2022 was nothing short of mixed feelings for consumer products. Debates over whether direct-to-consumer is still relevant linger, coinciding with a slew of brands rushing to retail and proactively decreasing their valuations to attract institutional dollars amid skyrocketed customer acquisition cost and inflationary pressure. Meanwhile, more influencer-turned entrepreneurs are entering CPG with beverage maintaining the most well funded sector, whereas categories such as meat substitutes experienced a significant shakeup.
So what does this all mean to the consumer space, and what a successful CPG needs to take in the new year? Read the exclusive analysis below from FABID, a food and beverage specific database that tracks investors, brands, and their involved financing events:
Capital Market Turns To Growth-Stage Opportunities
Mirroring the stock market trend, the overall VC funding in CPG peaked during Q1 2022 reaching $1 billion, and has subsequently declined for the rest of the year after the Fed approved the first of seven consecutive rate increases in March.
Annual equity investment declined by 12% from $2.6 million in 2021 to $2.3 billion, with total deal counts dropping by nearly 100. However, median VC investment has grown year-over-year, suggesting funds increasingly participate in larger, later stage rounds for a safer bet. Prominent investment firms — Siddhi Capital and PowerPlant Partners — have both turned their focus from early-stage to growth-stage opportunities.
To fight for limited dollars in the capital market, consumer brands, including most-funded ones, have lowered their valuations significantly, with some cutting their multiples by half compared to 2021:
Canned water brand Liquid Death backed by Live Nation Ventures and Velvet Sea Ventures; as well as SC Holdings-backed plant supplement company, Athletic Greens, topped the list of most-funded brands, raising $148 million and $115 million, respectively, followed by cereal maker Magic Spoon and meat snacks company Chomps, which closed $85 million and $80 million in funding, respectively.
Liquid Death, however, slashed its multiples from 14x in 2021 to 4.8x last year. Refrigerated chocolate darling Mid-Day Squares, whose cofounder Jake Karls was named to the Forbes 30 Under 30 list this year, also saw a dipped multiple after raising $10 million in series C back in April, while prebiotic soda leader Olipop saw its multiple drop from 5.7x in 2021 to 2.8x after closing a $30 million series B in February.
Coupled with Lemond Perfect’s $31million series A raise and boxed cocktails brand BeatBox’s $16 million series C funding, beverages maintained its position as the most-funded CPG segment in 2022, accounting for a whopping 47% share of the total funding, followed by snacks and sweets at 13% and supplements, 8%.
‘One-Enemy Brands’ Amid Growing Influencer Economy
2022 was indisputably a year for celebrity and influencer-backed brands. Even as market went down, having a committed fanbase can still balance off spiked customer acquisition cost.
FABID data showed celebrity brands from Kendall Jenner-backed 818 Tequila to Logan Paul and KSI's Prime Hydration amassed nearly $160 million in total funding. Other noticeable brands contributing to the category include Feastables created by YouTube sensation MrBeast; Katy Perry’s non-alcoholic apéritifs De Soi; sustainable hazelnut spread TBH co-founded by ‘Stranger Things’ actor Noah Schnapp; and influencer Emma Chamberlain’s Chamberlain Coffee.
Other celebrities chose to compete head-to-head with long-standing staples in mass categories with better-for-you claims to appeal to the consumer. Goodles, co-launched by Wonder Woman’s Gal Gadot, aims directly at Kraft Heinz’s Mac & Cheese with better nutrition, while Chubby Snacks and Olyra emerged to directly compete against Smucker’s Uncrustables and Mondelēz’s belVita breakfast biscuits.
“While it may be dangerous to ‘poke the bear,’ it also helps establish a potential exit path,” Ryan Williams, founder of FABID, wrote in their annual report, stressing how these newer brands can thrive just by taking a small percentage of market share from those behemoths.
Operational Excellence & True Market Fit
FABID predicts opportunities remain going forward for CPG that successfully operate across the value chain, controlling both their manufacturing and distribution.
After all, having production in-house allows companies to test ideas, adapt, create interesting content, and ultimately have more control of their margins, Williams noted, adding how these companies should also establish a co-packing fallback if their own brands struggle.
Among the top most-funded brands in 2022 that self manufacture are Athletic Brewing, Good Culture, and Mush, which together raised about $162 million. AF Ventures-backed Eastern Standard Provisions and Clio Snacks also received $13.5 million from Oreo marker Mondelēz and $18 million in additional funding, respectively, in 2022.
“Our long-term optimism about the future of the industry remains unshaken,” Williams wrote. “The return to fundamentals will create sustainable innovation and enduring businesses. Brands with operational excellence and true product-market fit will endure.”