|George Zoghbi, COO of the US Commercial Business for The Kraft Heinz Co.|
While the lack of growth across the consumer product goods sector is real, the situation is not intractable, Zoghbi said. Noting that certain categories are performing well while others are not, he said the environment is not to blame. Instead, it is that CPG companies are not “doing enough as organizations to generate the growth.”
This inactivity reflects how the industry is grappling with change in a way that is fundamentally different than the past, Zoghbi said.
“Change happening today is unique, because it is happening at three levels,” he said. “We are seeing the consumer landscape changing. We are seeing the retail landscape changing. And we are seeing business models changing, all at the same time and at a very high speed. And I truly believe once we adjust to dealing with it as organizations, the growth will come as a consequence. Because it is a big wakeup call for all of us.”
|David Darragh, president and CEO of Reily Foods Company|
Darragh challenged his colleagues by speculating that “traditional brands as we know them may not be around in the future” and that the advantage of scale has diminished over time.
Grimwood was unwilling to accept that large CPG companies were unable to produce blockbuster innovation.
"I seem to remember, I think it was about 12 years ago, there was a really good idea that came from a very embryonic part of our business and it was called Nespresso,” he said. “And that business basically didn’t go through mainstream supermarkets, it was a direct-to-consumer delivery model and super premium and we all know the story, it’s a multi-billion dollar operation at the present moment.”
Grimwood and others advocated for a hybrid model as necessary for larger businesses. The first element of the hybrid is carefully looking after the core, recognizing that pressures on this business are unavoidable in the current environment, he said.
He warned against reckless spending in pursuit of trends.
“There are an awful lot people who put a lot of money down betting on external growth drivers that have proven to be fashion,” he said. The second part of the hybrid model at Nestle has a number of components, including a Silicon Valley innovation office and the close work Nestle is doing with start-ups.
While in agreement that scale does not confer the advantages it did in the past, Zoghbi disagreed with the notion that “big brands are dead.”
“Philadelphia is growing market share from 63 percent, up five years in row,” he said. “Heinz Ketchup is growing market share in the 60s and up and the list goes on. What is interesting is large organizations and some great or respected organizations create new categories every year. We created the meal categories. We created the Lunchables categories, it’s a billion dollars. It’s much larger than many organizations. However, we have been slow in reacting in the areas where we have brands that are losing relevance with consumers. So the playbook for us in the future is to move fast.”
He highlighted three parts of this playbook:
- The need to keep renovating to maintain relevance with consumers.
- Build the innovation on top of that
- Communicating to where the consumers are reading and watching and surfing.
Buck credited 3G Capital with helping Hershey and several other CPG companies realize success is possible with a much leaner cost structure.
“They showed a lot of us in CPG, ‘Wow, we can run in a really lean cost structure,’” she said. “I do have the opportunity to run even more efficiently without losing the good of what I do by making smarter choices.”
While acknowledging start-ups have in many cases successfully attracted consumer interest and chipped away at the market share enjoyed by larger companies, the smaller competitors have not been successful by every measure over the last 5 to 10 years, Grimwood said.
“Sometimes they have the growth but very, very, rarely do they have the profitability at the bottom line,” he said. “And there are a lot of companies that I have seen that have actually gone out there and purchased very big acquisitions, especially in this market. If you look at some of the purchase multiples, I mean, quite frankly, why you would buy these businesses? It tends to be in the US”