Finding Diamonds in the rough with the demand map: an effective and efficient screen
Dan Dannenberg
Dan Dannenberg
Nicolas Weissberg
Nicolas Weissberg
November 2021

To bridge the growth gap vs. small players, strategic investors in CPG, Retail, and Food & Beverage need a map that drives a more effective and efficient process to identify future winners.

Big consumer packaged goods leaders are losing out on growth to smaller, more innovative, and more nimble players. The data is striking: while accounting for one half of 2016 sales, the largest players contributed only one quarter of the growth from 2016-2020

Share of Sales vs. Share of Growth', among Leading Brands, Small/Medium Brands, and Store Brands % of 2016 Sales, % of 2016-2020 Growth
Figure 1: Share of Sales vs. Share of Growth

Strategic investors – whether PE, VC, or corporations – must improve investing effectiveness and efficiency. With large players struggling to succeed in adopting the innovative spirit of fast-growing upstarts, the imperative is to identify future winners and invest. Beyond standard approaches to scanning potential investments, to gain an advantage – and to invest before valuations become sky-high – players must identify future winners early with a more strategic view of the market: while this is a well-worn truth, the question is how to do so effectively and efficiently.

Be more effective: shift from supply-view to demand-view for higher growth at better valuations

Strategic investors need a more effective way to find future winners, one that can drive growth for their overall portfolio. This requires a shift in view, from industry-defined category definitions to a consumer-defined view. To make this perspective shift, investors will need a map that identifies where future profitable growth will come from, and quantifies how big those opportunities will be.

Using alcoholic beverages as an example, a typical supply-focused map defines the landscape of opportunities with industry-defined categories, sub-categories, and price tiers, mapping each brand franchise in its own neat slot:

Figure 2: Supply-Driven Category Map

While this map is clearly organized and grounded in data, it is not effective for identifying future winners. The data it uses is backward-looking in quantifying past growth and current value. It also provides no strategic advantage to an investor and anyone can recreate this map using widely available data. While this kind of map may show diamonds, they are no longer “in the rough”: this map is akin to a well-organized “jewelry case” with finely cut and polished gems, and sold only at tremendously marked-up valuations.

The more effective alternative is a map grounded in the demand of end-users, one that identifies future winners and creates strategic advantage. In the example below, quantitative consumer research provides a foundation for identifying profitable growth territories. The “Demand Map”  shown below comprises intersections of drinking occasion types and ideal product preferences.

Figure 3: Demand Map for Beverage Alcohol - Occasion Types X Ideal Product Preferences

Occasion types for alcoholic beverages span from casual to social high-stakes, low-energy to getting hype, and indulgent to health-conscious:

  • Hanging Out = create fun memories from get-togethers with friends e.g. backyard cookouts, or watching sports
  • Meal Companion = pair well with food and take time to savor in more intimate settings
  • Social Stakes = make the right impression in higher-visibility social settings
  • Get Hype! = quickly get in a high energy mood and release inhibitions
  • Virtuous Vice = balance fun and free-from, to feel good both while drinking and later on

Ideal Product Preferences for alcoholic beverages embrace the chaotic pace of product innovation in the category and bring structure to the universe of product characteristics, ranging from light to deep, well-known flavors to adventurous, and even inclusions that offer positive health benefits:

  • Light & Easy = light to let you drink multiple, with well-known flavors and ingredients
  • Sophisticated Depth = more advanced flavors (e.g. bitter) with craft credentials
  • Flavor Adventure = fun flavors and combinations in social-media-friendly packaging
  • Energy Buzz = higher-alcohol with stronger flavors to accelerate the fun
  • Hydration Station = hydrating cues (e.g. seltzer-water) with other positive health additives in light, all-natural flavorings

The choice of dimensions for a Demand Map (for example, using consumer segments instead of occasion types) depends on the strategic business challenges facing the category. In alcoholic beverages the pace of innovation is accelerating rapidly, with traditional category boundaries blurring to the point of irrelevance. Beyond product categories, a better way to frame innovation is to go straight to consumers and have them “construct” their ideal beverage with distinct product characteristics. Given the social nature of alcohol, drinking occasion types is the other critical dimension and reveals how choice varies greatly depending on context.

Using Demand Maps, Emerton has helped leaders in multiple categories identify winners early. Specifically in alcoholic beverages, Emerton helped a global portfolio successfully make the leap into hard seltzer and higher-alcohol offerings. Applying quantitative “layers” to the map we helped identify territories with the greatest…

  • …Latent growth potential: latent growth potential can be found where demand is greater than supply. The Demand Map quantifies where consumers have greatest demand, and comparing that to supply data, pockets of latent demand are revealed. In the map below, the left side is over-supplied with established brands and product-types, while the right side has explosive latent demand potential: too few brands chasing strong demand for flavor adventures, energy, and health benefits such as hydration.
  • …Super consumers: super consumers are the most highly-involved in a category, spending more and with greater emotional commitment, making them extremely valuable and investable: they are heavier users, more brand-loyal, influence others, buy from multiple channels, and see around the corner to what’s coming next. High-potential, diamond-in-the-rough brands rarely grow initially from broad appeal, but rather by the fierce devotion of a core audience. Investment targets with a super consumer following thus have far higher potential to be future winners.

  • …Pricing power: profitable growth happens in territories where consumers are willing to pay more. With premiumization now a growth imperative across most mature categories, it is critical to see where pricing power is strongest.

Depending on an investor’s strategic needs and market conditions, different investors will use the same Demand Map differently. An investor seeking stable volume and supply-chain strength may focus on the upper-left area of the map, prioritizing super consumers and de-prioritizing pricing power or future growth. Another investor needing to find its next profitable growth driver would prioritize the lower-right area, seeing a clear near-term tradeoff in lower volume.

Be more EFFICIENT: shift from reactive & individual to proactive & holistic for higher throughput

Beyond being more effective, strategic investors also need a more efficient process, one that proactively identifies opportunities early and assesses multiple targets holistically.

Today, many investors evaluate prospects one-by-one, assessing each on its individual merits. This reactive, wait-and-see approach is too slow for an accelerating investing environment. Further, it sub-optimizes by over-focusing on each individual prospect, myopically missing the broader context of where a prospect sits in the overall map. With a Demand Map in hand, strategic investors can move from sequential to batch processing, strategically assessing multiple targets on the metrics that matter to future growth.

The “upfront investment” of 2-3 months to craft the Demand Map pays off downstream in faster throughput for due diligence, and stronger assessments on strategic criteria. Rather than replacing standard due diligence analytics, the Demand Map complements these and provides a strategic framing to identify future winners. The process typically involves deep end-user research, creation of the Demand Map via quantitative segmentation, analytics to size opportunity spaces (e.g. latent demand areas), and mapping of established and emerging players and their relationships.

Also key to efficiency and ROI, partnerships can deliver critical unlocks to accelerate growth. Knowing that no investment is an island, the Demand Map also reveals the broader category ecosystem: the key retailers to gain distribution, events and passion points to show up at, restaurant chains to drive on-premise buzz, and numerous co-branding opportunities (e.g. Topo Chico in hard seltzer as a JV between Molson Coors and The Coca-Cola Company).

Small players will continue to lead on growth, and the macro investment environment will continue to favor investment as the fastest way to tap this growth. Creating a Demand Map can be a high-ROI exercise for investors, driving a more efficient and effective process for identifying future winners.

Emerton has deep experience developing Demand Maps across multiple categories to spot future winners early – in beverages, food and snacks, retail across multiple classes of trade, and personal care and healthcare – and a track record of helping leaders drive profitable growth. Connect with us to craft the Demand Map and improve effectiveness and efficiency.

Dan Dannenberg
Managing Partner
Nicolas Weissberg
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