So, you have your concept consumer tested – customers love it, but they are paying an introductory price or it’s your friends and family that are giving you the praise.
What next – well simple – more customers = more revenue = more profit.
If it was only that simple!
Typically decisions you made months ago come back to bite you – the biggest one in my industry is fresh versus ambient. It sounds simple – but when Diet Chef was purely a concept we spent a massive amount of time talking about how we would produce the product. We checked all market data and advice we could get and although I would love to have a freshly produced chilled supply chain – it was impossible to fund or scale.
Here are the problems:
- Margin – handling fresh ingredients requires you to buy daily and therefore you are linked to commodity price movements out with your control.
- Distribution – Moving the product from the producer to the end consumer is expensive. That’s why supermarkets are so successful. But you need their scale
- Price points – fresh has to be more expensive so will the customer pay this premium.
In the diet industry although consumers want fresh, they don’t want to pay the premium that it would require to make the same margin, so it fails.
This is the major challenge Hello Fresh, Gousto and Lifestyle larder face.
Crack it and you are onto a winner – but don’t use the “when we get scale” argument to show that your business model works – go back to the drawing board!
Most of these issues are linked to the fundamental margin you are making on the product – have a KPI and plan to show how you are going to fix this otherwise you are going to be a busy fool!Tweet