Entrepreneurship in the Consumer Packaged Goods Industry
This edition of Ag Innovation News brings you an interview with Tera Johnson, a serial entrepreneur whose mission is to create the next generation of regenerative food and farming businesses. The founder of Tera’s Whey, Tera participated in the full arc of creating and selling a successful investor-financed food company. Now the founder of the Food Finance Institute (FFI) at the University of Wisconsin-Extension, Tera is a frequent speaker, teacher and consultant to sustainable food and farming businesses, social venture funds and investors.
AIN: Can you begin by talking about why target marketing is so important in the food industry?
TJ: Target marketing is a huge piece of the consumer packaged goods (CPG) process that can be particularly difficult for those in the value-added food industry. Historically in farming, people grow what they like to grow, is convenient to grow or works in their climate. In the commodity world people don’t need to care about who the consumers are. In the CPG world its important to care about who they are and what they are looking for.
AIN: How does a food entrepreneur start this process of gathering information on the consumer?
TJ: People who are starting out actually have a wonderful opportunity to learn about their consumers. Every single interaction with a consumer is a market research opportunity. When a food entrepreneur is selling their product at a farmer’s market or selling from a food truck, one of the best things they can do is observe who their customers are. That’s free information and it comes from people who have already self-selected to be a customer. Learning about the customer helps companies decide what else they can do to grow their business. There are also some free online sources of information. One of my favorite free online tools is PRIZM. It’s an incredible tool because it allows you to research the consumers by zip code. Type in a zip code and the system will show you the top five customer profiles for people who live in that area.
The reason this is powerful for food is that people don’t tend to travel a long way to go grocery shopping. People shop where they live. I’ll give you a situation where this would be a very helpful tool to use. In this example, the company has a cheese product. The company has their product in about 20 grocery stores. They look at their customer list and realize that there is one particular store that sells their product more than any other does. The company needs to find out more about the consumers in that zip code. This is where PRIZM comes in handy. They can find out who their customers are, what they like, and find more of them in other areas. This process will help entrepreneurs avoid wasting a bunch of time selling their product to a demographic that will not be receptive.
AIN: Is this tool solely for food entrepreneurs?
TJ: This tool wouldn’t work as well for other CPG categories because people are more likely to travel further for other products. Our behavior around food says we don’t get in a car and drive all the way across town to go grocery shopping.
Let me give you an example. I worked with a client who sold head cheese. The client’s mother started her business in the 1950s in inner city Milwaukee. The client was interested in growing her business so she went to a consultant for help. The consultant told her that her customers were getting old and she needed to focus on a demographic that could spend more money. They told her she should start making pâté and sell it at Whole Foods. The problem is, the business owner didn’t know anything about that market. As it turns out, my client made head cheese and she distributed it. I looked at her customer list and found that her best customers were in neighborhoods where a distributor wouldn’t drive a truck because it was too dangerous. We used this PRIZM tool to figure out the profile of the people in those neighborhoods. Then, we identified all kinds of target markets for growing her existing business. This tool helped her get a game plan together about where to take her business in the future. That’s an example of why data is so powerful.
AIN: How should a business think differently about transforming an agricultural crop viewed as a commodity into a value-added food product?
TJ: Businesses need to think about the consumers first. They also need to consider scale. If they grow 4,000 acres of corn they won’t be selling to individual consumers. It’s too much corn. The scale of what’s produced is relevant to the conversation. The people who are most likely to have an opportunity to do something direct to consumer, are going to be the smaller farms. I’ll give you an example of someone I worked with who grew hops on his farm. Initially, he wanted to grow hops so he helped start a cooperative of hops growers in Wisconsin. He still does that, but he realized it wasn’t enough, so he started making beer. He ended up opening a taproom in a lovely little artsy town that happened to be a bicycle destination for people coming out of Madison, Wisconsin. The business just took off because he knew how to market. He started selling light beer because the people drinking it were coming in on bikes and he knew they wanted a light refreshing beer, not a heavy dark beer. He made the transition to the beer that his target market wanted to drink.
AIN: As one of these small businesses, how do you go about defining an unmet consumer need?
TJ: For rural food entrepreneurs that want to get to scale, they have to sell their product to people who don’t live where they do. This can be very difficult for these rural entrepreneurs to do. For example, with Tera’s Whey I learned that almost 40 percent of whey protein consumed in the United States is in California. When I was doing my branding, I used an agency from California to design the packaging. I also knew that protein was popular in the body building community. I went to a competition where I walked around and asked body builders if they would be interested in organic whey with no additives. I literally had someone look at me and ask me why they should care about the ingredients in their whey protein. I didn’t leave there thinking I was a failure. I left there knowing that was not my target market.
AIN: Let me take a little bit of a right turn. Can you highlight some of the most relevant pain points entrepreneurs may encounter when building a food business?
TJ: A big pain point for entrepreneurs can be growth and changing business models as they grow. Let me explain what this looks like. As a business gains success it has to grow in order to continue to be successful. Some business owners will say they don’t want to go down that path because, they want to remain a local business. I worked with a client from Madison that made toffee. She was up to about $40,000 in sales and still working at her day job. Then, her toffee was included in the Emmy swag bags. She assumed this meant she was a national brand. Unfortunately, she wasn’t a national brand yet. She was going to need to raise millions of dollars if she wanted to go national. My client decided that going national wasn’t what she wanted. She switched gears and opened a café in Madison. It turned out that nobody gets up at six in the morning in Madison. What the consumer wanted was a place they could go after dinner to eat desert, drink red wine and listen to music. She still has her toffee brand but this expansion allowed her to stay a local business and grow at the same time.
AIN: Do you have an example of alternate, non-traditional business models that you might be able to share?
TJ: My client with the toffee had a vertical business model. Selling to the consumer is what makes it vertical. There are also companies in the food space that have grown horizontally. A famous example is Zingerman’s Delicatessen in Ann Arbor, Michigan. They’re up to 20 different Zingerman’s businesses now. They have this whole portfolio of companies and they’re horizontal because they all feed each other. They were really the first food company that took that approach or that business model of growing horizontally. Businesses in smaller communities, and realistically a lot of food entrepreneurs that we work with, aren’t going to be national brands. That’s where these vertical and horizontal business models come in. It’s a way to gain in scale but stay local at the same time.
AIN: As a support organization what would you tell the next client who wants to launch a food product in a crowded, highly competitive food category, like barbecue sauce or granola?
TJ: When I work with a client we conduct a product matrix. It compares the client’s product to the competition. Then I spend a ton of time talking about defensible uniqueness. Clients have to identify what makes their product different from their competitors. If you don’t have something that makes you defensibly unique in the food world now, you’re dead. The other thing we see a lot of right now in the local food movement is a mission to change the world. You see brands donating a portion of their sales to certain causes. My comment about this is that its not a differentiation anymore. It’s almost a requirement to get into the community co-op. I’m not saying business shouldn’t do it, but it’s not enough anymore by itself.
AIN: How do you communicate to clients or give them this sense of what they’re getting themselves into?
TJ: I have the distinct advantage of credibility with this because of Tera’s Whey. I educate through examples, so I do a lot of storytelling. At heart, I’m a food entrepreneur and I love helping business succeed.