3 ways to protect your startup's intellectual property

Getty Images Trademark law book and gavel

At one point or another, a common challenge presents itself to every entrepreneur in the natural food and supplement space: How do you protect your product if you can’t patent your formulation or recipe? If you ask attorney Justin Pierce, intellectual property partner at Washington, DC-based Venable LLP, trademarks and trade secrets can hold the answer—and they provide more expansive protection than most people realize. Here are three legal protections that Pierce says emerging brands need to plan for now.

Trademarks

Trademarks can be applied to anything that sets a brand apart, from its name to the color combinations used to the logo on the packaging. “These are all things that even the smallest startup will need to have ironed out right off the bat as part of their business plan,” Pierce says, “and are all appropriate for trademark protection.” His tip? Think about all the different ways the brand will be conveyed and apply for separate trademarks for each. “In addition to the brand name, you can also trademark black and white logos, color logos, distinctive product packaging or product configuration—anything that conveys unique aspects of your brand,” says Pierce. Enlisting the help of a trademark lawyer will ensure that everything goes smoothly, but the typical process to get a registered trademark can still take about nine months to a year.

Going abroad? “People often make the misjudgment that once they file for trademark protection in the U.S. that they are covered everywhere,” Pierce says. “But it’s important to note that even if you file and get trademark protection in the U.S. there are additional steps you need to take to be protected around the world. A trademark lawyer can help with this.”

Trade dress

Another form of intellectual property, and a subcategory of trademarks, is trade dress, or characteristics of how the product looks and feels. The classic example of this is the Coca-Cola bottle, the shape of which has become so popular that it became a call sign to that specific brand. “Trade dress can include unique packaging that is different from what’s on the market now, or it could be a specific and distinctive shape of the product itself,” Pierce says. 

Trade secret

“Brands often want to know if there’s a method to protect recipes or lists of ingredients or materials, and the answer is that generally, there isn’t a process that offers broad protection for these items,” Pierce says. But that doesn’t mean there isn’t a way to legally protect them. The answer lies in protecting recipes or proportions of ingredients as trade secrets.

“Don’t publicize your methods, use a proprietary blend if you can, and don't disclose every single ingredient’s proportion in the mix,” Pierce says. “And, anyone who touches any proprietary aspect of your business should sign a nondisclosure agreement. That means manufacturers, sales teams, distributors, copackers. Every third-party vendor should be included.”

Natural Foods Merchandiser

Market Overview 2020: Supernaturals take early 2020 hits

Getty Images Lucky's
A Lucky's Market in Plantation, Florida.

Even before the coronavirus pandemic, 2020 started out rocky for the so-called supernaturals.

Just weeks after grocery giant Kroger pulled its massive investments from Lucky’s Market, the beloved 18-year-old Boulder, Colorado, natural grocery that grew into a nationwide chain in recent years, announced in late January that it was shuttering 32 of its 39 stores and filing for Chapter 11. That same week, the New York-based specialty chain Fairway Market announced it, too, had filed for bankruptcy and planned to sell off five of its 14 stores.

Then, in early February, Asheville, North Carolina-based natural foods chain Earth Fare made its surprising announcement. Just one year earlier it had celebrated its 50th store opening and spoken of plans to open 50 more. Instead it was closing them all and liquidating everything.

Industry experts say the closures could have a profound impact on the natural foods landscape, serving as an opportunity for independents that for years have been struggling to compete with well-funded chains. But they also serve as a cautionary tale about the perils of growing too fast and the value of remembering one’s roots.

“The common thread with all three of these retailers is that at one point or another they went out and got investor money and the founders ultimately lost control of the strategic decision-making,” says Jay Jacobowitz, president and founder of Brattleboro, Vermont–based Retail Insights.


Read all of the Natural Foods Merchandiser Market Overview coverage:


Earth Fare, which began in 1975 as a mom-and-pop health food store in Asheville, had been sold from one private equity firm to another, with some customers complaining that the chain’s ingredient quality standard declined as the chain expanded. At one point, consumers could get coupons for a free bottle of Coca-Cola (“with no high fructose corn syrup!”) as pallets of the soda piled up in stores.

Fairway, billed as “like no other market,” began as a family-owned fruit and veggie stand in the Upper West Side of Manhattan and was known for its hip urban flair, fresh breads and artisanal cheeses. But that culture, Jacobowitz observes, didn’t play well in the suburbs of Connecticut and New Jersey as it expanded. And in the city, loyal customers grumbled to the New York Times that the quality of the produce had changed since the store had sought financing from a private equity firm four years ago.

Lucky’s, born in 2002, enjoyed modest growth to 17 stores before Kroger obtained majority ownership and pushed it to enter new and distant markets like Florida. Those stores didn’t perform well. Kroger pulled out of the Lucky's Market deal. And Lucky’s had to retreat.

Most of its shuttered stores were sold to conventional retailers via virtual auction, while its founders Bo and Trish Sharon announced plans to buy back seven locations, including its original Colorado stores.

“They suffered from trying to grow too fast,” says Pat Sheridan, interim president and CEO of the Independent Natural Food Retailers Association (INFRA). “We believe the best way to sell natural food in this country is through an independently owned natural food retail model and to take that model and try to turn it into an investor-owned model; it’s hard to make that work.”
With competition easing from Lucky’s and Earth Fare specifically, some independents were reporting 10% to 25% increases in sales in early January, Sheridan says.

Meanwhile, other supernatural retailers seem to be taking steps to avoid the fate of their lost brethren.

Leaders of Sprouts Farmers Market have vowed to ease up on expansion, with smaller stores, fewer prepared foods and a focus on high-quality produce, bulk foods, dietary supplements and supporting a high-quality staff. It’s still opening new stores in strategic regions such as Florida, where it believes a gap exists because of Lucky’s departure. In late April, amid the coronavirus chaos, it unveiled a new 30,000-square-foot store in Jacksonville.

The company appears to be thriving, with a 16% increase in net sales and a 10% increase in same-store sales for the first quarter of 2020, according to its first-quarter earnings report. But the future is nothing but uncertain.

“The COVID-19 crisis has created a lack of visibility for the remainder of 2020 with many unknowns,” says Denise Paulonis, chief financial officer of Sprouts Farmers Market, in a prepared statement. “While April sales trended higher than average, we are making significant investments in pay, benefits and safety measures, as the health of our team members and customers is our number one priority. We remain uncertain as to when consumer behavior will return to normal or what may emerge as the ‘new normal.’”

Meanwhile, Amazon has taken a bold step in the face of stagnating foot traffic at its brick-and-mortar Whole Foods Market stores, crushing demand for online sales and home delivery, and increasing concern about worker safety after a series of COVID-19-related deaths at its stores: In May, it began to transform some to “dark stores”—essentially online warehouses for fulfillment of Whole Foods and Amazon Fresh online orders.

Going forward, some industry watchers wonder if Whole Foods will permanently reduce its number of brick-and-mortar stores.

“Amazon must know that paying premium metropolitan area rents for stores no one will shop at is a waste of resources,” Jacobowitz says.

Looking ahead, he and others believe the key to success for the remaining supernaturals rests in three things: Don’t grow too fast and take on too much debt. If you seek investors, be sure to keep majority shareholder voting control.

And modernize, but stay true to your roots.

NBJ

The Analyst’s Take: Online supplement sales projected to double between 2019 and 2022

Claire Morton

While the coronavirus pandemic has surely created many lasting shifts in consumer behavior, one of the most impactful in the supplement industry is the significant growth of e-commerce sales. E-commerce has, of course, already had significant momentum, boasting the strongest growth of any channel over the past decade. For context, brick-and-mortar growth in 2019 was 2.8% while e-commerce grew at nearly ten times that rate—26.5%. Still, online supplement sales are expected to grow a stunning 61.4% in 2020.

The growth this year is notable, but even more notable is the long-term impact of consumer sales shifting to e-commerce. Nutrition Business Journal expects that many consumers who discovered online platforms as a result of quarantine and stay-at-home orders in 2020 will remain loyal to this channel moving forward. As a result, online sales are projected to grow from $5 billion in 2019 to over $10 billion in 2022 and are expected to represent 19.6% of all supplement sales by 2023. This doubling (and another doubling after that) is not surprising to anyone paying attention; it just wasn't clear it would happen this fast. This movement will no doubt have a ripple effect across the industry and impact retailers, distributors and brands alike.

Learn more in NBJ's 2020 Supplement Business Report, the industry's go-to guide for data and insights on the supplement market.

5@5: Black Lives Matter activists to boycott Whole Foods | Uber acquires Postmates

Getty Images black lives matter protest

Calls for Whole Foods boycott grow after employees wearing BLM masks are sent home

Seven Whole Foods employees walked off the job June 25 after they were turned away for wearing Black Lives Matter face masks. Critics say that there should be "no safe place for racism" in corporate America and 40 people protested outside of the Cambridge, Massachusetts, location on July 5. Read more at The New York Post

 

Uber acquires Postmates, merging two of the biggest delivery companies

Uber has acquired Postmates for $2.65 billion, making it the country's second-largest delivery behemoth. While Uber laid off 6,000 employees in May, its Eats business grew 54% year-over-year in April as consumers continue eating at home. Read more at Eater

 

USDA axes food box contracts with San Antonio event company and other controversial distributors

For the second round of its Farm to Families Food Box Program, USDA got rid of several contracts with companies that had previously garnered negative media criticism and criticism from food banks. The program is expected to deliver $3 billion in fresh food boxes over the two contract periods, despite falling short of expectations in the first contract period. Read more at The Counter

 

SBA and Treasury release names of PPP loan recipients

In an effort to answer the calls for transparency that have dogged the Payment Protection Program these past few months, the Small Business Administration and U.S. Department of Treasury released detailed information on almost 5 million PPP grantees. Minority and female-owned businesses are notably underrepresented in the list, and the SBA's own language about the disclosures is convoluted. Read more at Entrepreneur

 

Stark racial disparities emerge as families struggle to get enough food

Black and Hispanic households are twice as likely to struggle to feed their families amid the coronavirus pandemic according to new research from Northwestern University. The percentage of food insecure families has surged, however, across all groups; it is already much higher than it was during the lowest points of the Great Recession. Read more at Politico

Why cash flow is the No. 1 predictor of surviving the pandemic

Getty Images Cash in baskets

The COVID-19 pandemic has posed unprecedented challenges for natural products entrepreneurs, decimating business for some while sending others’ sales soaring. Every brand in our industry is feeling its effects in one way or another. Although many companies will be able to tolerate the upheaval, plenty won’t make it through this crisis or ensuing economic recession with their doors still open.

What will separate the survivors from the business casualties? According to Gary Hirshberg, co-founder and chairman of Stonyfield and founder of the Hirshberg Entrepreneurship Institute, it all comes down to cash flow. He says that knowing how much cash is flowing in and out of your business right now and being able to forecast how much will be moving in and out in the near future is the most critical indicator of whether or not a natural products brand will make it.

“To say that understanding cash flow is important is understating it—it is life and death,” Hirshberg says. “There is nothing more important to your business’s survival than this. You can say it’s your product’s taste and quality—and yes, those are all helpful and will make you more successful—but running out of cash is something nobody can [withstand].”

While this knowledge should be hardwired into every business leader, even experienced CEOs overlook cash flow’s significance. “When figuring out how much money they’ll need for the next year, many just look at their P&Ls and assume,” Hirshberg says. “This is a classic error because cash flow is very different from profit and loss. If you need a surge of orders to build up for a big customer, then you suddenly lay out a lot of money. If a large wholesale distributor gets into a slowdown and isn’t paying you, you can suddenly not be able to make payroll.”

Having a firm grip on cash flow will inform nearly every business decision you make. “It tells you whether you’ve got to tighten your belt, not make payroll, not make rent, get a loan or call your creditors,” Hirshberg says. “During difficult times, people are generally understanding if you tell them ahead of time what you’re going to do versus them having to call you looking for money. Pick up the phone and ask if you can send them $5,000 instead of $50,000 this week. Or say ‘hey, UNFI, Wegmans or Kroger, I have some equipment coming in; do you mind if I hold off on paying you?’”

However, the only way you can be open with partners about your plans, he insists, is if you aren’t shocked by your own cash flow reality.

While the COVID-19 crisis has brought this into sharp focus, the need to understand cash flow existed long before the pandemic. “I have run entrepreneurship institutes for 20 years and have begun every single one with an hourlong presentation on cash flow,” Hirshberg says. “The reason for that is you can be in business for a very long time without making money, but you can’t be in business for a single day without having cash flow.”

Hirshberg himself learned this the hard way, during what he calls “the bad old days” at Stonyfield in the 1980s when he was out of cash. “We went through a stretch where I had to write daily cash flow formulas,” he says. “I developed a worksheet to track cash flow so I knew how much money was going out the door and could be very disciplined about what came in the door. This tool became my sun, moon and stars. I looked at it every single day—it was my bible.”

Decades later, Hirshberg shares this same “super simple but highly evolved” worksheet with entrepreneurs during his institutes and the twice-weekly seminars he began conducting early on in the pandemic. Anyone can access the cash flow worksheet for free. “When I say it’s user-friendly, know that I had no traditional finance experience when I started Stonyfield,” he says. “I didn’t know what a balance sheet was.”

When forecasting cash flow, it’s critical to be realistic and check your own optimism, which can be tough for entrepreneurs, who are typically serial optimists. “We tend to underestimate when funds need to go out the door and overestimate how quickly funds come in,” Hirshberg explains. “So whenever you think money coming in will be on a per-week basis, take it down by 50%, and whenever you think money will be going out, take it up by 50%. You have to do both. Smart, well-intentioned people get nailed by both.

Mapping out and forecasting cash flow is especially crucial to jump on right now, as neither the pandemic nor the recession has an end date in sight. But it’s a practice that every entrepreneur should continue for the long haul.

“This exercise needs to become part of your regular business discipline, especially for smaller businesses,” Hirshberg says. “Entrepreneurs often leave this to their accounting people. No, no, no. If it takes four days to hear from your accountant about cash, you could be in cash trouble. As a CEO at the top of a company, if you don’t understand your own cash turn and rhythms, your business is at great risk, and before you know it, it could be out of your control.”

CBD products fail another test—with an important caveat for retailers

Getty Images cbd seeds oil lineup

A new published study that deigned to check in on the quality status of hemp CBD finished product brands found that out of 24 products tested, a paltry two passed label claim—meaning they contained what was listed on their labels.

One product—a vape liquid—contained a buzz-worthy 45% THC. That’s the cannabinoid that gets you high. By law, hemp CBD products are mandated to contain no more than 0.3% THC. CBD itself has no euphoric effects.

“From this small, but diverse, sampling of hemp-derived merchandise,” said researchers, “it appears that most product label claims do not accurately reflect actual CBD content and are fraudulent in that regard.”

It certainly demonstrates the hemp CBD business remains in its infancy, with quite a bit of maturing to do.

It’s notable that 14 products tested were vape liquids, five were ingestible oils, two were honey sticks, two were beverage shots and one was a topical cream.

“It would be more interesting if more oral products were included,” said Douglas Kalman, Ph.D., vice president of scientific affairs at contract research organization Nutrasource.

And only one tested company, Colorado-based Functional Remedies, was a recognizable brand—it passed.

“These are mostly no-name brands,” said Blake Ebersole, founder and president of NaturPro Scientific, a consultancy helping companies with product development, quality compliance and manufacturing of supplements. “The products were actually purchased from convenience stores and ‘CBD shops’ as opposed to health-food stores.”

The results, published in Journal of Dietary Supplements, said the researchers obtained all the products tested in the state of Mississippi.

Fifteen of the products tested were “well below the stated claim for CBD,” according to the study, while two exceeded claims in excess of 50% and five products made no claims.

So while the test results are hardly a feather in the cap of hemp CBD brands, the jury will have to remain out on the responsible tier of product providers—all of whom take steps to vouchsafe product quality from qualifying farmers or other intermediate vendors, requesting certificates of analysis—and not just taking the results at face value but then testing those results—employing Good Manufacturing Practices (GMPs), providing supplement-legal language on products and even listing test results available either on their websites or accessible via QR codes on product packaging.

The best-case scenario from this published study, then, is that smart retailers conduct all appropriate due diligence with brands—including spending less than a hundred bucks to take a bottle from a brand that wants to get on your store shelf and testing it independently at an analytic lab to make sure that there are no discrepancies between the label and the product itself.

The benefits of providing quality hemp CBD products is repeat customers as far as the eye can see.

5@5: Coca-Cola shuts down Odwalla | All farm, food workers are at risk

Odwalla odwalla-zero-sugar.jpg

Coca-Cola to close Odwalla juice business

Coca-Cola has announced it will be discontinuing its Odwalla juice business in addition to a refrigerated trucking network that delivered fresh drinks to stores. A company spokeswoman stated that the move was a result of "consumers changing what they want so rapidly" and the Odwalla brand "enduring ongoing financial challenges." Read more at The Wall Street Journal

 

It's not just meat: All farm and food workers are in peril

Migrant farmworkers and all food facility employees are at a far higher risk of contracting COVID-19 during a time when food supply chain stability is particularly precarious. Abolishing CAFOs, decentralizing meat production, localizing fruit and vegetable production and continuing to pass legislation that protects farmworkers' rights are several steps that should be taken in light of the current crisis. Read more at Counter Punch

 

How COVID-19 has changed the way we eat, according to 5 experts 

Everyone is now a "conscious consumer," according to Thrive Market CEO Nick Green. This means that meat consumption is on the decline, consumers are after ethically made products with long shelf lives—and the vast majority of them are learning how to cook. Read more at Fast Company

 

High-capacity super pantries gain foothold in pandemic

To avoid the long lines that have become commonplace at food banks across the nation, the San Diego Food Bank has created a network of "super pantries" that are scattered across its service area and can handle a much higher volume of families in need. The 35 new super pantries will be able to serve 130,000 people collectively each month. Read more at Food Bank News

 

What if we could have meat without murder?

The time for a new framework that classifies lab-grown meat as "meat" is upon us. Just like how milk can come from several sources (cows, coconuts and nursing mothers to name a few), identical meat products from different sources should be allowed to use the same terminology. And while consciously redefining meat to include lab-grown options would be a nightmare for conventional meat companies, it has historical precedent. Read more at The New York Times

Sustainability opportunities for each packaging format

There is no one-size-fits-all approach when it comes to sustainable packaging. The needs of a frozen meal manufacturer will greatly differ from those of a carbonated beverage manufacturer. Different products require different packaging formats, and different packaging formats necessitate different materials.

It is therefore important to be thoughtful when designing a given product’s packaging. For example, if a CPG brand plans to use aluminum cans, it needs to avoid full-body-sleeves or hard-to-remove stickers, as these disrupt the sorting process at materials recovery facilities (MRFs) and effectively make the aluminum cans not recyclable. A better option is lacquer printing, which increases the likelihood of proper sorting and a higher quality aluminum product for the recycler to sell.

Ultimately, Sustainable design suggestions are based on many variables such as packaging material, format, product, risk of chemical leeching, life-cycle assessment considerations and more. As a brand, it is important thoroughly research packaging options and holistically understand the impact of packaging. Start by speaking with a sustainable packaging design consultant or recycler to better understand the challenges and opportunities for your product’s packaging and check out Walmart’s Sustainability Hub’s recycling playbook.

The following gallery presents a high-level look at commonly used materials and formats and provides some general information about recyclability and ways to improve the sustainability of these formats. It is important to note that the following gallery slides do not take Life Cycle Assessment (LCA) measures such as water usage, carbon emissions, etc., into consideration. While LCA is a powerful tool to provide a holistic perspective, the results of an LCA analysis are highly dependent on a company’s location, procurement choices and logistics. Additionally, be sure to read up on the plastic codes, which are referenced in the gallery slides.

Click through this gallery to find your product’s packaging format in order to better understand its sustainability challenges and opportunities.

This gallery was produced in partnership with RCD Packaging as a part of the Sustainable Packaging Toolkit.

Natural Foods Merchandiser

Business as unusual: Moving to the 'new normal'

Adrienne Smith, Senior Food Business Reporter

"Everything will be OK in the end. If it’s not OK, then it’s not the end." This Indian proverb (or John Lennon quote of debatable origins) has become somewhat of a mantra this year, one plagued by the many uncertainties brought on by the COVID-19 global pandemic in which we find ourselves, unsure of whether this is still the beginning or somewhere in the middle. Sadly, it’s not yet OK nor the end.

On a personal level, we’re still processing stress, grief, illness, fear and isolation—even as things continue to inch toward improvement in many places. On a professional level, we’re trying to figure out what the eventual "new normal" might be.

It has been inspiring to see how natural products retailers—some of the most important figures on the front lines of this pandemic—have persevered in the face of some of the most difficult challenges ever faced. No doubt your internal discussions have been full of what-ifs and why-nots and on-the-other-hands. Maybe you’ve concluded your best way forward is to have several plans based on different contingencies.

Of course, the effects of the pandemic have varied greatly from place to place and even store to store, as states, cities, towns and communities have adapted to changing circumstances. For some natural products retailers, the onset of the crisis in March brought booming sales that in some cases rose by as much as 300%. At the same time, for many, losing the deli counter and in-store foodservice, limiting store capacity, offering only curbside and delivery service, supplementing employee salaries and reducing store hours offset any sales growth.

One challenge common to retailers across the country was the breakdown in supply chains, which still makes it hard to keep shelves stocked with some products customers have been clamoring for—notably immunity supplements, paper products and pantry staples like beans and rice. To address these issues, many stores have had to get creative and diversify their suppliers, in some cases sourcing directly from brands, restaurant suppliers, and even local producers and farmers. That may turn out to have a positive impact on how this industry is served in the future. 

Another positive thing to come out of this crisis has been the new and different ways that retailers have been reaching out and communicating with customers. Online platforms such as social media have allowed stores to host events including virtual cooking classes and web talks about supplements, nutrition and other pillars of our industry. These will, I hope, lead to new channels for customer and community interaction in the future.

So, what does all of this mean? We don’t know. None of us do. Several months into this crisis and we still can’t say for sure what life will be like on the other side. We can hope that the world will begin to look more seriously at some of the issues that our industry has been championing for years, such as the health of this planet, the nutritional implications of the food we put into our bodies, and the ethical and environmental implications of the way that it’s produced.

Let’s just hope we keep momentum going on issues this industry has championed over the years: organic certification, the elimination of single-use plastics, waste reduction, transparent sourcing and the push for more plant-based diets, to name a few. We should feel proud that we in the natural products industry are uniquely poised to help steward people toward health, wellness and, we hope, a more egalitarian future as we emerge from this crisis—OK in the end.

Natural Foods Merchandiser

Worth aplenty: The measure of natural grows as industry changes

Christine Kapperman

There’s no doubting the value of natural today.

Pioneering retailers set out to prove this decades ago. For years, in relative silence, they built great community hubs of health and healing. And around them an industry grew.

The swell in the last decade alone fed a wave of growth and change that proves this value as natural retail now reaches $166 billion and continues to grow faster than conventional. That’s part of the proof, apparent as conventional groceries grabbed onto natural and now represent 44.5% of the industry, according to our most recent Natural Foods Merchandiser Market Overview. Natural sales tipped to happening more in grocery aisles than health food stores in 2014.

Independents, though, maintain their pioneering position as the influencers that launch innovative new products, set the trends others follow, and educate a nation needing fundamental health goods and information more than ever.

In the last year, the value of natural shows as the market matures. Independent naturals, in particular, have settled into slow and steady growth and committed to defining themselves, whether differentiating from all of the new competition (today more likely Walmart than Whole Foods Market), growing to showcase their specialty (foodservice, selection, service like no other) or simplifying to focus on their strengths.

The last decade started with double-digit growth. Today, that rate sits at 2.3% for the natural channel.

As the new decade began this year, pundits called the value of natural into question as supernatural challenges garnered outsized headlines. One major cable news reporter asked me if these were extinction events. Hardly.

Then came the pandemic. Customers found their way to the local natural retailer for perishables and pantry basics. They sought immune products and the support they find only at community-focused stores. They’ve revived commitments to health, according to New Hope Network’s research. And they put their trust in their local natural products store more than their grocery and other institutions.

Value proven. Again.

Not everyone will value what natural retail offers. But natural retail’s value remains undeniable.

During these challenging retail times, experts love to tell leaders they need to pivot.

Instead, for natural, I suggest we reclaim our roles as pioneers and proclaim the values that birthed this industry with renewed spirit.