#102: Understanding the Business of Consumer Packaged Goods

Summary

In this conversation, the speaker shares insights into the challenges and realities of the food and beverage industry, particularly in retailing and product innovation. They discuss the oversaturated market, the inefficiencies of large retailers, and the unfortunate incentives that encourage product failures. Advocating for starting online to gather better data and build a sustainable business, the speaker emphasizes how early life experiences shape consumer tastes. Through anecdotes from trade shows and personal experiences, the speaker highlights the difficulty of creating successful products and the importance of understanding consumer behavior.

Takeaways

• 😀 Retailers, including supermarkets and book publishers, often have no better sense than entrepreneurs when it comes to predicting which products will be successful.
• 😀 Slotting fees (fees for store shelf space) incentivize supermarkets to accept more products than they should, even if those products are unlikely to succeed in the market.
• 😀 The retail environment in America is oversupplied with products that lack operational efficiency, creating challenges for both consumers and businesses.
• 😀 Online sales provide better data on consumer behavior, allowing entrepreneurs to refine their products before approaching larger retailers, thus improving their negotiation power.
• 😀 By starting online, businesses can establish themselves as multi-million dollar entities before attempting to enter physical stores, making conversations with retailers more professional and strategic.
• 😀 Trade shows in the food and beverage industry often feature products that are not market-ready, with many examples of unappetizing or poorly designed goods.
• 😀 Entrepreneurs attending trade shows should avoid the temptation to sell their services; instead, they should focus on networking and understanding the market.
• 😀 The early sensory experiences (flavors, textures) in childhood have a lasting impact on a person’s taste preferences, influencing their food choices throughout life.
• 😀 Creating a successful product in the food and beverage industry requires an understanding of consumer sensory distinctions and the cultural influences that shape taste.
• 😀 Despite the many challenges, the food and beverage industry is an innovative and dynamic space, where businesses must carefully consider both product design and market readiness.

Q & A

What is the key lesson from the speaker's book?

The key lesson is that understanding the link between design and behavior is crucial to success in consumer goods. Retailers often fail to predict market hits, and instead of focusing on operational efficiency, they oversupply the market with unproven products.

Why do retailers like supermarkets often allow so many products into their stores?

Retailers are incentivized by slotting fees, meaning they make money by allowing products into their stores regardless of whether they are likely to succeed. This leads to an oversupply of products, often without proper market readiness or business acumen.

What does the speaker suggest is a better strategy for launching a product?

The speaker suggests launching products online first to gather consumer data and refine the product. This approach allows for course correction and a more robust business by the time you approach large retailers.

What is the problem with trade shows according to the speaker?

Trade shows often feature a wide array of products, many of which are poorly designed or not market-ready. The lack of screening means that even unviable products are allowed, which can lead to bad experiences for attendees.

How did the speaker handle an unpleasant experience at a trade show?

At one trade show, the speaker had to discreetly dispose of a foul-tasting snack while pretending to engage in conversation, then quickly excused themselves to wash their mouth in the bathroom.

What does the speaker mean by 'sensory distinctions' in the context of food and beverage?

Sensory distinctions refer to the subtle differences in taste, smell, and texture that individuals perceive. Early exposure to certain foods and flavors, especially in childhood, can significantly shape one's preferences and the way they perceive food throughout life.

Why is introducing new food and beverage products particularly challenging?

Introducing new products is challenging because consumer preferences are deeply influenced by sensory experiences that begin in childhood. These preferences are hard to shift, and products must overcome established cultural and sensory expectations.

How do cultural factors influence taste and food preferences?

Cultural factors, especially early life exposure to certain foods, strongly influence what people find palatable. Our sense of what is 'normal' in food is shaped by our cultural context and early sensory experiences.

What is the role of 'slotting fees' in the retail industry?

Slotting fees are charges that retailers impose on suppliers to secure shelf space for their products. This system incentivizes retailers to allow a large number of products in stores, even if they have not been proven to succeed.

What advice does the speaker offer for entrepreneurs looking to enter the retail space?

The speaker advises entrepreneurs to start by building an online presence to gather consumer insights and refine their products. By the time they approach larger retailers, they should have a successful, scalable business that will help them stand out and gain retail space more effectively.