SKU’d Thoughts 8: Is there anything that could revive Big CPG?

Big CPG has been marching to a slow death and just this week, one of the OGs of Big CPG, Kraft-Heinz, marched a bit faster to its end (being a bit dramatic). The company’s stock dropped more than 20% in value less than a day after the company reported weak quarterly earnings. Kraft blamed the company’s poor performance on consumer’s desire for organic foods over processed ones. They tried to adjust product offerings to suit consumer taste with initiatives like organic Capri Sun and all-natural Oscar Mayer hot dogs but consumers did not go for it. This was to be expected as consumers just don’t associate Big CPG brands with health and wellness products.

But can anything be done to revive Big CPG? I think so. The answer is strategically incubating startups.

Companies can develop 18-month incubator programs for very early stage startups who have R&D founders. Given startups are a high failure rate venture, these programs would be designed to incubate hundreds of startups on a rolling basis. The investment in these companies would come in the form of resources and not one-off financial investments. Here’s what that would look like.

Meal-Rep, my favorite fictitious food startup [see Sku’d Thoughts 3], gets accepted into a Big CPG Incubator program with just an idea and a compelling founder who has domain expertise. Instead of typical $25,000 — $125,000 programs invest in startups in exchange for equity, the Big CPG Incubator will hire a top-notch team and provide resources to specifically support the Meal-Rep founder. Imagine being able to have a highly capable cross-functional team from day one, along with the supply chain capabilities of a Big CPG company. This approach to incubation will allow CPG startups to cut losses when something isn’t working and quickly try something else, a luxury their tech counterparts have because it’s easier to deploy an app to thousands of users within days than to sell products one at a time to customers.

With this strategic approach to incubation, the Big CPG Incubator could invest roughly $1 million on Meal-Rep to hire marketing, sales, packaging and operations resources to work with the founder in exchange for equity. This investment would cover the salaries of the newly assembled Meal-Rep team. They would still operate as a scrappy startup but leverage supply chain capabilities of a Big CPG company to get its products into a sizeable amount of retail outlets and direct-to-consumers. The Big CPG company will have a minority stake in a promising upstart with provisions such as pro-rata rights and follow-up on funding to make additional investments as the startup realizes its potential.

Consumers find it difficult to dissociate legacy brands like Oscar Meyer and Caprisun with highly processed and unhealthy foods/beverages, so Big CPG needs to gain share with the health-conscious consumer by investing in as many emerging brands as possible. The revival of Big CPG will require an out of the box approach — incubation is just one of them.

Cross-posted on Medium