Small CPG Companies Experience Big Growth

Of the billions of dollars in recent food industry sales growth, just a fraction flowed from large companies

It might seem counterintuitive, but thinking small and tapping into more modest, niche marketing strategies can yield big results for food and beverage companies.

Of the billions of dollars in recent food industry sales growth, just a fraction flowed from large-size consumer packaged goods (CPG) companies, with the true growth orchestrated by midsize and smaller manufacturers, according to research from Nielsen.

“The largest CPGs may have large sales but exhibit slow growth,” said Dennis Moore, Nielsen’s executive vice president of analytics.

Moore shared these and other trends during the March webinar “Think Small for Big Growth.”

From 2011 to 2015, larger companies generated 3% growth, midsize companies 44%, “remaining nonprivate label” 31% and private label 23%.  

“Sales growth (1.8% overall from 2011 to 2015) is challenged, but what growth is occurring is coming from new and smaller local manufacturers,” said Moore. “The mass-market brands aimed at ‘the average’ are not doing as well.” 

Some examples of small guys in action include Wonderful Halos (California-grown mandarins), which displays a whopping 416% compound annual growth rate (CAGR), while Talking Rain’s Sparkling Ice generates a 98% CAGR.

The key: sharp brand focus.

Value perceived by consumers is essential for thriving. Individual products exhibiting value defined as “benefits at fair prices” are Bear Naked, Naked Juice and San Pellegrino.

On the retailer end, products with value demonstrated through “best price with competitive benefits” include Target’s Archer Farms and Whole Foods’ 365 Everyday Value brands. Overall, traditional retailers are showing 2% annual growth, while nontraditional retailers are growing 7% to 10%, with Costco, Whole Foods, Aldi and Dollar General setting the pace by exhibiting value via the benefits provided or their price advantages.

Smaller CPGs take the lead in driving CAGR in the food industry, a movement led by players such as Kind, Sabra, Halos, Talking Rain and BelGioioso, said Moore. These companies were responsible for an impressive 416% CAGR.

Robbing Peter to Pay Paul

One salient point Moore made was that “adding items to the shelf isn’t working.” All of the new food or beverage items arriving to market since 2011 (from the 25 largest CPGs) amassed $18.7 million in sales. However, to make way for these items, certain products had to be removed—and when they were, $17 million in sales were wiped away.

“The new items sold are performing just a little bit better than the items they replaced,” he said. 

Moore also called attention to:

  • Vigilance in opening stores in unfamiliar territory. Although local trading areas (LTAs) in two different states might mirror each other in population size and demographics, CPGs and retailers must understand that doesn’t mean product selection will be identical. Moore spoke of a Nielsen initiative in which supermarket chain Meijer expanded from a Michigan market to a very similar one in Wisconsin. After breaking down the LTAs in Michigan, Nielsen found frozen-pizza sales indexed much higher in Wisconsin, so the team executed “floor-plan adjustments to accommodate LTA results,” Moore said.  
  • Direct-to-consumer selling. Asked if more CPGs might “go around retailers” and sell directly to consumers, Moore said if selling direct is part of that CPGs heritage, it can continue to prevail. But traditional CPGs that take a stab at direct-to-consumer selling face higher risk. If a CPG is eager to lead a local-market selling emphasis on some of its products and a retailer fails to get on board with the plan, a traditional CPG might be inclined to adopt a direct-to-consumer model, said Moore. 

Overall, retailers and CPGs operating in the middle “are feeling the heat, while those focused on a specific target are thriving,” said Moore. “Retailers and manufacturers have to find a way to display agility to meet the level of personalization consumers demand, which means getting the right products on the right shelves for the right consumers at the right price and with effective promotions.”