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a16z Podcast | Who's Down with CPG, DTC? (And Micro-Brands Too?)
40 segments available
with Ryan Caldbeck (@ryan_caldbeck), Jeff Jordan (@jeff_jordan), and Sonal Chokshi (@smc90) It's clear that all kinds of commerce companies and consumer products have been disrupted -- or enabled -- by tech. Yet for certain categories, like consumer packaged goods (CPG), it seems like tech hasn't changed things very much. How is the rise of so-called "micro-brands" (or emerging brands) playing out here? And, how is it possible that "real" -- different -- innovation isn't really happening in the CPG industry, despite the tremendous legacy of brand, talent, and more in the space? How are CPG companies tackling grocery, which represents the perfect end-capsule and case study of challenges -- and opportunities -- in going from offline to online, from online to offline, and more? As for grocery itself, stores themselves (in the U.S. at least) haven't changed very much due to tech, either... is it a last-mile delivery thing; could we also possibly move to distribution-only centers in the future? Finally, while the holy grail of performance marketing and personalization remains elusive for the industry -- let’s face it, most brands are still guessing in the dark (and forget trying to customize offerings!) -- even going direct-to-consumer (DTC) hasn't been shining as much of a light here as one might expect. Or so argue the guests in this episode of the a16z Podcast, featuring Ryan Caldbeck of CircleUp, along with a16z general general partner Jeff Jordan, in conversation with Sonal Chokshi. Cuz this episode is all about CPG, DTC; micro-brands, yah you know, all kinds of commerce.
Segments Timeline
Introduction to CPG and DTC Trends
In this segment, Sonal Chokshi introduces the podcast's focus on consumer packaged goods (CPG) and direct-to-consumer (DTC) trends. She highlights the ongoing discussion about how technology impacts these sectors, particularly in grocery and the emergence of micro-brands. The guests, Jeff Jordan and Ryan Caldbeck, are introduced, setting the stage for a deep dive into the challenges and opportunities in the CPG landscape.
"hi everyone welcome to the 1/6 + Z podcast I'm sonal today is part of our ongoing series on consumer tech trends we're talking all about the category of consumer packaged goods or CPG and where this f..."
Tech's Impact on CPG Innovation
The conversation begins with the assertion that integrating technology into the CPG sector has been challenging. Despite the influx of tech-driven consumer products, the guests discuss why true innovation seems stagnant in the CPG industry. They explore the disconnect between consumer expectations and the industry's response to technological advancements.
"not directed at any investors or potential investors in any fund for more details please also see a 6 and C com slash disclosures the broader question that we covered throughout this episode is how do..."
The DTC Movement and Marketing Focus
Ryan Caldbeck explains the DTC movement, emphasizing that much of the investment in consumer product companies is directed towards marketing rather than product innovation. The discussion highlights how companies are trying to differentiate themselves in a market dominated by Amazon, leading to a focus on proprietary products that often lack true innovation.
"of the reasons that you see that is the DDC movement which is directed directly to consumers all right yeah a handful of tech VC firms they're putting a fair amount of money into consumer product comp..."
Customer Acquisition Costs in DTC
The guests delve into the rising customer acquisition costs (CAC) faced by DTC companies. They discuss how competition among brands drives up these costs, making it difficult for companies to achieve profitability. The segment highlights the challenges of attracting customers in a crowded marketplace and the implications for long-term sustainability.
"of success in doing it why is that by the way you know at some point you're still competing with you know with the legacy players and what's worse is they're also competing with each other so there ar..."
Innovation Through Acquisition
The conversation shifts to how large CPG companies have resorted to acquiring smaller brands for innovation rather than developing new products internally. The guests discuss notable acquisitions, such as Unilever's purchase of Dollar Shave Club, and how this trend reflects a broader issue of stagnation in innovation within established CPG firms.
"quickly summarize you mean catechism customer acquisition cost using all that marketing dollars to acquire their customers exactly I think I think when you know d2c direct-to-consumer businesses I thi..."
The Legacy of CPG Brands
The discussion touches on the historical reliance of large CPG companies on their established brands, which have remained unchanged for decades. The guests compare this to the fast-paced innovation seen in tech, emphasizing the challenges CPG companies face in adapting to modern consumer demands and the need for genuine innovation.
"they saw something in there so it in biotech are kind of the same the big pharma companies are buying their innovation the big CPG companies are buying their innovation yeah you know historically larg..."
Consumer Demand for Unique Products
The guests highlight a shift in consumer behavior, where individuals now demand products that cater to their unique needs. This segment discusses how emerging brands are responding to this demand by innovating and delivering tailored products, contrasting with the stagnant offerings of legacy brands.
"versus brands that kind of just throw it out just do it differently she's as Harley she's as Apple she's as Red Bull and they just came to market with completely you know we are going to be different ..."
Challenges of DTC in Retail
The conversation explores the difficulties DTC brands face in transitioning to offline retail. The guests discuss the complexities of testing products in physical stores and the risks involved in scaling, emphasizing the need for careful management of product launches in a retail environment.
"buying why DTC is so hard the internet enables the longtail so all of a sudden everything's discoverable where it used to be there were three television networks and 10 magazines that mattered the wor..."
Insights into Consumer Behavior
The segment concludes with a discussion on the lack of insights CPG companies have regarding consumer behavior post-purchase. The guests highlight the challenges of understanding what products are bought and by whom, emphasizing the need for better data collection and analysis to inform marketing strategies.
"your business and that's for Disney stores where you have your own product in its store so if you think of like the CPG products they're selling through a third party the retailer now they have to mak..."
The Grocery Store Experience
The conversation shifts to the grocery shopping experience, with Caldbeck sharing insights on how grocery stores have remained largely unchanged despite technological advancements. He discusses the importance of product placement and the challenges of competing with online retailers. This segment highlights the unique aspects of grocery shopping that continue to attract consumers.
"holy grail of marketing like that type of data I'd like closing that feedback loop is a big F deal they also over time have the ability to kind of literally move the product on the page right which if..."
The Future of Grocery Stores
Caldbeck shares his perspective on the long-term viability of grocery stores, arguing that they will remain relevant for at least the next 20 years. He contrasts the digital sales of groceries with traditional shopping habits, emphasizing the challenges of achieving profitability in the grocery sector. This segment provides a forward-looking view on the grocery industry's evolution amidst rising e-commerce.
"refrigerating literally wood that's good because he goes back to Jeff's point if I bought an end cap the endcap would have been 30 feet away then you would have lost the consumers example I love that ..."
Competing in Grocery: The Margin Challenge
The discussion focuses on the low profit margins in the grocery business and the difficulties of competing with giants like Amazon and Walmart. Caldbeck explains that grocery stores must find ways to innovate while maintaining quality and service. This segment delves into the financial realities of grocery retail and the strategic considerations for survival.
"that groceries going to be delivered locally but the core point is grocery today to three percent net margin business that's hard to strip out a lot of costs from that there's not a lot of weekend rig..."
The Experience of Grocery Shopping
Caldbeck discusses the experiential aspect of grocery shopping, noting that for many consumers, it is a family outing rather than just a chore. He emphasizes the importance of creating a pleasant shopping environment and how this experience can differentiate grocery stores from online alternatives. This segment highlights the emotional connection consumers have with grocery shopping.
"gonna squeeze their vendors then we made the insert cart investment in the belief that the grocery stores are there it's distributed look they have distributed little warehouses they provide service a..."
Innovative Grocery Concepts from China
The conversation touches on innovative grocery concepts emerging in China, where stores are becoming destinations with restaurants and unique food experiences. Caldbeck reflects on how these trends could influence grocery retail in the U.S. This segment explores the potential for grocery stores to evolve into more than just places to buy food.
"pricing is a really really hard place to compete on you're competing with Amazon to a point that Jeff made earlier you're competing with a Walmart I think that's just a really really hard place to win..."
The Future of Grocery Delivery
Caldbeck discusses the potential shift towards grocery delivery and the concept of 'dark stores' in the UK, which operate as warehouses for online orders. He speculates on whether this model could be adopted in the U.S. This segment examines the logistics and operational challenges of grocery delivery in the evolving retail landscape.
"interesting things I mean what's your take I wish I was with the CEO of a large grocery chain about a month ago who made that same point there they are starting to experiment by putting restaurants ef..."
The Role of Grocery Stores in the Future
Caldbeck argues that grocery stores will continue to play a vital role in the retail ecosystem, despite the rise of online shopping. He discusses the importance of maintaining physical locations for consumer engagement and the challenges of transitioning to a purely delivery-based model. This segment emphasizes the enduring relevance of grocery stores in a digital age.
"could in the UK which for whatever cultural reason has been doing grocery delivery for a long time and it's a much deeper state of penetration they're starting to have what's called dark stores where ..."
Assortment as a Competitive Edge
Caldbeck concludes by discussing the importance of product assortment in grocery stores. He highlights the challenges retailers face in selecting products that meet consumer demands and the reliance on established brands. This segment underscores the need for grocery retailers to adapt to changing consumer preferences and the complexities of product selection.
"difference exclusively shop through in sakai to our family's grocery because I can't bring the kids to the grocery to work at this - it's to create this too much cancer so I believe that convenience w..."
Data Deficiency in Grocery Retail
The conversation shifts to the lack of comprehensive data available to grocery retailers, which hampers their ability to optimize product assortments. Caldbeck points out that existing data sources cover only a small fraction of the market, leaving retailers blind to emerging trends and consumer preferences. This segment underscores the need for better data solutions in the grocery sector.
"market that is trillions of dollars to decide which of these emerging brands they want to work with so the default is gosh maybe I just rely on the big brands to tell me who to work with that's a real..."
The Information Vacuum in Retail
Caldbeck elaborates on the information vacuum that grocery retailers operate in, where buyers often make instinctual decisions without adequate data. This segment discusses the implications of relying on outdated buyer demographics and the challenges of introducing new products in a market that is resistant to change.
"shows aren't they sort of like I'm thinking the equivalent in fashion and boutiques like you essentially have like a fashion show yeah to curate all the brand's the emerging brands the existing brands..."
The Need for Diverse Data Sources
The discussion highlights the importance of diverse data sources for understanding consumer behavior and product performance. Caldbeck emphasizes that while there is a wealth of data available, consolidating it from various unstructured sources remains a significant challenge for CPG companies and grocery chains.
"virtuous virtuous it's a skewed sample - like what happens online and offline it's definitely skewed but it's you're in a complete information vacuum which is our loyalty cards are really skewed sampl..."
Emerging Brands and Market Dynamics
Caldbeck introduces the concept of micro-brands and their rapid growth in the consumer market. He explains how these emerging brands are gaining traction at the expense of larger, established companies, driven by consumer demand for personalized products and lower barriers to entry in distribution and marketing.
"Jeff is describing that they're desperate for data so they have to rely on these they have to get data somewhere but that's still adverse selection type data yeah it's not like the the true opportunit..."
The Shift in Marketing Costs
The segment discusses the transformation of marketing costs from fixed to variable, allowing emerging brands to compete more effectively. Caldbeck contrasts the high costs of traditional advertising with the more accessible and targeted options available today, illustrating how this shift has empowered smaller brands to reach their audiences.
"is like once we think that that data is going to start getting consolidated by data providers technology companies that then sell it to the CPG companies or in this case the grocery chains so the data..."
The Future of CPG Brands
Caldbeck speculates on the future landscape of consumer packaged goods, suggesting that while the number of brands will proliferate, the average revenue per brand may decline. This segment explores the implications of market saturation and consumer preferences for variety in product offerings.
"the longtail okay so in this world this longtail world this world of offline and online distribution and those are the two distribution broadly that we're talking about we are seeing a lot of micro br..."
Consumer Preferences and Choices
The conversation delves into consumer preferences for product variety and the challenges retailers face in presenting the right choices. Caldbeck argues that consumers will continue to seek diverse options, countering the notion that fewer choices would be preferable. This segment emphasizes the importance of personalization in retail.
"when we we talk about them as as emerging brands so emerging brands can be sold certainly offline or online but what's happening these brands are growing very very quickly right now in every single ca..."
The Role of Personalization in Retail
Caldbeck discusses the critical role of personalization in the retail experience, highlighting that consumers desire products tailored to their needs. This segment underscores the necessity for retailers to leverage data effectively to present the most relevant choices to consumers.
"the offline retailers are eliminating or lowering slotting fees slotting fees are the cost to get your product on the shelf so if I want to launch a new chocolate bar to get on the Shelf of Safeway it..."
The Complexity of Consumer Choices
The segment concludes with a reflection on the complexity of consumer choices in the grocery market. Caldbeck argues that while consumers enjoy variety, the challenge lies in ensuring that the right options are available and presented effectively, reinforcing the need for data-driven decision-making in retail.
"variable cost when I was managing eBay you know we were doing TV and it was a million dollars to produce an ad and then you know ten million dollars to distribute it with a frequency that the brand pe..."
The Challenge of Brand Proliferation
Caldbeck expresses skepticism about the sustainability of multi-billion dollar brands in the CPG industry, given the slow growth of the grocery market. He argues that as more brands enter the market, the average revenue per brand is likely to decline, challenging the notion that consumers desire fewer options in grocery shopping.
"yeah but there's no possibility for a player like what Coke or Pepsi or right vitamin water or Lacroix so there's certainly some very very smart people that disagree with me on this point I don't see ..."
Personalization vs. Choice in Grocery
The conversation shifts to the importance of personalization in consumer choices. Caldbeck and his co-hosts discuss how the right choices must be presented to consumers rather than simply reducing options. They emphasize that consumers still want variety and that grocery chains face the challenge of effectively presenting choices to meet individual preferences.
"the answer is going to be let's strip out the choices altogether right and in 20 years ago the choice was it was Coke or Pepsi but if you know now you go into the beverage aisle and there's you know t..."
Data Challenges in CPG
The discussion turns to the complexities of data in the CPG industry. Caldbeck highlights the paradox of having abundant data yet being starved for actionable insights. He explains that while data exists, it is often difficult to compile and analyze, creating barriers for brands trying to understand their market position and consumer sentiment.
"both that there is a lot of data and that people are starved for data and and the bridge there is that while there is an outrageous amount of data in this industry the data is very hard to pull togeth..."
The Quest for Actionable Insights
Caldbeck elaborates on the challenges of gathering and normalizing data in the CPG sector. He discusses the need for technology companies to bridge the gap between available data and actionable insights, emphasizing that many brands lack the resources to effectively utilize the data at their disposal.
"so the data that's out there around distribution around product uniqueness how unique a product is relative to its competitive set on what the user thinks of the product on the competitive set of that..."
The Role of Technology in Data Management
The segment explores the potential for technology companies to provide solutions for data management in CPG. Caldbeck argues that grocery stores and CPG companies may need to outsource data analysis to tech firms, as they often lack the expertise and resources to handle complex data sets effectively.
"no that's the challenge right so the challenge is basically it's it's out there living somewhere on Google meaning if you google the smallest brand you can find you can see everything that I just said..."
Innovation and R&D in CPG
Caldbeck discusses the low investment in research and development (R&D) within the CPG industry compared to tech. He highlights the challenges faced by CPG companies in fostering innovation due to financial pressures and the prioritization of short-term shareholder value over long-term growth.
"that and then sells that data to others right so that's where you believe that CPG companies can compete and where technology has a place to play by providing that data hmm there is a ton of data and ..."
The Prisoner's Dilemma of Grocery Chains
The conversation touches on the difficult position of grocery chains and CPG companies in hiring talent and investing in innovation. Caldbeck explains how low profit margins and financial constraints hinder their ability to attract skilled engineers and develop new technologies.
"this data who's gonna pull this together for me because by the way I've got literally one engineer that works at the entire company entire division that I'm in right now how am I going to do this that..."
Navigating Transparency in CPG
Caldbeck shares insights from a leading CPG CEO who emphasizes the impact of promotional and nutritional transparency on the industry. The CEO's perspective highlights the need for CPG companies to adapt to changing consumer expectations and the challenges of maintaining market share in a transparent environment.
"you think about like what would you do if you were in their position well they're they're out of business that's a in the case of grocery 2% net margin business how do they then say to their boss let'..."
The Future of Investing in CPG
The segment concludes with a discussion on the evolving landscape of investing in CPG. Caldbeck proposes the emergence of quantitative VC firms that leverage data to make investment decisions, contrasting this with traditional discretionary funds. He argues that the consistent business models in CPG make it ripe for data-driven investment strategies.
"the challenge then is that I don't think that the CEOs of these large CPG companies or large grocery chains are given enough runway to go do that so there's this what we call 3G affect large financial..."
Data-Driven Insights for Success
Caldbeck elaborates on the wealth of data available in the CPG space, which can be used to predict company success. He contrasts this with the tech industry, where data is often less accessible and requires direct engagement with companies. This segment highlights the importance of understanding consumer behavior and market dynamics through data.
"in some industries in the private markets we don't think it's possible in tech why do you think that's possible in CPG so there's two main reasons that CBG is beautiful first the business models are b..."
Identifying Winning CPG Brands
The discussion focuses on identifying successful CPG brands by analyzing their market performance and consumer resonance. Caldbeck explains how unique product offerings and strong brand connections are critical indicators of success, using examples like Kind Bar to illustrate how innovation can disrupt crowded categories.
"talking to the company we have gone private financials on thousands of companies that X is our training data the training data is private financial some palaces and it isn't kind of providing a ground..."
Distribution: The Key to CPG Success
Caldbeck emphasizes the significance of distribution in the CPG industry, arguing that successful brands must achieve broad market presence. He discusses how the quality and breadth of distribution channels impact a brand's ability to thrive, reinforcing the idea that effective distribution strategies are essential for growth.
"going to back the SAS world while there might be structured metrics to look at and those metrics might be predictive of success almost all of them not all but almost all of them are only available onc..."
The Complexity of Tech vs. CPG
The conversation explores the differences between tech and CPG industries, particularly in terms of investment strategies and market dynamics. Caldbeck and Jordan discuss the unpredictability of tech success stories and how CPG offers more tangible metrics for evaluating potential winners, highlighting the challenges of pattern recognition in diverse markets.
"look at the winners and consumer the previous winners looked really similar magnitude but they grew and really really something this might be the one case where that phrase pattern recognition that pe..."
Patterns of Success in CPG
In the final segment, the guests reflect on the patterns that emerge in successful CPG brands. They discuss the importance of brand intensity and product uniqueness, as well as the role of community and consumer engagement in driving growth. The conversation concludes with insights on how these factors contribute to the overall success of CPG companies.
"see-through and you can see it's got like jagged edges where you can see it's real it's not exactly so in that case we you know you can build an algorithm which evaluates the picture of the package an..."