How This Secret Maths Formula Will Scale Your CPG Brand | Dr. James Richardson of Ramping Your Brand

0:00But in these categories where fan enthusiasm brings you kind of social cred, that's the magic that you have to tap into to create demand at the shelf that grows your velocity.

0:14Brand Growth Heroes Host:What if I told you that there is a mathematical formula that kind of separates those brands that scale really quickly and those brands that just tick along nicely? Well, there is one. I wish I had found out about it. 25 years ago. But today, the guest that we've got on the show, all the way from the United States of America, has studied this. He has written books on it. He has looked at all the brands in the States that have scaled, as he calls it, exponentially. We're going to unpick this maths for the first time, giving you the formula to make sure that your brand has the chance to scale like those enormous skate ramp brands.

1:00Brand Growth Heroes Host:Dr. James Richardson, bestselling author and consultant to early stage CPG brands all the way from the United States. Welcome to Brand Growth Heroes.

1:09Dr. James Richardson:Thanks for having me, Fiona. Glad to be here.

1:11Brand Growth Heroes Host:It's an absolute pleasure. Thank you so much for coming on today. Really appreciate it. The reason I wanted to get you in front of our community here is because I'm such a fan of your work and everyone really needs to hear it from you if they haven't already read your book, Riding the Ramp. We'll talk about that in a little bit. Talk to us about the maths, as we would say in the UK or Europe, behind scaling a CPG brand? Because it isn't really what people imagine.

1:34Dr. James Richardson:Yeah, I think the first piece of math that influenced my book was that sort of the mental model behind the skate ramp is this idea that undercapitalized early stage CPG founders. And what I mean by that is people who are not high net worth individuals.

1:50Brand Growth Heroes Host:Yeah, people who don't have shed loads of money or who just can't go out there and spend loads the money without the risk, right? Right.

1:57Dr. James Richardson:So they may have some net worth and have some capital, but they're not super rich. So that's the majority of them. They end up having to be very scrappy financially with how they launch their business. And that leads to a unit economic model, which would get you laughed out of a boardroom at a public firm. And that's because the public firm owns manufacturing facilities. So the minute they turn on the factory, symbolically speaking, their cost per unit is super freaking low. It's nowhere near what you're going to pay. Not even like probably 10 to 15 times less. And it depends on the category. It can get really high.

2:31Dr. James Richardson:And so I was learning about this as I was researching the book. It's that structural disadvantage which creates a really dangerous unit economics. It's like riding a knife edge, essentially. You have to have a path to scale that will move fast enough that you can survive that. And not too slow. In fact, I actually have written and talked elsewhere about, not in the book so much, but the danger of growing too slowly. That's the first piece of math is this undercapitalized situation and a high cost of goods for your thing. So that leads you to a premium price. Some people have heard about my book and haven't read it.

3:09Dr. James Richardson:They're like, well, why is he pushing premium? I'm like, I'm not pushing premium. You go try to order product from a co-man, you'll have a premium price, trust me, unless you're super rich. and then you can fund a really low price by having a bleeding P &L and just keep backfilling it, right?

3:27Brand Growth Heroes Host:But is that not just called going out and getting investment?

3:29Dr. James Richardson:Yes, right. But if you look at like Kevin's Sous Vide Meat, this big brand that blew up during the pandemic here, I mean, that was founded by a high net worth guy in California and he's just super rich. Nobody knows who he is, but that doesn't matter. So that most of us in this world and the people listening to this they're going to go out at a premium price in retail because their costs are high to make the thing.

4:00Brand Growth Heroes Host:Welcome to Brand Growth Heroes, the leading podcast for the founders of Challenger grocery brands. I'm your host, Fiona Fitz. My 25 years at global giants such as Nestle and Challenger brands such as Goo Chocolate Puds, Chobani and Strong Roots, as well as coached to over 400 scaling brands, means I have the experience to ask the questions that truly matter and get you the insight that will inspire you to think differently and drive serious growth for your brand.

4:31Dr. James Richardson:So how do we make this thing actually grow? Because if you talk to an economist, like any microeconomist, PhD, and I know of you, they will tell you that premium doesn't scale in consumer markets, right? It doesn't scale as much as low price. And that's generally true, right? Like a Rolex, they sell a lot of Rolexes, but only from the standard of$20 ,000 watches. Timex is selling a lot. Apple is selling a lot more watches at 500 bucks. Because you're stuck with this premium price, now you have to build a brand around that economic reality and you have to command, I call it in the book, command a premium and make people not only ignore that premium, but actually think that maybe they should even pay more subconsciously.

5:14Dr. James Richardson:Now that is a crazy irrational emotional state to get the consumer in. It is not the kind of emotional state that you see even with a loyal like Walker's chips eater. They're not that passionate about it. They're not resharing their eating occasion of Walker's chips. Now they may go through a ton, but it doesn't matter. There's no passion. And that's what you get with a late stage brand. What you have to do mathematically is you have to create a velocity growth curve on top of your mostly linear distribution growth.

5:45Brand Growth Heroes Host:And just for people who are like learning right now, what do we mean by that exactly?

5:51Dr. James Richardson:If distribution is growing, say you're doubling your store count, just crudely speaking. So you started at 400 stores, you doubled it 800 and 1600. This is slower in the US than in England and the UK because you don't have a lot of chains. So in the UK, you tend to basically have these huge stair-step increase. Probably got into Waitrose. And then you're going to go into Sainsbury. And then probably last will be Tesco. And Tesco will seem like it's going to break you.

6:17Brand Growth Heroes Host:Do you know that's actually changing right now? Because Tesco is actually, people are going into Tesco really early on. So yeah, a little bit of change.

6:24Dr. James Richardson:So it's a little more aggressive and frightening in the UK than it can be more gradual here in the United States, because we just have more places to sell in. Say you're adding, you're doubling the store count. The problem that you have is both mathematical, but it's also related to what I was just talking about, which is how passionate are your fans about your thing? How, like, cuckoo gonzo crazy are they? And I'm not talking about extroverted displays, like on social media. I just mean they're talking it up in their social network any chance they get. This tends to happen in categories where there's some kind of a social display function, by the way.

7:00Dr. James Richardson:So beauty, cosmetics, beverages, snack food. These are things that go into the house, that come out, we hold them up, we offer them as gifts to friends at the office. It tends to happen a little less in categories like, you know, counter-wipes. It's really hard to talk that one up to a lot of different people. But in these categories where fan enthusiasm brings you kind of social cred, that's the magic that you have to tap into to create demand at the shelf that grows your velocity. Now, you were asking what does velocity mean. You can define it many different ways. The crude way is the number of units you're moving out of every store every week.

7:39Brand Growth Heroes Host:What we would call rate of sale. Right.

7:42Dr. James Richardson:And if you track that rate of sale over time in the same store set, which you should be able to do with distributor data or with the retailer data or scanner data, whatever you can get your hands on, you want to see that growing month over month over month over month. Now, is it going to be doubling every month? No. But as long as it's growing 6 % to 10%, you're going to generate, just like compounding interest on an investment fund, you're going to generate an exponential logarithmic curve. That's what causes that ramp and that bend as you add distribution. If you can't add distribution, obviously getting that skate ramp to happen is still possible, but it means you have to actually accelerate your velocity gains even faster.

8:26Brand Growth Heroes Host:How do you accelerate your velocity gains? Because I'm yet to see very many brands where their velocity or their rate of sale changes much, you know, from the first six, eight, 12 weeks. My experience, usually if it launches at a case per store per week, that's where it stays, give or take a few promotions.

8:42Dr. James Richardson:Correct. That's true in the US. The way the math works on velocity at the scanner, the data level is you're going to have a velocity spike because most likely the retailer forced you into doing a launch promo. So that brings down the barrier and makes it much easier for people to flippantly buy you. So you're going to get this little spike. It varies in how long it lasts. It's not too long. Then it's going to collapse again to some baseline you were just referring to. It's that after the first three, four months in a store system, you can start to track your baseline velocity. And that's what you want to see inclined.

9:14Dr. James Richardson:So if your velocity is growing linearly, say 10 % a month on average, and believe me, this does happen, On top of store count that's growing, you can see how this turns into an exponential bending curve. That's the math. How do you make Velocity grow at that increment? You don't do it through promos. That, I can tell you, will never work. So the challenge with promotions is that it creates spikes in trial when you launch, and it creates spikes in volume sold by bringing people who otherwise had a price problem with what you're doing. In other words, the cheapos. They're less committed to what you're doing, though.

9:51Dr. James Richardson:It's very tempting, right, because you'll have a lot of people in the CPG ecosystem telling you, well, you want that extra volume, right?

9:59Brand Growth Heroes Host:But you also want the extra trial, right? You want people, like you want to persuade people to reduce the risk and let them try the product, right?

10:07Dr. James Richardson:You want more trial, but in the early years financially, you actually want the right people to try.

10:13Brand Growth Heroes Host:Okay.

10:15Dr. James Richardson:The people who would actually pay twice as much.

10:17Brand Growth Heroes Host:But what if you've only got 90 days or, you know, 90 days to prove to your, say, Sainsbury's buyer that your rate of sale is high enough to keep it on the shelf?

10:26Dr. James Richardson:This is where people need to prepare for launch so that they've built an awareness building machine that's relative to the geographies where those stores operate. So this is where shopper marketing and consumer marketing actually need to blur together in the early phase of the business because you actually do want to focus on the trading radius of those stores you're launching in. You actually want to do activations and things as much energy as you can put into it. And I believe Perfected is really good at this in the UK. Yeah, is really good at that.

11:01Brand Growth Heroes Host:Perfected, yeah. That's because they did my program, James. They did my program right early on. I'm thrilled to introduce Brand Growth Hero's newest partner, Jolson. Jolson is a leading B Corp certified commercial law firm that specializes in guiding the founders of scaling CPG brands. With long term relationships with clients like Little Moons, Trip, Eat Natural, Bear, Graze and Pulsin. Jolson is also famous for advising the innocent founders in their landmark sale to Coca-Cola. and believe it or not, they still work with the Innocent founders at Jamjar Investments today. I'm especially impressed by how Jilson sets founders up for long-term success and by their commitment to championing female founders.

11:45Brand Growth Heroes Host:Recently, I asked managing partner Paul Chappie, why does a scaling brand need a corporate lawyer? So you definitely need someone that's going to have your back, that is going to be looking at those pitfalls that may be coming in the future, preferably someone that knows the industry because having that context is really important when negotiating be that commercial agreements or funding arrangements and at the end of the day you really need to have someone that you can trust and obviously can can negotiate hard when they need to huge thanks to brand growth heroes podcast sponsors jolson now let's get back to the show

12:28Dr. James Richardson:you want to activate the shoppers who are just obviously because of proximity you're at that store that will i guarantee you that will get high baseline velocity the reason that people get delisted they they in other words you were alluding to the floor velocity is that they're not really doing anything other than like some really lame or lame instagram organic posts problem is if you misread my book you will fantasize about a product that grows velocity by its inherent design. Kind Bar had that magic. Skinny Pop had that magic. There are brands that, for whatever reasons, that I honestly have no clue.

13:08Dr. James Richardson:There's a massive amount of luck involved in that. There's a fantasy that it's going to happen. I'm telling you, on average, brands that ride the ramp and succeed did not have that kind of luck. So they have to go out and build awareness somehow. And that's how it happens. And the thing is, you've got to have the time and you've got to have a team, Fiona, that's going to go do that. So I don't know if you have you found the same thing is like you have people come to your mini MBA, but they're solo founders. I think what you're doing is great. But I think it's great to have an in-person event because it unlocks.

13:40Dr. James Richardson:A lot of people are going to want that. They don't want to take my courses because it's too it's too cold. But the problem is that I wouldn't be able to run your workshop because I wouldn't be able to look at them in the face eight to ten times in a row when they're doing it by themselves. Because this is a team sport. That's what I've learned.

14:00Brand Growth Heroes Host:I think that's the thing. I think one of the things, I suppose, why I draw so much on your work and also on Eddie and Christopher's work at Category Pirates is, you know, I mean, I'm not the person with all the answers. I'm a geek about other people's answers. and that's why I love referring and giving the source to everyone I talk to. It's like, read Dr. James Richardson, read Riding the Ramp, listen to his podcast, subscribe to Category Pirate Substack. I do that all the time. I don't mind being the messenger because I love that people bit. I love being in a room and building relationships with people and connecting people to other experts.

14:35Brand Growth Heroes Host:And it's a different kind of strength, right? So, okay, so back to this. So founders, they get a listing, they have to realize that if they want to scale fast say for example I don't know like Perfect Head I think they're hitting on you know tens and tens of millions this year in revenue and they only launched four years ago same with Trip CBD drinks in the UK okay so back to this so founders they get a listing and they have to realize that in order to be one of those brands like Perfect Head or like Trip drinks or Chobani you know when I joined Chobani between 2010 2013 they were already doing a billion dollars worth of sales and what I didn't realize back then was that in order to ride the ramp, as you call it, that there's this exponential curve.

15:19Brand Growth Heroes Host:It's not about slow growth over time. You not only have to grow your distribution, but also drive growth in your base rate of sale. So let's get back to that. How do you drive the rate of sale? You're going to double down on super consumers, super geographies, right?