Episode 131 –– A Startup’s Recession Playbook

December 1, 2024

There is significant likelihood of a Trump administration triggering a recession with protectionist trade policy and mass removal/detention of illegal immigrants crucial as a proportion of the total workforce to agricultural operations, construction trades, and the home-building industry. Lack of labor would cause supply problems in agriculture and new homes driving up pricing for food and housing. 

It would be irresponsible for early-stage companies NOT to create a recession playbook right now. 

So, here are the principles with which you need to create a recession-proof growth playbook for an early-stage CPG brand.

A recession will cause restaurant spending to decline and home food consumption to go up. Office behavior will only shift in relationship to white-collar layoffs (which may or may not be severe). 

The rise in CPG consumption does not usually benefit most early-stage brands, but pricing concerns are NOT the reason. It’s the decline in exploratory trade up within middle-class homes that puts a lid on growth temporarily. 

Honestly, most Phase 1 and 2 brands that can target affluent consumers through pricing alone will grow just fine through any recession. Though, your playbook still needs to adjust a bit.

For Phase 3 and Phase 4 brands any recessionary increase in baseline consumption by happy fans of your brand gets nixed by the shut down of new trial within the broader middle-classes. This decelerates growth rates, right to zero in super-premium priced brands early on their development. Not always, but most of the time. 

Recessions reduce overall middle-class trade up in CPG. Not because the marginal cost of another $1.5 for a snack is so important to middle-class homes. Because it’s so controllable in recessionary uncertainty. So, it stops. 

For the top 10%, the upper middle class, the marginal cost of trading up in CPG goods is irrelevant to their household budgetary challenges, if there are any. They make too much money. So, it continues.

So, reacting well to recessions comes down to the role of the middle-class in your brand’s growth trajectory. And how much marketing spend you have aimed at middle-class consumers in your lifestyle tribe.

The kind of innovation you’re selling affects your middle class exposure as well.

Health and wellness oriented trade up tends to do much better during recessions, because the individual stakes are often framed in terms of big, broad bets on longevity and improved quality of life, deep in the unconscious mind. The marginal trade up cost is worth it to the committed.

What tends to drop out completely is the foodie, culinary trade up that is occasion-based, not lifestyle based. This is why Whole Foods revenue was flat in 2009, despite being a double-digit growth engine on either side of the Great Recession. Fewer dinner parties. Fewer events. Fewer foodie splurges at the Bakery, Cheese Counter or Prepared Foods. Among middle-class specialty channel shoppers.

Your channel mix also affects your middle-class exposure. 

If you are mostly in conventional channels like mainstream supermarkets or Target, then you still need to focus on loyal fans during a recession. But, here’s the tough one, you may wish to turn off a lot of your marketing, especially any investments aimed at garnering new households. 

Let the natural interest in your thing carry you through the recession and it probably will. 

For Phase 3 or 4 Brands that do not want to lose too much momentum consider:

Invest in launching more pack sizes to give your fans their built-in, volume discount. 

Entertain and remind your fans to keep buying…pushing the magic of word of mouth for minimal expense…

Focus marketing on upscale consumers and channels they shop in. They will continue to adopt premium brands right through a recession.