A Simpactful Publication – forward by Todd Ruberg, Simpactful Partner
The pace of disruptive change in our industry is head spinning: Just in the last weeks we have seen Amazon’s offer to acquire Whole Foods, Walmart’s acquisition of Bonobos, and more news of Lidl and Aldi expansion. It’s so fast, in fact, that whatever I dare summarize about today’s landscape may already be outdated tomorrow.
One thing I’ve seen over the course of my thirty-five years in the CPG Industry is many rounds of change. As a business development leader for, at the time, the largest CPG company, I watched the growth of Walmart, the emergence of the Club and Dollar channels, the decline of print ad & promotion effectiveness, the consolidation of the big food channel retailers, and the emergence of online shopping. And I could go on.
What’s the theme? Change is inevitable. Disruptive change. And it’s happening more frequently and more quickly than ever before. The real challenge is being proactive and reacting in ways that help us continue healthy growth year after year.
Sure, we can all do research – but how do you turn findings into profit? Market change into growth? Is there a one-size-fits-all solution? Hardly. But there is an adaptable model we can all use to grow in today’s marketplace and to future protect our business.
My partners at Simpactful and I have developed a systematic assessment that leads to action. It is being used today to help our clients. We call the approach Enterprise Value Creation and we’re introducing our concept in the pages of this report.
Every industry has its challenges. For the CPG sector, it’s changing consumer preferences and demographics disrupting the traditional brand building tactics. Changes in the consumer path-to-purchase, and the rapid increase in eCommerce retailing, requires new capabilities and trade programs in order for brands to succeed.
And all of this is happening at a time with a slowdown in consumption growth, putting pressure on costs and spending, when new investment choices in rapid technology advances seem necessary. Meanwhile, in the marketplace there is retail consolidation, accelerating store closures, new “channels” with online and mobile, and new competitors (especially Amazon) emerging and growing fast. All driven by a consumer/shopper who wants access to brands and information “anytime, anywhere, anyhowSM” – and expects retailers and brands to deliver on these changing expectations.
How are the industry players responding to these new conditions? Traditional players see growth stagnating, margins under pressure, and an unclear path on how to best re-strategize successfully.
For some retailers, it’s been “wait and see.” Most now are working on their own response to mobile and eCommerce growth, and speeding to tactics to respond. Margin pressures continue, exacerbated by the need to invest in technology, pricing of goods in an environment driven by algorithmic pricing, and deflating commodity pricing.
For CPG companies, it has been predominantly tightening their belts through “zero based budgeting” exercises, focusing on the “ROI” of spending as their growth stalls. They are caught in the challenge of both brick & mortar and eCommerce retailers looking for best price and differentiation, fearing that this challenge will drive a “race to the bottom” price environment that ultimately will place further pressure their trade spending and margins.
All this has led to a contentious environment between retailers and their suppliers, as they each look at their own bottom lines, and introduce new initiatives to transfer value that is viewed as “zero sum” in this slow growth world.
Do these disruptions, and this current environment, lead only to negative outcomes?
We at Simpactful believe that disruption is an opportunity to grow and thrive, for those companies that get out ahead. After all, many players are actively growing, even if they aren’t the disrupters themselves. But it will take action, and a sense of urgency. Waiting to “see what happens” or “analysis paralysis” in hopes of easier answers is not a strategic option.
A LESSON FROM THE PAST
Cost cutting, zero budget exercises, and value “tug of war” programs are not sustainable, and can lead to a vicious circle of resources trapped only on that, and less so on growth.
While these times are unique, there have been similar periods of disruption, slow growth and contentious relationships. There are lessons to be learned on how growth and value were restored then, and practical ways to assess where to focus now.
In the 90s, “alternative outlets” like club and mass emerged, requiring new capabilities and trade terms. CPG/retailer relationships became tense over pricing and cost negotiations. Deflation and slow growth pressured bottom lines.
Eventually, the industry found its way out of that vicious cycle as CPG companies and retailers rallied behind the need to work together to drive growth and value, versus staying stuck in a “tug of war” to transfer it. It spurred an industry initiative and rally cry: “Efficient Consumer Response” (ECR).
The key idea behind ECR was CPG and retailers working beyond just the buyer/seller relationship, to focus on the supply chain efficiencies only available through collaboration, and join their efforts to understand and best serve the unique shopper they shared with demand creation strategies like efficient assortment. This required new capabilities to be able to deliver ECR, and partner together across all functions.
ECR wasn’t perfect (it could often become theoretical, overly process-oriented, and open to many interpretations) and we aren’t suggesting simply reviving it... but there is a key lesson for CPG that’s critical for today.
With so much change and pressure on retailers, for a CPG to stay relevant, and be a valued partner, it must be “capable” of driving growth – creating value across the entire enterprise.
ENTERPRISE VALUE CREATION
The realities and challenges of this marketplace require CPG to be capable of more than just developing a brand and marketing it with retailers.
That CPG needs the capabilities and resources to create value across the entire enterprise: shopper targeting and acquisition along the full Path to Purchase, supply chain efficiencies, superior online and in-store retail execution, category design, and more. And, a sales force capable of tailoring those capabilities to a specific retailer through joint business plans.
LEARNING FROM THE BEST
When we studied those CPGs (big and small) growing and scoring the highest marks from retailers on their ability to create value, they had some capabilities in common.
First, they had a keen understanding of the shopper they share with each retailer, with “actionable” insights on in-store and online shopping, including tactics to build that shopper’s loyalty and basket size.
They also understood how those shopper insights could become a “conceptual platform” used to articulate with their retail partners – Why is this category important? How can it be leveraged to build a retailer’s overall sales and shopper equity? And how can the insights be turned into profitable growth for both parties?
From there, they all had value-creating capabilities across the total enterprise, including capabilities:
- To look carefully at their own costs and spending, from their organization costs, to their trade funds or retail Such an approach, then allowed them reallocate to the best return within or outside of that retail partner (ensuring new investments are not always incremental).
- To bring innovation and merchandising ideas to life across multiple channels, fitting up to that retailer model and their unique shoppers.
- To incentivize the most efficient and effective logistics and best business practices.
- And ultimately, to provide the resources and sales abilities to build sustainable and profitable customer based Joint Business Plans.
BUILD YOUR CAPABILITIES TO CREATE ENTERPRISE VALUE
Enough “analysis paralysis.” A practical first step of action is to critically assess yourself on the requisite capabilities to create this value across the enterprise. In having helped CPG companies do just that, we’ve uncovered a few noteworthy themes.
First, as companies get very clear on what capabilities do drive value, they are finding a huge disconnect on where their sales team’s time and resources are really spent. In one example, a company understood the value of shopper insights on in-store department layouts, but their sales team was spending most of its time on the administration of promotional funds to drive the in-store changes needed at retail.
Second, having “Actionable” shopper insights on your categories is an indispensable value driver to retailers. An example of “Actionable”: Knowing (and acting on) how a retailer’s shopper behaves outside of the store. In one case, a supplier was able to drive insight on why shoppers were buying larger size SKUs of a brand range outside of that retailer, and made presentation changes in stores that drove profitable growth.
Finally, many CPGs are learning they really aren’t “omni channel” capable. They don’t have actionable shopper insights or understanding of the new shopper path to purchase and business driving fundamentals of online AND in-store shopping and how the two should compliment one another and be easy for the shopper.
In all these cases, our Simpactful Enterprise Value Creation assessment tool and its benchmarking of best practices, has enabled Simpactful clients to identify priority capabilities to develop and work to stop to increase capacity to bring the new capabilities to life. In addition, our unique ROI Fitness(SM) model is helping these clients to fund the changes needed from within (not incrementally) with a sustainable approach to cost cutting. All of which then leads to the most important part …growth in this marketplace.
This is no time for indecision. The change and disruption in the industry will only accelerate. There will likely be players that simply won’t survive. There will also be players that use the disruption to urgently drive change, survive and thrive. Those players will be the ones that critically and honestly assess their capability opportunities, and get to work building up those most important to win.
Meet Simpactful - a new CPG/Retail consultancy firm built for today’s challenges, with a team of experienced line leaders from both CPG and Retail firms.
Our experience spans functions - Sales, Marketing, Consumer Research, Human Resources, Product Supply - and all retail channels including eCommerce, Food, Drug, Mass, Club, and Dollar.
Our leaders are proven, having led their companies through today’s challenges with strong demonstrated results. We are passionate about sharing our insights and success models with our clients. Reach out to us, and let us share how we can address your biggest challenges.
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