The Biggest CPG Industry Challenge and How to Overcome it

Jordan Buckner: [00:00:00] We're at a pivotal time in the CPG industry right now. There's been this dry spell of capital that has put a lot of VC funded companies out of business and is preventing the launch of many more. So what's the founder to do? I've invited on Howie Sher, who's been in the food industry for decades and has seen it all.

So Howie grew up. In the grocery store business before starting his own CPG nut brand, What-Are-Ya nuts, which he ran for 10 years. Now he consults with CPG founders and also runs JPG's founder cohort program. How are you? Welcome to the show. Thanks for having me, Jordan. So you get a front row seat to a lot of what founders.

 Are dealing with similar to kind of view that I get, and then also have kind of been in the industry. So you've kind of seen the ups and downs. So yeah, I'm curious from your perspective, what are those, the biggest obstacles you're seeing facing founders in particularly this year? 

Howie Sher: Well, funding, I'll just go straight there is always been something, no matter how you [00:01:00] start and how well you think you're funded at the beginning as you grow over time, there's that need for capital.

And we're living in a time where being wise and being profitable is very important to any investor that's considering. And those that are considering have lessened over the last three to five years more than I've seen in quite some time. What intrigued me most as a retailer you Is those flashes that showed up to my desk they cut through all the clutter, the hundred year old brands and that still happens.

 The educational piece, the realizing that how you're projecting your business to be means less more than, less today than what is really happening in the stores and online. The two slides on your presentation deck that meant a lot 10 years ago. Now, yeah, that's good and all, but what are you living now?

What are your turns per door? And how profitable are you now? Because they can build off of that as investors are looking at this. 

Jordan Buckner: Yeah, I see it as a huge [00:02:00] issue, right? And there's been so many founders who I know started their businesses. You know, three to five years ago, even a little bit less than like all this PC money was coming in.

And part of the deal that you make, right. When you take on venture capital money or even angel investor money is that you're going to return some multiple five, 10, 15 acts on their money. And to do that, you have to grow fast. You have to keep raising money. But what happens when the whole industry just says, Hey, we're not putting back money into these companies.

Like what are those founders do? Or what are you saying they do? 

Howie Sher: Well, I think on the upfront, they need to do a lot of homework and realize this experience, any industry that a founder is going to create something and be innovative, they're going to have to understand their competitive set that they're up against.

But now the intimate details that you need to be wise to, even I as a former retailer wholesaler that thought I knew everything I needed to bring a product to market not until you're in that boat do you realize sometimes it feels like you're on a Ritz cracker with a shark spying at [00:03:00] you.

You have to really respect and realize you can't skip parts. This isn't a lottery ticket and even before they get into this space, they need to really understand what it's going to take financially and how much time. They say time is money. It's true. 

Jordan Buckner: Yeah, I think yeah, I'm curious what you think because I feel like over the last 10 years with the influx of capital, it's allowed for more what I call capital I innovation, which are, you know, like adapted genetic, like mushroom beverage shots that are used for runners.

Like it's like hyper specific use cases. ingredients that have never been used and don't have new levels of understanding around efficacy, but aren't fully understood or regulated. And it's a lot those businesses really start to grow quickly, but are also the ones who are shutting down now, right?

Because they don't have as large of a customer market and demand as they maybe thought they did. And it's [00:04:00] some of the companies I see right now, like one of my favorites is one called Smackin and they make flavored sunflower seeds, right? Like innovative from the standpoint of. a new kind of more on trend, like cool brand by some young guys who are just making sunflower seeds with better flavors and ingredients.

And they're doing like millions and millions of dollars, right. And have a huge repeat purchase and a strong customer base. And so you think like, there's nothing completely new to the market or innovative. But it's companies like that that I see are actually seeing that traction and growth in this market.

Howie Sher: Yes. Flavoring. And as you mentioned the core ingredient needs to be widely recognized and either consumed on its own or applicable to other components of foods that might be around that space. And that's what makes it intriguing for an investor is how far wide and deep can this grow?

If it's got its limitations to your point, if it's hyper focus to the [00:05:00] masses, that's going to be a tougher sell. And a tougher growth model. 

Jordan Buckner: Yeah, you know, I experienced this myself. I talked about when I launched my brand, TeaSquares, we branded it as a tea infused energy snack, and I thought it was like, oh, we're building this moat around us from competitors, but I also realized we built the moat around us from consumers because no one knew what the hell a tea infused energy snack was.

I never went into the grocery store looking for a tea energy snack, so how was anyone else going to? Sure. So, and 

Howie Sher: it's the same with me with What Are Ya Nuts having been the fourth generation in the supermarket space and it, I say right at the middle of my career at age 40 to hang it up from the retail side, and thinking of nuts as a category at the time is boring.

Cans, jars, whole nuts, season them. Flavor them, same standards, different brand, kind of boring. Planters did a decent job with Mr. Peanut. But I said to myself, the food form needs to be reinvigorated somehow. And even in the packaging to differentiate ourselves. Blue is a predominant primary color.

Blue Diamond, [00:06:00] Planters, and the rest that, there was a ton of blue. So, we created packaging to separate ourselves on the shelf. And the food form was reverse granola, more nuts than oats the oat flour was holding it all together, and it was a recognizable flavor, and then we came up with flavorful iterations of star graving chocolate, jalapeno, this area's examples to get the consumer's attention.

But then you realize, when you're making granola like product that's made of nuts the expense side of that in the commodity class becomes something that was difficult to overcome, to compete against those major manufacturers. So there's a whole level of understanding that's required before you even get started.

And if it's that challenging for us as founders, how would you feel as though you're at a investor? I think the wisest investors are those that have a good understanding of the business, so it's the smart money any founder should seek. Because the advice that comes along with the [00:07:00] dollars, I believe, is equally as important as the money itself.

Jordan Buckner: I mean, I'm curious with what are ya nuts? Where were you merchandising this tour? Were you next to like the other nut products? Were you next to granola? 

Howie Sher: Yeah, we were in the nut category right there next to the big boys and it was again to me, having been on the other side of the desk to see it live and people would ask me you know, what's your ultimate goal?

I just wanted to put a smile on people's faces and You know, we're talking about a commodity class where allergens has been very prevalent in the news for a couple decades, people allergic to nuts, and I wanted to be very respectful to that and one of my give backs over time was to be identifying that community and doing what we could.

To bring some goodness to them, even though they're struggling and at very sensitive to when they're eating out you really don't know when you're at a restaurant, how it's been handled behind the, those swinging doors. So looking back, having been a founder, it took me a couple of years to get over the winding it down part.

Cause when you [00:08:00] give birth to something, it, I think of it as. that mare that gives birth to that foal that stands instantly and runs out into the paddock and then over time as it grows and runs and wins a few races you have to be aware that your ultimate goals might always not be achieved.

To make it past year one for most of the CPG founders, they have to realize that is a big win and build from there and be realistic in their goals. The investment piece, the same. You have to be realistic and angel and friends and family and then take those next steps when it becomes necessary.

Jordan Buckner: I mean, in a lot of ways, you know, the problem is still the same that a lot of founders face right now. The solutions are just changing harder to come by, right? Like the biggest problem that I see founders facing at the beginning is how do I get enough money to fund my business while I test out the hypothesis of the business idea that I have, right?

And so some people are able to save some money from their previous jobs. And they use that to fund a company. Some people are continuing to [00:09:00] work while they're starting. And over the last, you know, five, 10 years called, there was the other path of using BC and angel investing to fund that gap.

I'm just curious in terms of what you're saying too, is it still the same? Are there still avenues to get funding to become that run the business profitably? Does it fundamentally change how founders need to think about running the business? When there's no outside capital or little outside capital there?

Howie Sher: Well, I think anything else in their life, Jordan, they need to be thinking about strategy and planning as two separate components, bringing them together, even as they're starting. And they need to be disciplined to that. They can't expect or should not expect a pot of gold to just drop out of the sky.

And as founders should, they should be very passionate about what it is that they bring to life. Sliced bread was only invented once. There's not a lot of products that come onto the market that are sliced bread. Many can be replicated or come up with [00:10:00] different brand names, or even the big major manufacturers could get a whiff of something that's growing and do their own thing.

What they need to concentrate on is, again, their budget, their planning, and their strategy from the get go. And stay very laser focused and over time make adjustments to that in order to be able to acquire funds. You need to be able to be very confident in your approach when you look in the mirror.

So when you get approached or you approach someone to invest in your company, you're buttoned up. You have the answers that are real, that are truthful, and you're being honest with yourself. Before you can be with others that are going to put money behind you. 

Jordan Buckner: Yeah, I think those are all super important.

I'm curious for like the companies that you see that you get to talk with and the founders that are finding success in that market, either, you know, growth, profitability, just market expansion. Are there any commonalities or behaviors or trends that you're seeing that those founders do that maybe sets them apart , [00:11:00] from those who are having a tougher time?

Howie Sher: Yes. Yeah. Yeah. And a lot, think of it as an athlete. from a mindset perspective that they have many more days and hours put into practice and muscle memory and sticking with it and dealing with loss, but still staying focused on the goals and realizing it at the beginning. Again, I'm going to refer to the beginning.

They knew it was going to be tough, so they stick with it. The ones that I see that are successful, So expect potholes in the road, not swerving away from them, accepting they're going to be there because if you swerve out of that lane, it's a bad accident. If you accept the challenges ahead of you and knowing that they were going to be there, those are the brands and the founders that I'm seeing are very successful.

They're twists and turns no matter who you are when you're launching a product and to incorporate that in your strategy and your plan. Those scenarios, if this doesn't work, here are three other channels that we want to be considering in real time. 

Jordan Buckner: Yeah. Have you seen a change in how founders [00:12:00] are going after different channels?

And those kind of, I've seen this, back and forth with you know, during a little bit before COVID happened, a lot of founders were really interested in like food service, corporate offices, universities, kind of selling in that annual approach. obviously COVID kind of shut that off. Then e commerce really grew when retail was a little bit slower.

Outside of, I said, like bring out innovation cause they're just trying to keep the stores shut, stop. And then like retail, it seems like it's having its moment again now where a lot of new products are launching in retailers. They're trying to drive more foot traffic in the store, bring exciting items.

And e commerce has kind of slowed down a bit for a lot of CPG brands. Have you seen those same trends and any kind of thoughts or advice on where founders should focus? 

Howie Sher: Well, depending upon your commodity class, Jordan I'm a brick and mortar guy for generations. I'll never be able to shake that and I think the thrill of the hunt is always going to be there.

And retailers are hanging their hat on key commodity classes or new [00:13:00] and emerging brands as a differentiator against their, not only their brick and mortar competitors, but. To compete with what's online, because what's online is virtually everything, unless it's refrigerated or frozen, which is much more challenging when you're a CPG company.

The access to these products and the channel that I see is most attractive to new and emerging is D2C online. And that takes on its own challenge when you're in an ocean and how do you differentiate yourself and how are you marketing on Amazon, Shopify, you're on website , and the major retailers have their own e commerce.

So if you could win in any one of the channels and build off of that, that to me is the best approach. And let's think of it too. Not necessarily which channels, but where are you, and where I'm seeing the most success is when people take a regional approach and build their story in their own backyard.

There's nowhere you can do and be more personable than where you live, and it's the most comfortable as [00:14:00] well. It's, you're, it's familiar to you. You know, these stores and not just the grocery stores, but all other channels that you've mentioned. The universities around you, the hotels around you, if your product fits there it's wise to give them a shot where it's familiar to you and then grow from there.

Your story group can grow from there. 

Jordan Buckner: With a lot of brands launching in new retailers. One concern that I see happening is that those founders are going from say five stores to 400 stores or 400 stores to 2000 stores. And don't quite have a plan to like manage that growth because I think conceptually if you're in your local, you know, five, 10 co ops in your city, you can visit those stores, you can see other products doing on the shelf.

But once you start selling into hundreds of stores, right, it's almost impossible to visit all of them, especially on a regular basis. And so how do you recommend founders one build thing about like a launch strategy for like going into that many stores? Like what do they need [00:15:00] to really succeed? And then two, after that initial 30, 60 days, what things do they need to do to consistently stay top of mind, both for the retailer and for the consumer?

Howie Sher: Not to your point, that happens often to where the accelerated or massive growth in an instant kill a company because the cash it's required to create that inventory, the finished goods to ship it, to store it to be prepared for the reorders. I think transparency and honesty to themselves first, I mentioned that earlier, and to the retail partners so there's not any misunderstanding or expectations that are unrealistic from either side.

You have to be ready and again, back to that athletic analogy, if they're running a marathon and if they do it like a sprint, it's not going to last very long and end very well. So. Again, I strongly advise any of the founders that I'm working with to strategy, plan, and understand if you veer away from that, it's going to cost you in one form [00:16:00] or another.

You're going to have to dilute yourself in your position as you sell equity, or you just have to really grind and realize that it's going to take more time in order for you to build up the ability and capacity to be able to grow in that volume direction. 

Jordan Buckner: Yeah. I'm curious. when someone enters into like a new retail channel, do you see founders, like, are they profitable selling to that channel immediately?

Or does it usually take a certain amount of time? Because of all the marketing spend to actually get to profitability in that retail channel. 

Howie Sher: Yeah. And that's again, depending on what channel they choose it's wise to understand the slotting fees that come along with the marketing to support it. When you think about the cost of goods, how much are they having to discount your product in certain channels that you're actually funding yourself?

And, and thinking back those 10 years where scale would get people to invest because they'd be driving their cost of goods down when they were making more product. Your question is, is well [00:17:00] posed when we talk about profitability early, these investors want to see it early. So their approach of growth.

is probably, most certainly, I should say, imperative these days that that growth path and trajectory needs to be aligned with their profitability, so when they're looking at the channels and where they're shipping product to from the home manufacturer's facility shipping costs, out of sight, like we've not seen ever.

And is that built in to their cost of goods? It's a question that I pose to anyone I talk to. You can't hide it. It's got to be somewhere on the P& L. And it's something that really needs to be considered and why I believe really a regional approach to where are you making it, where do you have the physical ability to get into the stores and put eyeballs and hands behind it to make it go.

Jordan Buckner: We've seen a lot from your days as a grocer, wholesaler and CPG founder. How have you now taken those learnings to help other founders [00:18:00] through JPG's founder cohort program? 

Howie Sher: No silver lining. I speak the truth. I let people know the wins is not what I hang on to. It's how I can improve each and every day.

And as we're talking here, Jordan, a lot has changed over the years is the how do we get there? How do we get the food from production facility to pantry? But so much is the same people's palates. They tend to stick with what's familiar to them. And I would say the same to founders. You need to know where your strengths lie and surround yourself with people that are very skilled in disciplines that where you lack, that's really, you know, the most important thing that I suggest to founders is be honest with yourself and know how you need to backfill where your weaknesses are having other people as part of your team that needs to be incorporated into the budget, as much as.

The marketing spend probably even more so having lived it myself, trying to outsource everything from the very beginning, I think the pain that I had was brought on to me when I realized I'm a [00:19:00] team player and not a singles tennis player. something that all founders need to be honest and will learn as they're growing their company as to who they are and where their strengths lie to find others.

in other areas to bring their product to its fullest potential is required practice. Know what you can do and know what others can do better. 

Jordan Buckner: Well, and it's always great to have that group of people around you. And so, you know, for our listeners to, if you hear everything that how he's saying it, and you're looking for support, both from other experts who have seen the ups and downs of the industry and from other founders, JPG is launching their winter founders cohort program, which, you know, it's kind of like a B school course style approach for founders covering everything from fundraising, marketing, sales, regulatory, supply chain. And they are offering a special opportunity and deal for Foodbevy. Listeners as well.

So if you want to sign up by August 30th, you actually would have saved 20 [00:20:00] percent on the program. It runs for a few months. There's 12 virtual sessions. They're an hour and a half each. And you know, from what I've seen, it's really impactful for being able to have the support around you because this journey as a founder is very lonely.

And so it helps to have other people who know what you are going through and experiencing with you. 

Howie Sher: Yes. I've woken up at three. I'm thinking about what I need to do. When I get out of bed I share those experiences with others. When we bring in subject matter experts in to speak to our sessions through the cohort each and every one of them has been tremendous supporters of the founders that are joining us and willing to give their thoughts and time.

It's an honor to me that I've gotten to this point in my career that I can bring some goodness to these eager folks that want to grow and it's not often that you're gonna meet somebody that's come at it from all angles like I have, and It wasn't the plan. I wanted it to be that fifth generation but seeing my kids grow and [00:21:00] doing where their passions lie is why I love doing what I do in helping support those that have made that decision to take that plunge and bring food forms to life that didn't exist before they showed up.

Jordan Buckner: Absolutely love that and your passion Howie. Thanks so much for being on today and talking about food. What you're seeing in the industry, sharing about your experiences and the ways that you can help founders into the future, if you're interested in the founder cohort program, just check out the details in the show notes, reach out for an introduction and happy to share more information with you.

Howie, thanks so much. 

Howie Sher: Thanks for having me, Jordan.