Topics Covered: November 21, 2022
- Digital experience on CPG boards ticks up
- QCommerce adds hot meals
- Walmart 3Q results
- Target 3Q results
- Home Depot 3Q results
- Lowe's 3Q results
Digital Expertise on Boards Slowly Improving
In January 2022, Stratably analyzed the digital experience of board members across 30 CPG companies finding that, on average, there was only one director per board that had digital experience.
Stratably recommended consumer brands add digital expertise to their boards to help develop and execute a digital vision to maximize firm value.
The biggest surprise since that original research is how inflation and pricing, along with inventory and supply chain, have monopolized the mindshare of leaders across the retail ecosystem. This macroeconomic focus has the potential to crowd out building stronger digital capabilities and possibly de-prioritizes the importance of digital experience on boards.
To see what, if any, changes occurred to boards since January, Stratably updated its analysis this month (see the end for notes on methodology).
CPG boards tended to add directors with digital experience
16 of the 30 consumer brands studied added new members to their board in 2022.
- 44% of these 16 added directors with digital expertise, while 6% saw digital experience decline.
- This brings the total share of board members with digital experience at these 16 CPG companies to 11%, a 74-basis point improvement.
- Notable digital additions include Carolyn Everson (formerly Instacart and Meta) to Coca-Cola's board and Luca Maestri (CFO, Apple) to Nestle's board.
Slight improvement to boards with no digital experience
11 consumer brands analyzed in January had no digital experience on their boards (37%).
- 5 of these 11 brands had new members join in '22, although only one of these firms added a director with digital experience, leaving 10 out of the 30 consumer brands without digital experience represented on their boards.
- In other words, there was no clear urgency to add digitally-experience directors for brands that lacked it at the beginning of the year.
Outgoing directors were less likely to have digital experience
15 of the 30 consumer brands studied had directors leave, in some cases replaced by new members.
- Only 4 of these 15 companies had digitally-experienced directors depart (27%).
- However, only 2 of these 4 boards replaced outgoing directors with incoming digitally-experienced directors, meaning the other half had a net loss to their digital experience.
Limited urgency to add digital experience
Our one-year analysis is limited given boards turn over slowly. Rather than studying the short lives of mayflies, we're studying elephants.
Nonetheless, a year in digital is a long time and the whole point is the quickening pace of change impacting all retail.
The results did tilt towards a small improvement.
- Across the 30 CPG boards studied, 10.1% of directors have digital experience today, a 72-basis point improvement versus earlier in the year.
- This small gain is better than nothing and certainly preferred over moving in the wrong direction.
But it's premature for "digital" to declare victory. There was no widespread wave of CPG companies adding digital experience to their boards. Clearly, the industry has a long way to go with just 10% of boards being comprised of digitally-experienced directors.
Digital experience should be a critical consideration in board formation going forward so that boards can effectively evaluate management and assist the company in developing a compelling digital valuation.
Questions to Consider
- Did our digital vision progress in ’22 despite macroeconomic challenges?
- Does our board have the right experience to evaluate and improve our digital vision?
- What type of digital or technological experience would be additive to our existing board?
- Is our digital vision sufficiently clear for directors with no digital experience to understand?
- Utilized Factset's database of public company boards.
- Experience classified as "digital" or "tech" if director worked in roles reasonably considered digital-focused (e.g., Chief Digital Officer) or at companies that are recognizably technology leaders (e.g., Apple).
- November results were compared to January to assess any changes.
- Boards purposely change slowly and thus the analysis focused on boards that changed composition by bringing on or removing directors.
- Obvious caveat - Analyzing boards is only one dimension to consider when evaluating how serious consumer brands are taking digital. Further, it's not the exclusive factor in a consumer brand developing a compelling digital vision nor does it necessarily align perfectly to the magnitude of digital investment in the firm. Despite those limitations, it is an informative lens to consider how the industry is changing and the degree to which CPG management teams are pushed to think digitally and how well that vision can be evaluated.
If you’re new to Stratably, the following are recommended readings that this article is built upon:
- CPG Boards are missing technology experience
- 3 case studies of brands building a digital vision
- Digital penetration is not a vision
- The folly of digital penetration
For the Nerds
Food Rocket adds hot meals: Quick-Commerce retailer Food Rocket has increased its available assortment to include hot meals, including pizza, coffee and breakfast sandwiches. The retailer now has four kitchens operating with plans to expand to 200 by the end of '23.
Quick-commerce has significant profitability challenges, compounded by a lack of investor interest in funding growth ahead of profits. Thus, these retailers are working rapidly to improve profitability.
While the linked article includes Food Rocket arguing it is the first to offer groceries and hot meals, Gopuff has a similar offering through its Gopuff Kitchens initiative.
Attachment rates appear positive for both Food Rocket and Gopuff, which is a positive for Q-Commerce profitability. In addition, it should encourage omni-enablers like DoorDash, which has DoubleDash, a functionality that lets users order from a restaurant and a retailer within one order. (Progressive Grocer)
Walmart's initiatives 100% digital: Walmart reported U.S. comps of 8.2%, an acceleration from the prior three quarters. eCommerce grew 16% Y/Y and now accounts for 12.3% of its mix.
One way of measuring the importance of digital is its contribution to sales. For Walmart, it now amounts to 12.3% of its sales, ahead of where it was in October 2020 during the initial COVID-spike.
Another, more informative way, is to assess where a company like Walmart is investing. Interestingly, every initiative Walmart articulated is related to its digital business including assortment (marketplace), data (Luminate), advertising (Connect), membership (Walmart+), and logistics (WFS, GoLocal, Spark).
Even store enhancements focused on enabling digital through its acquisition of Alert Innovation and future build out of MFCs. (Stratably)
Target launches cost savings initiative: Target sounded a cautious tone in its outlook for the fourth quarter, forecasting comps to decline and margins at half the rate of its long term goals.
The company kicked off an initiative to save $2-3B in costs over the next two years mainly through process improvements. This new initiative signals a shift from trying to keep up with demand to now refining and optimizing the business in an environment of slower growth.
The rapid deterioration in demand Target saw of in the second half of October should trigger consumer brands to closely investigate any disconnect between sell-in and sell-through in recent weeks and adjust sales outlooks and corresponding promotional and advertising plans accordingly. (Stratably)
Home Depot digital growth accelerates: Home Depot reported U.S. comps of 4.5% (vs. 5.4% last Q), with ticket up 8.5% and transactions down 4.4%. Comps decelerated throughout the quarter (7.1% in August, 4.4% in September, 2.1% in October), although management reiterated its guidance for the full year. Digital grew 10% Y/Y, decelerating from the prior quarter.
Richard McPhail, CFO, summarized things well - "We're operating in a broad-based inflationary environment not seen in four decades while managing through constrained global supply chain conditions, all against the backdrop of monetary policy shifts intended to moderate demand."
In terms of initiatives, Home Depot had a mix of digital and non-digital related initiatives:
- Improved online experience for Pro loyalty program (less friction)
- Tasking tool for associates inside stores
- Pro: Enhanced fulfillment, personalized online experience, business management tools, app
- Path to Pro platform (helping Pros find skilled labor)
Developing a more robust advertising and analytics vision appears to be a significant opportunity when comparing Home Depot's strategic initiatives to Walmart's or Target's. (Home Depot)
Lowe's reports accelerating U.S. comps and digital growth: Lowe's reported U.S. comps of 3% (vs. 0.2% last quarter), helped by ticket +8.4% which was partially offset by transactions -5.4%. Like Home Depot and Target, Lowe's experienced steadily moderating demand as the quarter progressed. Digital grew 12% compared to 7% last quarter.
Unlike Walmart and Target, Lowe's management team is not seeing much softness in discretionary purchases. Bill Boltz, EVP Merchandising indicated "We are seeing early sell-through on taller, higher-end artificial Christmas trees, which is another example of both discretionary purchasing and consumers trading up."
Instacart was also brought up as a key driver to digital growth for the business. It's now offered nationwide with 30k items available. This speaks to the value proposition of omni-enablers even if retailers are inclined to want to own the entire consumer experience. (Lowe's)