How CPG startups can scale effectively
At P&G Ventures, we’re committed to helping startups and entrepreneurs succeed because we share a mission of creating products that make consumers’ lives better. That’s why we looked at the CPG (consumer packaged goods) startup landscape and want to offer you some perspectives from the industry that we hope will guide you toward success.
Your startup is on the ground running, and now you’re ready to scale up. There’s a lot of complexity to scaling, especially for CPG startups. Still, you’re up for the challenge, including ramping up manufacturing, building out your supply chain, researching new markets, and then going after them.
But before really getting tactical about what it takes to scale, it can be good to keep some best practices in mind. Here are a few things to think through when your startup begins scaling.
Make sure your fundamentals are scalable.
It can be tempting to think that initial, local success is the only sign you need that your startup is ready to scale. But your smaller market value may not inherently translate into a larger one. So review these four key concepts before making the scaling leap:
Does your product offer a benefit that a lot of people care about?
People typically only buy something that they think will help them somehow. If you’re considering scaling, you’ve already found an affirmative answer to this question. The new question is whether that’ll be any different at a larger scale with a broader range of potential customers, or was your initial success due to a local appeal.
Can you offer that benefit at a price that people consider a good value?
Again, you’ve found a way to do this at some scale at a given price. Now you must make sure the price isn’t affected too much by increased production, a larger distribution network, partnerships with wholesalers and retailers, and so on. If you can’t scale without changing the price, make sure it’s one your customers are willing to pay.
Is your product better than competing products in at least some way?
You’re likely to go up against new competition when you scale, so your current advantages may not translate to consumer preference. Take a look at your competition and make sure your advantages still stay as such.
Can you do all of this profitably?
As with the previous point about pricing, you’ll need to be sure that scaling doesn’t somehow break the business model that has been successful so far.
If you can answer all of those questions affirmatively, you’re theoretically set up to scale. The question now comes down to execution.
A big question to consider is how to get your product in front of people. One route for this is direct-to-consumer (D2C) sales.
With e-commerce platforms, there are many solutions that let you branch into new markets quickly without needing a physical presence in new locations.
However, you’ll have to handle getting your product to consumers, leaving you in charge of managing fulfillment, shipping, and other logistics. Since you won’t have shelf space, you’ll need to do more marketing to make sure you catch customers’ eyes.
One best practice for this route is that you don’t have to do it all yourself.
Outside partners can help. A third-party logistics (3PL) company can help you sort out every link in your supply chain, from warehousing to fulfillment to distribution. They can even help consult with some of the initial decisions or identify ways to optimize if you’ve already planned or even rolled out.
This route can bring expertise and experience without recruiting or hiring another employee, which can be time-consuming and expensive, especially in the early days. It also allows you to focus on other aspects of your business, which can be especially helpful to ensure your marketing is scaling into new markets.
A few questions to consider before picking a 3PL to help your CPG startup scale.
First, do they handle your product? This is especially relevant if you’re in the food or beverage sector.
Second, do their systems work with yours? Nothing will slow your scaling efforts more than having a lot of manual effort in processes you expected to automate.
Third, do their capabilities match your goals? In other words, are they going to be able to keep up with your scaling efforts? Even if they’re a good fit today, you’ll need to ensure they have the infrastructure to handle where you want to be tomorrow.
Besides D2C, there’s the more traditional route with wholesalers and retailers getting your products to physical locations and putting them on shelves.
In this case, a best practice is to perfect your pitch so that you can get retailers on your side.
In a local economy, you might have had existing relationships or people who already trusted your business sense, so they were willing to stock your product without you needing to prove its worth. Unfortunately, that’s probably not going to be the case with a broader network of retailers.
But since you’ve already considered the four key areas, you have a great head start on honing your pitch. Maybe you can tout what you’re doing differently than competitors, showing retailers that having your product on the shelves will make customers more likely to buy. Perhaps you can show that your product is the perfect complement to a current high-performing product, maybe one that you know they sell exceptionally well. Or show how you’ll bring new consumers to the category with your product.
Your pitch needs to go beyond comparisons and logic.
Ideally, you’ll have numbers. If you can show data on how your product helps tangible metrics like increased traffic, profit margins, or sales, you’ll have a much more convincing pitch.
Of course, that might not be something you have yet. But if you have relationships with existing retailers, talk to them and see if they have any numbers on how your product performs. Even if they don’t, it’s not too late to make a plan to obtain measurable data that you can use to help get more retailers selling your product.
Use data to help you adapt and optimize your scaling efforts.
When scaling your CPG startup, you can have the best possible theories and plans, but the reality may be different.
If you take a D2C approach, you might expect to get a certain number of ad impressions and subsequent conversions, but then your ad spend doesn’t go as far as you’d hoped, or your conversion rate wasn’t as strong as anticipated. If you make deals with retailers, you might have planned on giving up a particular share of profits but wound up having to give up more.
With the right systems in place, you can use this sort of data to make quick, informed decisions about pivoting—or, if things are going well, doubling down. The key is to identify what data points will be most beneficial for you and then have the right software to capture, analyze, and make sense of that data. This is a particularly valuable opportunity for CPG startups.
The consumer-packaged goods sector is behind many other verticals in robust data analytics.
As a result, if you have an intelligent, effective data analytics setup, you might be able to get a competitive edge on larger, more established competition. And you’ll undoubtedly be able to move more quickly than they can.
When identifying areas for improvement and optimization, look at both planning and production. You may have already known that you’d want to look for ways to improve efficiency, but you can even use data and analytics to fine-tune the way you plan.
For instance, data-driven market research could help you see new markets for your products. You could uncover new channels where products like yours have a booming market. You could even see ideas for new products that would make sense for your company to branch into.
In any case, relying on data will help your scaling be more robust and agile—and that’s part of how you got here in the first place.
Whether that “here” means you’re already starting to scale up or just exploring the possibilities, continue to be as strategic and disciplined as you’ve been in your early success. You don’t have to change everything to grow; just ready to adjust where needed. With the right fundamentals, customer channels, and data systems, you’ll be primed to scale—maybe even bigger than you dare to imagine!
If you want to learn about how P&G Ventures can help you scale, visit www.pgventuresstudio.com.