Brands and investors looking for the next major new opportunity know it’s notoriously challenging to figure out whether nascent categories will mainstream or fizzle out. But, in fact, emerging categories typically have definable dimensions that can help would-be investors determine their potential for breakout growth.
There are four key catalysts typically required for breakout growth—an unmet consumer need, a compelling solution, industry investment and sustainable economics. (See Exhibit 1.)
Capturing the Axe Effect
Before the early 2000s, times were tough for teen boys—and those stuck in close quarters with them.
For decades, the young men’s personal hygiene market was characterized by a limited number of products with limited advertising dollars behind them.
Yet in just a few short years, Axe body spray and Old Spice grew the market exponentially—from combined sales of roughly $149 million in 2003 (the year after Axe entered the market) to about $1.16 billion in 2012. (See Exhibit 2.) Today, even small urban drug stores carry more than 30 SKUs of young men’s deodorants, body sprays and body washes. This incredible success story was thanks to the four key catalysts for breakout growth.
Unmet need. One reason for this explosive growth was an unmet consumer need: There were no products specifically targeted at young men when they first reached the age of starting to care about their personal hygiene.
Recognizing this gap, Unilever launched Axe in 2002. Unilever used in-depth ethnographic research to understand their target consumer. This move paid off, as Axe met the consumer need both physically (smell better) and psychologically (attract women) better than any product on the market.
Compelling solution. While Axe’s products were ostensibly targeted at 18- to 24-year-old men, the marketing messaging (“getting the girl”), product form (low maintenance, multipurpose body spray) and price point also resonated strongly with an underserved younger audience.
Industry investment. Unilever also invested considerably in building awareness. Axe’s initial product launch in the United States in 2002 was supported by a significant media spend—more than $100 million. Procter & Gamble and Gillette were fast followers, adding their own advertising investment to further amplify the marketing message.
In addition to marketing, CPG manufacturers worked with key channel partners to achieve critical product distribution and visibility. In some retailers, such as Walmart, body sprays and personal hygiene products were merchandised in in-aisle displays alongside electronics or magazines—product categories that young men were already shopping.
Sustainable economics. Finally, the young men’s personal hygiene category had two key characteristics that created the potential for high-lifetime-value customers. First, brands positioned their body spray products as “more is more”—spray anywhere and spray often. Second, the products’ young users became brand loyal early, and as they started asking Mom for money or had their own disposable income, they sought out shower gel, hair and face product line extensions.
Cold-Pressed Creating a Juicy Trend
The $13 billion juice market has long been dominated by large companies like Coca-Cola, Pepsi and Ocean Spray selling traditional juices like orange and apple.1
Yet as the recent popularity of cold-pressed juice illustrates, some consumers were ready for a change.
Unmet need. The cold-pressed juice boom began with the convergence of multiple trends. First, consumers became increasingly interested in making healthier food and drink choices. In 2014, 71% of American consumers indicated that healthfulness was a key driver of their food and beverage purchase decisions, up from only 58% in 2006, and 83% of consumers said they were actively trying to eat more fruits and vegetables.2
Juice itself went through a transformation around the same time as consumers sought better-for-you juices over their traditional counterparts. This led to big growth for brands like Naked and Bolthouse Farms, with volume growth of more than 30% and 15%, respectively, from 2013–2014.3
Enter cold-pressed juices. Unlike better-for-you juices, which use heat processing to kill bacteria, cold-pressed juices were not heat processed and therefore retained more of the ingredients’ nutrients and had a different taste and texture profile. As more consumers began to buy into the benefits of cold-pressed juices over traditional juices, they were confronted with two key gaps in current products on the market:
Value proposition. The average price point was out of reach for the mainstream consumer, at about $11 per 16-ounce serving.4
Convenience. The purchase channel was inconvenient: The cold-pressed juice market was hyperlocal (juices were sold mostly at independent juice shops) or characterized by mail-order companies that shipped their juices to consumers. The shelf life was limited to three to four days, preventing distribution in conventional channels.
Compelling solution. To be truly compelling, any solution had to alleviate the challenges above. To address the value proposition, the price point came down slightly on many premium brands, with a 16-ounce serving retailing for about $9 to $10 per bottle. Additionally, larger players in the market innovated, using cheaper ingredients without major quality compromises, smaller package sizes to keep the prices of individual bottles down and larger family pack sizes to keep the cost per serving down.
The convenience issue diminished with the introduction of high-pressure processing (HPP). HPP increased shelf life and expanded distribution potential since some grocers, such as Whole Foods, require a shelf life minimum of 30 days for refrigerated juices. Before HPP, cold-pressed juices needed to be consumed within a couple of days or risk spoilage, but with HPP, that timeframe expanded to 45 days.
Industry investment. Given the declines in more traditional beverage categories such as orange juice, which saw record low sales in 2014,5 it’s no surprise that beverage powerhouses like Starbucks, Coca-Cola and PepsiCo saw cold-pressed juice as a potential growth opportunity. These players invested in the highly fragmented category, building distribution and awareness, which were key missing growth ingredients.
In 2011, Starbucks acquired Evolution Fresh for $30 million. While Evolution Fresh already had limited West Coast distribution in national, organic and conventional grocers, the deal led to national distribution in Starbucks stores, exposing more consumers to cold-pressed juice and further mainstreaming the category while also increasing investment in manufacturing capacity and marketing.
Meanwhile, in 2015, Coca-Cola acquired a minority stake in Suja Life, investing about $90 million for a 30% stake in the company, which had estimated gross sales of $45 million in 2014,6 retaining the option to buy the full company three years later.
Other large players stepped up with considerable investments, including Hain Celestial Group, which bought BluePrint in 2012; Campbell Soup Company, which purchased Bolthouse Farms, also in 2012; and PepsiCo, which launched Naked Pressed in 2016.
These investments made a huge difference. Natural and organic grocery stores—both independents and Whole Foods—began to feature cold-pressed juices in high-traffic areas—often in their produce sections. This had a two-fold impact: It increased convenience by selling juice where people were already shopping, and it helped communicate the supposed health benefits of cold-pressed juices by selling them alongside whole fruits and vegetables.
Whole Foods, which introduced the BluePrint juice line back in 2011,7 further invested in the product category by co-creating with Suja an exclusive line of more affordable juices called Suja Elements, which retailed for about $5 at its introduction in 2014.8
Mass channel retailers, like Target, soon followed. In 2014, Target decided to feature Life Juice cold-pressed juices in almost 400 of its PFresh concept stores in the refrigerated section, which already featured fresh produce.9 Meanwhile, conventional grocers like Kroger and Safeway featured the Suja Elements line at a lower price point than traditional cold-pressed and HPP juices.10
Sustainable economics. Cold-pressed juices experienced limited sales until 2012, but since then, companies like Suja and BluePrint saw sales more than double every year through 2014—starting from a combined total of roughly $20 million in 2012 to nearly $145 million in 2014. (See Exhibit 3.)
Finally, juice companies have also leveraged their brands to expand beyond new flavor profiles into adjacent products, including HPP fruit- and plant-based waters, smoothies, cold-brewed coffee, and even natural and organic food, offering new opportunities to build loyal consumers.
Keeping the four breakout growth catalysts in mind, what are some of the next categories poised for breakout growth?
Many categories currently have some, but not all four, of the catalysts for breakout growth; the addition of those final ingredients will propel those categories to break out from their current market niche. Here are three potential categories:
- Smart home technology. While consumers are becoming more comfortable integrating technology into every facet of their lives, many have yet to appreciate the potential benefits associated with smart home technology. A host of companies have developed products that automate and simplify everyday home functions, and there is the potential for rapid growth as consumer recognition of the benefits increases.
- Natural and organic beauty products. As consumers become more informed and more demanding when it comes to what they put into their bodies, this perspective also impacts what they put onto their bodies. Several brands, including Bare Escentuals, 100% Pure and Tarte, have developed compelling beauty products for premium consumers, and Physicians Formula and Burt’s Bees are targeting the lower end of the market. Despite the match between consumer need and product, this category has not yet been the beneficiary of sustained mainstream investment.
Premium meat snacks. A converging focus on increasing protein in consumers’ diets and a growing need for convenience have already begun to impact this category of savory snacks. The consumer need is evident, high-quality products with appealing taste profiles are already on the market and the industry has begun to invest in the category, with players suchas Hershey and General Mills investing in market leaders. Market leader Epic is starting to expand beyond its original niche, offering trail mix and salad toppers in addition to meat bars, showing that the category has the potential to have a more compelling economic proposition. The missing piece is a sustained marketing effort combined with shelf space and prominent placement for the category in both specialty and conventional retailers.
Of course, breakout category growth doesn’t mean every brand or product within that category will be a winner. When looking at unproven and emerging categories, knowing whether a given product has a chance to rise with the tide is key.
- IBISWorld, 2016
- International Food Information Council Foundation, 2014
- Euromonitor International, 2015
- The New York Times, 2010
- The Wall Street Journal, 2014
- The Wall Street Journal, 2015
- EverydayJuicer.com, 2014
- FoodNavigator-USA.com, 2014
- BevNET, 2014
- Brandfolder.com, 2015