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Emerging Brands and the Online Opportunity

April 20, 2017
Written By
Keith Anderson, SVP Strategy & Insights, Profitero
Arnold Ventura, VP of Business Development, Califia Farms

The online channel represents a massive opportunity for new and emerging brands, enabling challenger brands to grab a disproportionate share of the market.

Profitero’s SVP Strategy and Insights Keith Anderson speaks to Arnold Ventura, VP of Business Development at Califia Farms, a plant-based beverage manufacturer in California (which also happens to be a Profitero customer).

In an edited transcript of their recent podcast discussion, Keith and Arnold discuss the many opportunities and challenges for both incumbent and emerging brands in the online channel.

KA: You’ve seen the eCommerce landscape from inside a couple of big companies such as Pepsi. Califia Farms is an example of what we often call ‘emerging brands’. What’s the relationship between a growth channel like eCommerce and a brand like yours?

AV: It’s an amazing time, whether you are at a big corporation or at a CPG startup. Ultimately we see eCommerce not only as a whole new opportunity but as its own separate marketplace that will provide a lot of growth going forward.

What’s really exciting is when you look at some of the numbers. If you have a young brand that’s still trying to get trial and awareness, digital is a key channel. I read a stat before which said almost 36% of consumers tried a CPG grocery brand for the first time online.

For up and coming brands, there is a chance for us to ultimately get into consumers’ households in a whole different format. Also by moving earlier, there is a chance to grab a disproportionate amount of market share versus incumbents. While we might still have a minority share compared to some pretty big incumbents and the conventional brick-and-mortar grocery store, in digital we have a chance to really get out there first.

The eCommerce marketplace represents a strategic opportunity for us to participate in and then ultimately grab more than our fair share of the market in the process.

KA: What have you learned about the relationship between items that are emerging (or niche) and why they outperform on online?

AV: In today’s world, most of what we are hearing is how do we develop an overall strategy for omnipresence. Consumers do want to find you everywhere and they are going to start those searches on Amazon, looking for long-tail products. Ultimately in terms of driving brand equity, two thirds of brick-and-mortar purchases have actually been informed online (per a study by Deloitte).

Within the world of CPG or fast-moving consumer goods, there is certainly pressure to not only have a strategy for your peer place like Amazon, but also to have your own direct-to-consumer set up. That’s something that we rolled out at Califia in early Q4 last year. We turned the site on to be shoppable for the first time but we didn’t know what to put in our fulfillment centers. Do we work off of what we know about our brick-and-mortar business or do we take a gamble and think about the long-tail items? Sure enough, the products that we were selling out of, straight out of the gate, were all the long-tail products.

KA: You’ve worked at a couple of beverage companies now. If you think about the dynamic in beverage, the price-to-weight ratio can be challenging. You have questions about leakage or spillage and then in some cases there is the temperature control. What have you learned and what do you focus on as opportunities or challenges as it relates to a category like beverages online?

Those are unique challenges. I remember my first top to top meeting with Amazon. We dived into certain box sizes and overall weights. At Califia, we’re just shy of 70 SKUs and 95% of these are perishable. How do we get products to consumer doorsteps in two days or less, to 99% of visit codes, and keep it cold? It has its set of unique challenges and that’s why you don’t see too many people doing it.

We were committed to it here at Califia and it’s something that we wanted to figure out. Ultimately, part of it is in finding the right partners too. Where we are at now, it’s a proof of concept for us. It’s something that we continue to evolve and work on. The secondary packaging has a little bit of complexity in that we also want to execute it based on our mission and value of including sustainability and overall environmental sensitivity.

While perishability can be tough, if you can figure out the right secondary packaging mix, if you can figure out the right procurement, have the right value chain in place, that ultimately is the bed rock of eCommerce – at least as it relates to CPG. You have to have the right value chain in place to support everything else. If that’s all there, then I think the opportunity is quite vast and it goes well beyond direct-to-consumer.

KA: You’ve been operating in the channel for a while. I’m sure you’ve learned lessons or tricks of the trade for driving performance. For anybody who’s just getting started or trying to get more advanced in the channel, where would you encourage people to focus?

AV: I think conceptually, test and learn is huge. With every platform that we engage with and even our own, continually wanting to understand all the merchandising levers is key. The reality is that, just because one lever works well for Califia doesn’t mean it’s going to work well for the next perishable brand. Each brand responds differently to the platform and to consumers. Each merchandising activity is going to have a different result.

What we are doing today at Califia is kind of a mixed bag of all of our learnings but at the same time anytime we see anything new out there, we like to test and invest in it at a very small amount to understand the impact it has. Then if it did move the needle maybe we give that greater priority and double down the following year. We are always trying to optimize our investment while the investment is still relatively small and learn fast that way.

Keith Anderson and Arnold Ventura will also be speaking on an eCommerce panel at BevNET Live 2017, June 13 2017. Learn more.

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