Ep. 112 – The 2024 Shelf Grab Has Begun

February 15, 2024

The permanent impact of Covid-19 has been a permanent increase in white-collar work-from-home days. This, in turn, has permanently increased baseline packaged food, beverage and personal care consumption.  

Market leading brands had to increase both production and retail facings to keep things in stock. When you are the #1 or #2 share category, you get the power to take extra facings to maintain in-stock levels in demand surges like we saw during 2020. 

If the supply of smaller brands has remained stable, this situation would have created a permanently increased the competition for reduced shelf slots.

But the last three years has witnessed the steady implosion of many early-stage consumer brands at what appear to be higher rates. 

The first wave of brands failing were the ones that went sideways in 2020 due to clogged distribution systems and exploding freight costs. They were generally losing too much money to withstand this and investors had little interest in ‘rescuing’ them in down rounds.

The second wave of brands fell away in 2021-22 due to COGS inflation. They simply could not turn enough profit to continue operations and were not in a position to raise money. 

Almost all of these COVID-19 casualties were in Phase 1 and Phase 2. Below $5M on the company books.

A final wave of larger early-stage brands are going under as I record this. They are eight figure businesses that survived plenty of setbacks and hurdles to get where they are. Some rode artificial spikes in DTC sales. Others raised a lot during the 2010s, probably more than they deserved. Some are businesses that got lots of PR in the late 2010s, raised money on the backs of failed revenue models and very unprofitable P&Ls. 

They lasted through the pandemic because they had cash warchests. So they burned it. 

Most larger brands made it through…

…but the best ones even raised their pricing due to strong velocities and performance for their top accounts.

The opportunity in the 2024 retail sales cycle is rare IMO, because it is 

being created by the disappearance of an above average # of UPCs from regional and national supermarket shelves. These are eight-figure brands that over-extended into thousands of doors they could not ultimately support or drive fans toward. The collapsing brands have more shelf space than the average early-stage brand, often 20-30 in national distribution. 

Even a major retrenchment at one of these brands could open up 5-10 slots at some stores. These slots are now up for re-sale.

Re-sale, you ask? Is this a real estate podcast? I thought it was about CPG startups? 

What some folks newer to the industry may not realize is that America’s supermarkets do not actually make a profit off the products they sell in their stores. They make their profits on supplier fees (slotting fees, display fees, end cap fees, trade advertising fees and on and on the fees go)

Costco barely makes anything with 10-15% margin off the shelf price and leans heavily on its membership fees to make money. 

So, this means that open slots have to be filled with new brands, and, yes, this includes smaller early-stage brands as well. 

The cycling of small brands on supermarket shelves has accelerated in 2023 and will continue. So, the opportunities for aggressive brands of all sizes has grown.

This year’s sales cycle should be rife with opportunity to get on the shelf, perhaps the best access since before the pandemic.