetite for deals is quickly rebounding. The food and beverage sector saw a total of 295 deals from Q3 2022 through Q2 2023, a year-over-year increase of 15 percent.
Activity in 2023 was robust, especially for beverages, which accounted for 28.4 percent of all M&A. For food and beverages brands, the potential for a financially rewarding exit has never been better.
As you prepare to scale, review your sales, marketing, and distribution plan. Expand or diversify channels to reach different audiences or regions, and craft a comprehensive marketing strategy to speak to new consumers.
Increasing production capacity can require additional equipment, facilities, or manufacturing partnerships, and you may be able to capitalize on federal R&D tax credits. While production expands, strict quality assurance processes are critical to maintain consistency and regulatory compliance.
Also consider upgrading your supply chain: higher order volumes allow you to renegotiate costs, and diversifying your supplier base reduces risks and accommodates increased capacity.
Implementing scalable systems and technologies to improve logistics will help your company handle larger volumes, meet the demands of extended distribution, and may qualify for R&D tax credits—consult with an advisor to determine your eligibility.
Scaling a food or beverage brand requires careful planning, resource allocation, and strategic decision-making, and your growth may outpace your current team's capabilities. Partner with professionals experienced in scaling food and beverage start-ups to advise your brand as it expands.
We’re Here to Help
If you have questions about starting a CPG business, reach out to your Moss Adams professional.