Legacy Brands in CPG Industry Need to Invest Small to Sustain Relevancy
One of the biggest complaints I continuously hear from legacy brands in the functional consumer packaged goods (CPG) categories, is that the market is becoming too saturated and complex. This leaves the legacy brand struggling to find new growth opportunities in a market that is being disrupted by constantly evolving trends from an expedited fragmentation cycle.
This is a challenge…
I won’t refute that, but accepting that this challenge will be the end of your legacy CPG brand’s growth shouldn’t be a thought that comes to mind!
“Challenges are actually opportunities if considered through the appropriate lens”
The increased saturation and fragmentation that is causing headaches is not specific to the functional CPG categories. It is actually a universal challenge of the broader CPG industry. Truth is, every big CPG portfolio in the world is currently tackling this challenge in varying degrees, but only some of them are finding any level of meaningful success in the short-term. The death by a thousand cuts theory is starting to become real and its happening fast…
The imagery of dying by a thousand cuts might be gruesome, but it does create a logical assumption that those willing to fight back, have a chance to stumble on winning strategies to eventually overcome the challenging experience. Recently, I have started to notice that there are some commonalities of these fighting legacy CPG portfolios. These commonalities could provide helpful solutions to those in similar situations in the targeted functional CPG categories.
Within those commonalities, I have been mentioning three ideas over and over to my legacy brand clients;
- Think Like Portfolios
- Grow Through Acquisitions
- Make Friends and Incubate
These ideas fall within the classic “Build, Buy, or Partner” decision tree that all entrepreneurs come across on a frequent basis when there is a need to solve a challenge.
Portfolio Mentality
When I mention to legacy brand clients that they need to “think like a portfolio”, what do I actually mean?
I am essentially talking about diversifying the business by looking for ancillary opportunities that create synergies for the core business. I would be focusing this suggestion on legacy CPG brands that have a leadership team and resources that:
- Can take an idea from the starting line again — many aren’t willing to start back at the beginning…)
- Has a strong desire to build the next big thing — this isn’t easy and those that understand that will be better equipped)
- Is able to separate the portfolio businesses in a decision making way that allows for proper time during start-up phases — when you have an established core business, you need to understand that proper attention and funding is needed to mature new ideas…they won’t always be the same ROI and those that understand that will see more success
- Still have a strong understanding of brand and product development in the digital age
Opportunistically Acquire (or Invest) Growth
If the legacy CPG brand is effectively running their core business (even in a time of flat growth), they likely will have cash reserves and available free cash flow to acquire other CPG brands.
Compared to building these growth opportunities from scratch, this is a way to attach the legacy CPG brand to growing brands focused on emerging product categories without having to do some of the initial heavy lifting. Depending on the level of investing (full acquisition or early-stage venture funding), these growth strategies also could give you access to talented founding entrepreneurs or leadership teams that could be the spark plug that improves your struggling core business. I would be suggesting this strategy to legacy CPG brands with leadership teams that are strong in deal making, trend spotting, and talent evaluation.
Incubate
You are seeing this strategy being used more by large CPG portfolios, but that doesn’t mean its the best option to explore in all cases. Ultimately, this strategy can either by extremely complex and intensive or low-key and hands-off (depending on variables like inside or outsourced), but the devil is in the details of how the incubator is set-up.
This suggestion would also be given to legacy CPG brands that have leadership teams that are strong at deal making, trend spotting, and talent evaluation. The difference is being able to also lead and collaborate without owning the whole business. It also would require the legacy CPG brand to be working with CPG brand(s) and leadership team(s) that are in a much earlier phase of maturity. This provides similar challenges to the portfolio mentality with certain legacy CPG brands, but also adds extra complexity from not owning the whole business.
CPG brands that explore the growth strategy of incubators are not only investing money, but also providing extra resources that can come in the form of teaching and sharing proven systems of success and mentoring young entrepreneurs that might need a material amount of time from your team. It is important to understand if the legacy CPG brand can provide value in this way for the incubator to succeed, without taking away from the core business.
