The line between technology product startups and consumer product startups is blurring. At Barrington Edge, we believe that this blurring represents a significant opportunity for Atlantic Canadian consumer packaged goods (CPG) startups, but in order to seize the opportunity, we need to better understand the industry drivers. In this post, we want to briefly examine three traditional industry entry barriers that are being lowered in consumer packaged goods and then close by looking at what supports the advancement of a thriving CPG ecosystem in Atlantic Canada.
The data revolution is transforming all sectors and industries including consumer packaged goods. CPG startups are now able to leverage new sources of data on consumer behaviour and, more importantly, parse and analyze this data to drive consumer spending. In turn, consumers are leveraging the Internet to discover, browse, and share new products that diminish the physical barriers of geography and brick and mortar stores. Consumer data, the lifeblood of any CPG company, has never been more ubiquitous, meaning that companies are able to respond faster than ever to consumer trends. Additionally, marketing and brand storytelling is now driven by social media engagement, something that any startup can initiate. Marketing cost has traditionally been a significant entry barrier for new CPG companies, and while this still often accounts for one of the biggest expenses for a CPG startup, the new social media marketing tools and accessible sources of data have lowered this entry barrier.
New Distribution Options
Another traditional market entry barrier for CPG companies has been the high cost and low options for product distribution. CPG startups now have multiple distribution options besides physical stores. E-commerce platforms as well as the direct-to-consumer model provide startups with multiple low-cost points of entry into the marketplace, which enable a faster product testing and refining feedback loop. The speed at which CPG startups are able to discover product-market-fit utilizing both data and the new distribution options is what makes legacy brands most vulnerable.
New Sources of Capital
There has been a marked shift in the past five years in the way that venture capital firms and technology investors view CPG companies. The traditional investor view in the CPG category was that brands take decades to be built, are capital intensive and come with impossibly low margins. The disruptive power of CPG startups like Dollar Shave Club, one of the industry’s darling examples, has spurred many investors to look at the category with a new lens and see CPG startups as technology-enabled enterprises. This shift follows the major CPG legacy companies, including General Mills, Campbell’s, Kellogg’s, and Danone launch of corporate venture capital funds in recent years. CPG startups that would traditionally rely on debt financing to grow — and in most cases struggle with cash flow, have ever increasing options for growth capital.
Atlantic Canada’s CPG Startup Opportunity There is much to celebrate right now in the heady growth of Atlantic Canada’s startup ecosystem, but we are at risk of developing a narrow focus on pure technology and science startups. We should be confident to broaden our focus on the basis of three core strengths. The Atlantic provinces have a remarkably loyal consumer base. People here want to support home-grown brands, demonstrated in our second significant strength; we are home to Canada’s second largest grocer, Sobeys, who has a buy-local ethos. Finally, we have great stories to tell and stories are at the heart of modern brand building.