4 FMCG Startups Big Brands Need to Watch
FMCG startup companies are launching new products at an increasingly rapid rate. Take a walk through Whole Foods or scroll through your Instagram feed, and you’ll see hundreds of new products that are disrupting the industry.
Technology has decreased the barrier to entry for new consumer products. Social media has allowed these products to reach their ideal consumers without massive marketing budgets.
Which products should worry incumbent FMCG companies? Are any of them a threat to Big FMCG’s bottom line? Which brands are the perfect acquisition target?
Below, we analyze four different FMCG categories and share examples of impressive startup companies in each group.
The Startup: Bulletproof 360
The Story: Bulletproof was founded by Dave Asprey, a self-proclaimed biohacker. Asprey developed the recipe for Bulletproof Coffee in 2013, which contains 1-2 tablespoons of grass-fed, unsalted butter; Brain Octane Oil; filtered water; and special Bulletproof Coffee Beans. Bulletproof Coffee claims to be a “high-performance drink that has a massive impact on your energy and cognitive function.”
The idea went viral online, and Asprey turned this one recipe into a media empire, including the book “The Bulletproof Diet,” the podcast “Bulletproof Radio,” and cafes in Santa Monica and Los Angeles.
The unsustainable hype around the namesake coffee has subsided, but Asprey has doubled-down on the overall Bulletproof brand. He has launched additional coffee variants, snack bars, flavored waters, chocolate, sweeteners, butters, hot cocoa, proteins and supplements.
The Incumbents: Coca-Cola, PepsiCo, Nestle SA, Dr. Pepper Snapple Group
Why Incumbents Should Be Worried: The massive size of Big FMCG companies creates blind spots for niche consumer needs and underserved demographics. Startup companies often create specific products for these consumers. Big FMCG firms can purchase these young startups, or they can build their own versions of the products.
However, the window for acquisition and new brand creation can be limited. Once startup brands like Bulletproof attract a cult-like following and build out their brand portfolios, it may be too late for Big FMCG to catch up. It’s not far-fetched to imagine Bulletproof launching new products into new categories and turning into this generation’s version of Coca-Cola or Pepsi.
What Big FMCG Can Learn: Listen to consumers when they latch onto seemingly odd ideas, like butter coffee. Big FMCG produces products for the mass market, yet the world is increasingly attracted to smaller, unique brands. Big FMCG needs to build their niche products from within instead of letting startups get to these great ideas first.
The Startup: Function of Beauty
The Story: Function of Beauty lets their customers create custom shampoos and conditioners based on their hair types and goals. The company claims that it can create 12 billion different combinations of ingredients.
CEO Zahir Dossa came up with the idea for Function of Beauty during his studies at MIT. His dissertation focused on value chain optimization and e-commerce. As he began studying different industries, he “saw that the most bloated [industry] was beauty, and more interestingly, the value chain for beauty hadn’t really changed over the last 100 years.” Function of Beauty set out to inject unique value into a stale category.
The Incumbents: Procter & Gamble, Unilever, L’Oreal, Revlon
Why Incumbents Should Be Worried: Zahir Dossa has a convincing pitch, and investors are incredibly interested. He has raised a total of $12 million, and the company is currently valued at an impressive $110 million. Their subscription-based delivery and unique products have created brand-loyal, repeat customers. Since most American consumers use one shampoo at a time, each Function of Beauty sale cuts into the purchase of an incumbent brand.
What Big FMCG Can Learn: Be social. Engage with your customers. Make them feel special. Function of Beauty has an inspiring Instagram account that turns shampoo into an aspirational beauty product. They also personalize each bottle by printing “Function of (Customer’s Name)” on the side. This makes the consumer feel important and ties the brand into their identity.
The Startup: NomNomNow
The Story: NomNomNow produces healthy, fresh dog food formulated by vets. Meals are tailored to meet the specific nutrition needs of each dog, cooked weekly in the company’s kitchen in San Francisco, individually proportioned, shipped free to customers, and ready to serve with no prep.
The founders were “surprised to see how little had changed in the dog food space since the 1980s: most dog food was still kibble or canned, filled with unpronounceable ingredients and industrial filler.” In 2014, they began cooking fresh food for dogs and delivering to friends and family. Now, they formulate weekly recipes with quality ingredients, and deliver across the United States using refrigerated packaging.
The Incumbents: Nestle, Mars Inc., J.M. Smucker, Colgate Palmolive, The Clorox Company
Why Incumbents Should Be Worried: NomNomNow and other pet food startups are doing something that is difficult or impossible for Big FMCG companies to do: produce and deliver fresh pet food. NomNomNow wouldn’t be able to scale to the size of Nestle Purina in its current format. However, the idea of healthier, fresh-cooked dog food is creating a backlash among pet parents. Many are abandoning traditional brands for home-cooked meals or small-batch pet food producers like NomNomNow.
What Big FMCG Can Learn: Food and beverage companies have learned that they need to be transparent with consumers about their ingredients. They have changed formulations to focus on health instead of convenience, shelf life and preservatives. These changes will not stop at food and beverage, as pet owners increasingly demand the same quality and transparency for their pets.
The Startup: quip
The Story: Quip is a design-focused toothbrush and toothpaste company. Founders Bret Taylor and Kevin Gibbs identified a problem that “people were not brushing their teeth twice a day, they were not brushing their teeth correctly, they were not changing their brush heads, and they were not going to the dentist.” Taylor and Gibbs have an industrial design background. To get customers to brush their teeth more, they decided to build an electric toothbrush that looks unmistakably different than anything on the market. It is sleek, minimalist, and looks like it belongs in a modern art museum. They also focus on purchasing simplicity, with a subscription service that customers can use to receive replacement brush heads, batteries and toothpaste every three months.
The Incumbents: Procter & Gamble, Colgate Palmolive, Church & Dwight, Philips
Why Incumbents Should Be Worried: In 2016, quip sold 100,000 toothbrushes. They are now on track to have 1 million customers by the end of 2018. Quip has enough momentum to make a dent in incumbents’ sales. Further worry arises as other startups enter the category. The barrier to entry in oral care is low, manufacturing is not complex, and innovation has been insufficient. The category is ready for disruption. Quip may be just the tip of the iceberg.
There are an incredible amount of FMCG startups creating new products every day. As you can see, the creativity of these brands is endless. This creativity is unable to be matched by traditional FMCG firms’ current rigid structure. Those firms need to look to startups for inspiration or as acquisition targets.
Today’s consumer demands more than a mass-market product created for everyone. They want high-performance coffee, convenient pet food, custom shampoo, and a beautiful toothbrush. Without adjusting to this new normal, Big FMCG’s profits will erode as these young startups cut into their sales. Incumbent firms need to study these companies and each new product trend. If they fail to look to the future, they will slowly fade into obscurity.