The Idea: Gone are the days of big companies outperforming the small. Today, most industries are being shaped by emerging smaller and mid-sized organizations, many of which out-innovate competitors that are much larger and more powerful. According to an IRI report from 2016, small and medium manufacturers accounted for more than seventy-five percent of all “New Product Pacesetter” companies and sixty-four percent of the growth in dollars. New challenger brands and dark horse competitors are having a profound impact on business and the broader culture.
Sales for many of the leading packaged food organizations are not stellar. With a few exceptions, most of the top CPG companies are growing at all-time low levels. They are not innovating. But why?
According to recent research by Goldman, larger brands still control the lion’s share of the business (close to eighty percent), but smaller, emerging, challenger companies have the edge, gaining share in sixty-two percent of the top fifty packaged food categories. Are they more innovative and do they understand the heart of the new consumer better than their competitors?
Consumers love to discover early stage brands with unique identities and purpose. Brands like KIND Snacks, Olly Nutrition, Sundial Brands, Zevia, Vita Coco, Paris Presents and Wahl are masters of marrying purpose with experiential brands and the fulfillment of unmet needs. They introduce innovation in uncrowded spaces within the category. Or they create new categories all together.
They also listen intently to their core customers. If they uncover a new need in their ongoing customer discussions, they co-develop a product for them immediately. They are one with their tribe. When they see a problem, they fix it immediately. And when they uncover a white space, they fill it.
According to a report in “CircleUp”, it is reported that larger companies are sometimes calling new packaging or line extensions “innovation.” CircleUp states that some of the largest CPG companies “spend up to six times more on marketing and advertising of old products than they do on innovation of new products. Of that innovation, only 39 percent are new products, while the other 61 percent are incremental changes to existing products.” Let’s be honest: another flavor is not innovation.
Entrepreneurial founders think differently than larger multi-nationals. Bain Consulting reminds us of the traits of the Founder’s Mentality:
- A Sense of Insurgent Mission: They are led by a higher purpose, a burning vision, and a flexible business model that morphs and adapts to new opportunities and threats. It is the lifeblood of the culture.
- An Obsession with the Front Line: They have an intellectual curiosity about every detail of the customer experience and operations. They have their finger on the pulse. Executives use instincts formed at the ground level to make key decision, frontline employees have a voice, and the customer is central to all decisions.
- An Owner’s Mindset: They have a focus on speed, decisions, and action. Most owners have a passion and a broader responsibility for their employees, customers, and brands that requires deep thought and reflection.
Maybe it’s time to start thinking more like a tech company. The average tech company dedicates fifteen percent of the investments to R&D, while CPG only commits two or three percent. There is too much wasted investment in underperforming advertising and not enough in experimentation.
Are smaller companies more innovative? You decide. It is true that smaller companies’ have a granular understanding of future trends and that is vital to outperforming the market.