1. Smart start-ups target the health-active
Start-ups have to start small, because they lack resources. As a result they target the people most motivated by their health and wellness message. These are “lifestyle” consumers – the 20%-30% of people willing to pay a premium for healthier products, unlike the price-sensitive mass market. They are health active and receptive to new foods. In fact, many start-ups never graduate to mass, staying with these loyal premium consumers.
2. Personalised nutrition creates niches for start-ups
Consumer beliefs about food and health have fragmented. Consumers are not waiting for nutrigenomics to identify their personal nutrition needs, they are already making decisions about what is best for them as an individual. People self-diagnose, choosing diets that are gluten-free, wheat-free, dairy-free, Paleo, Mediterranean or whatever. Health-motivated people already practice personalised nutrition.
This has created a proliferation of niches. These white space opportunities are often dismissed by big companies as too niche – leaving the way open for start-ups.
3. Technology enables niches
Technology is on the side of start-ups. Consumers can easily access a massive amount of information on their mobile devices, feeding their ability to make more personalized nutrition choices – and that means more opportunities for start-ups. This has already transformed weight management, with big brands seeing sales fall as people use technology to make their own weight wellness choices.
4. Alternative channels favour start-ups
Start-ups no longer have to begin in the mass-market supermarket, where new brands have just 8-12 weeks to create significant sales. Unsurprisingly, most fail. The lifestyle consumer can now be reached by all kinds of alternative distribution channels which are better adapted to low volume start-up products than traditional supermarkets. Health food stores, home delivery, convenience stores (vital for reaching younger consumers) and others give start-ups the chance to learn about the customer and the market, modify branding and pricing – and even create a loyal customer base.
5. Start-ups have time on their side
Each year hundreds of new products are killed off by CEOs who measure success based on Year 1 sales (or sales over three years at most). But you have to measure success over a much longer period. Healthy snacking company Clif Bar, for example, has $650m (€574m) in sales – but it has taken 25 years of hard work to get there.
Kind Bar, with $300m (€264m) in sales, has taken 10 years to get from start-up to mass.
These timescales are the not the exception – they are the rule. And while few people have the luxury of 25 years to build a business, measuring success over three years is equally unrealistic.
6. Start-ups have more realistic sales expectations
The majority of CEOs don’t yet grasp that the landscape of the food and beverage industry has changed. In a world of niches, mass-market success is now the exception. We often hear of CEOs who set the goal of creating a $100m (€88m) brand – something which happens rarely in nutrition and health. Start-ups don’t have these unrealistic shackles imposed on them.
The fragmentation of health beliefs and markets, combined with new ways of reaching the consumer, is creating a wealth of opportunities for start-ups. The same forces are making it harder for big companies and undermining their brands – just look at the falling sales of breakfast cereals and soft drinks in many markets.
Business models exist to enable bigger companies to achieve start-up success – and more companies will have to adopt them if they want to have a place in the new world of health.
Julian Mellentin is a director of New Nutrition Business, which has helped 180 start-ups in health and wellness over the last 15 years.