As competition continues to rise in the sports nutrition CPG industry, brands have been looking more and more into less crowded categories. I have noticed in 2016 that a lot of small to mid-size brands in the industry have launched either standalone or product extension beverages (or RTDs). I will be the first to admit that my sports nutrition CPG experience has been primarily in traditional categories of capsules, pills, and powders. On the other hand, I have worked on projects for functional foods (pancakes, bars, etc.) companies and done due diligence for several brands wanting to get into beverages so this category isn’t completely foreign.
Despite that, why haven’t I “worked” with a company that focuses on beverages in the sports nutrition CPG industry? To be frank, the few due diligence reports have always produced a resounding NO to the question “should we launch a beverage?” It even didn’t make sense when we looked at it at MusclePharm in 2012 when we were at $75M+ in revenues (Note: Yes I know they launched several beverages after I left but I think we can all agree they didn’t go as planned.) In theory, the category should make sense for brands. It has great margins, less competition, and access to more mainstream consumers.
So why does the sports nutrition CPG industry have so few successes to point at in the beverage category? I am going to probably leave some things out here because of my “non-experience” but I believe this is probably a strong list.
Reason #1 Why You Shouldn’t Launch a Sports Nutrition Beverage
You don’t have the right sales team. You have a National Sales Director and a VP of Sales that are killing it! You think, “anything I launch these guys will sell it for me.” Wrong! The beverage category can’t be sold in your normal “safe” retail or etail customers because they can’t buy in a large enough quantity to justify logistical costs to offer a reasonable retail price. The customers you do want to attract are usually in FDM, C-Store, Club, Dollar, and Military channels. Your sales team likely doesn’t have the experience to connect and negotiate with these types of channels when you will likely be competing for shelf space with competitors much larger than you.
Reason #2 Why You Shouldn’t Launch a Sports Nutrition Beverage
You will lose your ass on the first account contracts. This one picks up where #1 left off. When you get to the negotiation table with the buyers in those categories you will likely not understand the different costs that go into pricing. These include slotting, scandowns, POS materials, damages, promotions, marketing (direct and indirect), etc. These “below the gross sales margin” items will quickly eat away at your proposed pricing model and leave you paying them every time something is sold.
Reason #3 Why You Shouldn’t Launch a Sports Nutrition Beverage
You don’t know the complex web of distributors in the beverage category. Unlike traditional capsules, powders, and pills, the per item weight is massive, especially when you look at it from a ratio of sales price to weight. That makes for an extremely messy logistical situation. To combat that, beverage companies either have their own national distribution network, attract the likes of Coca-cola/Pepsi, or use a web of small local/regional distributors. These small distributors could handle a whole state or just a part of one county in a state. That not only leaves you will a supply chain mess but also adds huge costs to your labor expenses as you will have to beef up sales and operational employees.
In conclusion, I agree the category looks attractive but 99%+ of you reading this will not have the right brand or organization to pull off this category to compete with the $350M+ CytoSport is doing in MuscleMilk a year. I didn’t even touch on how this category might not fit your branding or dilute your product equity with customers.