DTC Briefing: CPG brands face growing pressure to offer retailers constant newness amid rising costs

But these deals are few and far between. In the short term, food startups are most focused on how to manage pressures like the fluctuating prices of raw materials like eggs and cocoa, on top of distribution and marketing costs. At the same time, retailers expect brands to help them cater to rapidly changing tastes and dietary trends. According to executives who spoke to Modern Retail, retailers’ and customers’ expectations are higher than ever. While some companies are trying to turn challenges into growth opportunities, there is a wariness in the air — about everything from the rising costs of production and distribution to the sheer competition from fellow startups and large CPGs.

Michelle Jimenez, co-founder of The Pizza Cupcake, said food startups are at a disadvantage when it comes to scaling.  

Jimenez and husband-co-founder Andrea Meggiato were at Expo to sample out the brand’s latest frozen product, a line of breakfast cups that will hit Target nationwide this May. The brand is also expanding its core products — pepperoni and margarita pizza snacks — from 300 to 1,500 Target locations. 

“Our biggest challenge as an emerging brand is that you’re being comp’d to the larger incumbents who have the scalability and resources we technically don’t have,” she said. “It’s not apples to apples, in terms of ingredient profile, but the consumer is expecting the [same] proposition, and it’s very difficult.” The Pizza Cupcake, founded in 2018, is currently sold nationally at retailers including Kroger and Walmart.

The expectation to scale, scale, scale is even more challenging for better-for-you brands, many of which carry a premium price, Jimenez said. That’s especially true at a time when many families are budget-conscious. “I wish that there was a way to make things more accessible to more people,” she said. “But it’s really challenging to have the expectation of hitting a certain price because you’re just not [selling at] scale and the ingredient profile is very different.” For instance, The Pizza Cupcake uses real mozzarella cheese and pepperoni free of BHA (butylated hydroxyanisole), which Jimenez said is much more expensive than artificial versions. 

Challenger brands aren’t just competing with each other, but also with private labels and bigger food manufacturers that are launching their own better-for-you versions. Just last month, Coca-Cola announced the launch of a prebiotic soda that will directly compete with category leaders Poppi and Olipop. 

“You see it here while looking around — the whole space is just booming,” said Catalina Crunch’s senior marketing manager, Katrina Winkel, pointing to the scene at Expo West. Catalina Crunch, like many other brands, is feeling the need to constantly offer newness. What’s more, it’s found it is challenging to set the brand apart when there are a lot of companies vying for the same shelf space.

Catalina Crunch, which makes low-sugar breakfasts and snacks, was founded in 2017. “When I joined the brand five years ago, we only had cereals and one cookie,” Winkel said. The brand first moved into low-sugar and high-fiber and protein products two years ago. Since 2023, Catalina Crunch has also rolled out snack mixes and low-sugar chocolate bars.

Much of this pressure to consistently reiterate and innovate comes with consumers’ changes in dietary preferences. When Catalina Crunch was starting out, much of the dietary preferences were focused on keto and gluten-free options. As this year’s Expo showed, protein is now king. “That’s why now we have the protein and the fiber products,” Winkel said. In April, the company is rolling out improved versions of these products, including a new high-protein granola line with refreshed packaging and an improved taste. 

Many retailers are now interested in offering nutrient-dense savory snacks and desserts. Catalina Crunch introduced its first cookie product in 2021, but over the years, it has ramped up its offerings of better-for-you versions of products like Chex Mix and Oreos — both of those products are doing well, according to Winkel.

In addition to managing the expectations of retailers, rising costs were on the minds of many CPG executives. And they’re just an issue for startups. Even companies that have been around for decades are increasingly alert to the need to compete on value and price.

Dave Ritterbush, CEO of Califia Farms, said that even though his company isn’t directly exposed to the onslaught of tariffs, the overall instability of the supply chain is worrying.  “There is a lot of volatility all around the world,” he said, noting that it doesn’t only include inflation and tariff costs, but also long-term volatility due to climate change.  

As a result, it can feel like a game of whack-a-mole trying to deal with ingredient shortages or rising prices. Once an issue with one of a brand’s key ingredients has been solved, another one seems to pop up.

“For example, this week was the highest price that coffee has ever been,” Ritterbush said. “A little over a year ago, it was trading for $1.60 a pound, and it’s now at over four bucks a pound.” While Califia’s core products are mainly made of plant-based milks, the brand also sells a growing line of bottled cold brew. “Coffee has to be grown in a pretty narrow region, so even a little bit of climate change or a weather event is going to drive up the price of things like chocolate or coffee.”

As emerging CPG brands look to grow nationally under pressure, the expectations from retailers and shoppers are high. Catalina Crunch’s Winkel said that even when offering the right product that checks off all the right macros, the product also has to taste good, especially when it’s selling at a premium price. “That’s why we’ve renovated all of our products,” Winkel said. “We know we have to hit the taste and texture right to compete.” –Gabriela Barkho.

3 questions with Ciaran Long, CEO of A.K.A. Brands

A.K.A. Brands is the parent company of Princess Polly, an Australian fashion brand popular with Gen Z. While Princess Polly is predominantly online, it’s focusing more on physical retail. Princess Polly opened its first store in 2023 at Century City Mall in Los Angeles, and this year, it plans to nearly double its store count from seven to 13. All stores will be in the U.S., a growing market for Princess Polly. Ciaran Long, CEO of A.K.A. Brands spoke with Modern Retail more about the company’s strategy.

Why are you expanding the number of Princess Polly stores, and why are you doing it now?
We’re super excited by the progress that Princess Polly continues to make … and the positive impact that stores are having on the business. We see that 30% of the customers coming into the stores and shopping with us are new to the brand. We’re also seeing that the stores are having a halo effect on the online business, and we’re measuring [that] within a 10-mile radius of each store. All of that drives home how impactful our stores can be in continuing to build those direct relationships we have with customers at Princess Polly.

How are you picking the store locations, and why are you focusing on the U.S.?
When we’re choosing locations, we are looking at the customer data we already have from the online business. We’re going into places where we know Princess Polly has demand, and we’re spending a lot of time finding the right city, the right mall in those cities and the right location in those malls. We’re not putting huge pressure on ourselves to do a certain number of locations. …

Princess Polly has been around for about 10 years but is obviously quite new to the U.S. We’re scaling the brand in the U.S. now and seeing a lot of success. … In Q4, we reported we were up 22% in the U.S. business [across the entire A.K.A. Brands portfolio]. … We want to continue to lean into that opportunity. … We do get a lot of customer feedback from our Australian customers, asking, “What about us?” So we’ll have to address that at some point fairly soon [via Australian stores].

Have new tariffs affected your plans for expansion in the U.S.?
Long term, we feel there’s tremendous opportunity for us in the U.S., … and we’re not going to let tariffs or something else distract us from that long-term opportunity. Now, we are predominantly sourced out of China, and our sourcing team is working with vendors to get concessions and to work together to navigate what’s going on from a tariff perspective. … But we’re very much focused on that quality product — getting that in front of customers and getting the newness that’s so important to our test-and-repeat model in front of customers. That’s priority No. 1 for us. –Julia Waldow 

Job openings to watch

As it nears $500 million in revenue, Oura is hiring for a few key roles: a vp of growth partnerships and a director of international commercial growth. With both job openings, Oura is looking for someone who “would help grow Oura by foraying into new user bases and building partnerships that focus on key pillars of growth.” For the vp of growth partnerships, that includes women’s health, movement and heart health, and for the director of international commercial growth, that includes healthcare, research, government, sports and employee wellness. – Melissa Daniels

What we’re reading

• On plans to co-create a footwear and apparel line with Zendaya. 
• Target sees the home category as key to its turnaround, and has been using its third-party marketplace, in particular, to add products from more furniture brands like Ruggable and Modern Lux. 
• To better explain the intricacies of the tariff situation, the Wall Street Journal explored why Lululemon will avoid Trump’s tariffs while Canada Goose might not.

What we’ve covered

• Havenly recently opened the second storefront for its home decor brand The Citizenry. Here’s why Havenly is betting on brick-and-mortar expansion amid a broader furniture industry slowdown. 
• Birdy Grey, which is known for bridesmaid dresses, is betting on menswear to help it power past $100 million in sales. 
• How Amazon sellers are dealing with tariff uncertainty. 

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