To be clear, we’re not saying that being small is a competitive advantage, but rather that scale no longer serves as the primary basis of competition. Our experience suggests that the most successful companies distinguish themselves in several ways.
They differentiate their offerings. Top-performing companies work tirelessly to identify and understand their core consumers. Using a data-driven approach, they segment demand rather than consumers to identify not only what consumers want, but also where, when, why, and how they want it. The companies then use that knowledge to create a portfolio of differentiated offerings with an authentic feel.
Consider Chobani, which ranked third in 2017 among US midsize CPG companies. From 2008 to 2012, the company amassed a nearly 20% market share in the spoonable yogurt space, but it recognized that maintaining that position would require expanding into new categories. Tapping into social media, Chobani obtained real-time information on what kinds of yogurt their consumers want and when they want to eat it.
The company used that information to develop some innovative types of yogurt that target consumer needs at different times of the day, including Chobani Oats, a breakfast yogurt, and Chobani Indulgent, a dessert yogurt. Convinced that the 3:00-to-6:00-pm snacking period had a lot of potential, the company positioned its Chobani Flip as a tasty afternoon refueling option. Chobani Flip took off, realizing $375 million in revenues in 2016 and year-over-year growth of approximately 25%.
They target consumers with greater precision. Leading companies also use the consumer knowledge they have amassed to develop and market products to address those consumers’ specific preferences.
Eden Creamery, which finished in second place in the 2017 small company rankings, is a case in point. Launched in 2011, this California-based company, which sells under the brand name Halo Top Creamery, offers better-for-you ice cream that is low in sugar and calories and high in protein. The founders developed it after trying to find food lower in carbohydrates and refined sugars for their own diets.
Halo Top’s deep understanding of consumer needs has enabled the company to develop products and marketing with its target millennial audience in mind. It gives consumers more than 25 different types of ice cream to choose from, with descriptive names such as Birthday Cake and Candy Bar, and many of the newer ones are dairy free. The unique packaging speaks to what people are looking for in ice cream and how they like to eat it. Prominently displaying the total number of calories, the carton encourages buyers to “save the bowl” and “stop when you hit the bottom.”
Halo Top has honed its marketing strategies to reach its target consumers. Avoiding traditional advertising completely, it relies on digital marketing, especially Facebook ads, as a cost-effective way to target consumers demographically, geographically, and psychologically. In addition, the company uses in-house social channels to create fun, authentic content. As of April 2018, Halo had approximately 750,000 followers on Facebook and 680,000 on Instagram.
After demonstrating that demand existed in the natural foods channel, in stores like Whole Foods and Sprouts, Halo expanded to traditional grocery and mass channels. Distribution grew from 3% to 11% in 2016. It then skyrocketed to more than 70% in 2017, with an average of ten product varieties per store.
They complement organic growth with inorganic growth.Investing in small, fast-growing brands can help companies fill holes in their product portfolio and acquire the capabilities they need to expand into new markets. Venture units, M&A, and incubators are all viable inorganic growth strategies.
Danone, number two in the large company rankings, is a prime example. In 2016, the company created Danone Manifesto Ventures, a corporate venture capital unit, to invest in innovative food and beverage startups. Danone provides financial and operational support, but it allows the startup to retain its autonomy. Recently, Danone invested in AccelFoods, a fund that invests in upstart natural and organic brands; Kona Deep, a water brand; and Harmless Harvest, an organic coconut beverage brand.
To fill category white spaces and strengthen its overall portfolio, Danone has also acquired some larger companies. In the spring of 2017, it spent $12.5 billion to acquire WhiteWave, a US-based CPG that manufactures and sells plant-based food and beverages. Besides adding some on-trend products to Danone’s lineup, the purchase provided greater scale, greater efficiency, and broader geographical reach in the US. The new business unit, DanoneWave, had dollar growth of 1.1% in 2017. It is one of only seven large companies that experienced consumption/unit volume growth as well, to the tune of 1.1%.
With a market cap of about $60 billion, Danone is now a market leader in a number of fast-growing, health-focused categories, including dairy, waters, and premium and organic food.