CPG Trends for 2023: Food and Beverage

Contents:

Introduction
Our Unique Look at the Market
Innovation Challenges
Brand Challenges
Conclusion

Introduction

In recent years, the direct-to-consumer (D2C) model has become increasingly popular in the consumer packaged goods (CPG) industry. This is partly due to the growing demand for natural products, as consumers increasingly seek products free of artificial ingredients and preservatives.

D2C brands can capitalize on this trend by selling their products directly to consumers through their own websites and social media channels. This allows them to control the entire customer experience, from product development to delivery.

In addition, D2C brands can build strong relationships with their customers by providing them with personalized recommendations and exclusive discounts. This can help them to generate repeat business and build a loyal customer base.

Some of the most successful D2C CPG brands are those that focus on natural products. For example, Thrive Market is a D2C online retailer that sells various natural and organic products. The company has grown rapidly by offering consumers a convenient and affordable way to purchase natural products.

Another successful D2C CPG brand is Honest Company. This company sells various natural and organic products for babies and children. Honest Company has grown rapidly by building a strong brand reputation and offering products that meet the needs of its target market.

The D2C model will likely continue to grow in the CPG industry in the coming years. This is due to the continued demand for natural products and the benefits that D2C brands can offer consumers.

The CPG industry is a highly competitive one, with a large number of well-established brands. This makes it difficult for new brands to break into the market. However, there are a number of challenges that new CPG brands face.

• According to a recent study by McKinsey & Company, the CPG industry is expected to grow by 3% annually over the next five years. The increasing demand for healthy and sustainable products will drive this growth.
  
• The study also found that new CPG brands are more likely to be successful than established brands if they can differentiate themselves from the competition. This can be done by offering unique products, building a strong brand identity, or providing excellent customer service.
  
• Another study by Bain & Company found that online sales are expected to account for 20% of all CPG sales by 2025. The increasing popularity of online shopping will drive this growth.
  
• The study also found that new CPG brands are more likely to be successful if they can build a strong online presence. This can be done by investing in e-commerce platforms, developing a strong social media presence, or running effective online advertising campaigns.

One challenge is the need to build brand awareness. New brands must find a way to get their products to potential customers. This can be a difficult task, as so many brands compete for attention.

Another challenge is the need to compete on price. New brands often have to offer their products at a lower price than established brands. This can be difficult, as established brands have economies of scale that new brands do not.

However, there are also a number of opportunities for new CPG brands. One opportunity is the growing demand for healthy and sustainable products. New brands that can offer products that meet these demands can be successful.

Another opportunity is the growing popularity of online shopping. New brands that can build a strong online presence can be successful.

The CPG industry is a complex one, but there are a number of opportunities for new brands. By understanding the industry’s challenges and opportunities, new brands can increase their chances of success.

In addition to the challenges and opportunities mentioned above, new CPG brands also need to consider the following:

• Product development: New brands need to develop products that meet the needs of their target market. This requires extensive research and development.
• Marketing and distribution: New brands must market their products effectively and distribute them to their target market. This can be a costly and time-consuming process.
• Customer service: New brands need to provide excellent customer service to their customers. This includes responding to customer inquiries promptly and resolving any issues that may arise.

By considering all of these factors, new CPG brands can increase their chances of success.

Our Unique Look at the Market

Our research and reporting include multiple sources of data and analysis. To fully understand the challenges and opportunities in the consumer packaged goods industry, we continuously conduct in-depth interviews with founders, marketers and product developers of leading brands. 

Additionally, our consumer intelligence team runs a custom VoxQI dashboard with detailed trend reports based on consumer insights and market data.

We also monitor capital flow within the industry to identify emerging trends and opportunities.

Finally, our senior editors bring their expertise and analysis to provide a holistic understanding of the industry. 

Main insights:

• There is a growing demand for healthier food and beverage options emphasizing natural ingredients and low sugar content.

• Caffeine is increasingly seen as a harmful ingredient in beverages, with some brands choosing to remove it altogether or limit its use.

• There is a desire to create drinks that provide complexity and taste similar to craft cocktails without the high sugar content and ABV.

• Distribution is a significant challenge for new beverage brands, with many relying on direct shipping until they can secure a distribution partner.

• Focusing on taste, refreshment, and function is a crucial selling point for many of the new beverage brands, particularly emphasizing versatility and suitability for various occasions.

• Many of the new beverage brands focus on specific flavor combinations that are unique and differentiated from existing products.

• The founders of these new beverage brands are often passionate about health and wellness and want to create products that align with their values and lifestyles.
  

Innovation Challenges

Indeed, there are a few key challenges that novel CPG brands may face as they try to sell their products direct-to-consumer in the American market. Here are some potential insights and strategies to help them overcome these challenges:

Staying Ahead of Trends: Developing new products that align with consumer trends can be challenging, as brands must constantly innovate and experiment with new flavors and ingredients.

Aviv | Blue Stripes | “Cacao, water. It’s kind of like the lemonade of the tropics. No added sugar. It comes naturally from the fruit. So I drink so many vitamins, which is like a massive pill..”

Meeting Consumer Demands: Consumers are becoming increasingly conscious of what they eat and are demanding healthier, more natural, and ethically sourced products. Meeting these demands can be challenging for brands, especially those that rely on artificial flavors or preservatives.

Zach | Marquis | “Unless you do something different that no one else can claim rethink or delay the launch, you got to make sure that you have something that you can own and that no one else can take from you.”

Awareness and Education: One of the biggest challenges for CPG brands will be creating awareness of their brands and educating consumers about their unique products. As relatively new entrants to the market, they must work hard to differentiate themselves from established competitors and convince consumers to try them. 

Both companies could focus on building a solid online presence through social media and digital advertising to address this challenge. They could also consider partnering with influencers or bloggers with a strong following in the health and wellness or beverage space to help spread the word about their products.

Jessica Buhl-Nielsen | Hey Planet | “The challenge of launching a new product is not only about the novelty of the idea but also about educating consumers who may have never heard of or tried it before. This is especially true for products without widespread acceptance or considered unconventional, such as insect-based snacks and meat alternatives.”

Fulfillment and Shipping: As direct-to-consumer businesses, Kowa and West Peak must have efficient and cost-effective order fulfillment and shipping processes. This can be a significant challenge, especially for companies with limited resources and infrastructure. One potential strategy could be partnering with a third-party logistics provider (3PL) specializing in e-commerce fulfillment. This would allow them to outsource their warehousing, picking, packing, and shipping operations, freeing up their resources to focus on other business areas.

Mika | Mochi Gummies | “Using unconventional ingredients and processes can be challenging, but it makes our innovation stand out.”

Pricing and Margins: Pricing can be tricky for D2C businesses, as they need to balance offering competitive prices with maintaining healthy margins. Kowa and West Peak will need to carefully consider their pricing strategy to ensure they offer value to customers while making a profit. One potential approach could be to offer discounts or promotions to early adopters or loyal customers while gradually increasing prices as the brand become more established.

Developing new products can be expensive, and managing the costs associated with product development can be challenging for smaller brands.

Ben Ostler | Kowa | “We found a way to create an energy-boosting beverage without relying on caffeine like everyone else. It wasn’t easy or cheap, but the results speak for themselves.” 

Regulatory Compliance: D2C brands face the challenge of navigating complex and time-consuming regulatory compliance and labeling requirements in the American market, which can slow innovation. Unfortunately, many regulations don’t adapt as fast as they should, creating additional obstacles. Moreover, marketplace policies and algorithms can cause nightmares for brands. To overcome these hurdles, companies must collaborate with legal and regulatory experts to ensure compliance with relevant laws and regulations.

Customer Service and Support: Brands will need to have vital customer service and support processes in place to address any issues or concerns that customers may have. This is particularly important in D2C, where customers expect fast and responsive support. To address this challenge, CPG companies could consider investing in customer service software or hiring dedicated support staff to handle customer inquiries and complaints. They could also offer self-service options such as FAQ pages or chatbots to help customers find answers to common questions more quickly.

Sourcing Sustainable Ingredients: Brands prioritizing sustainability need to source ingredients grown or produced sustainably. This can be challenging, as sustainable ingredients are often more expensive or difficult to source.

Reducing Packaging Waste: Brands are increasingly being held accountable for the amount of waste they produce, and reducing packaging waste is a challenge many brands face.

Maintaining Consistency: Brands that use sustainable ingredients or packaging materials may face challenges in maintaining consistency across batches or products, which can impact the overall quality of the product.

Jordan | Skinny Mixes | “Prioritizing innovation is the hardest thing, we love to listen to our consumers, and we want to do everything, but we can’t launch everything at once.” 

Brand Challenges

The D2C market is a competitive landscape where brands face a myriad of challenges that must be addressed to succeed. From building brand awareness to overcoming distribution barriers, the hurdles vary depending on the product and the market.

Nick, a co-founder of West Peak, wanted to create a cocktail without the sugar and high ABV, resulting in a complex but low-sugar alternative. Meanwhile, ProFood’s biggest challenge is meeting the high demand for their mango products due to a limited supply, but they’ve innovated with a no-sugar-added dried mango that’s soft and has a long shelf life.

For international brands, the challenges include navigating cultural differences in consumer preferences and addressing concerns about the freshness and texture of their products. Hey Planet, a plant-based snack and alternative meat brand, must also educate customers about the benefits of sustainable and eco-friendly alternatives (which you can also enjoy).

But the biggest challenge for Talya, co-founder of Black Seed Oil, is breaking through the distribution barrier. While their top-selling product saw a boost in sales during the pandemic due to its natural health benefits, the brand is still looking to reach more customers.

To succeed in the D2C market, brands must establish a strong online presence, invest in marketing efforts, and ensure timely and accessible delivery. Additionally, they must address any unique challenges associated with their products and markets to stand out in the crowded market and overcome established competitors.

Bringing D2C brands to the market poses various challenges that must be addressed.  In a global market, national and international brands must overcome different hurdles.

The most common challenges include building brand awareness, competing with established brands, and overcoming distribution challenges.  

D2C brands must establish a strong online presence and invest in marketing efforts to stand out in a crowded market. They also need to ensure that their products are easily accessible to customers through online platforms and timely delivery.

Nick | West Peak | “We wanted something that had the complexity of a craft cocktail but without all the sugar in the high ABV.” |

For some other brands, the challenges vary depending on the product. For example, international companies may face issues with perishability and shipping to ensure the product arrives fresh.  Other brands may have to address concerns about the product’s texture and handling during shipping and compete with other established brands in the American market.

Justin Uy | ProFood | “Our greatest challenge is meeting the high demand for our products in the US market due to the limited supply of mango. Our newest innovation is a no-sugar-added dried mango with a soft texture and one-year shelf life.” 

International brands may need help with cultural differences in customer preferences and understanding of the product’s potential health benefits. Hey Planet, the plant and insect-based snacks and alternative meat brand may need to address concerns about the taste and texture of their products and educate customers on the benefits of sustainable and eco-friendly alternatives.

Talya | Black Seed Oil | “Our top-selling product, black seed oil, has seen a boost in sales during the pandemic as consumers turn to natural remedies, but breaking through the distribution barrier remains a significant obstacle.” 

To thrive in the D2C market, brands must continuously innovate and stay ahead of consumer trends. This requires a deep understanding of their target audience, a willingness to experiment and take risks, and a commitment to delivering exceptional customer experiences at every touchpoint. By investing in their brand, cultivating a loyal customer base, and staying agile in the face of evolving market conditions, D2C brands can not only survive but thrive, even in the toughest economic climates.

Conclusion

In conclusion, the D2C model is a powerful way for brands to connect with their customers and build relationships. By offering unique products and experiences, D2C brands can create a sense of community and customer loyalty. This can lead to repeat business and referrals, which are essential for the long-term success of any business.

However, the D2C model is not without its challenges. Brands need to be able to effectively market their products and services, and they need to be able to provide excellent customer service. Additionally, they need to be able to manage their inventory and shipping costs.

Despite the challenges, the D2C model is a growing trend that is likely to continue to grow in the years to come. Brands that are able to navigate the challenges of the D2C model successfully will be well-positioned for success.

Here are some additional tips for brands that are considering launching a D2C business:

• Choosing the right product or service. Your target audience should be passionate about the product or service you offer. It should also be something that can be easily shipped and stored.
• Builing a strong brand identity. Your brand should be unique and memorable. It should also be consistent across all of your marketing materials.
• Creating an excellent customer experience. Your customer experience should be top-notch from start to finish. This means providing excellent customer service, offering convenient shipping options, and making it easy for customers to return products if they are unsatisfied.
• Investing in marketing and advertising. You need to get the word out about your D2C business. Marketing and advertising can help you reach your target audience and generate sales.
• Being patient. It takes time to build a successful D2C business. Don’t get discouraged if you don’t see results immediately. Just keep working hard and you will eventually see success.