Upstarts Are Calling the Shots in the CPG Space

More and more new hits are coming from smaller companies

Author: Andria Cheng

April 4, 2017

Consumers’ evolving preference for healthier, fresher, more natural foods and other products has rewritten the playbook in the retail and CPG world. Smaller, new niche brands have been nimble enough to target these emerging tastes, often forcing large CPG firms to play catch-up.

And the shift seems to be intensifying.

The latest evidence can be found in market research firm IRI’s study of top-performing CPG brands spanning categories from food and beverage to beauty and healthcare. Among the top 200 brands it identifies in its 2016 New Product Pacesetters, which includes only products in their first-full year of sales, small manufacturers were behind 46% of the products on the list, up from 29% in 2015.

The study, in its 22nd year, is closely watched because it’s based on actual sales of products at retailers including Walmart and other major drugstore and supermarket merchants.

By sales, small- and medium-sized manufacturers together represented 64% of the top 200 new products’ sales in 2016, up from just 39% in 2014.

Top 10 New Food and Beverage Brands, 2016

1. DairyPure - $1.16 billion in first year sales
2. Dunkin' Donuts K-Cups - $204.1 million
3. Not Your Father's Root Beer - $114.6 million
4. OREO Thins - $110.2 million 
5. Artesano - $102.4 million
6. Screamin' Sicilian - $73.2 million
7. Oscar Mayer Natural - $61.7 million
8. DairyPure Creamers - $54.9 million
9. Sargento Balanced Breaks - $54.2 million
10. Henry's Hard Soda - $50.3 million
Source: IRI Market Advantage

IRI identified small manufacturers as those with sales under $1 billion and medium as those with sales between $1 billion to $5 billion. It said many of these small to medium sized firms are new to the CPG industry. The disruption has led many big CPG companies to gobble up smaller firms or set up their own tech startup funds while redesigning their own product formulas.

See related story: Food Fight: CPG Firms Race to Redesign Products

“What we’ve found is companies are more strategic about their innovation and putting more (investment) to concept testing and focus groups to make sure” a product launch resonates, said Susan Viamari, vice president of Thought Leadership for IRI, in an interview, adding that typically 80% to 90% of product introductions fail. “When you look at the smaller players, they are looking to address the niche market. They know they have a small market, but the market is going to be loyal.”

It’s more important than ever for larger CPG companies to “be more judicious on how they are rating new product success,” she said.

As smaller brands rise to dominate social-media conversations and capture the attention of retailers, average year-one dollar sales of top performing CPG products are declining. The number of “Pacesetters” generating less than $20 million in year-one sales nearly doubled between 2014 and 2016, rising to 67% of the top 200 from 37% in 2014, according to IRI. Median year-one sales for the top 100 food and beverage brands, for instance, tumbled 42% to $11.4 million in just one year in 2016.

“Consumers want targeted product,” Viamari said. “When you buy shampoo, you want shampoo for your hair whether it’s frizzy or dry."

While smaller and younger brands like Not Your Father’s Root Beer or Screamin’ Sicilian are rising to the top selling brands, larger CPG firms also have found some success unveiling items tailored to emerging consumer preferences. For instance, Dean Foods Co.’s DairyPure milk, introduced in 2015, generated $1.16 billion in year-one sales, breaking IRI’s new product year-one sales record. DairyPure touts the fact that no artificial growth hormones were used, and it comes from cows fed a nutritious diet.