For the better part of the last century, America’s largest consumer packaged goods companies ran an undefeated business playbook. All of the iconic consumer brands of our lifetimes—Coca-Cola, Lay’s, Cheerios, Oreos, and more–-were built on a simple, three-part formula.
First, generate massive demand by placing huge national ad buys. Next, create ubiquity by stocking the brand across every conceivable grocery store shelf. Third, harvest as much profit as possible through the economies of scale created by giant production runs.
This model worked especially well in America because this country is huge, rich, and culturally homogeneous. National TV ad campaigns could shape popular tastes at scale so that, in turn, a single formulation of a cere…
For the better part of the last century, America’s largest consumer packaged goods companies ran an undefeated business playbook. All of the iconic consumer brands of our lifetimes—Coca-Cola, Lay’s, Cheerios, Oreos, and more–-were built on a simple, three-part formula.
First, generate massive demand by placing huge national ad buys. Next, create ubiquity by stocking the brand across every conceivable grocery store shelf. Third, harvest as much profit as possible through the economies of scale created by giant production runs.
This model worked especially well in America because this country is huge, rich, and culturally homogeneous. National TV ad campaigns could shape popular tastes at scale so that, in turn, a single formulation of a cereal, snack, or soda could satisfy tens of millions.
But that world is now gone, and gone with it is the reliable engine of big CPG company growth. The culprit? Social media.
The truth is that consumers no longer look to television and mass-market media for guidance on what to buy at the supermarket. A recent International Food Information Council survey showed that half of respondents tried a new recipe based on information from social media. Another 42% tried a new product and nearly a third changed their eating habits entirely.
This is the result of more and more people finding themselves pulled into one of the thousands of nutrition-themed micro-communities on TikTok, Instagram, and YouTube. Some avoid seed oils. Some will only buy high-protein or plastic-free products. Still others are looking for collagen, prebiotics, creatine, or adaptogens.
In response, hundreds of direct-to-consumer brands have emerged to serve these niche tastes, many growing more quickly than ever. And with the ease of online shopping, picky shoppers aren’t constrained by what they can find at the store. These upstarts include brands like Day Out, which sells protein-packed, plant-based snacks; Lucky Energy, focused on zero-sugar energy drinks; and Goodles, a line of better-for-you macaroni and cheese.
For incumbent CPG companies, the logical response to this trend would be to acquire the biggest brands emerging from these communities. But that approach is fundamentally misaligned with the formula they’ve relied on for 75 years.
The problem is scale. Because they are rooted in tightly defined micro-communities, even the best of these startups often plateau at $50 million in annual sales. Those numbers don’t work for companies like PepsiCo, which has more than $90 billion in annual sales, or even General Mills, with $20 billion. A $50 million startup, with a slim chance of growing further, isn’t worth the effort.