‘Our Darwinian moment’: The CPG industry was plagued with shutdowns in 2024 amid a tough operating environment

It’s been a challenging few years for the CPG space. High interest rates, a dry funding environment, inflation and increased competition on retail shelves have made running a packaged goods business more expensive. In turn, a number of young startups have quietly shut down.

Field + Farmer — which makes dips, sauces, and dressings — closed down in October 2024, years after a big rebrand in 2019. There is also a noticeable increase in young brands that only launched a few years ago, closing down as they run out of cash and run across expensive obstacles. Cereal startup OffLimits, which launched in 2020, stopped posting on social media towards the end of 2023, and customers noticed its products stopped being restocked on its website and in stores. Ice cream brand Marco Sweets & Spices, founded in 2020, ran into a more unique challenge when its co-packer was forced to recall all its products. According to co-founder Avery Henderson, the move “regrettably put us in a position we were unable to financially recover from,” forcing Marco to shut down in November.

Then there are the zombie brands that have gone radio silent, with their investors and founders still trying to figure out what to do with the company moving forward. 

‘Our Darwinian moment‘

According to CPG investors and consultants, the influx of brands that shut down in 2024 sends a major message to the startups still operating: become more efficient by making difficult decisions or wait out the lifecycle and become the next brand victim. 

Elly Truesdell, a partner at New Fare Partners, called 2024 “our Darwinian moment” in the CPG space. Truesdell, who has invested in companies like Omsom and Actual Veggies, said that because it’s become so much harder for emerging brands to compete in retail, “it will likely pull the winners to the front and the losers to the back.”

Following the pandemic, there was a rush of CPG startups, ranging from Sanzo to Omsom to Fly by Jing, seeking to quickly enter chains like Target and Whole Foods after seeing a boom in e-commerce sales during the pandemic. While there’s no database of exactly how many CPG startups have entered mass retail over the past year, big chains like Walmart have made it known that courting more better-for-you brands is a big priority.

Truesdell added that a number of these scaling brands took a big swing in expanding quickly and widely rather than testing and learning on a smaller scale. She pointed to grocery brands taking on a big retail account, for example, “thinking that that was going to solve all of their problems.”

“That strategy backfired for several of the companies that we’ve worked with,” Truesdell said. Oftentimes, Truesdell said these moves are last ditch efforts to go after a big new channel without not having the dollars to invest in growing it. On the other hand, Truesdell said, “I think that brands that got scrappy and creative, and didn’t let the doom-and-gloom get them, benefitted.” 

The overlooked cost of doing brick-and-mortar wholesale also dealt many small young businesses a blow. “Because retailers have been feeling the squeeze just as much as consumer brands, they’re passing on that squeeze through deductions and allowances,” she said. While big retailers have always charged brands slotting fees to be stocked on shelves, Truesdell said, “I saw these fees peak in 2024 across a lot of retailers.”

As a result, brands have had to review any and all fees in extreme detail and dispute them when needed. “The brands that didn’t have diligent accounting got really penalized on the back end,” Truesdell said. That’s on top of the dollars retailers expect to spend on retail media advertising or face having competitors buy those ads up.

“Having that dedicated person who’s focused on trade spend deductions and fees is so crucial because those balloons so quickly,” she said.

A scattered approach that leads to failure

Startup advisors are also finding through-lines of which companies survive during this difficult time. Caroline Grace, founder and CEO at CPG strategy consultancy Product & Prosper, agreed that the biggest factor across dying brands is prematurely scaling into retail chains without setting the proper foundation. This includes obtaining operational prowess to handle larger volumes or securing enough of a cash reserve to support growth and marketing to drive sell-through.

Another factor is a lack of strategic channel mix planning from early on, Grace said. “Many brands try to be everywhere at once rather than building deliberately, don’t have secondary revenue streams to support retail growth, and chase doors without considering if they can service them profitably,” Grace said.

Genevieve Gilbreath, founding partner at Springdale Ventures, agreed that a number of brands have rushed to expand doors before growing owned channels first. “There has been an over-reliance on ‘growth at all costs,” Gilbreath said. “Meanwhile, cash flow constraints also became a significant issue as costs rose.”

Overly saturated categories without differentiation have indeed become a big problem, Grace said. “The barrier to entry to building a CPG brand is relatively low — which means that many CPG startup founders come in without much of an understanding of the costs necessary to scale and a lack of understanding of which products are actually suitable for retail,” Grace explained.

Gilbreath said that brands that couldn’t differentiate on quality, mission or innovation struggled to maintain consumer interest. In turn, investors and retailers also lost their appetite for these products. “The question is: were they really solving a problem?” Gilbreath asked.

Part of adapting requires making difficult decisions when at a crossroads. For instance, while it’s difficult pulling out of a milestone channel, like a big-box retailer, Truesdell has advised brands to cut these partners without hesitation if they aren’t working. “I’m definitely going through that with a couple of the companies I work closely with… making some of those hard decisions of pulling out.” Despite the stigma of pulling out of a retailer, she said, “That decision is so much smaller than you probably realize, and people forget very quickly.”

There are also more granular challenges that make scaling more expensive, Gilbreath said, such as mis-forecasting demand and mismanagement of inventory. Many struggling brands overestimated demand at a time when shoppers were cutting back, which led to bloated inventory levels. “That created cash flow and operational strain,” Gilbreath said. We have heard this across the industry and seen some in a few of our brands.”

There are many factors contributing to CPG founders throwing in the towel, ranging from the fundraising environment to the cost of doing business both digitally and in physical retail. However, Truesdell said, “The best brands figure it out — and they have products that convert customers quickly, which makes them naturally efficient.”