It seems as if every day there’s another startup in food or beverage that’s had a huge exit. But it’s still the exception and not the norm.
Depending on which source is cited, failure rates for food and beverage startups range from 50% to 90%. A big exit is far from a sure thing.
For some, it’s not only the low odds that dissuade them from pursuing that exit. It’s just not their desired outcome. Many want to build a lifestyle business, a brand that stands for something is sustainable, and remains in their control. We don’t read or hear much about them, and it necessitates a very different approach and strategy. But it can and has been done successfully.
The common go-to-market strategy for most startups is to aggressively go after points of distribution and drive top line growth. Most pursue that within the retail grocery channel, which can be a very expensive endeavor. Furthermore, there is no guarantee that it will translate into trial and repeat purchases. This is a go-broad-but-shallow approach.
For those looking to build a sustainable lifestyle business, that strategy is both too expensive and too risky. Thankfully, there is another way, which is to go narrow and deep.
There are a few important factors to consider in a go-narrow-and-deep strategy: channel, geography, and distribution. Let’s look at each individually.
Conventional or large chain specialty retail brings with it a pretty steep “pay-to-play” model, which means it’s not always the best place to build your brand. There are alternative channels that have a much lower cost of entry. Those include foodservice, non-commercial (corporate feeders, airports, etc.), c-store, and drug. Understanding your ideal consumer is vital to identifying which, if any, of these channels, might be a good fit.
Another avenue to consider is small independent retail chains. Typically, they don’t come with a high price tag and can provide some great market insight.
Geography is another consideration. For people who are trying to build a brand following through adopting a narrow and deep strategy, putting efforts into a market that has a large number of ideal consumers makes good business sense. It should also be aligned with the determined channel strategy. It’s also critical to locate in an area that has a high concentration of targeted outlets.
Like conventional retail, broad line distributors can be very expensive. UNFI, KeHE, Unified Grocers and others often require participation in their marketing programs and food shows. When a company is ready to scale and go broad, these can be powerful programs. But following a narrow and deep approach, these typically prove more costly than beneficial.
Being more precise with targeted channels and geographies opens the door to the use of local specialized distributors. This could allow for a DSD (direct store delivery) model. While the expected margin for DSD distributors is typically higher than that of a broad line, the impact they can have at the store and on-shelf levels could more than offset that additional cost. Plus, these local specialty distributors rarely expect participation in expensive marketing programs -- which many might not even offer.
What I’ve outlined in this article is a high-level explanation of a go narrow and deep strategy. There are still many moving parts to this approach. In many ways, it’s not any less complex or challenging than a broad and shallow strategy. However, for those startups that are bootstrapping it or have limited access to capital, and for those looking for long-term sustained growth, a go narrow and deep strategy is likely the most viable and effective option.
Success doesn’t have to mean a big exit. If that is not the goal, then strategy should follow a different path, and the rate of growth a different speed.