February 27, 2023

 

The annual CAGNY conference took place last week in Florida providing participating leadership teams across the largest CPG companies the opportunity to talk about their corporate strategy, changes underway in their organizations, and long-term growth and profitability goals.

 

We reviewed the presentations and commentary to uncover common themes across organizations.

 

Read on for our key insights from the conference.

TL;DR

  1. A volatile ’20-’22 has given way to a focus on long term targets, innovation and growth
  2. eCommerce is growing, healthy, and for some, share is higher online than in-store
  3. Media spending plans are very healthy with retail media consistently called out
  4. Companies are building first-party data, but the business impact is less clear
  5. Unique assets might be monetizable (in the distant future)

Transitioning Back to Long Term Targets

The last three years have had tremendous volatility in the form of the pandemic, supply chain issues and lapping the pandemic and then inflation.

 

Presenters came across as expecting a less volatile environment this year and moving forward.

 

Most brands communicated expectations for a return to their long-term growth targets of low to mid-single digits, following the last three years that were boosted by the pandemic and then inflation.

 

Instead of a monopolized focus on inflation and supply chain, talk has turned to reshaping portfolios, becoming more efficient with marketing spend, and then wading into areas like first-party data.

 

Subjectively speaking, companies brought up eCommerce a bit more in their remarks, and certainly talked much more about shifting spend to higher ROI digital advertising, with several citing retail media as a key area of focus.  

Several Brands Highlight Greater Share Online than In-Store

Countless DTC brands have launched in the last decade skillfully using online distribution and marketing to overcome the stranglehold incumbent brands enjoyed in stores.

 

Endless aisles enabled by marketplaces that reduce barriers to entry almost guarantees incumbent brands with dominant physical store presence will see lower share online.

 

Yet surprisingly, we heard several brands indicate their share is higher online than in-store across their key brands and/or markets:

  • General Mills eCommerce penetration is 10% and cited its eCommerce share is higher than B&M share.
  • Kellogg’s indicated 7% of their sales are online and have greater online share in cereal, crackers, salty snacks and plant-based.
  • Colgate-Palmolive clearly articulated the importance of its digital business at 14% of its sales and said it had greater share online than in-store in several of its key markets.

 

A greater focus, more digital spend, and large corporate upskilling are all combining to help incumbent CPG brands’ digital shelf share look more like their physical shelf share.

 

Since the digital shelf is more and more filled with ads, the resources and sheer scale at which these CPGs operate gives them an enormous advantage in dominating the digital shelf, so long as they can muster the focus and commitment needed.

Media Spending Plans are Very Healthy

The risk of recession, a softening consumer in the last six months, and a deluge of challenges to social media companies from privacy initiatives lead one to think media spend will be challenged in ’23.

 

However, amongst the FMCG staples companies presenting, the reality couldn’t be more different.

 

Every presenting company we reviewed indicated plans to ramp media spending in ’23 to both support their brands as we enter a slower growth year (slower, but still on pace to ahead of LT targets) AND because of the positive returns they’re seeing from digital advertising compared to traditional mediums.

 

Efficiency and ROI have never been more important to these firms and digital advertising is 100% aligned with both.

 

Most brands highlighted digital spending now amounts to more than 50% of their total as it is driving better returns.

  • Colgate estimates digital has a 30% better ROI than traditional digital channels.
  • Kellogg went from 37.5% of its spend on digital to 56% in ’22 and has seen improved efficiencies as a result
  • P&G has talked extensively about how a shift towards digital is giving it the ability to have sufficient reach with less dollars
  • Mondelez indicated it was planning to continue to spend aggressively on digital media and that the ROI on this spend was improving.

More Digital Spend Will Drive Greater eCommerce Penetration

What’s interesting about the unanimous support for more digital ad spend is what it might do to eCommerce penetration rates going forward.

 

Consumer brands will theoretically keep shifting more budget towards digital channels until returns balance. But we don’t know if that balance is 60%, 70%, 80% going to digital because we are not yet seeing diminishing returns.

 

The bull case for accelerating eCommerce penetration is thus more spend going to digital channels and the ongoing progress towards making that media increasingly shoppable. This is an under-appreciated driver to eCommerce sales growth going forward.

Retail Media Joins the Party

Retail media was also called out much more frequently amongst presenters than in prior years.

 

In the past, CPG brands would tend to talk about digital advertising, and now they also mention retail media in the same breath.

  • Church & Dwight talked about ramping media spend to 10.5% of its sales now that in-stocks are more normal, and it included retail media amongst a number of digital channels it is focused on.
  • P&G estimates its superior analytics around retail media are giving it an advantage in knowing exactly what digital shelf it wants to be on and what to pay.
  • Smucker specifically called out retail media as a key part of its brand growth flywheel.
  • Hostess highlighted retail media is generating phenomenal results for its business and really stands out amongst digital spend (100% of its advertising is digital)

 

While there are headwinds to retail media, the commentary at the conference should bring wide smiles to Amazon, Walmart, Target, Instacart, and their peers offering retail media options, as it seems CPG companies are completely bought in to the opportunity.  

 

Each brand, of course, should thus recognize they’re not alone in spotting the opportunity with retail media. It’s become a more competitive and complex endeavor, and competitive edge opportunities will be found by better leveraging analytical tools like AMC.

First-Party Data-to-Action an Opportunity

While acknowledging companies are not going to disclose all the unique ways their employing data to their advantage for competitive reasons, there does seem to be a gap between efforts at building first-party data and using that data to impact the business.

 

Interesting analytics commentary from the conference:

  • Coca-Cola talked about building a repository of first party data that is helping it understand what platforms to prioritize and increase the amount of personalized messaging.
  • Church & Dwight discussed creating a center of excellence in analytics.
  • Colgate-Palmolive was arguably the most direct, indicating it’s using data more explicitly for improved segmentation, retargeting and prospecting, retention, and cross-selling.

 

Better targeting and even more impactful email marketing was highlighted, but there wasn’t always a link back to first party data.

 

Next year we will hopefully hear more direct examples of how first-party is influencing those improved digital media ROIs compared to traditional formats. We’d also like to hear from brands how they’re taking advantage of clean rooms to get more out of their data.

 

In addition, we did not see presenters make a clear link between first party data nor digital mediums like Amazon.com and their product innovation, the latter of which is core to meeting and exceeding their long term growth and brand goals.

 

Church & Dwight might have done the best job at this, albeit indirectly, with its commentary around leaning into digital brands, including its acquisition of Hero.

What No CPG is Talking About – Selling Data & Software

Retailers have shifted from just selling goods to also selling their data and digital real estate in the form of retail media and related data. This is reshaping their business margin mix as Walmart eloquently talked about during its earnings call and Amazon has demonstrated over the last five years.

 

There were several unique capabilities brought up during the conference that suggested the possibility that CPG brands could see a similar opportunity with data and software tools in the future.

  • Kraft Heinz could potentially license its trade management system it uses to ingest 100k promotional events each year and then improve allocation to the highest ROI opportunities.
  • P&G could potentially license its digital tools that it’s developed to guide shelf sets and planograms inside of stores more quickly.
  • Brands could extend the value of their first party data beyond targeting by productizing it. For instance, General Mills is building a robust first-party database via its multiple DTC properties and a partnership with Fetch Rewards that has netted 2mm consumers using the program in the first six months since launching.

 

Admittedly, this is far off. Investors would have a difficult time wrapping their head around a CPG company selling data or software. Further, it would require a completely different type of division to actually do this.

 

But, the concept of brands launching their own “retail media network” remains a possibility and it’s offered in the spirit of pushing CPG companies to think big.

 

Developing these databases, tools, and capabilities is expensive when only used within the confines of one organization. But if it could be applied (and monetized) beyond four walls, the business case for future investment is fundamentally different.

 

Maybe this comes about in the form of spinning-out technology and analytical companies from within the organization, generating new shareholder value.

 

CAGNY 2030 could be a CPG and SAAS conference!