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Education

How VCs are Getting Strong ROIs from Emerging CPG Brands

[x] mins read
Education

How VCs are Getting Strong ROIs from Emerging CPG Brands

[x] mins read
Data Science & Analytics
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Finance & Investment Financial Services Byzzer Data Analytics POS Data Retail Data

Every VC knows that ROI is the cornerstone of their business. And some emerging CPG brands have high ROIs and some don’t. So, how do you go about spotting the next CPG unicorn and how good is the return?

For those picking the right brands based on reliable data, the returns are great! It’s picking the right brands that presents the real difficulty. Luckily, you don’t just have to pick a name from a hat, there are a few ways to identify a good opportunity.

Read on to learn more about how VCs are getting strong returns from emerging CPG brands and how you can more easily identify the right ones to invest in.

Are CPG Brands Worth Investment?

Yes, CPG brands are certainly worth the investment! More than a quarter of the global CPG market is owned by small and mid-sized CPG brands. On average, these brands saw 5% growth in Q1 and many emerging brands saw 2-3x that growth depending on their stage of growth and industry. Though the state of the U.S. consumer is shifting due to the recession, many CPG industries still have tremendous upside.

CPG brands offer a solid investment for many different types of investors looking to expand their portfolio and see strong returns. By utilizing NielsenIQ data and demand forecasting, you can target the right brand to get you a better return on your investments. Whether you want a quick return or a long-tail investment, we can help.

Can you Get Venture Level Returns in CPG?

Yes, you can get venture-level returns in CPG, but, as with all investing, you need to invest wisely. Identifying brands that can grow quickly but sustainably, meet a unique consumer need, and have the resources to succeed is vital. Identifying your entry point is equally important. If a brand looks like a good option for an M&A at a later date, an earlier entry may provide the best return. If not, you may be better off waiting until more accurate growth numbers can be established. Regardless of your goals, the key to venture level returns is to utilize data to make informed investing decisions.

How to Identify the Right CPG Brands to Invest In

We all know there is no 100% foolproof way to pick a winning investment. Outside factors like shifts in consumer demand, growing inflation, supply chain issues, and more can throw a wrench into the best-laid of plans. Still, there are signs that signify an emerging CPG brand may be a smart investment.

Here are five signs a CPG brand might be a good investment:

  • 1. Consumer Demand

    It Meets a Growing Consumer Demand

    One of the best aspects of a CPG business is that the customers are fairly forthright with the things they want to see. Think of things like the growth of plant-based foods or a strong DTC sales cycle. Forward-thinking brands that eschew the traditional route can ride new trends to the top if they position themselves correctly and listen to the customers. One of the best ways for these brands to identify trends that aren’t just a flash in the pan is to utilize a combination of POS and panel data. These numbers can provide insight into the opportunity available and whether the growing consumer demand will continue or if the growth is just a fad.

  • 2. Omnichannel Presence

    It Embraces Omnichannel

    According to a NielsenIQ survey at the end of Q1, 86% of consumers reported buying CPG products both online and in-store. With more consumers than ever are adopting an omnishopping approach, CPG brands that have a good presence on all channels are more likely to be meeting the shifting needs of their audience. They’re also more able to react to shifts from one channel to another. Even better, they’re more likely to understand that consumer preferences in-store and online differ, so the marketing mix is more important than ever. With this knowledge in hand, these brands have a clearer view of the future of commerce and are more agile in their operations.

  • 3. Steady Growth

    It Has Steady Growth

    While it may seem like a great idea to invest in a brand that is taking off like a rocket, it may crash like a rocket too. Instead, you should be looking to brands that see consistent or increasing growth YoY at a sustainable rate. These companies are more likely to have a good grasp on their business fundamentals and are accurately identifying areas of growth that they can sustain. These brands are also better at convincing retailers to carry their products and are more likely to be acquired by a larger corporation in the long run.

  • 4. Good Margins

    Its Margins Are Good

    One of the toughest things for VCs about investing in CPG brands is the margin. Certain categories have very small margins and thus provide lesser returns. However, looking at the category as a whole may not give the full picture. Insights into pricing, promotion, and brand positioning can give you a greater insight into the actual return a brand gets on its sales. By sticking with brands in categories with room for higher margins and identifying how these brands are in relation to the competition, you can pick a brand that will put more money back in your pocket.

  • 5. Portfolio Fit

    It Fits Your Brand or Portfolio

    Finally, it’s important to stick with brands that align with your core values and fit into your portfolio. This may not seem like that big of a deal, but you’ll often run into issues investing in a brand that has a different growth path in mind than you’d like. For example, if your portfolio consists of fast-growing brands that you plan to sell off once they return a certain amount, picking a slow burner may not be the right decision. Additionally, brands that are focused on environmental issues and clean labels, may not be the right fit for a traditional portfolio that includes oil companies or the like. Be true to you can stick with brands that align.

The Key to Getting Strong ROIs from Emerging CPG Brands is Data

NielsenIQ is the premier data solution for Financial Institutions looking to use, or already using, data in their investment analysis for Consumer Goods. Using the most comprehensive data on the market including POS, consumer panel data, and various other sources, our clients can cover a broad range of categories in the most granular way.

Whether you’re interested in finding new/emerging categories and companies or looking to take a deep dive into a specific manufacturer or brand, we have the data for you.

Interested in learning how our data can help you invest in the next big brand?

Speak to a Specialist
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