Forget New Normal; Are CGs Ready For the Next Normal?

Tim Denman: Hello everyone and welcome to the "Accelerated Customer Focus and Consumer Products" webinar, the first of a series of webinars based on the findings from research conducted by SAP and Deloitte on the state of the consumer goods industry in the face of the ongoing COVID-19 pandemic. I'm Tim Denman, editor-in-chief of CGT. Thank you for joining us today.

Now with me today to give an in depth analysis of the research and explore how to deliver a consistent customer experience across all consumer touchpoints, gain market sharing a multichannel world, provide a more personal and human experience, and anticipate problems and react faster using intelligence driven solutions are Uday from Deloitte and Paul from SAP.

Uday is a customer transformation leader focused on delivering end-to-end transformations across both front- and back-end office applications. He has more than 20 years of experience delivering large-scale global customer transformation programs for consumer and life sciences organizations. Uday, we thank you for taking some time to join us.

Paul is a senior principal industry executive advisor with more than 30 years of sales, marketing, and operations experience in the consumer products industry who provides industry thought leadership, strategic solution advice, and expert consultation support, consumer co-innovation, enterprise transformation, and business process performance improvement. Paul, it's certainly a pleasure to have us with you today.

Paul Larson: Hey Tim, great to be here. Thanks for that great introduction. First of all, I want to thank everyone for joining. Sales and marketing is, to me, the lifeblood. Top line revenue growth, it's on the top line objectives for every CEO, as you continue to grow that revenue and then obviously turn it into proper revenue. So it's just such a sweet spot in this industry.

So let me kind of drain the agenda for you real quickly and you noticed they're all questions, so I'm going to answer the first one for you, and then the rest of the content here, Uday and myself are going to kind of go through the slides and show you some of the results.

So basically why was the CPG Pulse Check survey conducted? So for the last 11, 12 months, you've seen a lot of survey results come back and the majority of those surveys were done with the consumer, with you and I on how the pandemic has completely turned possibly their life upside down, the way they purchase products, the way they interact with retailers and with brands and just go about their day to day life. So that's really, really accelerated change.

And we, SAP and Deloitte, along with CGT really identified a need to put together a survey that basically goes out to the CPG manufacturers, you that are on this call, to really understand what you're doing, how the pandemic has affected you, what are your peers doing, how do you rank and benchmark. So this will give you some great ammunition and insight to understand really where you are on your journey, specifically the front side of business, just sales and marketing, everything's great obviously in our industry, but we're going to dive deeper into that area based on the survey results. So let's go ahead and roll to the next slide then. Thank you. Uday.

Uday Srinivasareddy: So Paul gave a great intro about what the survey was about. We also want to give you a little bit of background on the survey respondents themselves. So as you can see, we took a broad cross section that's representative of the entire CPG industry when it came to the survey. So that's across all product categories, all geographies, and all company sizes. In the initial part of our survey was to understand and hear the feedback what they're seeing from an industry trend perspective and then we also went into the different functions about sales and marketing, supply chain, and all those things from an operational standpoint to understand what they're seeing in each one of those areas, the pain points, the growth opportunities, how they're navigating.

So what we got as a result is a very broad cross section of the CP industry responding with very rich insights and which just lead us to this conversation. Paul, anything you want to add to that?

Larson: No, I think that's a great breakdown. So it kind of gets back to the original goal of the survey, Uday and team, it's basically trying to really identify a total industry view and there's all sub-segments, number of employees, so you've really got a broad view of small, medium, large, enterprise companies and Uday, you did a great job of summing it up. So I think we can move on to that next slide.

So if you take a look at the results of the survey, and this is no surprise to any of us, health and wellness is the number one priority of the consumer products industry and rightfully so. It always has been. Employees have always been the number one asset and those are the companies specifically that are the most successful, that pay attention to their employees. And really in the last 11, 12 months, our world's been turned upside down. We've had to operate and adjust and change more dramatic than ever. I heard a quote from a doctor the other day and basically apparently the way we're working today can be up to 8x times the amount that your brain is processing a day just by working in this environment, in this change environment. So along with that comes a lot of focus on health and wellness, not only physically, but mentally.

So that's great to hear that the support is there for the employees. We can run manufacturing. We can figure out creative ways to... I was talking to a company the other day about how they go about product innovation and it was really interesting because generally they fly, they're a global company, they fly everyone together on one site whether it's in North America or in Europe or some central location, they meet for two weeks. They sample, they have focus groups, they have every one of the product owners and manufacturing and marketing owners are there to test product and they have all this information. They're together in the room and everyone puts their hand in and says, "Yeah, let's run with this product because we think it's great, it's a product we know we can roll out across the globe."

Well that all changed, so what they did was is they FedEx-ed all that product to all the different stakeholders, and this is the new way of doing business, and everyone kind of did the same process but virtually. And they ended up coming together in a lot quicker format than usual, innovation to shelf, and it was a huge success. I can't mention the product name, but those are the type of things that we're taking a look at. And then obviously that can translate to sales and marketing. And basically the way you have new consumer and engagement models and supply chain models and how you're retooling how you're going to interact with the consumer and the retailer, that kind of leads in to some of the other questions.

Now, I'll turn it back over to you, Uday, unless you have some comments on that slide?

Srinivasareddy: No, it's a pretty good summation on what the consumer industry in the Pulse Check as they navigated through this and this actually is a good segue way into our next slide.

So given all of that, the overarching survey response around what was the impact of the pandemic on each individual organization's revenue base, which provides you a good window into what was the impact on their customers and how they are able to connect with their customers and operationally do their day to day business or unable to do their business.

And so what you're seeing here is pretty much every segment in respect to all the size, size did not insulate you. Every segment, every region was impacted. Some were more prepared. We'll talk about that in a bit. So they were able to take advantage of it right when this happened just as a matter of doing business, but the others who were caught unprepared for a situation like this were impacted a lot more. So you could see that more than half were impacted significantly, with a 48% decrease in their revenue and another third of them were impacted significantly as well.

So what that shows you, there was really no hiding. In talking to a lot of our clients and also internally, organizations going through the planning process as they were going through, each individual organization was going all the way back to World War II to try and look up for some playbooks to see if there was any parallels where we could learn from. And there was not a situation in history where the entire world went through a hibernation for a period of time.

While be that as it may, there's never been a time where we've had so many tools and mechanisms at our disposal, so even though you were locked up indoors, to go about their lives. The organizations that caught on to that mechanism and moved fast came out of this stronger and ahead, and the organizations that were slow to react were the ones that were impacted significantly. And the organizations that are still slow to react are still reeling from that.

There are different parts of the segments where there's some aspects of the CP business, for example, the MLM business where they do 100% of their business digitally. It has nothing to do with the pandemic. So when the pandemic hit, it was business as usual, and in fact, organizations like that, whether it's in the retail business or other areas where they were already enabled in this way, those are the ones that you see that saw a 22% increase in their revenue because the rest of the segments or their competition was not prepared and as a result, there was more business flowing their way.

So these are just some of the tidbits that we're seeing and it all comes down to one thing, and we'll talk about it a lot more in the next few slides, is you've got to be a digitally enabled organization. Even if you're not digitally native, you need to enable yourself to be able to do business in a digital way because that's predominantly becoming your window of touchpoint or your means to engage with your customers.

So I'll pause there. Anything, Paul, you want to add before we move on to the next slide?

Larson: Yeah, just one comment. So I think you already said it, in talking with those customers that had a strong increase, some of that was a surprise that they were able to capitalize on it. I wouldn't say I think they changed their business models to be able to do that. A lot of those were center of store, which as y'all know has been a very dead category, now it's a very alive category, especially if you take a look at products that have a super long shelf life, or cleaning products, obviously toilet paper, stuff like that, we know the areas that have increased.

And that area decrease was a lot of it was food service. So companies have retooled their supply chain to transform some of that business with the help of technology. Especially from a sales and marketing standpoint, the innovation in new product technology is going off the charts to be able to pivot, to be able to capture that area of the store that's increasing, the area where consumers are shopping now digitally. So that's just some added comments that I've heard through discussions with customers that are in both boats, severe decreases where they've had unprecedented, I know that word is used too much, but unprecedented increase.

So we all talk about the new normal. I've heard that a million times. Well, this slide and this survey question is about the next normal. And I think we all know and come to the fact that the next normal is not going to be too much different than the new normal. Businesses aren't going to snap back to the way we were doing business.

So the questions in the survey tell us that most companies are focused on new routes to market. Obviously direct-to-consumer models, how do I better serve my retailer in their digital to consumer model or what may have you delivery model, and how can I get my products and be confident when I go into the retailer and say, "Look, I've got these great new items. I've got this new portfolio. I want these ads. I want these end caps. And guess what, you're probably concerned a little about maybe product fulfillment, my visibility to inventory and demand. Well, I can back it up because I have the technology to back that up. I can support my promises to you. And the sales and marketing executives that I talk to are using that because they can go in there confidently."

And the retailer's going to go, "Hey, great. That's one less thing I have to worry about. If I'm going to run something and I'm planning my year and I'm understanding what my margins are going to be, I want to know, I want to do business with a company that has a sales and marketing division that has technology to have visibility, they can show me the profitability."

So that's what I'm seeing, the companies that are making those changes, developing new business models, particularly focusing on new e-commerce ability ... one global company is doing over $20 billion other dollars of their business and the revenue went through e-commerce. That's it. That's a big company with a big number. So it's a big percentage that's going to continue to grow. We saw this coming, all of us did, even before the pandemic. The last two or three years, there's been a huge increase in investment in startups. There's been $10 billion dollars of venture money investing in consumer products startup companies and all those companies are chipping away at brands that have been around forever. You saw it in the shaving business a lot, the mattress business. But you've just got to be set up to be fast and nimble because a lot of those companies, they're doing all their manufacturing 3PL. They may not even be doing their business through retail. It's all online and direct-to-consumer and they have a good relationship with the consumer.

So those are things that we're seeing the industry pivot more so they can react like that, react quickly and understand how to react to those competitive situations like that and obviously be competitive. So as you can see in the results here, in the 90 percentile change on go to market strategy, the rate of acceleration to strategy results based on COVID has driven a moderate to significant change. So that's what we're seeing in those areas.

Uday, feel free to make a comment on any of that.

Srinivasareddy: Yeah, thanks Paul, great notes there. So a couple points we're seeing, just to dovetail on the significant investment that's going on in there and then applying it back to some of the stats that you're seeing here from the survey, 64% are still have only made moderate changes and 28% made significant changes. And if you tie that to the numbers below as to the rate of acceleration of e-commerce within their business, almost 80% of them have made between moderate and significant changes.

What that number really reflects is a point in time as to how much changes they've made and how much of their business is now moving in the direction of e-commerce. And it's because of how they were not able to, and what we've heard is how they've not been able to move fast enough. And that's the same thing that both SAP and we see on our end. So we are just not able to respond fast enough, go out and help our clients fast enough, and get them on to digital channels and enable their e-commerce systems fast enough or add additional capabilities.

That's both from availability of software options, availability of companies that are innovating, ability for VC companies to bring new tools to the market, and ability to get these things going. This is all, given the breakneck speed, you also, to transform your own organization digitally based on how you want to do it, today, you have more options than any.

Whether you just stand up your own marketplace in less than two weeks by just using your personal credit card to all the way to having an enterprise e-commerce end to end full lifecycle e-commerce channel or you want to go headless commerce or you just want to use certain aspects of KPI cost, you name it, you've got the options today. You can't live in a better world when it comes to e-commerce channels.

Organizations recognize that. They're all looking to take advantage of it and these numbers are a reflection of organizations moving there, but they just cannot get soon enough there. And if you were to take a survey now for an in the future standpoint, these numbers would be even more radical, which actually leads us into the next slide, which we touched upon.

So why are still 20% of the organizations have not done any change? And these are still organizations have not done, it's been a few months, they've not done significant investments into their e-commerce strategy, but they're in the process of it or catching up, laggards. But what you're seeing is a majority of the organizations either have made significant changes to their e-commerce and digital strategy, and that's the entire ecosystem. So when we mean e-commerce, it's just not a portal just taking orders. It's the entire additionally enabling your entire sales and marketing function to be able to have an e-commerce channel, to be able to have a marketing mechanism where you can have the top of the funnel connect to the bottom of the funnel in the form of e-commerce, the handoff and conversion rates.

Putting additional tools in the hands of your sales folks who are now not able to see their customers as frequently as before. How do you enable them to use the digital tools to create the same engagement and experience of not being in person but still being able to do the job? This is something, yes, we get into conversations about e-commerce channels day in and day out, but an equally important question that we don't talk about, how do you enable your sales and marketing function to be able to leverage this and still create compelling engagements?

E-commerce was thought as, in the past, a low touch, high value environment. Now we're talking about how you create high touch, high value e-commerce meaning more personalization, more being present for your customers and dealing with their problems on a one on one basis and not a canned solution. That's the world that we are in. The world that we live in is now how do you ... e-commerce is no longer a channel. It's become a function just like sales and marketing and supply chain. It's become a function, an integral part of the organization.

Yesterday, I got a call from a client talking about how you have a digital organization enable an organization that's been around for 75 years. These are the kind of things that we had to convince our clients before to think about it this way. Now the clients are asking us the question. That's where we are going.

So I think the stats here summarizes, encompasses everything that I just said. I'll pause. Paul, anything on question seven here?

Larson: Yeah, I've got a couple comments on why Q7. So this one shocked me, everyone. Maybe it shocked you. How's your organization reallocating trade spend? So after spending about 25 years in your shoes, going into the majority of the retail buyers' offices across the country, and they talk about, we all know it, it's a second line item, expense line item on your P&L. It's a big, big, big number. It's a big bucket of money that usually increases every year. I never really saw a lot of decrease. I always saw either spending the same or spending more, but everyone's always striving to spend it smarter. Spend it smarter with helping the retailer make more money, obviously lots of CPG companies through their products company, spending those funds to be more profitable and drive more top line revenue, and then obviously getting the right price point, price to consumer, PTC, at the sweet spot where everyone's happy.

But when I see cash conservation at 56%, I usually haven't seen trade spending in a cash conservation mode. And I think it's good. I think the result of it came from this last 11 months where companies weren't able to pivot, they ran out of stock, there was no trade promotion because there was no product or we threw away all the trade promotions that we put together because the product was flying off the shelf regardless, came in, went out. So I think that's where the cash conservation came from. It wasn't that we didn't want to spend against our brands. It was because we may not have product in the store.

So I think it's a great opportunity though as well, if we're going to reallocate, we have a different mentality where there's solutions and there's technology available that can help you reprogram what the optimized spend would be, what that business plan is by customer and should we redirect that more into digital, in the omnichannel direct-to-consumer model instead of into end capture or what may have you or we're going to support the retail industry, it's not going away and they're great partners … and there's a great way to support the retailer's digital strategy with your cash conservation, take those buckets and help support them.

And there's great technology, and we have it both with our partnerships with Deloitte to be able to consult, and that's what we're talking to customers about today is how do I pivot, and we talked about new business models earlier, so that's my long winded answer to Q7. Thanks Uday. Thanks everyone.

Srinivasareddy: So Paul, before we take on questions here, key takeaways. So I'll just add a few key takeaways and then please chime in. One of the things, there are a lot of key takeaways. We can talk about this for hours just on this one aspect, but I'll just tell you a few quick things that we are seeing, we are hearing from our CPG clients and organizations more and more in what they're seeing in the industry. The pandemic has reset the industry in many ways in a good way that was initiated by yes, we went into an initial hibernation mode, which caused us to figure out different ways to do business digitally. But what has eventually taken on is that was supported by consumers and now having tasted the way to do business or engaging with their organizations digitally, now the consumer behavior has been reset for good in more than one way.

Now today, you wouldn't have thought about buying your veggies or your poultry online and expecting to have that delivered in the utmost quality. Having done that and having the organizations respond adequately with all the right ways to that, even after all our vaccines and life back to normal, consumers are not going back to how the world was, at least for some of business.

So given that, every organization, and I don't take that lightly when I say that, every organization needs to have a digital strategy and a way to engage with their customers in a digital way. That's actually become table stakes. And the direct-to-consumer or direct-to-customer opportunity has become either an opportunity or a problem area if you're not set up for it because you're going to get cannibalized. So that's what every organization is waking up to and that's what businesses are looking for. So organizations that are actually acting smart, acting quick, and taking this opportunity in the right way are really benefiting significantly albeit at the expense of others who are laggards in this space, but everyone is moving in that direction.

So I'll pause there. Paul?

Larson: Uday, great job on the key takeaways. I don't know if I should add too much more. I know we don't have a whole lot of time left. We want to take some questions. But the only thing I... yeah, we were talking about this transformation before, the new and next normal, about how speed is kind of the new big. In this industry, if you were big, you had all the share, you had all the efficiency in manufacturing, you had all the money to spend on branding and marketing and all that.

But now, that platform's changed. Now is the chance to redirect and be fast whether you're large or small as an enterprise, but to be an agility, proven is proven, and I think we talked about it a lot today, that's really what's driving success along with obviously the rest of the organizations.

But that, Uday, I think I'm ready for Q&A. How about you?

Srinivasareddy: Yeah, sounds great.

Denman: Hey, great. Great conversation, guys. We have quite a few questions from the audience and we'll get to as many as we can. Just jump right into it, first one here: How are large CPG companies thinking about developing operational capabilities for a direct-to-commerce e-comm? It's a two-part question and the second part is really interesting: What risk are there to retailer relationships by stepping into the direct ownership of the customer relationship?

Larson: Yeah, so I've been in the middle of those conversations a lot. I've been on both sides. I've been on both sides of that picture. So I guess the answer to it is everyone's focused on the e-comm model, direct-to-consumer model, actually I like that than D2C, I like d-com, whoever asked that question.

So the important thing is you've got to have a twofold strategy. You've got to be very smart in how you position this. Obviously, you've got to support your primary business. If it is a retailer and they have a direct-to-consumer, you've got to be able to focus that. But what I see is I see different packaging, I see different pricing models in the d-com area that have never been to retail and that's where M&A has played a significant role with customers. So they may buy a new brand that hasn't been out to retail. They used that as their platform to launch into direct-to-consumer. So I've seen that strategy. So I've seen new items come out. They separately go direct-to-consumer. They're kind of built that way. So I see a lot of the strategy in building d-com with new items, M&A that doesn't disrupt retail relationships.

Denman: Great. You guys touched on it late in your presentation about the drastic reduction or a reduction in trade spend that we're seeing, customers holding on to their cash reserves. We have a question here: Beyond trade spend, are you guys seeing a shyness about investing particularly in new technologies during the crisis?

Srinivasareddy: Yeah, I'll speak on that one. And so we certainly are seeing and we're seeing more so now than ever, so it's a tale of two stories here. On one hand, a lot of organizations are being very selective about where they spend their money on investments. So some traditional investments are being now revisited or being put off. But one area where organizations are spending, and that's not incremental, but in multiple X, is in the digital area. If you’ll recall during the session, organizations cannot get there fast enough and we are not able to help them fast enough and everyone's busy doing the digital transformations.

So we are seeing a significant amount of investments in this space and that's just not for organizations that did not have any digital presence, it's even for organizations that already had a presence and now are looking for more ways to build on a foundation that they already have or making the experience more personalized, more engaging, more rewarding, and incentivizing their customers to come in and do business that way.

We use the word omnichannel a little bit loosely, but now truly businesses are looking to do business omnichannel. Omnichannel just doesn't mean that having another channel where you can additionally do business, it's about a seamless experience. So an experience, whether you're going on the e-commerce channel or picking up the phone and calling the sales rep, the information that you get, the experience that you get, and the outcome should be the same and that's what sets organizations that do this right apart from the others who are trying to do digital end up being digital.

Denman: Great. Obviously there was a lot of well publicized supply chain shortcomings early on during the pandemic. Obviously, some on-shelf availability, inventory woes. It appears that that has been worked out. What has CPGs done to fix that and are they prepared should there be another rush?