Report reveals that a new generation of brands will drive huge category growth by injecting transparency on sustainability and social impact if they can overcome the barriers to mainstream success
- New survey shows insurgent ‘purpose-led brands’ focused on sustainability are experiencing 10x higher revenue growth than incumbents
- 35% of all new consumer product startups today have a clear ESG mission, a 10x increase since 2005
- 70% of consumers will pay a reasonable premium (~10%–25%) for sustainability
- Purpose-led brands are becoming more successful at scaling up their businesses, with 7% reaching >€50 million in revenue vs. 4% for the consumer packaged goods industry overall
- But there are still barriers to scale: 71% of founders surveyed mentioned those related to consumers and distribution, 62% to supply chain issues, and 24% to organizational issues
LONDON—October 27, 2022—A new generation of purpose-led brands are successfully expanding into mainstream consumer markets to challenge incumbents but still face a unique set of challenges, analysis from Bain & Company and Verlinvest shows.
An emerging formula for how these insurgent brands can scale-up successfully, along with lessons for existing market incumbents to learn from those that do, are explored in this new report, Purpose-led Brands Can Reshape the Consumer Good Industry If They Can Scale. While this report is being published at a challenging time for consumers and consumer businesses, its findings show long-term shifts that are being driven by younger consumers who prioritize sustainability and purpose as part of their purchasing criteria in a way that previous generations have not.
The research is based on a survey of 60 C-suite executives across eight consumer products categories from Bain & Company, the leading management consulting firm and Verlinvest, an international investment company that partners with growth-stage consumer companies.
Most consumer product supply chains were established after the Second World War on systematic principles that prioritized price, consistency, and quality – typically without consideration for often unintended external implications. Today, the baseline expectations of consumers have risen, and a new crop of purpose-led brands has emerged to address these challenges and eliminate harmful environmental, social and health impacts of production.
By addressing these challenges, purpose-led brands are not only tackling important ESG concerns but adding value back into markets where costs currently outweigh industry value. For example, costs in the food industry amount to $11.9 trillion due to issues such as obesity and greenhouse gas emissions, which outweigh the industry’s $10T value. By building new growth models, the report finds that insurgent brands scoring highest on sustainability have as much as 10 times higher revenue growth than traditional brands.
This growth is creating a flywheel: purpose-led brands typically gain traction by creating issue awareness: this drives consumer interest in their products – with 70% of consumers willing to pay a reasonable premium (~10-25%) for sustainability – spurs retailer demand and attracts and motivates high-quality employees. These factors all lead to better growth and, in turn, higher interest from investors. Given this, it is perhaps not surprising that 35% of all new consumer products start-ups have a clear ESG mission, a tenfold increase since 2005. Purpose-led brands are also becoming more successful at scaling, with 7% reaching more than €50 million in revenue versus 4% for consumer-packaged goods overall.
However, successfully scaling a purpose-led startup poses its own set of challenges. Of the founders surveyed, a large majority (71%) mentioned barriers related to consumers and distribution as the leading challenges to scale, while over half (62%) mentioned supply chain and 24% organization. Despite obstacles, the research shows that successful brands do three things well, which incumbent businesses should take heed of if they want to keep up. They provide a recognized value proposition accessible at mass-market price points, they build sustainable supply chains, and they maintain an uncompromising sense of purpose to team members and consumers.
“We’ve closely followed this phenomenon of ‘purpose-led’ brands over the last decade as they’ve risen in popularity and success – and Verlinvest has partnered with those we feel can have the most impact. It’s exciting that this research shows these brands are finally breaking into the mainstream and achieving significantly higher revenue growth than incumbents. As the millennial generation, which already over-indexes on purchasing sustainable goods, grows to become the largest consumer group in the next few years, I look forward to seeing this ‘purpose flywheel’ proliferate further.” said Eric Melloul, Managing Director at Verlinvest, who co-authored the report.
Jean-Charles van den Branden, a Bain & Company partner and co-head of its global Sustainability & Responsibility practice, commented: “We’re excited to see how sustainable insurgents are disrupting the consumer products industry and breaking down externalities. They force incumbents to look at sustainability in a more disruptive and intentional way. Sustainable insurgents are still in their scaling-up phases, however incumbents don’t have a lot of time to re-invent their supply chains and embed sustainability deeper in everything they do.”