How CPG Lost the Data War and How It Can Win It Back

A former Amazon executive stated that “...data is the North Star..and core strength of Amazon’s ad business.” Yahoo reports that the next few years could see Amazon’s ad business at the forefront of the company’s earnings report.

Amazon ads are slowly becoming one of the platform’s strongest business assets but it’s been pretty low-key so far. It’s currently on track to match and even exceed Amazon’s Cloud business which remains a staple of the global tech industry.

Amazon is publicizing $10.6B from its ad business in just Q2 of this year alone. This is in line with its current growth of over 22% percent this year.

Amazon can create a mid-size CPG company every quarter.

Not since the dot com boom has the Consumer Packaged Goods (CPG) industry seen the same growth that powered it through the last two-thirds of the 20th century.

The top five things plaguing CPG growth are:

1. Technology: Data is power and CPGs lost the data war to retailers beginning in the late eighties (see below "The History of CPG Losing the Data War"). Technology played a large role as it has not only empowered CPG and its competitors, but it has leveled the playing field for CPGs, retailers, and consumers and now it is the overarching catalyst plaguing technology-lagging CPGs. Also, consumers are winning the data war with newfound capabilities via technologies like the internet, mobile phones, and AI.

2. Clinging to Cash Cows: Procter & Gamble, the grandmother of U.S. CPGs, is hailed as the creator of the Brand Management Model and it is this model that helped power P&G through two of the biggest tech innovations of the 20th century in radio and television. However, the industry has continued to cling to a cash cow model that while still effective, has been supplanted by disruptions in the latest tech innovations of the internet and mobile tech. It was contrived during a period of massive upheaval from the Industrial Age to the Information Age transition. A time when people still reported to offices in ivory-towered HQs and it made sense for a group of people or a brand team to huddle together daily to advance and develop the mission of the brand. It was also created by P&G as a way to drive healthy competitive tension amongst the brands to ultimately lift the collective good of the enterprise and it worked well in its first fifty years, but now it has grown ripe for disruption.

Source: Startup CPG

3. Fragmentation. A few years ago, you would have included private label (PL) in this list, but tech’s headwinds have also proved formidable to PL. While PL is still a force thanks to retailers being able to take advantage of their own data illuminating the high-flying CPG sales stars they can quickly emulate, PL has become part of the larger fragmentation of the industry. PL is just yet another player amongst many. A fragmentation driven by advancement in technology enables smaller players to scale faster, play a bigger role and make greater gains in retail and omnipresence.

4. Rise of the Consumer. Another indirect outgrowth of technology has been with the empowerment of the consumer and subsequent shoppers. We now have a more digitally enabled and diverse population of young consumers entering the marketplace. Consumers can make or break brands in one swipe on their mobile devices.

Source: PwC Analysis

Quality Acquisitions (Let Someone Else do the Innovating)

Thanks to #3 and #4 above, CPGs need to make better-quality acquisitions that are more than just numbers on a page. They need to be in adjacencies to their existing brands and help to build the base. For example, P&G acquired San Francisco, CA. based Native for $100 million. P&G can now sell 2.65 oz of deodorant for $14 because consumers are willing to pay a premium for a product made with ingredients that are considered safe and cruelty-free. The real win is P&G can scale up the new brand and leverage innovation from Native into its own body washes and deodorants.

How CPG can win back the Data War

Evolvement vs. Transformative

Adopt an Evolutionary Mindset vs. Transformation. To transform something means you are changing it and not always in a better way, but to evolve something means you are taking organic steps to improve it. Retailers especially those who are privately owned have afforded themselves more of an evolutionary approach to building their businesses. CPGs should take note.

Webster’s Definition of Evolution: a process of continuous change from a lower, simpler, or worse to a higher, more complex, or better state

Webster's Definition of Evolve: to produce by natural evolutionary processes

Faster Adoption of Technology

Amazon has announced an investment of up to $4B for a stake in the AI startup, Anthropic.

This illustrates Amazon's intent to stay at the forefront of AI innovation.

Faster adoption of technology. Stop behaving like it is still the 20th century. New problems deserve new solutions by adopting new technology faster than your competition. AI, blockchain, and Web3’s roles in future innovation can’t be underestimated. Web3 will empower the supply chain into places we never dreamed of ten years ago. But it does not end there (see "Play the Long Game" below)

Mind the Reset

We are now in the midst of a major transition from the Industrial Age to the Information Age. This transition started in the middle of the last century and right around the time retailers began to overtake CPGs following the arrival of the UPC to retail in 1973.

Transition is a reset. Resets represent an opportunity to reinvent yourself into something new. To master the reset means focusing on the long game in future technology. The long game will be setting your sights on the technological horizon. While Web 3.0 will be incrementally more of the same as what we know today in Web 2.0, to be successful you have to focus further into the future. CPGs need to imagine and plan for what the emergence of Web 8.0, Mobile 10G, and Blockchain will be. This will take more than a CMO or Chief Transformation Officer. As AI will break down functional barriers, It may be time to consider replacing those with a team focused on the future and growing in the long game. Chief Evolution Officer, anyone?

And just for kicks -- what will Web 10.0 be like?

"Most likely, even more along those lines. Imagine a scenario in which any data -- all data -- can be instantaneously streamed anywhere at any time. Your very experiences, your senses, and perhaps even your thoughts, will be broadcast and archived for anyone to download and view. All human knowledge will be publicly accessible -- all music, all art, all media, all things. The distinction between human thought and computer thought will be blurred. We will be part of the network, the network will be part of us. We will be the hive mind, and we collectively will have evolved into something quite unlike anything the world has ever seen." “On Web 2.0” DeWitt Clinton

Manage the Mid: Develop a Closer Relationship with Your Consumers

This one is a given. Since winning the data war retailers have effectively operated as middle agents between CPG and their consumers. CPGs are struggling with prioritizing where to resource their largest retailers and spend behind a fragmentation of Trade Funding, Retail Media Networks, and Retailer Proprietary Data support requests. Sadly CPGs have reduced innovation spending in the wake of higher costs exacerbated by the speed at which PL and competition are able to emulate similar products.

The good news is cracks are beginning to show in this arrangement. More and more, some smaller startups are avoiding Amazon for fear their data engine will eventually identify and replicate their success into a me-too product.

While tech has evened the playing field, it does not necessarily mean CPG can’t catch up, innovate, and overtake the competition. AI will help to alleviate middle agents. In the early part of the previous decade, CPG definitely got closer to consumers through things like P&G’s “First Moment of Truth” identifying the ability to influence consumer and shopper decision-making at the moment they make the purchase decision, but now that moment is nebulous and not as obvious as focusing on what happens in-store at a shelf. Consumers can practically make purchases in their sleep (see Web 10.0).

Inclusion & Diversity Should Be First Nature

Simply by sheer proximity to the very diverse neighborhoods they operate, retailers are ahead of CPGs in terms of hiring for diversity. The gut-wrenching reality is neither retailers nor CPGs are anywhere close to having leadership teams that reflect the actual diverse consumer populations that they serve. As a result and in another salvo for consumers in power, CPGs and retailers have left one of their most vulnerable gaps open. Now there is an armada of CPG diversity-led startups taking advantage of the very evolutionary nature of diversity. Retailers like Target and Walmart are taking note by adding more diversity-owned CPG products. If your leadership team crams to understand how to reach its diverse consumer base, there is now a new crop of young leaders starting their own businesses to fill the gap. In addition, the U.S. Supreme Court’s recent affirmative action rulings just weaponized this group further with a ferocious energy to create their own relevant products that the CPGs and retailers were not.

The History of CPG Losing the Data War

CPG companies lost the data war and I was a foot soldier in its largest campaign. Fresh out of college, I would receive a once-a-week Friday mailing of insights and data from my CPG company’s HQ (this was before CPG salespeople had laptops). Data is power. Over the weekend, I could hardly restrain myself with the excitement of knowing I would be going into my buyer’s offices on Monday, armed with data showing my company’s CPG national number one brands. That is until I had my first of what would be many similar face-to-face Monday sales calls, whereupon my presenting a one-pager on Duncan Hines cake mix being number one nationally, my buyer would swivel in her chair to her rear desk desktop computer and point to the glowing green numbers on a black screen and say, “but in my stores, Pillsbury is number one and Duncan Hines is number two!”

CPG’s Revenge

It would not be until the mid-nineties that CPGs would regain footing with the help of mass deployment of Category Management data-laden laptops to salespeople, in turn enabling CPG salespeople to counter with more precise data that in some cases exposed retail buyer guile; i.e., only showing data from the two weeks a competitor was on promotion. Thus were the CPG versus retailer data wars of the nineties.

The CPG Career Pinnacle

The Nineties were a time when working for a CPG was the pinnacle of corporate careers and the thought of leaving CPG to work for a retailer was a rare occurrence. Back then, pay and benefits were generally better at CPGs. The nineties era was rife with tales like large CPGs being asked by Walmart to reconsider establishing Sales Teams on Walmart’s home turf in Northwest Arkansas for fear that it would raise the pay scale so much that Walmart would have to raise their HQ salary levels to match. That all quickly changed. I commonly see more of my former CPG peers leave CPG to work at retailers more than any other segment because not only are the pay and benefits better, but so are the opportunities for advancement.

The Data Shot Almost Heard Around the World

Retailers won the data war on the heels of technology. A technology that was primarily born of what seemed at the time an insignificant event that happened on June 26, 1973, when a gentleman purchased a pack of Wrigley’s gum at a Marsh store in Troy, OH. On that date and on that package of gum and through that grocery store’s register was the first ever use of a 12-digit linear UPC barcode in a grocery store. That pack of gum is now on display in the Smithsonian.

The Tertium Quid of the CPG Retail Industry

Throughout the seventies and eighties, the UPC code became that indefinite and undefined thing related to both CPG and Retailers, or tertium quid, which eventually in the nineties became more defined and led to a boost for both. It took over a decade for the grocery industry to reach full utilization of the new UPC barcodes. This coincided with the perfect storm: the birth of the Personal Computer. As retailers were able to deploy PCs and better handheld tech to the stores in the nineties they began to get better benefits from UPCs and gained greater footing against what had been an over sixty-year reign for CPGs.

The Brand Management Cash Cow

Not since the birth of the Brand Management model amongst the hallowed halls of Procter & Gamble in Cincinnati had there been a bigger innovation in the industry than the UPC code. CPG rode the crested wave of the Brand Management model into their own perfect storm of new technology in radio and television. Soap operas anyone? This carried the CPGs a long way as they were able to leverage the Brand Management model as a central hub of their operations to craft actionable insights and data directly from their consumers and mold those insights into effective radio and TV advertising. This data also enabled CPGs to throw their weight at retailers in terms of gaining greater in-store presence behind AC Nielsen data culled from panels of TV watchers.

Influencers Killed the Retail/Brand Star

CPG’s powerful reign ended in the nineties as Walmart became the benchmark of retail data and logistics prowess and was quickly followed by others like Kroger, Amazon, and Target. But it did not end there, as two other massive innovations in technology created even greater disruption in terms of the growth of the internet and mobile phones leading to an even greater power shift from the retailer directly to the shopper and consumer. Data is power and today, consumers are armed with the most important and powerful data tools ever created. Not only can consumers shop on data, but they can also take control of their own advertising messages and create their own influence on each other, thereby bypassing traditional advertising channels and killing the nearly century-old Brand Management model in one fell swipe.

Source: Startup CPG

So What Does It All Mean?

The rise of data-empowered consumers has led to an almost near commoditization of CPG and retail. Empowered shoppers and consumers now have an almost infinite amount of shopping choices at their fingertips and it is all supported by just-in-time data. For example, I favor Chosen Foods' avocado oil not because of an ad, but because I saw an influencer on IG Reels educating his audience on the labeling nuance and marketing other avocado oil CPGs and retailer’s private label brands use on “avocado oil” to make you think it is 100% avocado oil. Chosen was one of the few recommended because it is made up of 100% avocado oil with no fillers or additives.

Google Maps

Size No Longer Matters

If you passed Chosen Foods San Diego HQ too fast, you might miss it. Living in San Diego, I pass Chosen’s HQ almost daily. It sits in a small unassuming building sandwiched between the elevated eight-lane I-5 Freeway and San Diego’s light rail and cargo rail corridors. On any given weekday their small parking lot looks like an exotic car lot full of BMWs and Audis. Out of this office is a representation of what the future continues to look like in CPG: fragmentation. The little operators are now more empowered by technology from the help of fever swell advertising via influencers to companies growing at stellar rates without even having a marketing department (see OpenAI moon shot to $1b in one year). Thanks to technology scale is no longer as big of a competitive advantage and for CPGs that means we still have a lot of work to do to take back the streets.

#cpg #amazon #datawar #chosenfoods #AI #web3 #diversity

Dylan Labrie, MidJourney