Smoketown Survey

Unraveling Fact from Fiction

*Source: Nutrition Business Journal survey conducted Q4 2018 (N=1,090)]

Crowd-Sourced Insights for Leaders of Emerging Brands

Four big things keep executives up at night.

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Fundraising is the #1 concern for a good reason: The fundraising environment has tightened. Our survey found that 39% of companies are entirely self-funded — meaning, not even a “friends and family” round. Across the entire sample, less than half of respondents had raised equity-based capital from institutional investors, in many cases despite hundreds of thousands of dollars in revenue. The findings reinforce something that we’ve heard anecdotally: Many founders are having trouble raising funds. How are they responding? In addition to bootstrapping, executives are relying on more efficient sales channels (see #3) and looking for alternative sources of capital.

Typical Fundraising Levels for Emerging Brands

We’re In This Together:

Building a CPG company from scratch is hard. There’s a lot to worry about, but four things stood out in our survey: raising capital, gaining retail distribution, managing the finances and building the brand through marketing and storytelling. For brands above $1MM, priorities shifted a bit. Branding, marketing and storytelling became more important, in some cases #1 overall. Here’s what’s happening: Growth is expensive. Inventory, slotting, promotions and marketing are front-loaded. Meanwhile, raising money is getting harder and competition is intense. What would make all of these easier? A strong brand with a clear growth strategy.

Top Worries for Emerging Brand Leaders

Local Independents are the most common source of revenue. However, E-commerce and foodservice have emerged as critical players. Foodservice includes places like restaurants and campuses, while E-Commerce includes everything from Amazon to Thrive Market to company websites. Incredibly, E-commerce and Food Service were more common than Mass and Club as a source of revenue today, driven by brands under $1MM in revenue. Both channels were also listed as top sources of growth for the coming year. One big reason? Capital efficiency. Anecdotally, we hear executives say that these channels require less investment up-front, along with better margins.

Sources of Revenue for Emerging Brands

The majority of companies in our study claim to be purpose-driven, driven by companies under $1MM in revenue. Not only that, 66% of companies under $1MM are likely to take a public stand on important social, political or environmental issues in the next 12 months. Why are smaller, younger companies carrying the purpose-driven banner? One big reason: consumer demand. Numerous reports have established that a growing percentage of American consumers expect companies to make the world a better place.

Purpose-Driven Commitment with Emerging Brands

The single most difficult thing for companies is choosing the highest ROI tactics. Similarly, executives said that the most difficult part of hiring marketing agencies is figuring out if the investment is worthwhile. One telling statistic: We asked which marketing tactics had the strongest ROI. The answer? There was no consistent answer. Out of 11 tactics on our list, none earned votes from more than 30% of executives, despite letting them choose three. How are leaders handling the lack of clarity? Hiring experts. Seventy percent have hired at least one marketing expert, including 26% who have hired marketing strategy firms.

The Hardest Decisions for Emerging Brands

Fundraising for early stage brands is hard...and getting harder.

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Local independents, e-commerce & food-service are common sources of revenue for emerging brands.

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The future is purpose-driven.

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Executives struggle to pick marketing tactics with high ROI.

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It’s clear that marketing ROI is a source of confusion, because perceptions of ROI are inconsistent. Most tactics have nearly as many ROI fans as ROI detractors.* Plus, up to 24% of respondents confess that they're not sure about the ROI of their marketing investment at all. So how can executives avoid investing in tactics that they’re not sure about? First, invest more time estimating ROI and creating experiments to test what works. Second, build marketing plans that fit your consumer and your growth strategy instead of mimicking other brands. Third, get help from marketing strategy firms if you're stumped.

Marketing ROI Perceptions, by Tactic

The most difficult aspect of hiring marketing employees, by far, is finding people with the right level of expertise that are affordable. In fact, funding played a role in the top three hiring challenges. When funds are tight, not only is it hard to find the right person, it’s hard to commit to them in the long run, and it’s hard to keep them motivated with a small marketing budget. How are companies tackling the challenge? Anecdotally, we hear two solutions: Many CEOs simply hire a less experienced marketer and play a heavier role. Others outsource the marketing function to a consultancy or fractional CMO.

Challenges with Marketing Talent in Emerging Brands

With multiple economic indicators suggesting a recession, we wondered what natural product executives are expecting, and how are they preparing. The answer? They are concerned about slower economic growth, but not necessarily a recession. Nearly 50% of respondents worried that economic growth will slow. Far fewer anticipated recession (14%). With multiple economic indicators suggesting a recession, we wondered what natural product executives are expecting, and how they are preparing.

Perspectives on Recession among Emerging Brands

ROI perceptions vary widely across marketing tactics.

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Executives face multiple challenges with hiring marketing talent.

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Most executives expect economic growth to slow, but few expect a recession.

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*Excluding Email, which was not included in the ROI list.

Purpose-driven + intends to become a Certified B Corp

Purpose-driven + no plans to become a Certified B-Corp

Certified Benefit Corporation

Public Benefit Corporation

Not purpose-driven

Less than $1MM in revenue

More than $1MM in revenue

Choosing the highest ROI marketing tactics to invest in

Deciding how much I should spend on marketing vs. trade

Expanding retail distribution

Choosing the right marketing or design agencies

Deciding how to structure our marketing organization

Choosing the right sales channels to prioritize

Deciding how much effort to invest in e-commerce

Choosing which demographic & behavioral profiles to target among consumers

Creating a successful innovation pipeline

Choosing how, or whether, to emphasize our social or environmental mission

Choosing which psychographic profiles to target among consumers

67%

53%

49%

45%

42%

41%

36%

35%

34%

33%

Local Retailers (Independent)

E-Commerce / Own Website

Natural Channel

E-Commerce (Amazon, Jet, etc.)

Grocery (Safeway, Kroger, Albertons)

Foodservice

Mass Brick & Mortar Retail

Wholesale / Club

Farmer's Market

Pharmacy / Drug

Discount Stores

Convenience

Other

72%

60%

56%

50%

39%

23%

18%

11%

10%

15%

22%

I'm anticipating continued economic growth at the current pace

I'm concerned that economic growth will slow

I'm anticipating a recession

I haven't thought enough about it

29%

46%

14%

11%

Finding people with the right level of expertise that I can afford

Having enough marketing budget or activity to keep them satisfied

Being able to predict cash flow so that I can commit to hiring someone for the long-run

Finding people that fit the culture and dynamics of a startup environment

Choosing whether to hire an agency vs hire an employee

Total Sample

Less than $1MM in renvenue

More than $1MM in revenue

Less than $1MM in revenue

Fundraising Distribution / Retail Financial Management (P&L, etc) Branding / Marketing / Storytelling

Branding / Marketing / Storytelling Distribution / Retail Financial Management (P&L, etc) Sales Management

N = 117; "Which of the following best describes the most recent COMPLETED round of fundraising? Select only one."

N = 117; "Which of the following sales channels does your company's revenue come from?"

N = 111; "Which of the following best describes your company? Select all that apply."

N = 117; "Indicate how difficult it is for your team to do each of the following. Please use any number from 1 to 7 to indicate the level of difficulty associated with each."

N = 117 for strongest; N = 91 for weakest; "Which of these tactics deliver the strongest/weakest ROI for your company? Select up to 3."

N = 111; "Which of the following are the MOST DIFFICULT aspects of finding, vetting and hiring marketing employees or internal staff?* Select top 3."

N = 116; "Which of the following best describes your expectations about the U.S. economy for the next 12 months? Select only one."

Rollover to show Average Percentage of Revenue

32%

15%

18%

27%

21%

32%

33%

10%

12%

25%

Strongest ROI Perception

Weakest ROI Perception

NET ROI Perception

Top 4 Concerns (Rank Order)

More than $1MM in revenue

N = 111; "What are the biggest areas of your business that keep you up at night?* Select up to three."

In-store Demos Amazon Events Public Relations Couponing Paid Social Media Retailer marketing Programs Digital Advertising Search Direct Mail Traditional Advertising

In-store demos Amazon Events Public Relations Couponing Paid Social Media Retailer marketing programs Digital Advertising Search Direct Mail Traditional Advertising

Click on the buttons to see each list

NET ROI Perception

Weakest ROI Perception

Strongest ROI Perception

Top 3 Box Level of Difficulty