Vol 6: CPG Can be Profitable, Right?
We talk to a CPG expert on how to design your business for profitability and sustainability, not just for the big fundraise.
Welcome to Nu Business, where we share features of some of our favorite food and beverage people and resources specifically for food business owners.
TL;DR
Creating and growing a CPG product is difficult, especially if you want to “scale.” We dig in with George Bryson on ways to grow sustainability, from the start. We’ll cover:
Understanding what profitability means
Building your unique beachhead
What scale means and why you don’t have to be on every shelf in the country
Designing Your Food Dream for Profitability: CPG Edition
The pandemic brought us a surge in CPG (consumer packaged goods) businesses, turning kitchen experiments into nationwide phenomena. For every success story, we’ve seen countless others who haven’t fully realized their dreams. For many of those CPG’s, basic business design and the funding that goes along with it has been the problem. Instead of seeking profitability, many sought high valuations. Instead of starting with a strong community of customers, others went for nationwide distribution from the start. To sort through what to do and what not to do when designing a new CPG product, we caught up with George Bryson. He’s a luminary in the CPG landscape with over two decades of experience, to share invaluable insights for restaurateurs and food entrepreneurs eager to start selling their products outside of a brick & mortar.
The Foundation of a Profitable CPG Business
The journey to CPG success begins with understanding the cost of making your product and establishing a pricing strategy that ensures profitability right from the start. Bryson advises to "find your unfair advantages" and leverage them. For brick-and-mortar restaurants transitioning into CPG, this could mean using your existing customer base and brand recognition as a launching pad for your product.
Understanding Profitability in CPG
Profitability, Bryson emphasizes, means more than just generating revenue; it's about intentionally designing your business to be profitable. This involves understanding your costs, setting appropriate prices, and ensuring that after all expenses, your business remains in the green. It's about crafting a business model that stands the test of time and market fluctuations.
Creating Your Beachhead Market
Bryson recommends starting with a focused approach, creating a stronghold in a specific market before expanding. Utilize your existing restaurant or food business as the initial platform for your CPG product, gradually expanding to other complimentary outlets. This strategy minimizes marketing expenses and leverages your already established brand presence. One of our favorite examples of this is Buenas in Boston, who started by stocking their products in local stores and restaurants like Ebo & Co. Grocery as well as at their own brick and mortar.
Navigating Distribution and Sales
When venturing into distribution, understand the different margins required by various retailers and adjust your pricing accordingly. Direct-to-consumer (DTC) sales might offer better margins but require different strategies compared to selling through third-party retailers. Bryson stresses the importance of building a strong foundation in a few select stores or markets before considering wider distribution. Mei Mei does this exceptionally well, just recently announcing more regional distribution.
The Importance of Financial Management
Critical to the success of any CPG venture is robust financial management. Bryson highlights the significance of having a clear grasp of your cash flow, costs, and contribution margins. He suggests partnering with financial experts, especially for founders who may not have a strong background in finance. This partnership can provide the clarity and oversight needed to ensure the business remains profitable and sustainable. George has recommendations depending on your business or idea, with more info here.
Scaling Your CPG Business
As your product gains traction, it's crucial to assess when and how to scale. Success brings its own set of challenges, including the need for additional capital to meet growing demand. Bryson advises caution, recommending that entrepreneurs only pursue growth opportunities that align with their capacity and business goals. Sometimes, the most challenging yet prudent decision is to say no to opportunities that might overextend your resources.
What to Do Next
From understanding profitability to mastering distribution and scaling wisely, George’s guidance serves as an invaluable resource for food entrepreneurs looking to grow. The transition from restaurant to retail shelves is fraught with challenges, but with careful planning, financial savvy, and a focus on your core strengths, success in the CPG space is well within reach. You can reach George at george@startupfieldguide.com