As we go through life, we encounter a variety of different categories that we either give into or tell people it’s stupid. Or do we tell people it’s just a flashing trend or here to stay? Scam or something that will disrupt the world?
Though I’m stuck in the alt-meat food tech bubble where everyone is saying it’s going to shit, I sometimes like to do some research on other food categories and try and relate if these are just isolated incidents or is something catching on to a bigger trend?
In recent news, hard seltzer seems to have lost its steam with light beer now the beer of choice for millennials like me. In fact, a lot of mainstream publishers have funny titles such as Quartz, Why the Hard Seltzer Craze has Ended, the Atlantic’s Why Hard Seltzer is Gross, and the Wall Streets’ Hard Seltzer Fad Fizzles as Light Beer Makes a Comeback
The numbers say that though retail store sales rose 11-12% in 2021, fell 18% year over year in the 4 weeks ending July 2nd.
Personally, I don’t like the taste of hard seltzer, but I know people who love it.
So what’s going on? Same as every trend, too many copycats, consumer fatigue, and the products are too expensive.
Easy to Copy
Like protein bars, oat milk, and plant-based meat, what once can seem complicated as a product will eventually be copied over a period of time. The first mover advantage does give you a leg-up, but generally, due to your competition trying to get ahead of you, they will eventually copy you no matter what. The food industry’s main IP weakness is that you have to label your formula on the package and it’s easy for companies to understand. Food is inexpensive so the processes, the ingredient channels, and all that have to be inexpensive to figure out.
Ingredient companies work their tail off to make carbs, fats, or proteins more functional, more economical, healthier and taste better, and eventually, they WILL catch up to the product they’re trying to copy.
Companies have to balance strong branding (example: Coke, KFC), amazing technology, strong storytelling (example: Hershey, Gatorade), and strong ethos (example: KIND, CliffBar) on top of technology that will most likely either be copacked out or copied.
Too Much Competition
There’s always someone who will make a quick buck on a trendy product and copackers have the most control over this.
A case study that’s not food? The mattress companies. Don’t you remember when every podcast, every bus stop poster you see had an ad for a mattress company?
Turns out that mattresses kind of fell for the same formula as trendy food. This is because new incumbents can use a copacker to make a slightly different mattress than the competitor. Sound familiar?
For quick product out the door, copackers are an easy way to get your product out there without spending a lot of resources on process innovation. The faster your product is out to launch, the more likely you didn’t innovate your process enough. Why? Because a process innovation (new machinery, new material, new process flow) takes months to even years to implement and when pushed against the wall and FOMO from your investors, most likely, your copy cat isn’t that innovative. But maybe that’s not the point of the product.
Process innovation takes a lot of time to build up, this is a long term risk for an unknown gain.
Even process IP has its risks as there’s always a pitfall such as getting sued, having companies steal your technology, etc. One thing to always know is that if you see an influx of products that are generally in the same category, there’s a copacker who’s making a lot of money.
Too Expensive
Specifically on startups, who can’t achieve the cheap scale as huge established distributors get the short end of the stick. Not only do flashy, new brands need to keep up with the experimentation and marketing dollars, they generally have to sell their products at a higher price point. So they get shafted.
Startups or small businesses entering a space generally have to work twice as hard
The pandemic was a sort of blessing to companies who had a cool, flashy brand that could be shipped to someone’s apartment because consumers essentially couldn’t spend their money on food service, or travel, and getting things from retail was a paint in the butt.
With that, the easy funnel to get a customer was through a DTC (direct to consumer) online ad which allows you to target people and show them a cool, flash add with a discount code to get them to trial. This worked for a lot of people but the strategy is getting more expensive now.
Due to the recession, inflation and all that, this really crushed DTC and also crushed the already slim margin premium brands are working with. Companies with more dry powder (sounds like cocaine but the word used for actual cash in the bank used for rainy days. Ironically, the word liquid means the same thing but I digress). Consumers are also feeling the squeeze and its much easier in this environment to be cash conscious than not. James Richardson did a pretty good webinar about this, and theorizes that premium consumers who love your brand will keep buying your brand but I do believe that is a small segment of your consumer base. Time will tell.
Too Much
Consumers feel it when they are bombarded with so many options, that they can’t really do anything about it. Unfortunately, this then becomes a winner-take-all market more than anything.
Plant-based Chicken Nuggets are an example of just this overwhelm of new products flooding the consumer’s baskets. A recent viral Bon appetite article shares that out of 7 chicken nuggets, there’s one clear winner. Impossible, which is more established in the market, has a lot more R+D money, and has a passionate talent pool has a higher chance of winning compared to the companies that are either startups (with no resources) or huge companies who just want to make a quick buck.
Same with seltzers, this is an overload for the consumers and eventually leads to fatigue. What’s worse is that consumers can always find a way to come back to a category that will always be there for them. With plant-based chicken nuggets, that’s well, regular fried chicken and with hard seltzers? That’s light beer.
Case Study: Haus
Take this case study about Haus, a…. low-ABV Aperitif? What even is that word?
Anyways, this 3-year-old company raised a $4.5 million dollar seed round, killing it on social media, and you can see they sound like they’re doing well so and right when they were about to raise their series A (about 10 million). Their investor pulled the rug and left them to dry, canceling the deal because of timing.
Haus is now putting themselves on sale, and most likely will be sold for scraps.
The hardest part about startups is that anything can happen to you just because of forces you can’t control. We as entrepreneurs who take venture capital are trained to burn all the money we get for the sake of growth, to get to the next stage. I don’t think this is going to change. Psychologically, it doesn’t make sense in the moment, emotions cloud all judgment and when money is involved, it dials up to 11.
What am I getting at here? There’s no lesson on what Haus should have or should not have done. They were in the right place in the right time when they started but were in the wrong place at the wrong time when they ended.
What To Do?
I always try to proactively give advice on how to survive a fizzle-out and essentially, the best answer is to survive, find your tribe and thrive.
Survive: by understanding your burn rate, CAC (customer acquisition cost) and what the hell you’re spending your marketing dollars on, cut cut cut.
Find your tribe: Talk to customers and tailor make your product to serve that customer intensely. A lot easier to do for startups.
Thrive: Food companies take decades to establish a trusting brand. This will take a while, but every year, the good work compounds. Good luck.