Magical Mushrooms
Boulder-based Eat Meati launched their first round of retail products in three select Sprouts Farms Market stores last week. The whole-food proteins made from mushroom roots have been available via DTC, but this marks the brand’s first retail launch, with plans to be in all Sprouts locations by the end of this year. The brand also began a partnership with the CO-based fast-casual restaurant group Birdcall, making Meati the plant-based swap-out in all their nine restaurants. Finally, Eat Meati closed a $150 million round of Series C funding which will help the company expand operations and accelerate production.
Laird Superfood announced the launch of a line of protein bars containing the brand’s signature adaptogens. The bars have 10g of plant-based protein from peas, hemp seeds and pumpkin seeds, plus six grams of dietary fiber. Each bar also contains chaga and lion’s mane mushroom extracts. Flavors include peanut butter, peanut butter chocolate chip, chocolate mint and lemon almond.
Pod Foods, a distribution services provider, has announced the launch of an emerging brands financing tool. This tool will provide small brands easier access to affordable capital. Among Pod Foods current clients is Toodaloo trail mix and Raaka Chocolate. Toodaloo is an adaptogenic trail mix company that mixes sprouted nuts and seeds with spices and dried mushroom powders. Each of their flavors are sub-titled with a benefit (e.g., Focus, Gut Health, Energy, etc.). Raaka Chocolate offers transparently sourced bar chocolates, chocolate-covered waffle cone squares and a powdered hot chocolate called Cocoa & Magic Mushroom Blend that combines their unroasted dark chocolate with reishi and lion’s mane mushrooms.
Mindright, makers of nootropic snack bars and mixes, is launching a line of popped chips. The chips are made from cassava, tapioca and potato flours and a mix of the company’s nootropic blend, including lion’s mane mushrooms, ginseng and other ingredients. Flavors include Chili Lime, Cinnamon Churro and Turmeric Ranch.
Four Sigmatic has launched Think Cold Brew Ground Coffee. The coffee is the first cold brew offered by the brand that contains its signature mix of Lion’s Mane and Chaga functional mushrooms to help with focus and steady energy.
So What? If your thoughts on mushrooms immediately go to ‘cream of’ soups and sides for steak, you have some catching up to do. In the past several years, sales and uses for mushrooms have well…mushroomed. Not only was growing them indoors a favorite pandemic hobby for many, but mushrooms have become the ‘it ingredient’ in everything from vegan leather (see Stella McCarthy’s new line and Bentley interiors) to sustainable packaging (see IKEA’s replacement of polystyrene).
However, as a food/beverage ingredient mushrooms have shown the most traction recently. Whether as a meat substitute or a superfood, mushrooms have become the darling of wellness-based companies. But why mushrooms? What’s behind consumers’ growing obsession with fungi? I chalk it up to five power forces:
Simplicity: This is the most boring reason, but it can’t be discounted. Mushrooms, at least anything beyond the standard supermarket button variety, conjure up thoughts of wild nature and foraging (i.e., not industrialized farms). Pictures of people roaming through forests with wicker baskets, gathering the bounty. A feel-good bucolic mental picture for today’s industrialized times.
Magic: Ok, I’m not sure how else to label this. Mushrooms are otherworldly unusual. They aren’t exactly plants, and they aren’t animals. They mostly live in the dark, they aren’t ‘planted’ and they don’t have seeds (that you can see); they just appear. They are a constant in myth and legend (have you ever seen a fairy ring?) and they are part of many culture’s rituals. Speaking of which…
Drugs: While some manufacturers might want to shy away from the connection to psychedelic ‘shrooms, I’d wager this is actually helping mushrooms’ popularity as an adaptogenic or nootropic ingredient. If people believe that some mushrooms can make you hallucinate, it serves as ‘proof of concept’ that other mushrooms might have a real effect on helping your brain.
Sustainability: Mushrooms are the pigs of the non-animal world. By that I mean, they are nature’s garbage converters. They thrive on waste (e.g., coffee ground, egg shells, etc.) and may be the answer to making the circular economy a reality.
Utility and Ease of Industrial Production: Everyone is excited by vertical farms (and rightfully so) but mushroom growing on an industrial scale is much simpler (usually) than growing plants. Less light control, less temperature regulation, less water, etc. Together with the sustainability benefits, mushrooms of all types and parts (i.e., yeast, mycelium, roots, etc.) are perfect for scale up.
In my estimation, mushroom frenzy is still in the niche phase, but it’s looking more like a breakout star. While Meati’s success can be attributed to overall plant-based excitement and the company’s ability to deliver on whole muscle-like texture at scale, Laird Superfood growth speaks to something else entirely. With backing from Danone, Laird’s move into bars marks mushrooms move toward the mainstream.
I see a future of wellness—specifically in bars---that speaks to a consumer’s mental state as much as it does their physical. Laird may be issuing the opening salvo to a much bigger battle for the future of the bar category. While standard snack bar makers are likely safe for the moment, bars that lean into wellness should be concerned. For example, I look at Mondelez’s recent Clif acquisition and see the need for a wellness rethink on the brand to drive differentiation. Could we be seeing mushrooms in Clif’s future?
Raise Your Floor, Not Your Ceiling
On their recent July 26th earnings call, Chipotle’s chairman and chief executive officer Brian R. Niccol said that the company was investing more on “being brilliant at the basics.” Niccol went on to discuss the training initiatives the company was continuing to bolster employee retention, food safety and other “fundamentals.” Chipotle announced quarterly revenues totaling $2.2 billion, up 17% from $1.9 billion in 2021. Comparable restaurant sales ticked up 10%, and in-restaurant sales grew 36%.
A week ago, Bloomberg publish an exposé regarding Beyond Meat’s continuing issues with producing sufficient volume of product in its partnership with Yum! Brands. In February 2021, Beyond promised to produce product for Pizza Hut, Taco Bell and KFC. However, beyond a few in-and-outs, no permanent menu offerings have arrived. Apparently, scale-up, production issues and an alleged Listeria issue have plagued the company in their quest to make sufficient plant-based chicken and pepperoni. In the meantime, competition (from Impossible to Hormel) are knocking on the door.
So What? Awhile back, I did a strategy project for a big nutritional supplement company, think whey protein and BCAAs. During the project, I talked with a lot of weightlifting trainers and coaches—super focused individuals that thought a lot about competition. One particular trainer was especially insightful about what problem plagued today’s athletes:
“Social media is bad for today’s bodybuilders…it used to be that you had to look your best and do your best on the day of competition, then you went away for 9-10 months and trained; no one watched you. Now athletes feel the need to be on social all the time to be seen, by sponsors and fans. Fans don’t want to see simple reps, they want to see beast mode, they want to see you lifting to your max. The problem is, good athletes aren’t trying to hit their max every day, they are working on their fundamentals. Good athletes raise their floor, not their ceiling. You work to get better at basic stuff, nothing that looks good on camera. You train so that your worst performance gets better, because by improving your worst, your best will improve, but it doesn’t work the other way around”
This insight doesn’t just work in weightlifting, it also applies to business, and it’s an insight that seems to be making waves in CPG companies. As I talk to industry leaders, I’m hearing a lot of the same language you see in Chipotle’s earning call—talk of going back to fundamentals and focusing on the core. In the past several years, too many companies have gotten over their skis, pushing for exponential growth to excite the Street without adequate investment in the basics.
If you haven’t felt it in the market, the flip has happened. Companies, markets and investors are suddenly more risk adverse, less interested in grandiose growth projections and more interested in stability. For many companies, I see the next few months full of introspective meetings trying to identify ‘floors’ to find the right ‘ceilings’ to maintain.
The Opportunity of $tores
According to a recent report by retail analytics firm InMarket, average grocery spending at Dollar General and similar stores spiked 71% from October 2021 to June 2022. Dollar General says that this trend emboldens them in their move to expand the number of locations selling fresh produce from the current 2,300 to over 10,000 in the next few years.
So What? Dollar stores are the dark horse in the grocery channel revolution. Not because their success has been abrupt or hidden, but because most of the industry has been secretly hoping that the champion that would disrupt Walmart would be ‘sexier.’ That explains why the industry has put so much love and attention behind Amazon’s grocery attempts, startups like GoPuff, and e-commerce DTC. For the white-collar employees at CPG companies, the obvious next phase of grocery must be some sort of tech-enabled, friction-reducing innovation that speaks to their needs and lives.
To these predictions of the future, I say ‘yes, and.’ Yes, we’ll likely see more tech-enabled stores (Amazon’s physical stores—equipped with Just Walk Out tech and Dash carts--saw sales increase 12.5% in the second quarter), and at the same time, Go Puff said it is laying off 10% of its global workforce (the second round in four months) and shuttering dozens of its dark stores.
What we are seeing is a bifurcation of grocery’s future. My vote is that dollar stores (and discounters and convenience) will likely pull significant volume away from companies like Walmart in the coming years. For all its logistical superiority and the ubiquity of its superstores, Walmart is a mainstream store in an increasingly divergent world. Walmart cannot compete with the rural, small footprint business model of stores like Dollar General (they’ve tried), even with efforts like Local Express. As we enter into the volatile next few years, where unending growth isn’t the norm, I think we’ll see the expansiveness of Walmart and its superstores become an albatross. This is already playing out in Walmart recent sales slump due to excess inventory in non-grocery goods. This doesn’t mean Walmart will tumble due to dollar stores, but I predict stores like Dollar General will take a serious cut out of Walmart’s future profit.
What should CPG companies do to prepare for this bifurcation?
1. Take $tores and discounters seriously: While many CPG companies have upped their game when it comes to dollar store sales, it’s rarely a significant consideration and more of an afterthought. The same energy you put toward Club needs to be expended on Dollar, which will require a different perspective on margin structure and sales.
2. Recognize the strength of national brands in the channel: From my experience, most $tore consumers are walking in with national brands on their mind, but they often leave with private label. There is an opportunity for CPG companies to increase their dollar store presence with PPA offerings and ‘just for Dollar’ products. While most dollar stores have yet to copy Aldi or Trader Joes with upscale PL, that will likely occur and could shut out national brands.
3. Empathize with the consumer: Lower/lower-middle income consumers are the heart of dollar store’s market. This is a group that is often difficult for CPG companies to ‘get.’ I’ve found they are either (1) completely forgotten; (2) a ‘trickle down consumer’ where it’s assumed that by targeting higher income this group will somehow find their own way; or (3) stereotyped. None of these will lead to developing a strong and success product or sales pipeline. Real consumer deep-dives are needed.
Brands I’m Watching
General Mills has launched, for a limited time, CinnaFuego Toast Crunch. The iconic cereal is coated not only in its classic seasoning, but also spicy pepper. The 5.9-ounce resealable pouch can not only be eaten with milk, but also as a snack. Available only online at Walmart.
So What? Cereal’s move from breakfast to a snack has been progressing for several years now. Between Kellogg’s Jumbo Snax and Post’s Big Bites, cereal makers have been trying to capitalize on the shift away from the bowl. However, what I find interesting about this Cinnamon Toast Crunch product is that its building a bridge. Unlike the Kellogg’s and Post products, which are just bigger versions of the current favorites, CinnaFuego attempts to connect to a well-loved, established snack: Flaming Hot Cheetos. Different flavor profile, of course, but there are important elements of connection. In fact, there might be enough of a bridge that CinnaFuego could potentially steal some of the Flaming Hot Cheetos eating occasions. Interesting approach.
Doritos has launched a new Tangy line up of chips, including Tangy Pickle, Tangy Ranch and Tangy Tamarind. The new flavors are available for a limited time.
Pickle producer Oh Snap is introducing refrigerated pouches of snackable pickled fruit. The product comes in four varieties (pineapple, regular or spiced; apple, regular or spiced) and will be available in stores soon.
So What? Its like a game of culinary telephone. You give Americans gut-friendly, lacto-fermented, probiotic pickles and yogurts and a few years later we get tangy Doritos. That’s how trends work everyone! By the time trends are digested by culture, we never know what we are going to get, but we need to work with it. Tangy excites consumers, a pleasant sensation for some, a signifier of health and lower sugar for others. I think we are only seeing the beginning of the sour trend.