What Will Happen to Premium Food/Beverage in 2023?

When I look at the macros, I am pretty bullish on premium food and beverage. But I want to qualify that. The sector will continue to grow. But the sector’s been decelerating, just so some of you are aware. It’s been decelerating for the last six to eight years before the pandemic.

What I mean is the growth rate has been reducing, so it’s still growing, but it’s not growing 15% a year like it was in 2007…So, it’s already become a very competitive sector in terms of getting any traction…In some categories, there are multiple nine-figure premium brands already ahead of you, like yogurt. It’s a tough category to capture share in and grow. Not impossible, but it’s just a lot harder. 

In terms of the immediate economic environment… what is already happening is that people in the middle class have ratcheted down some of their restaurant spending to save money and ratcheted down the travel budget. Those are the first two things that go.

When they max out their credit and the savings disappear, the middle class will be more selective about how they try new premium experiences. That reticence can cause your trial rates to go down. 

Expect more difficulty getting new customers if you’re selling a culinary or foodie kind of experience that has no clear relationship to health and wellness and have a little easier time with a health and wellness proposition.

And it’s going to be easier getting trial in, in six-figure income households, because they, they have enough cash to trade up in this or that category, so you should not have a problem with those folks.

In the more general middle class where the bulk of the population still is, you’re gonna have a hard, a harder time getting trial for any new, any new business. 

But this reduction of trial, when people are hoarding their own cash, this primarily affects, eight-figure businesses and higher in terms of scale. 

If you’re in Phase One and Phase Two, under $10 million, don’t worry too much about the reduction in a premium trial. Just keep pushing. 

I haven’t seen a lot of data that suggests a well-positioned, innovative, very small startup in even food and beverage is going to have a hard time gaining new customers because you don’t need that many at the scale you’re at, right? We’re talking literally like a couple thousand consumers in your city can get you to a million dollars as long as you have a high repeat rate, a decent price point.

And you can easily find those couple thousand folks in one metro, one large metro area, if you work that city. How? What you’re going to do is have your business gravitate towards folks with higher incomes or very high education levels, because they’re willing to throw money at something that they think is modern and intriguing. So because it doesn’t take a lot of customers to scale, the sort of national situation of people pulling back on their spending  isn’t really an excuse for you guys not to grow when you’re small

It becomes more of an issue when you’re $25 million, $50 million, and larger. That’s where you see the big effects in terms of loss of trial. In a recession.

Dr. James Richardson

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