Beverage startups battle for shelf space

Hello! In this edition of the DTC Creator newsletter: discover how beverage startups are battling for retail shelf space and the soaring fees of micro-influencers transforming the marketing game.

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Beverage startups battle for shelf space

The past three years have seen a surge in beverage startups, offering consumers unprecedented variety. However, this boom has also created significant challenges for new entrants like Recess, a relaxation beverage and supplement brand, and Sanzo, known for its Asian-inspired sparkling water.

The cost of competition: Securing retail space has become fiercely competitive, with retailers demanding higher slotting fees and larger sales cuts. For example, Vybes, a CBD and energy drink brand, now faces fees up to $6,000 per store. Founder Jonathan Eppers underscores the difficulty: "It's very hard to make the economics work."

The funding dilemma: In 2021, the beverage sector saw $13.6 billion in investment, enabling brands like Athletic Brewing, Olipop, and Liquid Death to secure major retail placements and subsequent funding. However, those late to the game now face a tougher market. Inflation has heightened price sensitivity among consumers, and retailers are leveraging this by demanding larger shares of sales, squeezing margins for smaller startups.

Investor expectations: Investors are now more discerning, prioritizing unit economics, margins, and a clear path to profitability. Elly Truesdell of New Fare Partners emphasizes, “I’m much more interested in brands focusing on key geographies and depth rather than breadth.”

The harsh reality: The beverage market has shifted from an innovation hub to a competitive battleground. While consumers benefit from a wide variety of choices, startups must navigate high costs and fierce competition to survive.

Key strategies for beverage startups…

• Negotiate retail terms: Understand and negotiate slotting and promotional fees upfront to manage costs effectively.

• Focus on core markets: Concentrate on key geographies to build a strong, loyal customer base before expanding broadly.

• Optimize unit economics: Prioritize profitability and efficient margin management to attract cautious investors.

• Innovate product offerings: Develop shelf-stable products to maximize retail opportunities and reduce dependency on limited refrigerated space.

• Secure strategic funding: Raise funds not just for expansion but also for developing new product lines to stay competitive.

The rapid evolution of the beverage industry demands strategic agility and robust financial planning from new brands. By focusing on these key strategies, startups can navigate the competitive landscape and build a sustainable path to growth.

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Influencer marketing fees soar: Micro-influencers lead the charge

As influencer marketing grows, micro-influencers (those with 5,000 to 20,000 followers) are demanding higher fees. Where they once charged $1,000 to $3,000 per post in 2021, today, they’re asking for $3,000 to $5,000, according to Krishna Subramanian, CEO of Captiv8.

Why the increase?

The surge in costs is due to several factors:

• Maturity of influencer marketing: It’s now a mainstay in ad budgets, with more brands willing to pay for content usage rights and exclusivity.

• Pay transparency: Influencers openly discuss their deals, leading to higher asking prices.

• Expanded roles: Influencers are now expected to attend events, appear in ads, and create branded content beyond social posts.

Industry insights: Influencer marketing has evolved into a complex ecosystem with additional fees for content rights, exclusivity, and ad access. Kelly Dye from Acorn notes, “In the decade-plus I’ve been in the industry, there have been 10-20% fee jumps year-over-year.”

Goldman Sachs Research projects U.S. marketers will spend $7.14 billion on influencer marketing this year, up 16% from last year. This figure could approach half a trillion dollars by 2027.

Smaller influencers, bigger costs: Brands like Loops Beauty have seen significant rate hikes for micro-influencers. In 2022, a social post cost $250-$500; now, it can be as much as $2,500. CEO Meg Bedford attributes this to rate transparency and the demand for specialized content.

Strategies to manage costs…

With no standardized pay scales, brands are getting creative:

• Long-term contracts: Locking in rates and securing consistent content.

• Brand ambassador programs: Building ongoing relationships with influencers.

• Product gifting: Offering products in exchange for posts.

• Content repurposing: Using influencer content across various platforms to maximize value.

Dagger ad agency, for example, uses range tiers to negotiate better deals, while Evite focuses on influencers who provide broad usage rights.

The takeaway: Influencer marketing costs are rising, but so is its value. Brands must navigate this evolving landscape by leveraging creative strategies and building strong relationships with influencers. Despite higher fees, the demand for influencer marketing shows no signs of slowing down.

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How brands are innovating Olympic campaigns

With over 10,000 athletes participating in the Paris Olympics, brands are finding creative ways to stand out amidst the competition for attention.

Unique brand engagements…

• Figs: Outfitting Team U.S.A.'s medical team with red, white, and blue scrubs and accessories.

• Pampers: Opening the first-ever nursery in the Olympic Village for athlete parents.

• Uber: Offering free one-hour cruises along the Seine River and a champagne tour of France.

Beyond traditional sponsorships…

Brands like Ralph Lauren and Coca-Cola are long-time Olympic sponsors. This year, NBC sold a record $1.2 billion in ads. Many brands are now engaging with less visible parts of the Games.

• Airweave: Official bedding supporter.

• Oral-B: Official oral care product partner.

• Chaudfontaine (Coca-Cola): Official water supplier.

Creative involvement…

• Elite Eleven: Launched a “Road to Paris” collection inspired by the Olympics.

• Mad Rabbit: Offering free products to Olympians with an Olympic Rings tattoo if they DM on Instagram by August 15.

New players in the field…

• Cariuma: Outfitting skateboarders from the Netherlands, Slovakia, and Portugal.

• Left on Friday: Providing bikinis and accessories for Canada’s women’s beach volleyball team.

Key takeaways:

1. Diverse engagement: Brands are finding creative ways to stand out.

2. Strategic partnerships: Engaging less visible parts of the Games for high visibility.

3. Innovative promotions: Smaller brands leverage unique tactics for awareness.

4. New entrants: The Olympics provide a platform for emerging brands.

The Olympics offer a dynamic platform for brands to experiment and push marketing boundaries, making it a "fun playground" for brand innovation.