Web3 + NFTs in Emerging CPG

by Jenna Movsowitz

(No, seriously, what the heck are NFTs and what do they have to do with CPG?)

If you’ve been blocking out the blockchain, you’re not alone. With all of the moving pieces that a CPG founder has to keep track of at any given time, adding another channel, let alone dabbling in an entirely new technology, is daunting to say the least. But before you rule out participating in the world of Web3, we want to arm you with the basics.

In this piece, you’ll learn the basics of Web3 and NFTs and hear from three founders who are redefining the universe in which CPG brands live: Tyler Phillips of Hummii, Jake Karls of Mid-Day Squares, and Dyanna Salcedo of Oats in Coats.

Mid-Day Squares Launches “Chocolate Gone Crazy” Music Video as an NFT

WHAT IS WEB3 AND WHAT ARE NFTS? (EXPLAINED IN A WAY EVEN A BOOMER COULD UNDERSTAND)

Breaking Down the Phases of the Internet “Web 3.0 is the next evolution in how we use the internet,” Dyanna Salcedo, co-founder of Oats in Coats, explains. This is how she breaks it down:

Web 1.0-1.5 (~ 1990-2004): Read-only. Consumption-based.

There were web pages you could read, but not interact with.

Web 2.0-2.5 (~ 2005-2012): Read-and-write interaction. Emergence of mega tech companies like Facebook, where users can share photos, videos and words and interact with the community. Centralized under a few major companies: Facebook, Google, Twitter, etc. These companies own your data.

Web 3.0: Read-and-participate. Ownership. Instead of just interacting with an internet that’s owned by a few major companies, a new technology has arisen (blockchain; we’ll get there) that allows the average internet user to actually own their data. Key word: decentralization.

How does this work?

The blockchain is the underlying technology which allows for the decentralization of information. Essentially, blockchain acts as a distributed database; it stores information and shares this information among an entire network of computers. The computers then verify the information without the need of a third party. Equally important, blockchains are “immutable” which means that all data entered is permanent. This makes the blockchain a trusted record for transactions – which is key to understanding NFTs.

So what’s an NFT?

NFT stands for non-fungible token, which likely means little to nothing to you. Fair. Let’s dissect:

Where “fungible” means that something can be traded in equal value, like a dollar for a dollar, “non-fungible” translates to oneof-a-kind – one NFT is not equal to any other. The most basic tangible example for a non-fungible item is a baseball trading card. There can be copies made of this baseball card, but the original holds a unique value thanks to its scarcity. The “token” part of the acronym represents a number of different kinds of digital assets, from digital artwork to articles or videos, which act like physical collector’s items.

Put simply, an NFT is a claim to a unique digital asset: a public indication of private ownership. Sure, someone else can still see that piece of artwork, or even download it, but only one person will have the exact original copy — and that ownership authentication is literally coded into the NFT’s data on the blockchain. This data can never be changed, reducing the probability of fraud by making it possible to verify ownership throughout the transfer of tokens between owners. NFTs are purchased with cryptocurrency (the currency that operates through the blockchain, and thus is not owned by any authority), most commonly Ethereum.

Who makes money from an NFT?

“For me, the a-ha moment was thinking about NFTs as a contract. There’s only one deed to your house, only one royalty deal for an artist. An NFT is essentially a contract, and in the contract, you can build royalty for the original creator into the metadata of the NFT,” says Dyanna.

When you think about buying a van Gogh, for instance, a painting that has been sold over generations, the wealth accrues for the people buying and selling the art. In the case of an NFT, this wealth accrual still exists, but a royalty also kicks back automatically to the original creator over the lifetime of these transactions. “As the value of a token goes up, the creator is able to capture that value back themselves, which is really powerful,” Dyanna explains.

NFT Utility

Beyond the claim to a piece of artwork or a collectible asset, NFTs’ values may also be dependent on the “utility” they offer. Utility means the unique access, perks, and opportunities provided to holders of an NFT. Platforms like Novel, which integrate Web3 and NFTs into ecommerce, even allow for exclusive URLs that can only be unlocked with certain NFTs. These URLs could house an opportunity to book a one-on-one chat with a founder, access exclusive events or merchandise, or join a chat group with other NFT holders.

Though it’s tempting to liken the experience of a utility NFT to that of a traditional membership model, there’s a clear distinction; the mere fact that NFT membership can be sold or traded (and royalties are typically involved) changes the game. This means that there is always an incentive to improve offerings on the creator’s end, and incentive to be an engaged member on the NFT holder’s end, because the price of the membership is increased with its perceived value.

Emerging brands are thinking about NFTs as a way to build IP and engage their community

Tyler Phillips explores the “Hummiiverse”

SO WHAT DO WEB3 AND NFTS HAVE TO DO WITH CPG? (BESIDES AN ABUNDANCE OF ACRONYMS…)

Contrary to the only thought that popped into my mind (a holographic bag of chips, obviously), CPG brands are using Web3 and NFT technology in a number of different ways – spanning far beyond digital artwork.

For some major CPG brands, NFTs are being used analogously to a baseball card. Brands like Coca Cola are creating collectibles, like selling an entity of the sound of opening a can of Coke. This works because Coca Cola already has an incredibly strong IP and thus inherent value. But emerging brands are thinking about this differently; rather than thinking about NFTs as a way to capitalize upon an existing IP, emerging brands are thinking about NFTs as a way to build IP and engage their community.

Emerging Brands Using NFTs to Create Community

Mid-Day Sqaures: MTV-Era Music Video Meets Web3

When the Mid-Day Squares team was served a cease-and-desist from Hershey’s over their use of the color orange – just one month after they were in talks around potential acquisition with the same BigCo brand – they responded in the most Mid-Day Squares way possible: by launching a diss track. “Chocolate Gone Crazy” is a full-blown, MTV-style, MDS-level “bold” music video… turned NFT project. The music video will be converted into 500 unique snapshots and sold as NFTs to the Mid-Day Squares community.

“We’ve been interested in Web3 for a while, but never wanted to jump on the hype train before we had a genuine reason to,” says Jake Karls, one of the co-founders and “Chief Rainmaker” of Mid-Day Squares. “This music video is representative of a pivotal, clearly-defined moment for the company on our journey to building the next Hershey’s.” The Mid-Day Squares team doesn’t just want their community to be part of that moment – they want their community to literally be able to own it. And with NFTs, they can.

“We think of an NFT as a reward to our community. If the NFT holders believe in our brand, and we continue to grow, their NFT will be worth more and more down the line. There will be an added value just for having believed in us,” Jake says.

Beyond having verified ownership of their music video moment on the blockchain, NFT holders will receive physical memorabilia tied to the project: a MTV-era VHS tape. The company has also chosen to add a 10% royalty to each transaction, which will be poured right back into the NFT project in the future through opportunities like private events for NFT holders.

Hummii: Customer Acquisition + Building Brand Loyalty With NFTs

Because Hummii, the brand building a “healthy and yummy snack universe”, is still so new, founder Tyler Phillips sees NFTs very differently to Mid-Day Squares. Rather than an opportunity to reward an existing fan base, he sees NFTs as a customer acquisition opportunity — a chance to build a new, incredibly loyal community — at the same time as he builds his brand.

In the real world, Hummii is in the process of creating delicious, vegan, low-sugar mini muffins powered by chickpeas. Hank, the chickpea mascot, brings a sense of nostalgia to the brand, as does the company’s dedication to gamification.

“I’m a big fan of making your company purely fun for the customer,” says Tyler. In an effort to “gamify” the brand, Tyler is launching POINTS! – low-sugar, vegan, candy-coated chocolates – which are a physical asset tied to a set of NFTs. Tyler acknowledges that NFTs are still a “scary” investment for the average consumer, which is why he will be gifting NFTs to early believers in his brand. The first 500 customers to pre-order their POINTS! product will get a free, claimable NFT. The NFT will provide a lot of great perks down the road, like merchandise, early access to the muffins, and even involvement in coming up with future flavors or product launches for the brand.

To make the world of Web3 even more approachable for his early customers, Tyler is working with the company Novel to generate the different NFTs in the “Hummiiverse.” Novel seamlessly integrates with Shopify, so consumers can checkout using their debit or credit card, rather than needing to purchase cryptocurrency to get on board.

Oats in Coats: Creating A Community of Creators

Dyanna Salcedo, co-founder of Oats in Coats, is the first to admit that her target audience of Millennial moms likely is not adopting Web3 into their digital diets just yet. “For us, we’re actually not looking at a consumer-facing NFT. Instead, we’ve been talking to investors about building a new way to engage creators to help build our brand.”

Oats in Coats is just the first “chapter” of what will be a series of “Grocery Stories”, which will be a family of brands inspired by the prompt: what happens at night at the grocery store? “The grander vision of Grocery Stories includes collaborating with a community of illustrators, copywriters, animators – who work with us to take the stories in all sorts of directions that we could never imagine on our own,” Dyanna envisions. Ultimately, Dyanna hopes to incentivize the best-of-the-best creators to help build her brand through use of NFTs – which will allow them to earn royalties on the work they’ve done for the brand.

Other Applications of NFT x CPG

This year, we’ve also started to see several new CPG brands launch as NFT-native companies (ex. Leisure Project, Chatty Matcha). These brands originated as NFTs before creating a product, and the brand’s decisions — from packaging to flavors — are partly informed by their community of NFT holders.

Taika, an RTD coffee and matcha brand, pulled inspiration from the NFT-native brands to launch their most recent NFT project with Friends with Benefits (a Web3 community): the “mateverse.” Holders of the Taika Yerba Mate NFTs will be able to vote on beta versions of the new yerba mate product that Taika is creating – which will be entirely funded by the NFT drop.

“Taika is solving a cash flow issue that typically comes with a new product release, while bringing together a community of people who are passionate about the brand,” says Roger Beaman, co-founder of Novel. He anticipates incredible success with this launch: “When brands like Taika pack utility into their NFTs, we’ve seen conversion rates as high as 50-70%.”

SO DO I NEED TO BE ON WEB3/SELL NFTS?

All interviewees agreed: you need to find a compelling reason to justify incorporating NFTs into your brand. And in the world of CPG, product always comes first. But they also agree that, if you can find an appropriate product-Web3 fit, and have the time or interest, it may be worth getting ahead of the tech curve: “You can build a brand without being on TikTok. But if you’re building a brand that you want to speak to Gen Z, you definitely want to be on TikTok. I think where NFTs are right now is maybe where TikTok was three years ago.” Tyler says. His personal philosophy is to always be an early adopter of new technologies. “If we can be early to testing, by the time of mass adoption, we will have experienced and be able to foresee some of the challenges that come with any new technology.”

Roger believes that Web3 is still in its “awkward teenage transition.”: “The guts of Web3 are exposed right now, which makes the consumer feel like they need to be highly educated on the topic to participate. But in the same way that I use a computer every day and have no idea how it actually works, Web3 will one day be the mainstream.” With platforms like Novel, brands and consumers will never have to understand the backend of Web3 to participate in it — and the mitigation of the learning curve may just be the starting point of the newest tech curve.

If you are interested in getting started in NFTs, Tyler recommends getting involved in the founder x Web3 space. Startup CPG has created a Slack channel specifically dedicated to the topic of Web3, where you can explore the topic with other emerging CPG brands.