The announcement of the recent acquisition of Siete by Pepsico has been big news in our industry. But that outcome is still the exception, not the norm. Depending on your source, CPG startups’ failure rates range from 50%-90%. So, a big exit is far from a sure thing.
For some, it’s not only the low odds that dissuade them from pursuing that exit. It is just not their desired outcome. Many want to build a lifestyle business, a brand that stands for something, is sustainable, and remains in their control. We don’t read or hear much about them, and building one necessitates a very different approach and strategy. But it can and has been done successfully.
The common go-to-market strategy for most startups is to pursue points of distribution and drive top-line growth aggressively. Most pursue that within the retail grocery channel, which can be very expensive. Further, there is no guarantee that it will translate into trial and repeat purchases. This is a broad but shallow approach.
The above strategy is too expensive and risky for those looking to build a sustainable lifestyle business. Thankfully, there is another way: go narrow and deep.
A narrow and deep strategy involves a few critical factors: channel, geography, and distribution. Let’s examine each individually.
As mentioned, conventional retail or even large chain specialty retail brings a steep “pay-to-play” model, which means it’s not always the best place to build your brand. There are alternative channels that have a much lower cost of entry. Those include food service, non-commercial (corporate feeders, airports, etc.), c-store, and drug. Understanding your ideal consumer is vital to identifying what, if any, of these channels might be a good fit. Another avenue to consider is small independent retail chains. Typically, they don’t come with a high price tag and can provide excellent market insight.
Geography is another consideration. If you are trying to build a brand following and adopting a narrow and deep strategy, putting your efforts into a market with many of your ideal consumers makes good business sense. It should also be aligned with your determined channel strategy. It’s critical to locate in an area with a high concentration of your targeted outlets.
Like conventional retail, broad-line distributors can be very expensive. UNFI, KeHE, and more often require participation in their marketing programs and food shows. When ready to scale and go broad, these can be powerful programs. But, following a narrow and deep approach, these typically prove more costly than beneficial. Being more precise with your targeted channels and geographies opens the door to using local specialized distributors. This could allow for a DSD (direct store delivery) model. While the expected margin for DSD distributors is typically higher than that of a broad line, the impact they can have at the store level and on-shelf could more than offset that additional cost. These local specialty distributors rarely expect you to participate or offer expensive marketing programs.
In this article, I’ve outlined a very high-level explanation of a narrow and deep strategy. There are still many moving parts to this approach; in many ways, it’s not any less complex or challenging than a broad and shallow strategy. However, I thought it essential to present this as a viable option for startups that are bootstrapped or have limited access to capital and those looking for long-term sustained growth.
Success doesn’t have to mean a big exit. If that is not your goal, your strategy should follow a different path, and your growth rate should move at a different speed.
