8 SEPTEMBER 2, 2019 | ADWEEK
®
8At Nuggs, a direct-to-consumer
brand that creates pea protein-based
nuggets, customers are technically
eating a prototype.
Thanks to the direct line DTC
brands have to customer feedback,
a company like Nuggs works on new
versions of its nuggets, making it an
ever-evolving product where the next
box of Nuggs is better than the last.
Nuggs is part of the growing
market of companies challenging CPG
in a variety of categories, from the
bathroom to the kitchen. Companies
like Brightland, a digitally native brand
selling California-grown olive oil, and
Magic Spoon, a DTC cereal made for
adults, are attracting venture capital
and an organic following based on how
these firms are challenging the CPG
world and what they see in the market
that others like General Mills and Tyson
don’t—or just aren’t adapting to yet.
“These startup brands are either
born from an opportunity they see
in a category or [from an] ethos of
transparency,” said Mary Zalla, global
president of consumer brands at Landor.
Magic Spoon, for example,
doesn’t necessarily want to upend
the traditional cereal market, instead
focusing on healthier breakfast foods,
like protein shakes or açaí bowls, andselling its keto-friendly and gluten-free
cereal in two options: a variety pack
of its four flavors for $39 or a monthly
subscription option that costs $35.10.
Since debuting in April, Magic Spoon
has scaled up after selling out its two-
month inventory within the first week.
The company also recently raised a $5.
million seed round, led by Lightspeed
Venture Partners, to grow the team.
“There was a deep demand and
yearning for cereal that tastes like
childhood but [does] not [have]
nutritional drawbacks,” said Gabi Lewis,
co-founder of Magic Spoon.
Brightland, an extra virgin olive oil
brand, started out to address the state
of the olive oil industry where, according
to a UC Davis report, 69% of imported
olive oil does not meet international
standards to qualify as extra virgin olive
oil. Since its debut in 2018, Brightland
has expanded through strategic
partnerships with Neiman Marcus and
Goop, as well as rolling out limited-
edition olive oil flavorings and designs
(the February collaboration with artist
B.D. Graft sold out in 72 hours).
DTC and wholesale account
for 80% and 20% of Brightland’s
revenue, respectively, and 20% of its
DTC customers are subscribers. The
company declined to share specificnumbers on its subscriber base and
revenue. What it did say was that being
an “omnichannel brand” is a necessity.
It lacks the traditional venture capital
funding to advertise on Facebook
and Instagram, and currently, paid
marketing accounts for less than 10%
of Brightland’s media spend.
“We didn’t see this as a brand
marketing play; we also saw this as a
different business line,” said Aishwarya
Iyer, founder and CEO of Brightland.
Nuggs, however, wants to be on every
Instagram feed, but organically. Similar
to Brightland, founder Ben Pasternak
wants to run Nuggs without relying on
Facebook and Instagram ads, instead
growing a community of Nuggs lovers.
The Nuggs team has already started
testing on other platforms like TikTok
and sending those users free products.
With $7 million in funding from
McCain Foods and others, Nuggs is
targeting meat eaters for its product,
as opposed to going after vegetarians
and vegans. Nuggs is taking the DTC
approach of listening to customers to
develop its product more like an app
with software updates. The brand
has only existed for a few weeks, but
it’s already working on Nuggs version
1.5 (set for fall release) and plans on
generating more consumer feedbackthrough its lab in New York.
“You can’t just buy users; you want
to create community around it, and you
want people to be really excited about
it,” Pasternak said.
While these DTC brands are making
waves, incumbent CPG brands are far
from ignoring the situation. General
Mills invested an undisclosed amount
in Beyond Meat in 2013, and Kellogg’s
acquired RxBars for $600 million in- Zalla said it’s one indication that
these legacy companies are worried
and also acting opportunistically to
gain more data and insight into who’s
buying these DTC brands.
Considering that 16,000 smaller
companies with annual sales of at
least $100,000 raised their market
share from 17% to 19% from 2014 to
2019, and large food and beverage
CPG firms accounted for 31% of sales,
according to Nielsen, there’s a clear
financial reason to acquire or learn the
tactics of DTC brands.
“Buying a brand that was born DTC
allows them to own and compete in both
channels: the traditional retail channel
and the DTC channel,” Zalla said.
ANN-MARIE ALCÁNTARA IS A
TECH REPORTER FOR ADWEEK,
FOCUSING ON ECOMMERCE.
@ITSTHEANNMARIEINCREASE FOR ONLINE SALES
OF CPG IN 2018, ACCORDING
TO INFORMATION RESOURCES.TOTAL IN CPG SALES THAT HAVE
MOVED FROM BIG COMPANIES
TO SMALL ONES SINCE 2013.INCREASE IN MERGERS AND ACQUISITIONS AT TOP CPG
BRANDS FROM 2016 TO 2017, A NEW HIGH ACCORDING TO THE
35% $17B 45% 2018 OC&C STRATEGY CONSULTANTS GLOBAL 50 REPORT.
THESE CHALLENGERS ARE CHANGING HOW CONSUMERS VIEW EATING AND MEALTIME.
BY ANN-MARIE ALCÁNTARA
Will DTC Eat Food Giants’ Lunch?