A fundamental understanding of the unit economics of your product and working capital cycle were just two recommendations from a panel discussing how to sustain growth at this year’s Naturally Good summit.
Ranged MD, Jessica Gordoun, chaired the panel, that featured Ordinary Equity founder, Alex Cornish, Funday Natural Sweets MD, Daniel Kitay, Ampol category manager, Kirsten Mills, and Ranged ED, Joe Green.
The panel looked at what was needed for growth in a market facing inflation, interest hikes, and compressed valuations, making capital raising difficult for start-ups and smaller brands.
Ordinary Equity founder, Alex Cornish said, “In June 2022, you had inflation at 6.1 per cent, interest rates about point 0.85 per cent, and retail sales growing 12 per cent year over year.
“Inflation is now hanging around stubbornly at 3.6 per cent, interest rates are all the way up at 4.35 and the latest retail data print was for 1.3 per cent year on year growth.
“What that translates to, is it’s gone from a place where money wasn’t free, but it was very cheap and relatively accessible, to the point now where there are still deals going through, but the capital is a lot tighter, and the valuations vastly compressed from what we’ve seen previously.
“That being said, you do have examples like Funday out there, and we are still seeing like strong growth in smaller niche categories. But when Woolworths’ last quarterly report mentions cost of living four times in one release, you get the feeling it’s not all beer and skittles out there.”
There was a heavy focus on the importance of understanding every aspect of your product, brand, and associated costs.
Ampol category manager, Kirsten Mills, highlighted that anyone creating a new product or brand thinks it is wonderful and the best on offer, and it may well be, but it’s not enough to succeed.
“It’s crucial you ask yourself, what customer base are you going after? How does it make their life easier or better? And taste must be absolute top thing that you're going for.
“It’s really important that the brand resonates with a customer and is going to make their life better or easier in some way. You also have to back it and be able to educate the customer on all of those things, because even if you get ranging in a major supermarket or a P&C (petrol and convenience) channel, sitting on the shelf is not enough. You need to tell customers where they can find it and really get an idea of the product. The retailer is not going to build your brand for you,” Mills said.
Funday Natural Sweets MD, Daniel Kitay, provided a wealth of insights. He said Funday was still reaping benefits from its $25,000 investment in working with a brand strategist before going to market.
“It made us very clear on what we wanted the Funday brand to be, what problem we were trying to solve in the market, and how we want our customers to think about the brand – how we are perceived.
“We’re a premium product, so the branding and packaging has to match the proposition we’re taking to the market. We spent so much time on finding packaging that had the right feel.
“Some people thought our investment was ludicrous, but three years later I think we’re the only one in market that hasn’t changed its brand,” Kitay said.
He added it was also an important process because it helps define the channels you want to use to sell your product.
Mills added that it was important to have a plan for continuous growth and working with the retailer on ways to get your message out there, even if you have a limited budget.
“You need to have a really strong plan of how you’re going to market it continuously, keep it being talked about, it can’t be a launch and drop.
“Also, refresh your products. You might launch something, and it works for six months, but what's the next iteration of that? You should always be thinking of what’s next – what flavours are a key now, and how can I build a range to keep customer excitement?” Mills said.
The conversation moved into an in-depth look at the pros – and cons – of capital raising.
Different ways of raising capital, there was universal agreement it was challenging to raise capital in the FMCG/CPG industry, because success often requires a sizeable investment, and it was best to go as far as you can before looking externally to raise capital.
Kitay said it was one of the best but most challenging decisions to decide to bootstrap Funday, saying it would have been significantly easier to raise capital.
“We were lucky in the early days, we were solving a problem with a first to market product that retailers were hungry for, and still are,” he said.
“The challenge with FMCG is that it’s a capital-intensive industry, the more success you have, the more money you need. It’s a good problem when you’re scaling but the challenge is where you’re going to find that money, particularly when you start talking about working cycles of stock and payment terms,” he said.
He emphasised the importance of having favourable terms with your suppliers, building strong relationships with them, and explaining the challenges you’re having without them thinking “you’re going to go broke”.
While he recommended trying to avoid bringing in outside investors for as long as possible, at some stage it can become beneficial, depending on what they bring to the business.
“If they just want to give you capital, maybe you can find that elsewhere, but if they have particular experience – scaling a business, taking a product overseas – the value is more than capital.”
Ranged ED, Joe Green, said outlined options for raising capital, including debt and equity, and the importance of valuation and forecasting.
Convertible notes and safe houses were popular for start-ups, he said, due to the flexibility and surety in the short term. While working capital facilities and trade finance can provide early cash flow and fund the purchase of stock, they are becoming harder to come by.
“It depends on whether you need short term or long term funding because different options work depending on where the business is at,” Green said.
Industry data can help demonstrate a brand’s potential to investors, but he emphasised the importance for companies to plan effectively, crunch numbers, and make educated decisions.
“At Ranged, we use all the industry data that comes out of Coles and Woolworths, which allows us to provide a fine tuned picture of what a brand can achieve.
“If you can show an investor what similar brands are currently doing in the market you’re targeting, and that you’re using it as a benchmark to where your product could go, it makes it more palatable.
“Knowing you can manage repayments and interest within your lending capacity then it is a good way to grow,” he said.
Ultimately, the panel agreed, whatever your goal is with your brand, know every part of your business intimately, approach it clinically, and always be looking ahead.
Naturally Good continues today in Sydney at the ICC.
