CPG Investing Strategies: A Conversation with Julianne Hummelberg

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Hosts Drew Sanocki and Michael Epstein chat with Julianne Hummelberg, a VP at Summit Partners, to share the secrets of dominating the CPG industry. With Julianne's experience in investing in CPG brands, she gets into crucial success factors that entrepreneurs should prioritize.

Guest Speaker: Julianne Hummelberg

Julianne is a growth equity investor and board member supporting entrepreneurs as they scale consumer brands. She's passionate about entrepreneurship, especially within health & wellness.


- Follow Julianne on LinkedIn

- Check out Summit Partners

Read the Transcript ↓

Drew Sanocki:

In today's podcast, Mike and I are talking to Julianne Hummelberg, who is a colleague and friend who is a VP at Summit Partners. Summit invests in many CPG brands and we're doing this series on CPG and what it takes to succeed in CPG.

Well, Julianne has just so many reps. She's just got a great view of what's going on in this category. She's invested in over 20 CPG brands and I think she's on the board of about eight of those. She knows what makes a good CPG brand and what those key success factors are. We dive into that in this podcast. So hope you enjoy it.

Julianne Hummelberg. So, Julianne, welcome. My first question for you is what do you do and what does it have to do with CPG? And maybe we start there.

Julianne Hummelberg:

Great. Well, thanks for having me. I'm an emerging growth investor at Summit Partners. Summit Partners is a fund that has been exclusively focused on a growth equity space for 40 years, and we back capital-efficient, high-growth entrepreneurs in a variety of sectors. And I spend much of my time on the consumer sector, given my background before Summit.

So I started my career as an operator on the financial services side and did B2B marketing and sales. Actually it helped scale a company that a larger asset manager acquired. After that liquidity event, I wanted to figure out what I wanted to do with my life and was fortunate enough to have gone to business school and have two years to figure that out.

I have loved entrepreneurship and building something. And that naturally led me down a path toward venture capital and private equity. So I've been a growth equity-focused investor for the past seven years. And my first major role within growth equity was at PowerPlant Partners. I was a consumer-focused fund called PowerPlant Partners in L.A. I was the first non-partner hire and helped them raise multiple funds and actually invested in almost 20 CPG companies during that time.

I was on a board of seven, and they were predominantly in different verticals, food, beverage, beauty and wellness. And what they had in common was that brands that were focused on being better for humanity and the planet had a sustainability angle. They tended to be north of 10 million in revenue and took us on as partners to help them scale and accelerate their growth to 50 million in revenue. So I did that for several years and then have been fortunate enough to join the Summit team here in New York. My partner is Melanie Whelan, who is the former CEO of SoulCycle.

She and I sit on the board of a CPG company called Hairstory, a clean hair care and shampoo brand. So I've seen many dos and don'ts in marketing and channel strategy, particularly in that scale-up phase of product market fits being achieved. They have a loyal and exciting cohort of core customers that they're looking to expand either through channel, geographic or marketing strategy expansion. And I've helped advise entrepreneurs at that stage and love doing it.

Drew Sanocki:

There are a couple of dos and don'ts. What are the top dos and don'ts you've seen? 

Julianne Hummelberg:

In particular, we have this growth equity stage. It's about prioritization. And often, I see a lot of entrepreneurs get excited by new and shiny objects being product expansion too early or channel expansion too early.

So at the 10 to 30 million in revenue stage, the entrepreneurs that I see able to grow in a really capital efficient way have clear priorities, either a hero skew strategy, which can be really effective to drive initial conversion and customer retention, or hyper-focused channel strategy where north of 50 percent of revenue comes from one channel that they really tweak and refine and perfect the unit economics around.

And then, as they grow and scale to the north of 30 million in revenue, they start to add on additional channels, whether that be retail, Amazon, etc., that maintain a prioritization on one channel and use the additional channels that they launch into more as customer acquisition strategies than full throttle prioritizing two plus channels at once.

Drew Sanocki:

If you were starting a CPG brand today, would you start online first? What did you say the threshold was 20 million before considering another channel? Channel not being an online marketing channel, the channel being like distribution.

Julianne Hummelberg:

It's a great question. It's definitely not one size fits all. For example, food and beverage, especially things that need to be shelf stable, should go to retail first because shipping and fulfillment for a cold chain product are just not sustainable for a smaller brand.

On the other hand, if you are shelf stable and you're able to right-size your shipping fulfillment costs, DTC does tend to be the best channel for an early-stage brand because you're able to get all of the data on your consumers, really understand your product market fit in a way you'd never be able to in retail and also experiment with new products, AOV expansion, LTV, etc.

What's been interesting, though, having invested in the CPG brand pre-IOS in 2021 is a lot of DTC brands have actually accelerated into retail at a more rapid pace than previously.

And brands that tend to be sub 20 million in revenue and have really focused on DTC, if they rush into retail, there can be some severe consequences because in retail, especially with key banners like Target, Walmart, etc., you really have one shot.

And so if you don't have the supply chain and back-end operations, as well as the retail team against it, to ensure performance on the shelf and that you're hitting the velocity requirements of a retailer, you can pretty easily blow your shot.

So we typically see brands executing omnichannel well because it's been very organized. They prioritize one channel but then build the team to have the second channel be a fast follower in terms of success.

And they're monitoring each channel separately, holistically and looking at unit economics across all channels collectively because a lot of retail for a DTC brand is purely customer acquisition initiatives. And you'll go from there again, case by sector, food and beverage versus shelf stable CPG tends to be different.

Drew Sanocki:

So start DTC first because you get data on your customers. We just had Professor Peter Fader on. He's a big advocate of customer centricity and getting that customer data, which we all know online, means a lot because you've got first-party data. You can mine it. You have a direct relationship with the customer, know what to produce, and know what to build. How do brands leverage that to sell through Target?

You've got this vast trove of customer data through your Shopify site. How do you best leverage that to go through Target, Whole Foods, or Amazon?

Julianne Hummelberg:

I'll start with retail, and then I think Amazon is a great point because you can really see a flywheel effect across the three channels if you're heavily penetrated in one geography. For starters, using your DTC data can just guide what geographies you want to enter into retail, whether the coasts or the central US.

Identifying a banner that maps where your existing customers are great because you will want to lean on them to drive initial velocities. And so the more you can launch around your current customers, the more likely your initial launch will be slightly more accessible, more effective, and capital efficient. And as you succeed, retailers tend to lean in and maybe be more open and supportive of end caps and other support they can offer you.

And you start to see a flywheel effect once your velocities impress a specific buyer. Outside of geography, I've also found it really beneficial to use additional demographic data from your DTC customers to determine which banner. Target tends to be a little higher-end versus Walmart. And understanding who your customer is and why they're purchasing, you can really define which retailers are right for you. Some beauty brands I've worked with have decided to go to Target versus Sephora and Ulta.

That is probably the right decision for a more mass, medium-priced point product versus more prestige. You don't need the mass retail footprint to succeed and create that brand following and virality and can just focus on the few hundred stores that Sephora has.

Drew Sanocki:

If you nail a Target launch or a Whole Foods launch, what's the best-case scenario when they say, "Okay, we're going to roll you out into nationwide or to a broader footprint?" How fast is that? Months? Is it a year?

Julianne Hummelberg:

I've seen everything. I'd say best in class is the buyers wanting to have conversations with you about additional store counts within the first six months. So it's really critical how you initially enter. And you also just brought up a great point of doing nationwide right away usually is not the right answer. And entrepreneurs can be really intrigued and excited by the fact that they were asked to do that from the get-go.

But the operational burden that puts on a team can be challenging. And it also prevents you from testing and refining your brand block to drive the most success on the shelf. So while I don't make blanket recommendations, I'd say usually nine times out of ten, a regional test or a smaller group of stores that you have a ton of control over and also a great understanding of the geography in terms of your DTC customers there is usually the best decision.

Michael Esptien:

It also could put a major strain on cash flow, right? If you do too large of a rollout.

Julianne Hummelberg:

Yes. The inventory requirements, especially large brands like Target and Walmart, can be significant. And so, that's important to understand the cash and inventory needs. And it also gets back to the foundational aspects of the relationship that you want to have with the retailer, where you see velocity targets that are reasonable and achievable.

And that's another way I think you can input sort of your DTC customer understandings around repeat rates and acquisition into your retail forecast and demand and supply planning because retailers could have velocity expectations that are not in line with a) what you think is reasonable or b) what you can deliver from an inventory standpoint. 

And so making sure that there's no mismatch there is critical. And you really want to launch with a retailer where you have full support, understanding, and a like-minded strategy for operating.

Drew Sanocki:

Are the CPG brands that succeed when they launch in a retail store? Do they change their marketing to push people to buy in-store instead of through their Shopify site?

Julianne Hummelberg:

I'm seeing that slightly, but not really. DTC tends to be a more profitable channel because of all the trade spend and operational execution that you need to put against retail. So a brand prefers to continue spending most of its digital marketing spend for DTC traffic.

And then they'll think through the retail strategy, which is really jumping out on the shelf and doing shopper marketing and shopper promotions where I see a ton of increased execution around. It's true that omnichannel has not been a big topic of conversation before the IOS change. And now it's starting to become so. And there's a big opportunity to continue using unique marketing strategies like PostPilot to unlock an omnichannel marketing strategy that drives people in-store to purchase off-shelf and then ideally go back to DTC.

But a lot of brands that I've worked with, it's twofold. They can prioritize that and then continue to focus on two separate marketing budgets and strategies, one for DTC focused on digital marketing and the second for brand presence, brand block, ensuring the packaging is perfect...

Drew Sanocki:

I saw an interesting post from Iwon Organic's CEO, Mark, the other day on LinkedIn where he was talking about going into retail. He said how you need capital. And this is to Mike's point about inventory, packaging, inventory, and all that different work. 

And he said it's not like on the order of a couple of million bucks. It's like 10 million plus to go into traditional retail. And that's where you come in. They've got the success online, and now you write the check for 10 to 20 million to go to traditional retail.

Julianne Hummelberg:

We've done it all case by case. We have brands that started in retail and brands that started in DTC, and we create capital solutions and strategic partnerships that align with what the entrepreneur is seeking. If they have the momentum and the unit economics to continue to carry them to the north of 100 million in DTC, we're completely fine, exclusively focusing on DTC.

If it tends to be more of a retail product and they see a ton of opportunity to expand in terms of new customer acquisition through Omnichannel and retail, we're fine with that as well. I know Mark well at Iwon Organics and it's a 10 million dollar number. Tough for me to finalize. I think it's case by case based on the entrepreneur, the stage of the company, and the product being shelf stable or not matters a lot.

Also, the fierceness of the competition in that set depends on how much space you want to fight for and pay for. And then end caps are also more effective in some retailers than others. It really depends on the strategy, the product, and the entrepreneur.

Michael Epstein:

So what are you looking for right now? What makes a great investment for Summit Partners for you? And also, how has that changed over the last couple of years, as the overall macroeconomic climate has changed so significantly?

Julianne Hummelberg:

One of the things I love about Summit is our investment mandate has mostly stayed the same for the last 40 years. We've been focused on capital-efficient, high-growth businesses and entrepreneurs that tend to be scrappy and have big market opportunities and are executing against those tailwinds.

So our mandate has stayed the same even with macroeconomic cycles, and that's been consistent for 40 years. In terms of what we like to see, I won't speak specifically to numbers. Still, generally, it's all about the unit economics and ensuring that customer lifetime value to the cost of customer acquisition is in line. There's a strong multiple to LTV to CAC.

We really believe that that's a strong definition of product market fit. So we're regularly looking at LTV to CAC retention and repeat rates as an indicator of the business's strength going forward and the opportunity that we can partner with them to help execute against.

Michael Epstein:

Do you see many CPG brands have ventured by the time they get on your radar? And do you guys come in and buy out the VCs?

Julianne Hummelberg:

We certainly do cap table liquidity and are open to that. Nine times out of 10, the businesses we invest in are profitable. So by definition, they don't need our capital but are looking for a partner to help them navigate the bumps of entrepreneurship.

We all know it will go up and to the right, but it won't be a straight line and an easy ride. And so the fact that we've invested in 500 companies with very similar strategies around capital efficiency and customer unit economics allows us to bring a myriad of case studies and a really robust executive and entrepreneur network that our portfolio companies lean on.

Drew Sanocki:

Who should be thinking about taking money today, and who shouldn't be? Many people feel like they are at a point of desperation, which I suspect is not the time you necessarily want to make money. But then there are the folks that can really lean into growth. Who would you advise to be actively looking for capital right now, and who should stay away from it?

Julianne Hummelberg:

I always advise entrepreneurs to have ample cash so they are never pinned against a wall and in a position where they need to take capital that the bank failures a few months ago have instantaneously increased the cost of financing.

And so I feel for businesses in that position and have always advised companies to ensure ample cash on hand to have that leverage and negotiating power. The businesses that are growing in this environment, you guys have shared it on previous podcasts. It's a challenging environment right now for CPG and consumer brands in particular. And I think the ones that can grow despite that are extremely impressive.

And if anything, that's an indicator that they have a massive opportunity right now to really double dip and invest and hanker down to grow at an even more accelerated pace as inherently, some brands won't survive the mix of this economic downturn with the increasingly rising cost of capital. 

So for businesses proving profitability and double-digit growth in this challenging environment, it's a reasonable time to think about a capital partner simply because they'll have leverage being one of few, and the scarcity effect is real.

And some of the best companies were built in times of economic hardship. And so I think there's a fascinating market opportunity for the businesses that have grown despite what's happening today.

Drew Sanocki:

So if you were going to start something today since you see you see the landscape, what would it be? 

Julianne Hummelberg:

Yeah, I am not an entrepreneur. I have made a decision not to be. Entrepreneurs inspire me and love supporting them and helping them go after their goals and market opportunities. So it's tough for me to say that I would create a business, but I see a ton of opportunities right now, particularly in commerce enablement. The IOS shift has been something that has been leading all customer acquisition conversations now for north of two years.

I think there's a real opportunity to create a business that supports CPG companies in navigating the ever-changing algorithms and demands of new channels constantly being created. So I see a big confluence of events around the economic environment, Gen Z increasing in terms of their purchasing power, and increased opaqueness around retail. Yet at the same time, a necessity for omnichannel earlier in a brand's lifecycle because no one wants to be as affected by the IOS change again as they were in 2021.

So Summit as a firm is invested in some phenomenal companies that help do this. Klaviyo on the email marketing side. Maverick on the influencer ambassador side. StackAdept on connected TV. And we're really interested in that thesis of either software or tech-enabled services that help CPG brands navigate marketing and channel strategy because I think it will only increase in complexity going forward.

Michael Epstein:

On the product side, I know you and I  share this love of biohacking and all these random supplements and stuff. I got my liquid ketones here. Acetylcholine product side. Is that a good category to invest in, or is that too niche?

Julianne Hummelberg:

It's a good question. There are certainly some companies that are too niche. And I'm always researching and trying to find that gray area and that fine line where there is a chance for brands to really break out beyond the biohacker community.

The biohacker community, which I know you and I are part of, so I feel like I can speak freely here. We tend to be somewhat fickle consumers because we obsess and prioritize experimentation. And brands that have started in the biohacker community, from my perspective, would need to prove loyal customer retention and really impressive unit economics for me to be able to underwrite this expansion to a broader and demographic.

One thing I am spending a lot of time on right now is just the at-home testing phenomenon. So I'm a member of Parsley Health, and I do many at-home tests that candidly have been somewhat suboptimal and not productized and consumerized. I recently did Viome. Have you done this, Drew?

Drew Sanocki:

No, not yet. That's your gut biome test, right?

Julianne Hummelberg:

I'll do the shout-out to the company, Viome. And it's a simple at home test. It takes a couple of weeks and I was very impressed with the level of detail regarding the insights. They also give you your biological age, which I'm reluctant to say was actually four years older than my actual age. I freaked out a bit, but then I returned at 75. It's a good marketing strategy because then they recommend prescription supplements, which, of course, I buy every year.

Drew Sanocki:

You're 75 years old. I'm a big biohacker, Mike.

Michael Epstein:

We were at Expo West in the supplements room and Drew had tried all thousand of the brands presenting. Well, that's it. You just try it once. Hooperman says something. You go buy it. 

Julianne Hummelberg:

I know. It's heaven. On that note, I'm curious about both of your takes on one podcast in terms of just a percentage of marketing budget. I have seen that increase and be really effective regarding ROI and ROAS. And then to Facebook as a percentage of marketing spend, everyone decreased it since 2021.

And just now in 2023, am I seeing a better understanding of the algorithms and it increasing as a percentage of spend? One clean beauty company I spoke with has grown 100 percent year over year and is spending a good amount on sales and marketing well north of the 30 percent of revenue budget that I like to benchmark against. But over half of that was in Facebook and has been really effective for them.

Brands have definitely started to come back to Facebook in a sense. But I think they're taking lessons from the recent past and saying we can't put ourselves in a position to be fully dependent on Facebook as a channel now. So there's definitely that appetite and desire to have a more diverse marketing mix. I think brands are probably pleased more recently with a little bit of increased stability in Facebook relative to how it was a year ago.

Drew Sanocki:

This has been really good, Julianne. Thanks for joining us. Of course. You're at Summit Partners.

Julianne Hummelberg:

Yes, at Summit Partners. And feel free to reach out to me on LinkedIn.

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