Over the past few years there has been an explosion in new products in grocery stores, from barbecue sauces to nut butters to seltzers. Big brands have dominated the shelves for decades, but small startups have elbowed their way in thanks to a surprising strategy, which reveals something about how supermarkets actually make money. Dan goes to a grocery store with John Stanton, a professor at St. Joseph’s University, to see this battle for shelf space in action. Then he talks with Steven Vigilante of the beverage brand Olipop about how the little guys are fighting against the established brands.
The Sporkful production team includes Dan Pashman, Emma Morgenstern, Andres O'Hara, Nora Ritchie, and Jared O'Connell, with editing this week by Kameel Stanley.
Interstitial music in this episode by Black Label Music:
- “Twenty 99” by Erick Anderson
- “Bourbon Fanfare” by DeVon Gray and Kenneth J Brahmstedt
- “Dilly Dally” by Hayley Briasco
- “Trippin” by Erick Anderson
- “New Old” by JT Bates
Photo courtesy of Dan Pashman.
Dan Pashman: Hey, everyone, it's Dan. A quick note before we get to today’s episode: Next week, we are launching something really special, a brand new podcast called Deep Dish. And I'm so excited about the hosts, our old friends, Sohla and Ham El-Waylly. Now, this first season of Deep Dish is four episodes, and all the episodes will appear right here in The Sporkful feed. Here’s a little preview:
Sohla El-Waylly: Welcome to Deep Dish. This is a show where we do deep dives on the dishes we love.
Ham El-Waylly: And then we eat them.
Sohla El-Waylly: I’m Sohla.
Ham El-Waylly: And I’m Ham.
Sohla El-Waylly: And we’re married.
Ham El-Waylly: And we’re chefs! So we met in culinary school, and fell in love huddled together on the bottom of a bunk bed just flipping through a modernist cookbook together.
Dan Pashman: Every food you eat has a story. In Deep Dish, Sohla and Ham will deep dive into the surprising stories behind a range of dishes, talking with chefs, artisans, and experts.
CLIP (JASON): Bagel shops were popping up every place, and that’s the point at which the mafia decided to get involved.
CLIP (HAM EL-WAYLLY): Wait, what? This is a secret mob story? I did not see that coming.
CLIP (SOHLA EL-WAYLLY): Plus, secret mob story.
Dan Pashman: Deep Dish with Sohla and Ham is part detective show …
CLIP (SOHLA EL-WAYLLY): Is she's willing to lie about that, what else is she lying about?
Dan Pashman: Part quest through history …
CLIP (HAM EL-WAYLLY): In big bold letters, it says, "We are the creators of Tacos al Pastor".
Dan Pashman: And part cooking show…
CLIP (HAM EL-WAYLLY): There's some apple cider vinegar, garlic, Mexican oregano, and the achie bae
Dan Pashman: In one episode we’ll hear how Lebanese immigrants to Mexico brought shawarma, which over time evolved into Tacos al Pastor. In another, bagel bakers take on the mob. Then there are the ancient cookbooks that hold the key to one of Korea’s most beloved dishes. And the story of a Mississippi favorite made popular by a cop turned restaurateur, who got the idea after being called to a car wreck, where he found two dead bodies and a trunk full of tamales.
CLIP (CHARLES): Man, was hot tamales scattered all over that car.
CLIP (SOHLA EL-WAYLLY): That’s crazy.
CLIP (HAM EL-WAYLLY): Right? I thought that was crazy.
Dan Pashman: Join Sohla and Ham as they uncover these stories, one bite at a time.
CLIP (SOHLA EL-WAYLLY): When you see where bagels came from, it’s very obvious that this is not just bread with a hole in it. It has its own unique characteristics, this chewy interior, this crust. You have to fight with this bread. It’s a bread made by hard people.
Dan Pashman: And along the way, they may have some disagreements.
CLIP (SOHLA EL-WAYLLY): Is this podcast going to tear us apart?
Dan Pashman: Deep Dish will forever change your perspective on foods you know, and introduce you to others you don’t.
CLIP (SOHLA EL-WAYLLY): We're gonna see a little bit of violence.
CLIP (HAM EL-WAYLLY): Woah. Violence? Murder? Bagels? Deep Dish.
CLIP (SOHLA EL-WAYLLY): You know how a lot of people hollow out their bagels?
CLIP (HAM EL-WAYLLY): People ask for hollowed out bagels? Why? [GROANS]
CLIP (SOHLA EL-WAYLLY): And then they fill it with cream cheese.
CLIP (HAM EL-WAYLLY): Why? Wait, and then you fill that cavity with cream cheese?
CLIP (SOHLA EL-WAYLLY): So you have a tunnel of cream cheese.
CLIP (HAM EL-WAYLLY): Oh my god, that’s too much cream cheese.
CLIP (SOHLA EL-WAYLLY): The ratios are all wrong.
CLIP (HAM EL-WAYLLY): Those ratios ... You’re out of your mind.
Dan Pashman: The first episode of Deep Dish drops on Monday, January 22nd. All four episodes will be available right here in The Sporkful feed over the next month. So please open up your podcasting app, go to The Sporkful page and click follow or subscribe or favorite or whatever it is in your app because that way you won't miss any episodes of Deep Dish or The Sporkful. You can do it right now while you're listening. Thanks. Now, on to today’s show.
John Stanton: I have a lot of people who call me and say, you know, all my neighbors have said I made the best spaghetti sauce you could make. I think I want to try and get into supermarkets with it. And I say, generally, that's no problem. All you need is about ten million dollars to start. You have ten million dollars? You're quiet at the other end of the phone.
Dan Pashman: [LAUGHS]
John Stanton: And she, no. And I said, well, I'm not sure then that you ought to do this.
Dan Pashman: This is The Sporkful, it’s not for foodies, it’s for eaters, I’m Dan Pashman. Each week on our show we obsess about food to learn more about people. And before we jump in, I have more big news for you! When my cookbook comes out in just two months, I’m going on the biggest tour in Sporkful history! These events will be book signings and live podcast tapings all across the country. I’ll have more info later in the show but for all the details go to Sporkful.com/tour.
Dan Pashman: All right, grab your reusable bags because this week on the show, we're going grocery shopping. I've said it on the show before — I love grocery shopping. I like seeing what new products are on the shelves these days, finding inspiration for fun things to cook. And over the past few years, I don't know about you, but I’ve seen an explosion in new items. A lot of them, small batch products from startup brands. Just look at the barbecue sauces, or the nut butters, or all the new drinks in the beverage aisle. It’s dizzying. I had no idea that so many different countries had their own unique styles of yogurt!
Dan Pashman: And it’s not just my perception. In recent years, startup food brands have captured 3.5 percent of the market from big food brands. Now, maybe that doesn’t sound like a lot, but supermarkets generate over One Trillion Dollars in sales — with a T — trillion, okay? So 3.5 percent of that is still billions of dollars. For many companies, it’s market share that’s worth fighting for. And this fight has also reshaped the way the grocery store looks.
Dan Pashman: Today we’re asking: How did that happen? How have all these new products gotten on shelves when there are so many bigger, more powerful brands competing against them? To find out, I went to Fairway Market on the Upper East Side of Manhattan. It’s a small regional grocery store chain …
Dan Pashman: Here you go. You need to get grapes? All right, yeah, yeah. Sorry, we're blocking the grapes. Go on, sorry.
John Stanton: Yeah, yeah.
Dan Pashman: I’m here with John Stanton, my expert guide in the grocery store.
John Stanton: I'm Chairman of the Food Marketing Department at St. Joseph's University in Philadelphia
Dan Pashman: How'd you get into this work?
John Stanton: Serendipitously. I went to Temple University and when I was there for literally only one year, I got a consulting contract with Campbell Soup. And that was about 50 years ago. So I've been doing this literally for 50 years.
Dan Pashman: And what drew you into it? What did you like about it?
John Stanton: Money.
Dan Pashman: [LAUGHS] Well, that’s the honest answer, right? [LAUGHS]
Dan Pashman: As John and I start walking through the store, I'm looking at all the new fun, interesting products to try. But he sees grocery shelves differently. He sees a turf war.
John Stanton: There's two battles that take place. The battle of getting on the shelf and the battle of getting it off the shelf.
Dan Pashman: So when you pull a product off the shelf to buy it, you too have been pulled into the battle. And I I get it. Every brand in the aisle is competing to get into your cart. That’s the second battle John mentioned. But I wasn’t familiar with the first battle, of getting on the shelf. Big brands see shelves as precious commodities.
John Stanton: They say, listen, where it would like to be is between eye to thigh. The retailer says, well, you know, that's — this is like having real estate in a ... you know, in New York.
Dan Pashman: Right, that's like Madison Avenue.
John Stanton: Madison Avenue, exactly.
Dan Pashman: So the grocery store, the retailer says, if you want to be in the most desirable location in our store ... you're going to have to pay for it. This is called a slotting fee, and they are everywhere in grocery stores. Entire aisles are bought and paid for.
Dan Pashman: In fact John says 60 to 70 percent of a grocery store’s profits come from these slotting fees. In other words, the retailers make more money charging brands for shelf space than they make charging us for food.
Dan Pashman: This system of slotting fees gives an advantage to bigger companies.
John Stanton: It definitely does.
Dan Pashman: Because it creates — you need a lot of money up front just to get into stores to pay those fees.
John Stanton: Yep. Yep.
Dan Pashman: And bigger companies want to keep their advantage. So they’ll often go so far as to buy up more space just to leave their competitors with less space.
John Stanton: That's a great strategy. I mean, the customer can't buy them their product if they're not on the shelf.
Dan Pashman: Just as we’re talking about the battle over shelf space, I happen to spot someone stocking products in that prime, eye to thigh real estate.
Dan Pashman: Hey, my name's Dan. I host the food podcast.
Chuck: Oh, how you doing. Nice to meet you. Chuck.
Dan Pashman: This is Professor John here.
John Stanton: Hi, how are you doing?
Chuck: Professor John, nice to meet you, Chuck.
Dan Pashman: Would it be okay if I asked you a couple quick questions? Like, like, two minutes of your time?
Chuck: Yeah, I'm kind of a little short for — how long?
Dan Pashman: Two minutes.
Dan Pashman: All right. What's your job title?
Chuck: I'm a distributor at Pepsi Cola from 61st Street to 97th Street on the east side of Manhattan.
Dan Pashman: So anyone who's got Pepsi in that territory, you're making sure it's in the store?
Chuck: Yes, sir.
Dan Pashman: And when you're walking up and down the aisles here, what are you seeing? What are you looking for?
Chuck: What am I looking for? I'm looking for empty shelves at what I could fill and rotate and new product in.
Dan Pashman: And I know that all big companies pay slotting fees to get their products placed in supermarkets. So, what are you thinking about slotting fees when you come in and look and see where your products are placed?
Chuck: It's unfair. [LAUGHS] Because my chief competition is Coca-Cola and they buy out all the space, whenever they can. Like for example, can we talk about another store?
Dan Pashman: Sure.
Chuck: So right up the road at Target, and we all know Target's a national account.
John Stanton: Right.
Chuck: Huge national account? We were up about 40 percent in the last year and Target, especially this one up on 86th Street, and all of a sudden, Coke did some kind of slotting payments or whatever it was, and now we used to have like maybe 40 percent of the shelf, now we got 20 percent of the shelf ...
John Stanton: Oh!
Chuck: And they have 80 percent of the shelf.
John Stanton: Wow.
Chuck: So it is unbelievable.
John Stanton: Yeah.
Chuck: Now my company has to come to bat again, but they do that constantly.
John Stanton: Yeah.
Dan Pashman: Come on Chuck, Pepsi isn’t small potatoes. They must be able to fight back.
Chuck: True, but in Manhattan, shelf space, as you can see, is a premium.
Dan Pashman: At this point, Chuck couldn't stay to chat more.
Chuck: Hello? I'm downstairs, come on down ...
Dan Pashman: But his point is that even if Pepsi responds in some way, it's a constant battle. And in a busy store, a few months with your product on 20 percent of the shelves instead of 40 percent can really hurt sales.
Dan Pashman: Now there’s a new issue for people like Chuck to worry about. Pepsi and other big companies still have to pay these slotting fees. But grocery stores often aren’t charging smaller brands slotting fees. Why not? It’s not out of the goodness of their hearts. John says grocery stores started changing their strategy when they started collecting data on us.
John Stanton: Back literally 20, 40 years ago, the manufacturers used to give data information to retailers. Today, retailers are selling that information to the manufacturers. It's — data has been the story.
Dan Pashman: So how do grocery stores get that precious data? Well, you give it to them, every time you use your shoppers club card. Over two-thirds of consumers have one of these cards. Kroger, the largest grocery chain in the country, says that 96 percent of purchases at its stores are tied to a loyalty card.
John Stanton: Over the years, they've been able to get deeper into the consumer who are buying and they're learning more about what people want.
Dan Pashman: And one of the big things that grocery stores are looking at, with all that data, is what types of products get bought together. What different items are likely to end up in the same person’s cart? John gives me an example of how this plays out. He was consulting for a big grocery store chain, and the chain was taking a look at their baby food aisle.
John Stanton: So they looked at the shelf and they said, hey, we don't sell a lot of papaya for baby foods. Let's take one of these products and we'll replace papaya with beans.
Dan Pashman: Some other higher seller baby food.
John Stanton: Yeah, big sellers.
Dan Pashman: But when the store stopped selling papaya baby food, suddenly, sales of their other baby products plummeted. So what happened?
John Stanton: The person that bought the, the papaya — and there weren't very many of them — but they also bought diapers. You know, they also bought, you know, the washable pads. They also bought all the other varieties, etc. So when they lost papaya, they lost the customer who spends a lot of money.
Dan Pashman: So even though papaya baby food wasn’t a big seller, the people who bought papaya baby food tended to be bigger spenders overall. In recent years, these insights have led grocery stores to pay more attention to the products that attract certain customers.
John Stanton: They're focusing more, not on how many grapes do we buy, but how much money do we make from a basket that have grapes in it.
Dan Pashman: The stores want to bring in the customers whose baskets and shopping carts will be more profitable overall, and they need data to identify those customers. According to the publication The Markup, grocery stores collect data on age, race, finances, and employment, by using the phone number linked to your card, and data they buy from third parties. But those cards aren’t their only tool.
Dan Pashman: The Wall Street Journal has reported that grocery stores use video surveillance to see how long you'll look for an item before giving up. They call that the walk rate. If an item is popular, it has a low walk rate, stores give it prime real estate to be sure you can find it before you stop looking.
Dan Pashman: So the stores have all this data and one of the key takeaways from it is that those high value customers, who spend a lot of money, they want smaller brands, local brands, products with fewer processed ingredients, items that are different from the big companies. But for a long time it was very hard for these brands struggled to get on shelves.
John Stanton: Now, one of the things that people complain about is we're a small manufacturer. We just don't have the money to pay these slotting fees. And it's true, it really, really does impact the small manufacturer.
Dan Pashman: Now, many retailers have made a major change. They’re giving up slotting fees from smaller brands to bring in the more upscale, artisanal items that bigger spenders want. In other words, they're making sure there’s an equivalent of papaya baby food in every aisle. And this change has allowed some startups to get on shelves faster than they might have a decade ago. And that has helped some of those startups hit it big. John and I arrive in the pasta sauce aisle, and after seeing the big brands, like Prego and Ragu, we come across Raos.
Dan Pashman: Named after, like, a famous Italian restaurant in New York.
John Stanton: Restaurant. Yeah. They used to say it was the hardest table to get a reservation for. It ends up that the sons got involved with the business. It said we've got a really good brand here.
Dan Pashman: Right, people have heard of Rao's.
John Stanton: Yeah. They've done a great job.
Dan Pashman: So they launched a tomato sauce, which, am I right, didn't they sell it to Campbell's recently for a very large sum of money.
John Stanton: Yeah. They sold it to Campbell's, yeah.
Dan Pashman: Another sort of relatively recent shift in the grocery business that I'd love to talk with you more about, which is just the proliferation of the number of different varieties that each brand puts out. You know, like, there was Ragu and Prego, and then they had like — I remember when they launched like Extra Chunky, and maybe there was Spicy. Now, let me just look at Rao's. There's marinara, tomato and basil, vodka arrabiata, roasted garlic, regular vodka, four cheese ...
John Stanton: Right.
Dan Pashman: Sensitive marinara with no onions or garlic, caramelized onion, bolognese, mushroom and bell pepper, pizza sauce, margarita pizza sauce — that's all just from Rao's.
John Stanton: This display is nice. This is called billboard effect. I mean, you are clearly, as you stand in this aisle, taken by Raos.
Dan Pashman: Right. It's like one, two, three, four ... It's like seven or eight shelves [John Stanton: Shelves.] on top of each other. [John Stanton: Yeah.] Just, you know, all Raos, which is like a wall of Raos.
John Stanton: Yeah. And that, and so that really speaks to building the brand.
Dan Pashman: Cause it catches your eye when you're walking down the aisle.
John Stanton: Absolutely. if you get a nice display like this, so you're really focusing on the brand, well, maybe it is good to have different choices. I mean, if you had all this space and it was all the same product ...
Dan Pashman: Not so exciting.
John Stanton: Yeah, it would not be too exciting.
Dan Pashman: The huge variety of products now offered by brands, from tomato sauces to chips to just about everything else, is also pretty new. And John says this change is also fueled by consumer data, cause the food brands can also get access to this data, for a price, and all this information allows them to pinpoint trends and figure out what other flavors people might want. And it's easier for companies to make all these new flavors thanks to new advances in manufacturing technology. Computerized systems can clean and switch manufacturing lines to produce a new flavor much faster now. Years ago, a company might have to shut down a line for a whole day or two to switch between products — and you can’t make money while your lines are down. Now, they can make more varieties faster — and by using consumer data, they can deliver them to the grocery stores where people actually want them.
Dan Pashman: And all those different varieties make it easier to fill shelves and create that billboard effect that John and I see in the tomato sauce aisle. He says this kind of display is the most effective ad a brand can have.
John Stanton: This is really — when you come in here, this is really where the prime time is. So you know, you talk about on television, prime time. No, this is prime time. You've gotta be in front of the product in order to buy the product. You know, and that's prime. I got a potential customer standing in front of my product with money in their pocket — not at 9 o'clock at night watching a television commercial — and so this is huge.
Dan Pashman: This is the moment you're going to make the sale.
John Stanton: Yeah, this is where the tire hits the road. Everything you've been doing in the company, managing supply chain, getting the best ingredients — all that comes down to right here.
Dan Pashman: So you can understand why there’s such fierce competition for the best supermarket real estate, and why stores are giving some prime spots to smaller brands. But what does it take for a smaller brand to get to the point that it’s ready to get on shelves in the first place? And once it gets there, how does it stay there? We'll find out, stick around.
+++ BREAK +++
Dan Pashman: Welcome back to The Sporkful, I’m Dan Pashman. And hey, before we get back to the show, I want to tell you more about this tour, all right? When my cookbook, Anything’s Pastable, comes out in March, I'm going to be going on the biggest tour in Sporkful history. These events will be book signings and live podcast tapings. I’m going to be in conversation with some incredible folks, many of whom you’ve heard here on the show before. They’ll be turning the tables and asking me some questions, it’s gonna be great.
Dan Pashman: So where am I going, and who will I be chatting with? Well, I’m glad you asked. New York City with cookbook author and YouTube star Claire Saffitz, Long Island with Top Chef’s Gail Simmons, Chicago with The Korean Vegan Joanne Molinaro, Twin Cities with Chef Ann Kim, Atlanta with the New York Times’ Kim Severson, Miami with WLRN’s Carlos Frias, Washington D.C. with PBS host Pati Jinich, Philadelphia with PBS and WHYY host Kae Lani Palmisano, Boston with Dan Souza of America’s Test Kitchen, and more to come!
Dan Pashman: Tickets for the first leg of the tour are on sale starting today! So please go to Sporkful.com/tour for details. We’ll be putting more shows on sale in coming weeks including Texas, Denver, the West Coast, so be sure you subscribe to the Sporkful newsletter and follow me on Instagram for those announcements. Again, the site for tickets is Sporkful.com/tour. I can’t wait to see you on the road this spring.
Dan Pashman: Okay, back to the show. We've covered some of the trends that have allowed smaller food brands to get on store shelves faster than they used to. Right? But even with these changes, not every startup food company makes it to the big supermarket chains.
Dan Pashman: One person who understands why some of them get further than others is Steven Vigilante. He spent three years as an investor in CPGs — that's Consumer Packaged Goods companies. He invested in some of the small new food brands you see on shelves today. In 2018, he decided that he wanted to go work for one of those brands: Olipop, a brand new soda company with big ambitions, to compete with the largest soda companies in the world, by offering a soda with less sugar, and a lot of fiber.
Steven Vigilante: There's 80 percent more fiber in Ollipop than there is in a serving of Metamucil. So it's a healthy dose of fib — it's a third of your daily intake.
Dan Pashman: On, on the Olipop website, under the FAQ, it says, "Is it okay to drink more than one Olipop a day?", and the answer is, "We recommend starting with one can a day, then working your way up to two or more if it feels right." Tell me about your strategy for incorporating — you know, for working your way up.
Steven Vigilante: [LAUGHS] If you have a lower fiber diet, if you drop nine grams of fiber in one sitting or 18, if you have two at a time, like there's a chance it might just run right through you. So we don't want people to have, like, a negative experience.
Dan Pashman: Olipop was launched in the Bay Area by Ben Goodwin. Ben made his first sales by driving around to health food stores in the area, convincing them to stock his product. Steven was in L.A. at the time, and as someone who had experience with small beverage brands, he knew where Olipop needed to be to get a start in L.A.
Steven Vigilante: If you launch on the west coast, you generally go into — you want to try to get into Erewhon first.
Dan Pashman: For folks who don't know Erewhon, it seems like what they're most famous for is being the most expensive [STEVEN VIGILANTE LAUGHS] grocery store anybody's ever been to. It's like they have like $25 smoothies and ...
Steven Vigilante: Yep.
Dan Pashman: And ...
Steven Vigilante: I can tell you from my time doing this that the second — I would tell people what I do or what I'm working on or whatever it is and the second we got into Erewhon, and I could say in the conversation, "We are now selling an Erewhon ...," the whole conversation changed, because in L.A. it's just like a rite of passage. It's kind of the first — it's the first litmus test of, like, can you sell to like the most curious highest income consumers
Dan Pashman: Now as we’ve discussed, if you can sell to those consumers, you’ll have an advantage with retailers across the country, who want those higher income folks, and might cut you a break on slotting fees to bring those customers in.
Dan Pashman: But how exactly did Olipop get into Erewhon? Well, here’s another tip for small brands. It’s always good to hire someone who has connections.
Steven Vigilante: Like to be completely honest, I like knew the owners of Erewhon here in Los Angeles, and I literally showed up at their office at the time in West Hollywood, which was above their store and brought samples in.
Dan Pashman: There are at least 200 different beverage options at Erewhon. And in 2019, Steven says Olipop was one of the top sellers — which is great, but there were only five Erewhon stores in L.A. at the time. Now, there are seven. Olipop wanted to get a lot bigger. ind If you want to go in a more mass market direction from Erewhon, while still being in a more upscale natural foods type store, the next logical steps are Whole Foods and Sprouts. But in order to get into those stores, Olipop needed to knock something else out.
Dan Pashman: Because if you think about it, you don’t see any empty slots in grocery stores, right? So every time a new product comes in, it’s replacing something else. Even though Olipop calls itself a soda, they are not in the soda aisle. Their competition was the product that was sitting right next to them on the shelf.
Steven Vigilante: We often sit in the same sets as Kombucha. And for — if you look back in history, too, in 2018, 2019, when we launched, there had been this massive boom in the kombucha category and there was a ton of brands and a lot of stories that had full cooler sets, just dedicated to kombucha.
Dan Pashman: Like kombucha, Olipop is sold individually in the refrigerated aisle, and sells for about $2.50 a can. Now, that’s obviously more than a can of Coke, but less than a bottle of kombucha. And Steven says that this time, the kombucha bubble was starting to burst
Steven Vigilante: It felt like it was starting to kind of like top out with consumers. The product was like a little bit too expensive, maybe didn't taste as good as it needed to really scale with the masses. So there was all these kombucha brands on shelf. And we were just making the argument like, let us take out one of those and see how we can compete with the rest of the kombuchas. And that's — you know, that was like a core component of our strategy at the beginning, which is proving we could be better than the bottom half of the kombucha set.
Dan Pashman: Olipop became part of a new broader category called Functional Beverages. These are beverages that say they serve some function in addition to hydrating you — some kind of purported health benefit. The New York Times reported that from 2020 to 2021, functional beverages were one of the fastest growing nonalcoholic drink categories in the U.S.
Dan Pashman: And during COVID, when so many things slowed down, small food brands grew. Some of that had to do with the trends we discussed earlier, but Steven says there was another factor at play: A rush of investment in food startups.
Steven Vigilante: It was kind of this like artificial-ish bump during COVID, where everybody was online, everybody's shopping, everybody was really into their health at the time. And you saw this boom in like better for you consumer products online. And candidly, it made a lot of businesses think they were more successful than they were, and they raised money off of those numbers.
Steven Vigilante: It used to be like, if you had a deck for a beverage brand, you could raise a couple million bucks a few years ago. And now it's like, you need traction, you need to prove that there's actually product market fit. People aren't just throwing money at a deck anymore.
Dan Pashman: You need to have an actual beverage and maybe not just a deck?
Steven Vigilante: Yeah, that's a good way to put it.
Dan Pashman: Right.
Dan Pashman: Yeah.
Dan Pashman: About a decade ago, new food and beverage brands started to take off, and then bigger food companies started buying up the smaller successful ones. Like the way Campbell’s bought Rao’s pasta sauce, those accusations led to more people starting food companies and raise more money faster because the market was heating up.
Steven Vigilante: At the end of the day, the goal of most startup businesses is to get acquired. And so as you have more companies coming in and buying businesses earlier, that then incentivizes venture capitalists to come invest earlier.
Dan Pashman: Olipop was able to ride that wave. In 2019, they raised 2.5 million dollars in a seed funding round. The next year, they launched nationally in Sprouts, and in over half of Kroger stores nationwide. In the span of a few years, Olipop went from a handful of stores in California to hundreds across the country. Which is great, but it means they needed to make and ship, tons of soda. And filling large orders requires a lot of capital, and costs are especially high when you’re a small food company — you can’t take advantage of economies of scale. Beverages in particular are tough because they’re very heavy, which makes them expensive to ship.
Dan Pashman: So let’s say you do find a way to make more of your product while keeping costs down. Now, you can offer it to more stores, get it on more shelves. Great, right? But traditionally, that’s when you get hit with those pricey slotting fees. So exactly do you convince a grocery store to waive a slotting fee?
Steven Vigilante: So if you're growing really fast, there's a lot of consumer adoption for the product, there's a lot of buzz on social media, and you're a retailer and you don't have that product? You're probably just leaving money on the table, right? And so, as a brand, you have more negotiating leverage to not pay slotting fees if a retailer kind of wants and needs your product. You also have to remember that we're bringing, you know, new users to a category in a lot of cases. And so people who may be at Walmart as an example, we're buying traditional soda and we're not even looking at this digestive health set are now moving there and, you know, candidly spending more money per can than they are on a traditional soda — and that also matters to the retail, right? So you're not just, like, cannibalizing existing products. You're actually bringing new people into new sets in the store, and that's a very important metric to look at.
Dan Pashman: What you're saying is that a product like Olipop may bring new customers into these stores and get them shopping there, and then while they're there, they're going to buy other things
Steven Vigilante: Exactly. Exactly, right.
Dan Pashman: Is it fair to say that on average, the customers that a brand like Olipop would bring in might be — might have more disposable income, might be bigger spending customers? If they're the kinds of people who are going to spend $2.50 for a can of soda, then they may spend more money on other products, too?
Steven Vigilante: Correct. That's a safe assumption to make, I think.
Dan Pashman: As Olipop grew, it got a lot of buzz on social media. But you’re only the hot new item for so long, right? What about the next new brand, and the brand after that? How does Olipop keep grocery stores interested in their product, and wanting it enough that they’ll waive slotting fees? Another small tip: It never hurts to have celebrities on your side.
Steven Vigilante: So we partnered with Camila Cabello — big pop star — a year and a half ago, and kind of the first thing we did with her. We actually went into, with her permission — this was not like something we just did out of nowhere, but we went into a Walmart here in Burbank with her and her team, and we actually shut down the produce section for an evening, and filmed, like a produced TikTok, where she was like walking down the aisles and grabbing an Ollipop and her outfit would change with each can she grabbed. And so, you know, we very clearly you could see the Walmart logo in the background of that one. So, they loved that one. We were featured prominently in the Nicki Minaj "Barbie World" music video earlier this year — that's now surpassed a hundred million views on, on Youtube, and probably another 30 million ...
Dan Pashman: Is that, is that like product placement? Do you pay for that?
Steven Vigilante: Yeah, that was a product placement partnership. I am friendly with a production company here in Los Angeles that produces a lot of the big music videos. They love the team and they just thought we fit very well in the aesthetic of the video and I was kind of like, this feels like a great hack to, like, get us in the Barbie conversation, position us next to an artist, like Nicki Minaj,
Dan Pashman: People would hear that and they would say, okay, great. So you do this stuff on social media, people on social media see it, and then maybe it makes them more likely to go to the store and want to buy that product.
Steven Vigilante: Yeah.
Dan Pashman: But you're saying that also the stores themselves see those things and it might make them more likely to want to carry your product.
Steven Vigilante: Yeah. I mean, people ... Average TikTok users on TikTok — two hours a day at this point, right? And there's well over a hundred million Americans on there, and TikTok is a huge part of our strategy.
Dan Pashman: And this isn’t just helpful with customers. Grocery store buyers, the people at the big retail chains that decide what products to carry, they’re on social media too.
Steven Vigilante: The buyers are often heavily impacted by what their friends and family and their neighbors are talking about. And they notice this stuff, right? It's definitely paid dividends.
Dan Pashman: Today, Olipop is now in over 30,000 grocery stores. As they grow, they have also had to change the way they present themselves.
Steven Vigilante: We started out in that, you know, very much focused on better for you, digestive health, higher income demo, but now we're nationwide at Walmart and Target and Kroger, and we've kind of done a bunch of consumer research to realize like people don't really want a health lecture from their soda brand. They just want something that tastes good and is maybe lower in sugar. So we are — I think we've crossed this chasm out of just being like a health and wellness product and to just like almost like a lifestyle brand. We are expanding the health and wellness set into new users who maybe never kind of shopped for these types of products before because it's a product tastes so good. aAnd I think that's an important thing that a lot of early stage brands miss, is they want to make the perfect product that is supreme perfect ingredients and all this stuff, but that often results in it not tasting as good and it being, you know, a higher price point that is unattainable for a lot of people.
Dan Pashman: Back at the grocery store, Professor John Stanton tells me Olipop’s shift in strategy makes sense. He’s skeptical of any new product that focuses too much on health claims.
John Stanton: Consumers are very fickle. There will always be something that will be in the spotlight. Now, it's like good for your digestive health, etc. One was vitamin D not too long ago — had to be vitamin D. Eventually, we're going to see the spotlight move away and people are going to be doing some other thing.
Dan Pashman: So if you’re too reliant on the health trend of the moment, your food brand may not be built to last — especially, if you’re aiming for mass market success. And in general, John says a lot of companies don’t understand the factors that really influence purchasing decisions …
John Stanton: These things that people say are so important are not the products that they — like, everyone wants to be a good citizen, wants to buy sustainable, but they're not going to pay more for it.
Dan Pashman: So being healthy and sustainable aren’t the keys to long term mass market success.
Steven Vigilante: There's nothing in the food area that I would say has a guaranteed long lifespan of new products. 70 percent of new products fail, and I'm on the low side. I mean, there are other people out there saying 90 percent.
Dan Pashman: So how DOES a brand make it? John says once they get in stores, if it’s going to stay there long term, it won’t be because they have the best shelf placements or the best packaging or the greatest health benefits or the most sustainable manufacturing or celebrity endorsements. They need to sell at the right price and they need one thing above all else, which may seem obvious, but John says it bears repeating …
Steven Vigilante: I just looked at some data that I've had over the years. And taste has been consistently the number one attribute in the food business. You couldn't keep a product in business like this if it didn't taste good.
Dan Pashman: Next week is the start of our new podcast series Deep Dish launches! It’s part detective show, part quest through history, and part cooking class. And we could not be more excited about the hosts, the chefs, recipe developers and YouTube stars Sohla and Ham El-Waylly. Our first episode is about a Mississippi Delta police detective turned tamale king. His journey started when he was called to the scene of a car accident on Christmas Eve, where he found two dead bodies and a trunk full of tamales. That one's next week. You don't want to want to miss it.
Dan Pashman: Meanwhile, if you’re looking for more Sporkful episodes, check out last week’s show with Aubrey Gordon. Aubrey is an author, fat activist, and the co-host of the podcast Maintenance Phase. We talk about New Year’s Resolutions, Ozempic, and much more. That episode’s up right now, check it out.
Dan Pashman: My thanks to John Stanton, Professor and Chair of the Food, Pharma, and Healthcare Department at St. Joseph’s University, and to Steven Vigilante, Director of Growth and Talent at Olipop.