CPGmatters: PepsiCo Urges Industry to Focus on ‘Speed’ to Spur Growth
Through a special arrangement, presented here for discussion is a summary of a current article from the monthly e-zine, CPGmatters.
At the Food Marketing Institute (FMI) Midwinter Executive Conference in Orlando, John Compton, chief executive officer, PepsiCo Americas Foods and Global Snacks Group, called on the food industry to speed up the way it collects data, develops products, reduces days of inventory, and deals with the convergence of online and in-store shopping.
Greater collaboration is more critical with the rapid convergence of online and in-store. He remarked how fast shoppers can research and buy products with smartphones and computers compared with traditional shopping in stores, and pointed out the growth seen in e-commerce sales.
“Speed will be a future currency for growth and profitability,” he said during a presentation. “It requires us to re-think old habits and to embrace the speed at which the world is changing.”
Mr. Compton said about $10 billion is spent on insights across multiple industries, including half spent on collecting and analyzing data. He said, “In our industry, the transaction cost alone of buying and selling data is over $5 billion. Do we really need to spend all that money on data when it’s two and three weeks old? Surely there is a better way. In traditional businesses like ours, we should share information. We can get a competitive advantage by the way we interpret that information.”
Better insights can lead to more innovation in the form of blockbuster new products, he claimed, lamenting that the shrinking center store of supermarkets is home to too many new SKUs that are mostly “cannibalistic line extensions.” He added, “We are being challenged to bring you innovation that drives category incrementality. Many of you want innovation that differentiates you from your competing retailers. We can change these trends of innovation. We just have to act fast.”
“Can we imagine a supply chain with seven to 10 days of inventory, not 60?” he asked. “I know we can’t get there tomorrow or next year or five years from today. But can’t we start to paint that vision? Can’t we start to think about how to reset shelves in a more virtual basis instead of once a year?”
Discussion Questions
Discussion Questions: What do you see as the biggest hurdle to improved inventory management in food retailing? Do you agree that speed is the “future currency for growth and profitability”?
I think the most important “currency for growth and profitability” will continue to be innovative product development, alongside strong marketing. However, it’s hard to argue with Mr. Compton’s premise. More effective data management to drive knowledge about consumer preferences as well as more cost-effective logistics management can be a huge win for the CPG and retail industries.
There’s a limit to how much speed can impact growth and profitability. Granted, PepsiCo can react faster than most others because many of its products are DSD. But adopting a speed approach to react instantly to changing marketing conditions (as P&G is planning) is going to lead to a lot of knee-jerk reacting rather than solid marketing that builds existing brands and creates new brands.
As for myself I have no doubt that there is a need for speed if companies want to have their shelves correctly stocked right now. What seems to be taking so long for this to happen as a general rule is the development of executives with the skills and vision to get an up-to-date IT department in place. For investment purposes, I avoid companies that use mickey mouse accounting practices to balance a profit, and search for those with a very accurate understanding of their market(s) and that are in a winning position. The latter can only be maintained with modern executive decision making, using timely and accurate data.
Velocity has always been and will always be the key factor in the marketing of “fast-moving consumer goods.”
OK that’s a bit tautological, but consider that faster supply chain data, faster inventory turnover, faster cash flows, faster response to demand fluctuations, faster category planning, faster merchandising, faster measurement, faster insights, faster decisions, even faster coupon-clearing are all potential competitive points of difference for retailers and brands in the penny-on-a-buck grocery business.
For my money, velocity starts and ends in the stores. Big chains and their DSD partners in particular must make fast business practices routine and embedded at the store level in order the offset the challenges of scale. (That is, the larger the organization, the further the store and the shopping experience are from headquarters.)
I would therefore prod Mr. Compton in this way: Not only has velocity always been the “currency for growth and profitability” in retail, but our speed at increasing our speed is the essence of our competitive advantage.
I choose nimbleness in favor of speed as the “future currency for growth and profitability.” Speed just for the sake of speed suggests haste, while nimbleness suggests quickness with awareness. To encourage nimbleness, decision-making must be authorized and encouraged at lower organizational levels by both manufacturers and retailers. Mistakes will be made, recognized, and fixed. Successes will breed more success. The best ideas don’t always come from the top.
We need to look to industries and companies within our own industry operating the fastest, most agile supply chains and leverage those best practices throughout the trading partner ecosystem. There are enough technological tools available today to define actionable insights from near real-time data to make effective decisions to optimize inventory globally. “Speed of distribution” is the key.
There is a serious need for speed at retail, my dominant theme for at least 10 years. However, I am focusing on the speed/convenience of shopping, where the data clearly shows that the faster you sell, the more you will sell: “Shopper Efficiency vs. Total Store Sales.” BTW, my revised “Three Shopping Currencies” (Time, Money and Angst,) has just been released in the second edition of Stahlberg’s “Shopper Marketing.”
John Compton’s observations are of course correct: anything you do faster you can do more of, and that will accelerate you to the head of the pack. It’s a fundamental principle of life.