Issue #55: The Power of Packaging

A couple of weeks ago, I had the exciting opportunity to attend the Summer Fancy Food Show at the Javits Center in NYC. For those who have not been inside the Javits Center, it is certainly a sight to behold. In the case of Fancy Food, this 3.3M square foot building held thousands of CPG vendors, all trying to pitch retailers on taking their brand into the stores. Walking the floor were buyers from the stores you shop every week. Chances are, they brought on a couple of items from this event that you may still see in your store. Still, the chances of a product getting taken into a top store are slim. And the chances of succeeding in that store are small. Already, you have such a small pool, and that is before you get to the brands that are acquired by the large CPG companies that dominate today’s market. Now, why do I go into depth on these outcomes? Because I understand it is hard to succeed and empathize with those who are grinding it out, but I feel like one key detail is being overlooked.

The packaging.

Packaging is simple. It is the first thing you see in a retail location. It informs whether you buy a product or not. However, peeling a layer deeper, packaging is very hard to nail. Great packaging is the combination of an amazing product and a clear story/value prop. Sure, it is a challenge to get great packaging, but really, it becomes much simpler when you have the first two elements set. I have yet to see a company with great packaging that didn’t have both those facets down pat. Walking the aisles, I was struck by how few brands had nailed that combination (many brands were pretty new, so that does make sense). Understandably, it is hard to get that right. It is expensive and time-consuming, while requiring tons of testing. Still, without great packaging, the brand can feel lackluster. Walking the floors, it was not just my own thinking on the power of packaging; you could see where the key buyers stopped. Purposeful packaging really made an impact.

Much has been made over the past couple of years on the branding side of packaging. Not just now that packaging is part of the value proposition. Easy to use packaging, recycled packaging, low-waste packaging, etc. all give the customer a reason to purchase. However, what I am more referring to is the yassification of products, which has been accompanied by products becoming more of the same. The same bold colors, interesting fonts, and recycled brands have received mockery and pushback. In this situation, I am torn; it is great to see something is working, and people are doubling down, but it is concerning to see everything become the same. Still, at the end of the day, it comes back to the crowded grocery aisle (depicted in the cover photo above). Those motifs are what stand out in the aisle, so that is what gets on the packaging. In the world we live in, attention is priceless, and the packaging reflects that.

Unlike other pieces, I do not have five takeaways to improve your packaging. There are definitely people out there who can do that, but to me, it comes back to those key principles I mentioned first. Nail your product. Nail your value prop/story. Great packaging will follow. I would be remiss if I didn’t shout out some of my favorite packaging - Sauz, Banchan’s BBQ Sauce, Carbone, and Fly By Jing. If you have any thoughts on great packaging, I would love to hear more!

Nordstrom Hires CFO From Dollar General

Only recently, Nordstrom completed its ~$6B private takeover led by the Nordstrom family and El Puerto de Liverpool. After that big financial transaction, a new finance leader was needed, as the prior one had departed to be CFO at Starbucks. Enter Kelly Dilts, the CFO of Dollar General, who agreed to join Nordstrom as its new CFO. I am super interested in this appointment for two main reasons. First, Dollar General is budget, and Nordstrom is luxury. However, the growth of Nordstrom has truly been driven by Nordstrom Rack. I do not believe the customer segments between Nordstrom Rack and Dollar General are the same type of budget customer, but I do believe that a budget retailer mindset will be super valuable to Nordstrom as it navigates the private markets. Second, when the CEO of Nordstrom announced why they decided to hire Dilts, he said they liked her “proven track record of driving strong results at large-scale omnichannel retailers.“ Nordstrom’s eCommerce business has been up and down over the years, but now, as a private company, they have more latitude to weather the storm than public companies are given. Especially with the struggles of Sax Fifth Avenue and Neiman Marcus, there is a huge opportunity for Nordstrom to gain share, and eCommerce will be a big part of that gain.

More Big CPG M&A Activity

With Q2 earnings reports on the horizon, large CPGs did not want to miss out on the M&A fun, led by Nordstrom finalizing its takeover to be a private company, as we just discussed. Two large transactions were floated as possibilities, so let’s break them down:

• Kraft Heinz Breakup? - In 2015, led by Berkshire Hathaway and 3G Capital, Kraft Foods (grocery) merged with Heinz (condiments), after Kraft Foods spun off its Mondelez snacks division. The new Kraft Heinz company was the third largest F&B company in the US, and the fifth largest in the world. Despite its massive power, the merger has had its ups and downs, with the combined entity never hitting the heights it had envisioned. Given that, it seems that there are some thoughts internally that the company may have more value separately. The plan floated this week would be spinning off the grocery business into a new company, with the main company retaining the condiments. It is unclear where the beverage business would fall in this split. Understandably, the grocery business has been under a lot of pressure with inflation and customers/government focusing more on being health-conscious.

• Ferrero Continues Its Buying Spree - Chances are, you have not heard of Ferrero. However, you have definitely heard of some of its top items: Nutella and Ferrero Rocher. Originally, what started as a family-owned business, has blossomed into a behemoth via those products plus some shrewd acquisitions. In 2017, it acquired Ferrara Candy Company; In 2018, it acquired a large portion of Nestle Candy; In 2019, it acquired the confectionery business owned by Kellogg; In 2022, it acquired Wells Enterprises, the owner of Blue Bunny and Halo Top. This week, it announced it would be coming back for the remainder of the cereal business at Kellogg, now rebranded as WK Kellogg Co. The deal will cost them about $3B, but will give them control of iconic cereal brands like Fruit Loops, Frosted Flakes, and Rice Krispies. Like Kraft Heinz, WK Kellogg Co has been struggling with the health push, as well as declining customer interest in cereal and breakfast as a whole. Despite Kellogg’s recent struggles, I am super bullish on the acquisition. I do believe cereal will always have some place, and these brands are going to lead it. Plus, as seen with the other acquisitions, there is a ton of cross-brand synergy to create new products (cereal ice cream, cereal candy, etc.).

Little Sesame Raises Additional Capital

I am a big proponent of the restaurant-to-retail pipeline, when restaurants launch CPG brands. This strategy is a great brand extension and can be more scalable than opening a bunch of restaurants (sometimes). One of the leaders in the space is Little Sesame, founded by two fine dining chefs. In 2018, they launched a fast casual Mediterranean spot, and after that success, launched a standalone CPG hummus. That product has been super successful, scaling to 3,000 stores nationwide, including Sprouts, Whole Foods Market, Wegmans, and Erewhon. Now, they want to scale even further, raising an additional $8.5M Series A. The plan is to use the capital to accelerate growth, building a new plant to increase production capabilities by 400%, increasing product innovation, and expanding its kids’ line. The restaurant-to-retail space has been heating up with the rise of social media, and Little Sesame continues to lead - it will be exciting to follow along!

Auchan Sells Stores To Lidl

Not sure you see this one every day. Auchan is a French supermarket chain, with locations across the world. It operates large-format supermarkets, more akin to ones found in the United States, across the globe. However, it seems like the capex from these operations is too much of a burden, so it is trying to pivot towards smaller-format, omnichannel, pure-play grocery stores. Before, it sold items across all departments, similar to a Walmart or Target. As part of this transition, not all sites are in alignment with the refreshed strategy. Lidl, the discount grocery chain, is rapidly scaling, so it has capital to spare. Lidl decided to acquire 19 stores, and will presumably be converting them to Lidl.

• Summary: BJ Novak’s rise to fame was acting and writing in the hit TV show The Office. However, his second act has been drawing some attention, and has nothing to do with movies or TV shows. Chain is his restaurant in LA, turning basic branded products into elevated concepts. For instance, the current menu revolves around Tabasco sauce, and uses that basic ingredient as the centerpiece of Tex-Mex Omakase.

• My Take: Chain is certainly a new spin on the “celebrity chef” concept. However, it is leveraging one of my favorite restaurant business models, using the restaurant as a platform for advertising partnerships that fit in the brand of both businesses, like the Tabasco Omakase. Despite its one location, there is definitely room to grow to at least 5-10 if that’s of interest to them.

• Founder(s): BJ Novak

• Funding: n/a

• Number of Locations: 1 in LA

• Social Media Following: 62k on Insta and 3.4k on TikTok

Additional Links:

1. Regional grocer Giant Eagle is selling its convenience stores to fund its grocery stores remodeling (read more here)

2. Trader Joe’s is opening 16 new stores (read more here)

3. Liquid Death, the soda and sparkling water upstart known for its marketing stunts, is launching clean ingredient energy drinks (read more here)

4. Canal, which allows online stores to seamlessly sell other stores products, was recently acquired by Rokt, the eCommerce technology (read more here)

5. Tom Holland promotes his new non-alcoholic beer, Bero, at Wimbledon with a big pop-up (read more here)

6. Target will no longer be price-matching Amazon and Walmart (read more here)

7. Saks Fifth Avenue is still struggling after the purchase of Nieman Marcus, sales and profits continue to decline (read more here)

8. June retail sales rise 4.2%, partially attributed to back-to-school shopping starting earlier (read more here)

9. Taco Bell to test value menu in Indianapolis (read more here)

10. Hotel chain Wyndham and delivery service Grubhub are partnering to offer delivery to all its US hotels (read more here)

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