Will insurgent CPG brands capture an even greater share of category growth as innovation by large companies remains limited and consumers seek meaningful value propositions? While accounting for less than 2% of market share in their respective categories, insurgent CPG brands captured nearly 20% of incremental category growth last year. And you might be asking yourself, what is an insurgent CPG brand anyways? Bain & Company defines them as those that generate more than $25 million of annual revenue in tracked sales channels, have growth more than 10 times the categorical average growth rate over the past five years, and have maintained at least 10% growth over the past two years. That analytical rubric recognized 97 brand names…some of which you’ll recognize (like GHOST, Celsius, Bloom, and RYSE) because I’ve recently recorded long-form content with its founders.

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Is it time for protein bar brands to party like it’s 2019 again? I was recently asked about shifting convenient nutrition marketplace dynamics…including some questions directed towards delivery formats. And it was the bar delivery format that seemed to draw the most curiosity within that conversation. Maybe it’s because of what happened to the protein bar category because of the “Great Lockdown.” Maybe it’s because out of bars, liquids, and powders…it has the lowest current retail sales growth rate, but the highest household penetration. Or maybe it’s because of the sharp contrast from five short years ago when the protein bar M&A market was arguably at its peak. But during 2020 and 2021, many of us industry analysts/strategists looked past the near-term categorical struggles and pointed to the fact that underlying drivers (feeding long-term secular trends) were unchanged, and the inevitable consumer behavior normalization would continue to support bar format growth. Admittedly, some of that bounce back was slower than consensus expectations, but in this content I wanted to review several “signals” that I’ve been watching over the last 15 months which could be telling us that the protein bar market is ready to party again. These flashing signals include...several converging macro-economic data points, product-based differentiation, second-order effects from the rise in GLP-1 weight loss solutions, and then the final two are more focused on the attractiveness of the space (and format) to “build within” and then dealmaking and liquidity event probabilities and possibilities.

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Sharing is caring, right? I believe that commercial-scale precision fermentation facilities will be like data centers, which eventually became ubiquitous. And, like data centers, these commercial-scale precision fermentation facilities could one day be relied upon to make a vast array of vital products. But that future might hinge on how open or closed this food technology eventually becomes. Most precision fermentation startups are heavily funded by tech billionaires and venture capitalists. Why? Boilerplate “fight climate change” answers might be used publicly, but it’s about betting on the potentially enormous upside that comes with market domination of whole commodity groups and categories. But it’s those massive private investments that subsidize early deals that help overcome consumer adoption challenges around price. So, the debate over open-source food tech research is “complicated” and I’m sure global regulatory agencies will make it worse soon.

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If you were comparing the beverage brand PRIME to a childhood toy franchise, which one do you think would be the best fit (and why)? Prime Hydration grew 510% YoY, reaching just shy of $660 million in U.S. tracked channels. If you combined with non-tracked channels (and international markets), that number would likely be north of $800 million in 2023. Furthermore, it was announced before the end of 2023 that the brand sold its one-billionth bottle in less than two years. PRIME is (or maybe the appropriate verb tense now would be “was”) a rocket ship brand. But as PRIME blasts towards officially reaching billion-dollar brand status, in terms of U.S. tracked channel retail sales in 2024…it inevitably faces the immoveable object in business finance called the “law of large numbers.” So, when you see these PRIME haters regurgitating NielsenIQ retail sales data that shows sales volume being down over the last four weeks in early March 2024…that is what’s going on, as the brand is now facing tougher comparatives. And I think I saw similar PRIME hydration retail sales data trends in the UK, so regardless of what side of the pond you’re on…it’s likely a similar storyline being propagated across mainstream (and social) media. But this content isn’t about simply providing you retail sales data trends…those numbers were just a required contextual base of knowledge that allows me to explore possible underlying drivers more easily without having everyone confused. Also, to spice things up…I’ll bring most of these underlying driver possibilities to life through a storytelling analogy with children’s toys. That being said, the celebrity/creator packaged goods trend is one that sees the most popular talent of today…becoming the biggest CPG brands of tomorrow. It’s because when you hit on the “right celebrity + right product” element, you can pull forward brand awareness to a level that takes competitors years or many millions of dollars. The major benefit of the creator packaged goods trend is that Logan Paul and KSI are masters of at winning consumer attention through today’s kingmakers…aka digital platform algorithms. Moreover, PRIME benefited from the “Liquid IV Effect” democratizing the hydration category…and because a large share of the most diehard audience of Logan Paul and KSI are under 18 years old, they’ve proven to be extremely powerful individuals in creating commercial value by injecting a level of youthful energy that made the beverage category fun, thus introducing it to a new younger demographic that wasn’t originally passionate about the sports drink market. Which brings us back to the connecting PRIME and kids toys with consumer behavior principles. And why I made the analogy with kid’s toys is that there’s well-marked patterns that created massive successes in the past. Think about key features that drive toy franchise fads…limited supply (or perceived supply constraints) that create rarity, elements of collectability, low price, and usually “made cool” because of an influential group. Do those sound like they relate to the PRIME growth story as well?

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MyProtein is the world's largest online sports nutrition brand. So, you could say that “physical stores” aren’t much of a thing at MyProtein…or at least they weren’t in the past. More recently, MyProtein has invested in retail partnerships where the functional CPG brand places a limited (or exclusive) SKU range as part of bigger demand generation strategy. That could be as simple as offering a larger pack size of Clear Whey at Costco or something more unique like a healthy frozen meals licensing partnership within UK-based food warehouse Iceland. But it is a dynamic retail investment that signals MyProtein wants to drop the “online” part and simply become the world’s largest sports nutrition brand. It’s called Myprotein Kitchen…and it’s a concept store that provides customers with multi-sensory brand touchpoints that will also the sports nutrition brand to better understand customer behavior.

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Basically with what Quest Nutrition has been able to accomplish, competitors believe "it's basically cheating" at this point. In this latest episode, I'll utilize the Q2 2024 Simply Good Foods Company (NASDAQ: SMPL) earnings report, earnings call, and supplemental presentations that were filed on 4/4/2024 as the backdrop to provide broad nutritional snacking market insights. In fiscal Q2 2024, both Atkins Nutritionals (aka the Atkins diet) and Quest Nutrition performed well against the categorical competitors in tracked channel retail takeaway, with Quest Nutrition specifically having strong YoY growth at 13.1%. What's at the heart of the Quest Nutrition success? Quest Nutrition is still known for the original Quest Bar. That means the company needs the bar business to be healthy for any of this innovation risk to make sense. Here’s the good news…the core bar business is growing. In fact, this year it had tracked channel retail takeaway growth of 6%. Additionally, Quest Nutrition has proven it's one of the few brands that can successfully extend across multiple product forms...and its customer base expects them to come into an indulgent snacking category and flip it into great tasting (high protein, low sugar) offerings. The snacks segment of Quest Nutrition, which now accounts for almost half of all retail sales, saw retail takeaway growth increase 21%. But if we take this one layer deeper…the salty side of the Quest snacks segment had quarterly retail takeaway growth of about 40%. Quest chips now make up just over 20% of the total Quest Nutrition revenue and provides around 30% of new users to the brand. Salty snacks are where I’d argue the most excitement lies, but it seems the brand believes (at least right now) there’s more low-hanging fruit within sweet snacks. I say that because it was recently announced that Quest would launch a new bake shop platform for the fall of 2024. The offerings will start with high protein, low sugar, and great tasting muffins and a brownie. The company believes this new platform will bring new consumers to the active nutrition category and further expand usage occasions for the Quest Nutrition brand. Additionally, Quest Nutrition will prioritize its recently revamped RTD protein beverages more and even extend the packaged liquids form factor into protein iced coffee. These product innovations will be underpinned by a comprehensive marketing plan as part of the “Its Basically Cheating” advertising campaign with actor Kumal Nanjiani. This is another big step forward for Quest Nutrition…that will reach billion-dollar retail sales status by the end of this year. Finally, I run through what's causing the weak brand performance at Atkins Nutritionals and explain actions the company is taking to change it…especially against the backdrop of GLP-1 weight loss solutions. In my opinion, you’re going to see weight management brands like Atkins (and others) get repositioned on the right side of GLP-1 second-order effects through both product innovation (e.g. Atkins strong)...but most of the “innovation” will come in the targeted communication marketing strategies.

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Market growth breeds commercialization activity. This was an idiom I created many years ago to describe the reactive nature of the functional CPG industry. And it would certainly describe what has played out within the hydration and energy categories over the last 5-7 years. These functional CPG segments have both seen an explosion in market growth that drove rapid experimentation and development within an ever-expanding number of usage occasions. Additionally, consider that both the hydration and energy categories sit squarely within my “divine triad of CPG” of having strong gross margins, high frequency of use, and passionate brand communities. So, it’s hard to not be enthralled by everything…which might be partly why Market Insights Director at SPINS, Scott Dicker, and I regularly feature them in our quarterly functional CPG categorical deep dives. Beyond providing some recent categorical retail sales data snippets, we describe several driving forces impacting comparative results...including the growing “beverage identity crisis” that stems from consumers more regularly swapping between ready-to-drink and ready-to-mix form factors. But don’t worry…that’s not the only time we reference how the supplement industry is altering the strategic plans at large incumbent beverage brands. In fact, Scott and I cover some of those trending hydration and energy category storylines that are hidden below the “Big 2” market share leaders. Additionally, we explain why these “incubated within the supplement industry” brands can scale faster than any other time in business history. These are just some of the fascinating topics we chatted about in this episode...

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FitLife Brands gave more than 25 million reasons why it believes in the MusclePharm turnaround. So, why am I not impressed? For those unaware, the supplement brands that are within the FitLife Brands portfolio are now categorized in four segments…NDS Products (which are a collection of brands mostly sold in the GNC franchise system), iSatori Products (which are a collection of brands sold through a diversified retail mix), Mimi’s Rock Corporation Products (which are a collection of brands mostly sold on Amazon), and then MusclePharm Products (which was acquired on October 10, 2023). In total, the FitLife Brands portfolio is sold through more than 20,000 retail locations globally. In the fourth quarter of 2023, FitLife Brands Inc. (NASDAQ: FTLF) had revenues of $13.3 million…which was up 148% YoY. On face value that obviously looks impressive, but you had both the Mimi’s Rock and MusclePharm acquisitions that happened in 2023 and greatly impacted the comparable growth percentage. If you look at the revenue from a QoQ perspective, FitLife Brands revenues declined around 4.3%. While there's strategic initiatives going on at legacy FitLife Brands and Mimi's Rock, the most intriguing segment within FitLife Brands is MusclePharm. But even though MusclePharm was owned for the vast majority of Q4, its contribution to the FitLife Brands quarterly performance was immaterial because they needed to procure inventory (as basically no inventory was acquired in the asset purchase), and they needed to negotiate new retail agreements with MusclePharm’s existing wholesale customers. So, what that all means is the MusclePharm business really didn’t begin ramping up in terms of both wholesale and online sales until this current first quarter of 2024. Because of that…FitLife Brands gave some additional forward-looking statements based on preliminary first quarter numbers to show the early turnaround progress at MusclePharm. In the first quarter of 2024, MusclePharm segment total quarterly revenue will be around $2.25 million. That’s a slight drop in revenue YoY from the 2023 bankrupt MusclePharm era and even a more significant drop from the $3.8 million in Q3 revenue the company generated before the FitLife Brands acquisition. So, then what is needed for FitLife Brands to turnaround MusclePharm? FitLife Brands isn’t looking to hit a homerun with the MusclePharm turnaround…or so I thought before I heard the comments on the earnings call and them sharing a new element of the strategic gameplan. But I’m fearing that FitLife Brands might be getting excited about early indicators of sales performance, getting overly-confident, and might be getting caught up in the last (and biggest) part of that old MusclePharm sales playbook…launching more and more new SKUs. I'll breakdown all the strategic elements within the recent FitLife Brands announcement that they're bringing back the MusclePharm Combat Crunch protein bars...including how it impacts projected margins within the MusclePharm segment, how that relates to FitLife Brands return on investment, and future supplement industry capital deployment strategy overall.

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GOLI Nutrition announced in mid-March that it would be acquired by a collection of investors that includes its Mexico distributor, a private equity firm, and one of the company's original founders. More interestingly, the transaction, which has the full support of the company's lenders, is part of a pre-packaged bankruptcy process in Canada. Wait…what? You mean the company that introduced the world to apple cider vinegar gummy supplements just filed for bankruptcy? Weren’t they doing like a half-billion in revenue just a few years ago? Regardless of today’s bankruptcy process reality, that climb from nothing to $502 million in net sales within basically 26 short months is insanity. Yet, some supplement brands are like shooting stars. They burst through the industry in this spectacular arc, but they don't stay long. They just leave a trail of lessons we can learn. Mentioned in the bankruptcy documents was the fact that GOLI Nutrition sustained significant losses to the tune of $100 million since March 2022. Furthermore, GOLI Nutrition management outlined a collection of reasons they believed attributed to those significant losses. So, I'll put on my professor outfit and extract some insightful lessons those stated reasons, but also add some of my own opinions around the fall of GOLI Nutrition that could be helpful to supplement industry stakeholders. Some of those lessons include...how GOLI Nutrition supported this type of massive sales growth (along with some details on the Better Nutritionals contract manufacturing bankruptcy and court documents). Also, the market timing elements that helped GOLI Nutrition, but also subsequently caused liquidity constraints. Moreover, I talk about the apple cider vinegar supplement trend that created massive competitive risk for GOLI Nutrition...from third-party brands but also the same large retailers they had vendor relationships that created private label offerings. This leads into my discussion around the lack of strategic narrative at GOLI Nutrition that led them to being simply a product company. Finally, the “Mo Money, Mo Problems” lesson that any CPG entrepreneur should take to heart and that's you must have financial buffers in place for legal matters…whether that’s protecting intellectual property, guarding your hero product name from the godfather of apple cider vinegar CPG, or ensuring opportunistic class action lawyers or competitors don’t take you down. Can the new ownership unlock new growth opportunities? In 2023, GOLI Nutrition did around $119 million in net revenue…but lost close to $63 million. The business consortium acquiring GOLI Nutrition seems to think they can “launch their way out of this mess” and I disagree with this strategic approach. GOLI Nutrition needs financial discipline first and foremost. That means walking back a lot of sales, marketing, and product moves that just don’t make sense anymore. In doing so, GOLI Nutrition will almost certainly drop further from a top-line revenue perspective over the next few years. After that…who knows (and I do hope they achieve business growth again), but I’d be focusing more right now on surviving over thriving.

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I’ve said it once and I’ll say it again...not all indulgent snack brands need a “better for you” makeover! Earlier this year, Pringles launched a new version with blended multigrain and sweet potato ingredients. And I’m not Pringles guy…so I wasn’t ready to die on that hill. But now I’m hearing that PepsiCo’s Frito-Lay division is “vowing to increase its use of nutritionally diverse ingredients.” Now…if you want to enrobe Rold Gold pretzels with a sweet protein-rich icing…sounds fun. Maybe use a micro-filtered milk in Tostitos cheese dips…sounds proteintastic! But if you try putting chickpea flour in my Spicy Nacho Doritos…nah! I won’t let my beloved childhood snack violate the “Law of Line Extension” and I make it my new life’s work to stop you! 😉

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