Growth is an elusive target for consumer sector businesses. Capturing and sustaining profitable growth requires pairing acute self-knowledge with a willingness to experiment—while staying true to fundamentals. It’s a particularly tricky feat during this challenging moment. But an examination of winning strategies can reveal important patterns.
Matt Leeds, a partner at L Catterton—a consumer-focused private-equity firm with approximately $35 billion of assets under management—has been part of growth success stories at companies such as the hot-sauce maker Cholula and the breakfast brand Kodiak Cakes. Leeds recently spoke with McKinsey’s Imran Manji about growth missteps to avoid, the value of pushing for growth at a time of uncertainty, and the three strategies for growth that should be key focus areas for any consumer company.
Imran Manji: You’ve been involved in a number of industry-shaping deals in recent years. Along the way, you’ve seen what it takes for a company to achieve growth even in challenging times. Companies have multiple avenues for exploring growth, but it really comes down to three things: growing the core, growing adjacencies—both in new categories and new geographies—and growing through business model disruption. All three are important, but how important probably depends on a company’s maturity: for example, early-stage companies first have to solidify their core, then seek other forms of growth as they mature. How should companies think about prioritizing the trade-offs between each of these growth lenses?
Matt Leeds: First, there’s no one-size-fits-all answer. As you said, it depends on where each company is in its life cycle. Second, taking a fresh look at the business—trying to see it with a fresh set of eyes—is important in deciding how to grow, and for us, it always begins with focusing on the core.
I’ll give you an example. With Cholula, a hot-sauce brand that we acquired in 2018, one of our first priorities was to make the product as perfect as it could be: making sure that the color was a specific Pantone red, that the viscosity was right, that the Scoville units—the heat index of a product—were tightly banded and within an acceptable tolerance level. That was an important place to start. The ability to then go to phase two of growth and think about adjacencies, or phase three of growth and think about business model disruption, all depends on how confident you feel about the core of your product.
Hungry for growth
Imran Manji: You seek out midcap consumer companies with early potential. When you think about midcap winners, what have you seen their management teams do really well? What creates their edge?
Matt Leeds: One of the beautiful things about challenger brands and midcap businesses is that they’re not constrained by some of the processes that are in place at a larger corporation. Larger corporations have products that have been in the market for ten or 20 or 100 years, so they have to be more careful about swinging from rail to rail. But what it leads to is probably slower decision making and lower aggressiveness.
What I see in the high-growth challenger brands is a sense of playing offense. Those companies are hungry. We love getting behind businesses that have that kind of growth mindset. If you are aggressive and taking calculated risks, it creates a self-reinforcing cycle where you can attract the best talent, and retailers are excited to bring you in because you’re new, and fresh, and incremental to their categories.
Imran Manji: If a company can’t nail its core elements, it doesn’t earn the license to go beyond its core. Given that, when a company wants to focus on its core, is it useful to adopt the concept “shrinking to grow”?
Matt Leeds: Shrinking to grow is not always easy. But seeking growth can become a trap when you forget about the core. You can become so focused on adjacencies and on business model disruption that you might forget what the brand or the business is famous for.
Seeking growth can become a trap when you forget about the core. You can become so focused on adjacencies and on business model disruption that you might forget what the brand or the business is famous for.
One example is McDonald’s, which very clearly stands for something. It’s about Americana. It’s about hamburgers and french fries. At one time, they were following the health and wellness trend and trying to be more things to more people. But it’s hard to find a salad at McDonald’s anymore, whereas you could have three years ago. It’s hard to find a fruit and yogurt parfait. They clearly said, “Let’s do what we’re best at first.” The businesses that are most successful over the long term come back not to the bright, shiny object but to what they’re best at in the world.
Navigating beyond the core
Imran Manji: You’ve worked with Kodiak, a brand that started with a pancake mix that was a very successful core product. Once a company like that starts to feel good about its core, it might begin to look into category expansion. How did you approach exploring adjacencies?
Matt Leeds: It comes back to determining where the brand is the deepest and the most distinctive. From the outside, these might seem like mushy and qualitative ideas—a hunch. That’s actually far from the truth. At Kodiak, the innovation team has a new-product-development road map—they call it “the trek”—that’s very regimented around where the market opportunity is, where they see the most growth, and how they can win there. The idea is to test it with the consumer, figure out where both the retailer and the consumer give you permission to go, and start small.
In the beginning, Kodiak was about a pancake mix that was protein packed and 100 percent whole grain. Those are two key functional RTBs—“reasons to believe”—in what the brand stands for. Kodiak’s founders saw, with great foresight, that the pancake mix category is only so large. It’s a $700 million or $800 million category at retail. You can grow and take massive market share in that category, but that won’t get you to the promised land; you have to do more to future-proof the business. They said, “We stand for high protein, 100 percent whole grains, warm breakfast. Where else can that take us?” Their first instinct was, “Let’s go into frozen waffles.”
Imran Manji: When you’re thinking methodologically about whether a new category makes sense, you might ask if it offers adequate scale—both market size and growth potential—and if it aligns with the brand ethos. And you might assess whether you have a “right to win” in the category, meaning you can see a way to leverage your current assets and capabilities to drive growth in it. Were there any doubts about those elements?
Matt Leeds: I know for a fact there were many people who told them, “You should never go into frozen waffles. The supply chain is difficult. The distribution costs are high. It’s a separate aisle with a separate buyer.” But Kodiak said, “We have a great product, an on-trend brand, the support of our retailer partners, and the conviction to go test it. If we spend $3 million or $5 million on the launch and it fails, then we’ll start to understand some of the limits of our brand.” There’s value in that, too. Fast-forward four years, frozen waffles are a larger business than the pancake mix and growing 40 to 50 percent on a $100 million base.
The lesson there is, they felt like their core was very solid, their product RTBs were completely on point, and they said, “We can start to take some risks and go into phase two of growth”—but they didn’t go into frozen waffles and 12 other things at the same time. They said, “This is a big jump for us. It needs 12 to 18 months of proper focus before we start adding in any more distractions.” When you place bets in new categories, it’s important not to underresource those new launches, because if it only gets 30 percent focus, it’s going to get 30 percent results.
Imran Manji: Kodiak brought in the actor Zac Efron as its new chief brand officer. Tell us about that decision and how he connects with the brand.
Matt Leeds: If you were to draw on a sheet of paper who best anthropomorphizes the Kodiak brand and can bring it to life, you’d say it’s somebody rugged, health oriented, and fun. The person who we thought best typifies the brand was Zac. He lives on very much the same mission that Kodiak does, which is about inspiring healthier eating and active living. He goes out on social media, he’s incredibly well connected, and he commands a lot of followership and trust.
Imran Manji: We’ve talked about Cholula focusing on its core and about Kodiak looking for new categories. Have you seen examples of companies that have nailed all three types of growth—growing the core, expanding into adjacencies, and launching disruptive new business models?
Matt Leeds: One of the best examples I can think of is Restoration Hardware, which L Catterton took private more than a decade ago. At the time, it was a catalog-based retailer. Its core was a compelling product assortment that was both approachable and aspirational—beautifully shot, designed, and displayed. But over time, they thought about how to continue to drive growth.
Phase two was building experiential showrooms for the product. They opened dozens of high-end locations, where you could walk in and get the experience of what your home could look like filled with Restoration Hardware furniture. They then opened up RH Baby & Child and RH Teen.
They’ve now opened restaurants—so not only do you get the experience of seeing a Restoration Hardware couch in its natural habitat, but you can sit at their dining room tables. You can see their sconces on the wall. So I think Restoration Hardware has been able to deliver all three lenses of growth.
Imran Manji: The last couple of years have forced change on multiple dimensions. You’ve got macro headwinds, changing consumer behavior, and lots of uncertainty. As we head into a new era, are there particular capabilities you believe will be critical for future consumer companies?
Matt Leeds: There is an obsession with data at the moment, which is great, but data alone isn’t all that valuable. It’s really about what you do with it. One of our mantras is “data into insights, insights into action.”
One key characteristic I see in businesses that are growing today is being able to distill and synthesize data. Are the physical reports, and the structure for going over those reports, designed and refined well? I’ve seen a whole spectrum of quality in that regard. I’ve seen companies that are really sophisticated around what they capture, clearing the signal from the noise and reporting on what’s important, such that you can draw a clear link from data to insights to action. I’ve also seen companies where the management reporting pack is 100 pages, and no one reads it, and there’s no synthesis. So a key capability is being able to simplify and focus on what matters.
Another is digital capability: e-commerce penetration grew massively during the pandemic. And over the long term, across the world, the march toward 25 percent to 30 percent of product being sold via e-commerce feels inevitable. Many of the businesses that we partner with have a board member who oversees and coaches a senior executive who’s focused on digital commerce. That’s to make sure that digital thinking and omnichannel thinking “infect” the business—in the best sense of the word—and get the whole company thinking in that direction.
Going back to Kodiak’s partnership with Zac Efron, I’m also a big believer in brands finding the right kind of connections into culture. Bringing a celebrity or influential person into a business can come across feeling cheap and fraudulent. But for a brand to be capable of making sincere connections with people who matter in culture, and to master that capability, is very important over the long term.
Growth pitfalls to avoid
Imran Manji: You’ve probably seen your fair share of growth missteps. What are some lessons that have stood out to you?
Matt Leeds: Seeking growth without being properly prepared is like going on a long run without stretching first. I’ve seen brands go too far, too fast, without the appropriate data and thought processes on the way in, and without the appropriate focus, execution, and incentives on the way through.
We see brands all the time that have stretched to the point of breaking. They’ve launched into a whole host of new categories, with only one C-team, only one sales team, and only one brand marketing pool. We ourselves have fallen victim to that mistake. All of a sudden you look up and you’re in six or eight or 12 categories. You end up with a couple of SKUs that are dropped in the middle of a crowded shelf set, and the retailer asks, “Why is this even here?”
If you’re not careful, that can become a vicious cycle. Once you’ve launched into a number of places and then jettisoned those new categories, the momentum starts to disappear from the brand. The retailers aren’t as willing to take bets on you or to give you the right placement. The consumer looks at it and says, “There’s clearly something that’s not working with this retrenching.”
Imran Manji: In the current environment, companies might be having some quarterly challenges, which they’re weighing against how a decision made right now will resonate in the next five years. In the context of these current headwinds, is there ever a bad time to aim for growth?
Matt Leeds: There’s never a bad time for growth. It’s important not to be blown off course by something that’s idiosyncratic and short term. You do have to be aware of what’s happening in the moment, to pivot, to find ways to drive profitability even in challenging times. But for situations where you have the right category, the right brand, the right products, and the right management team, you have the luxury of being able to take a longer view.
It’s not always the easiest choice to make. It’s about steering a ship through choppy waters while staying focused on the horizon. It requires viciously driving cost out of the business while also investing ahead of the curve. September 2022 performance on P&L [profit and loss] is important. But we’re playing for sustained growth, sustained household penetration, and the performance of our businesses in 2025 and beyond.