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Peter Crosby (00:00):
Welcome to unpacking the Digital Shelf where we explore brand manufacturing in the digital age.
Hey everyone. Peter Crosby here from the Digital Shelf Institute. Our guest, John Carroll with deep experience in CPG from executive roles at p and g and Coca-Cola, and now in his role as President of Digital Commerce and Analytic Services at Acosta Group, has spent decades watching trends, interpreting data, and leading the way in consumer innovations and back office processes and planning. He joins Rob Gonzalez and me to distill that experience in CPG boardrooms and give his perspective and advice on planning and executing for incremental growth and controlling costs in the uncertainty of the upcoming year. John Carroll, welcome back to the podcast. It feels like only weeks since we talked.
John Carroll (00:59):
Great seeing you, Peter. Thanks for the invite. I always enjoy meeting with you and Rob and talking about pertinent events and what's happening next.
Peter Crosby (01:06):
Yes, well, the last time you were here, we did a little pre-Thanksgiving hot take on the potential impact of Ozempic and similar meds on the CPG industry and more importantly whether or not I should take it. But today we are tackling a much deeper topic as we close out our podcast year. This is the final episode of 2023. What the hell should everyone do about 2024? You have deep exposure in your role, not only to what brand execs are feeling right now, but also the data that is coming back to them from their commerce operation. So can you give us the temperature of what is going on out there as we careen towards an uncertain 2024?
John Carroll (01:47):
Yeah, 24 I would define as cautious and in some ways uncertain with our clients and Peter and Rob, we work with over 2,500 CPG clients, so we're involved with their planning process to help them execute and help them think through problems and develop solutions. But there's several things going on coming off the pandemic and major supply chain issues. Many of those things are behind us. So now what's on our executive's mind? Definitely the recession, it is the longest predicted recession that has not happened yet. So that's the question, when is it actually going to happen? When will the economy actually contract? It was supposed to be first quarter this year. That hasn't happened and there's still predictions. There's still a lot of discussion about soft landing, but still very uncertain overall. The second thing is it's going to be an election year and it's going to be a wild ride from an election perspective in 2024.
There's no doubt about that at all. So there'll be a lot of question marks on that. And then if you think about what's happening from a worldwide situation, from what's happening in the Middle East to what's happening in Ukraine, so a lot of uncertainty overall from a geopolitical standpoint, from an economic standpoint and from societal standpoint. So that's on everybody's mind from a c PG standpoint. So I think wrapping that up, there's definitely some uncertainty. So the other key thing from a commerce standpoint, and I think the headline has been especially after some of the supply chain issues have gone away or most of the supply chain issues have gone away, both manufacturers and retailers have benefited significantly from inflation. So if you look at the CPG industry over the last, call it decade and a half, it's been chugging along with one to 2% price increases every single year.
And I remember there was an executive when I was at Coca-Cola that came from Latin America, this was about a decade ago. And that executive said to me is like one of the best things that happened to Latin America for manufacturers in CPG companies was inflation overall. So the inflation from that aspect has helped overall from a pricing perspective. And the good news for the most part is the consumer because wages have gone up, has kept up with that overall, but now what we're seeing are declines on units, those declines in units continue to happen. So as you think about 24 and you think about the CPG businesses last year versus this year, next year versus last year, you're not going to see the price increases that you've had before. Inflation is starting to mitigate. We see that continue to mitigate into next year. So you're going to have unit decline and probably depressed dollars overall. So there's a lot of discussion on how CPG will really handle that into next year, and a lot of that discussion is around promotions and focusing on giving consumers the right prices, better prices to drive units. So there's a lot of uncertainty overall. I don't think you're going to see as much innovation next year. We're not seeing that on the horizon as much as we've seen in the past overall. So I think you're going to see a lot more cautionary outlook from a planning perspective for the industry next year.
Rob Gonzalez (05:03):
Yeah, I think what's been kind of interesting is you're right, the consumer companies in general have done pretty well. CPG in particular has done pretty well, but they've gotten more conservative in certain areas, almost expecting the recession. So one area they got conservative in was experimental channels. So to light up a new sales channel, I mean the thing that was all the hotness was the quick commerce companies a few years ago and CPG companies were talking about them at very senior levels and investing to try to make those channels work. And I think that the levels of investment we've certainly seen taper off a little bit and they've kind of moved the investments into more sure growth channels over the last 18 months, doubling down on things like Amazon, Amazon advertising, Walmart and Target and their retail media groups and so on and so forth.
And so probably that type of thing is going to continue to your point, a little bit less innovation spend. The other area, the thing that I just don't understand as much I'd love to get your take on is the shifting promotional dollars. And I mean retail media is explosive, but there's still most of the money spent on trade and various other promotional activities. It seems to be volatile right now, and I just have no idea where it's going to go. So can you talk about what you're seeing and what you think is going to happen?
John Carroll (06:36):
Yeah, absolutely. And Rob, I think you nailed it. I mean, what we're seeing from a shopper standpoint is we're seeing them go to other outlets to save money. So the discounters continue to grow. If you look at Walmart's business, Walmart is the only retailer that we're seeing that actually has both units and dollars growing. So I think Walmart has really reacted to this and done some smart things with the shopper and the consumer. The promotional equation is fascinating, and there's a lot of work that's being done on it right now, and I'll give you some stats. Pre pandemic, about 34% of all units were promoted units during the pandemic that went down to like 27, 20 8%. So there was a dramatic decline there. Obviously a lot of it was online, there were supply chain issues. We've seen that go up this year to 31%. So it's not quite at the pre pandemic level, but we see that continue to grow.
And the discussions that we're having with our CPG clients is that you're going to see more promotion into next year, especially categories like beverages and food, and you're going to see more and more of that. Now the question is, is this a time for us to get back to the bad behavior of promotions? And think about the promotions that you've seen in years past the buy one, get ones freeze, the 10 for tens, the promotions that were unprofitable both for the retailer and the manufacturer. Nielsen has a stat out there that's 72% of trade spend for a manufacturer is unprofitable, 72%,
Rob Gonzalez (08:03):
John Carroll (08:04):
72%, 72% is unprofitable. So I think it's a real opportunity for the industry, both from a retailer standpoint and a CPG manufacturer standpoint to take a step back and say, let's really rethink this. Do we want the traffic driving promotions or do we want promotions that reward consumers and shoppers our most loyal consumers and shoppers? So what we're seeing and what we're focused on and when we're talking to our CPG clients is let's think more about things like personalization. How do you develop those one-on-one offers? How do you use the retail media networks effectively? So it's always been stack at high and sell it low in the industry. That's kind of tried and true. Back in the day when I was selling it was like get yourself in the Thursday or the Sunday circular, put it on an end cap and everything takes care of itself. So now there's really a shift and both the sales teams and the marketing teams are focusing on and beginning to invest more in these retail media networks because it's really about targeting the right shopper and trying to develop a one-on-one relationship with that shopper and rewarding that shopper. So that's what we think the opportunity is moving forward, and there's a real pivot point for the industry without a doubt.
Rob Gonzalez (09:17):
Yeah, man. I want to get to one of the things you said there. God, 72% is unprofitable just because I don't have the experience in this space that you do. When you say bad behavior on promotions were these largely tactics that I don't know, worked in 1980 and were profitable in 1980 and people continued doing out of habit and at some point they became unprofitable and people just kept doing them. Is that how these behaviors persist despite being unprofitable?
John Carroll (09:51):
Yeah, you really nailed it. I mean, most of the promotions that we saw in the day, and this was before there was digital, before there was more personalization, was how do I drive traffic into my store? So let me take a product like a Crest or a Tide or a Coca-Cola or a Diet Coke or a Frito-Lay product and let me price it lower than any other store out there. And the whole idea was if I have the lowest price on this item, I'll bring them into the store, they'll buy that item, but they'll buy another 20 items that are more profitable. So that's kind of the old school way before this whole omnichannel shopping experiences happen. So consumers really are not shopping the way that they shop before from that perspective, picking up the circular clipping, the coupons, they're definitely more digitally savvy. So that's where the behavior can change and there's been more and more investment into these digital opportunities that retailers have, specifically the retail media networks. But there's been a bit of apprehension on the CPG side to invest there. So now there's a lot of discussion about how do we develop a joint planning process with the retailer to really understand how do I best use these monies together, be it trade spend, be it marketing funding to really develop the right strategy against the right shopper and the right consumer. So we're beginning to see a shift, but it needs to be moved along a little bit more quickly.
Peter Crosby (11:10):
Yeah. John, with the joint business planning, we've heard that some retailers are combining digital and in-store into one joint planning process getting away from the split. That has long been the case. Is that what you were seeing some of the leading retailers do?
John Carroll (11:28):
100%, Peter, I think you're right on it, and I believe that is really the future of how we need to run the business right now. Many times the investment from a retail media standpoint is coming from brand funding and the retailer pitch is, look, you don't have the 32nd spot the way you had. You don't have as many eyeballs on TV and radio that you had before. So put it in our retail media networks. And for the most part, that's beginning to work. You're starting to see more investment. Our point of view is it really needs to be a sales and marketing discussion on the CPG manufacturer side with the retailers, it needs to be in conjunction. So those sales leads need to focus not just on the traditional measures of availability, promotion space. They'd need to think about things from a marketing KPI perspective, like targeting from a reach and frequency perspective, the right eyeballs, long-term value from acquiring the right shopper from a branding perspective.
So it has to work together overall. The other piece of this, and we see some of the more successful retailers that are doing this, both Walmart and Target, their merchants are responsible for their retail media buys as well. So their merchants p and Ls include retail media in them. So I think that's kind of the best in class example. I think the sales teams need to work closer with the marketing teams and really develop the right KPIs and the retailers need to put the responsibility in the merchants hand. I think that's a key to success here.
Rob Gonzalez (12:54):
So I've got a question on the dollars. In that model, I saw some research from CoreSite recently where something around 30 40% of retail media spend was dollars shifted from trade and the rest of it was incremental. And that's largely dollars shifted from other brand avenues, linear TV being one of the sources or just all of the incremental ad budget going to retail media versus going to other more traditional advertising venues. So that 60% incrementality is what obviously the retailers want to get their hands on to offset some of the negative margin from the omnichannel purchases. And my question is how does that actually work for the, not Target, not Walmart group? If you look at that 60% of incremental retail media dollars, my guess is, and I don't have data on this, but my guess is that most of that's going to Amazon, Walmart targets, roundel, maybe Kroger, and if you go down the list of CPG, grocery, general merch retailers, at some point they're getting no incremental. It's just trade dollars shifting. And do you think that is, first of all, are you seeing something similar? And if you are, that's not a good thing for the mid-market, more regional players, they kind of want that incrementality, right?
John Carroll (14:36):
Yeah, I think you're generally right on your stats. I think that there's two ways to look at this. First of all, I do think we need to relook at trade spend. There are less people shopping in brick and mortar. There's more people moving online now brick and is going to continue to be the bulk of the business. But there's no doubt, especially if you look at Gen Z and millennials, they are the power users of online. They're doing both. They're shopping in store and they're shopping online. So you need to make sure that you have the right vehicles to target them, and the larger customers out there are building these platforms to make that happen. So I think you've got to look at your trade spend and say, okay, how do I spend that more effectively and efficiently? And then I do think there will continue to be money that comes in from a brand budget perspective because these retail media networks are not just lower funnel now.
They're upper funnel, so they're driving awareness, they're targeting the right shoppers to answer your question and what our point of view is on the regionals, there are regionals that are starting to get really good at this, and Rob, they see the same data and they're experiencing the same things that you just mentioned. How do I get incremental money? How do I drive profitability? So they're beginning to build out some really good retail media networks and retail media tools and digital tools. So some really good examples, Hy-Vee Meier, HEB, all great regional customers that are building out amazing networks to invest in. So they're getting from an investment perspective, from trade spend and some reallocation trade spend, but they're also getting some brand money too. So the best retailers are going to build these networks out to reach their shopper. What they have, their valuable asset are loyal customers and loyal shoppers.
Rob Gonzalez (16:22):
Yeah, that makes sense. I mean, I'm two steps removed from the retail media programs. I see the dollars moving around, but so it sounds like the regional players can get the incrementality with the right tooling and programs and also maybe a rethinking of the way that their merchants are behaving the way that you described the targets and Walmarts, the merchants are actually part of the ad selling process, and if you change those things, then they can get a larger share of the incrementality than maybe they're currently getting and then that can change the profitability picture for the Gen Z and millennial online purchase habits. I'm just trying to make sure that I'm tracking, is that what you're saying?
John Carroll (17:14):
Yeah, you're totally spot on. And it really begins with good joint business planning process and getting together buyer merchants and working together on behalf of the shopper and focusing and targeting the right shopper and the way it used to happen. I remember starting to sell when I was at Procter and Gamble, you sat across from the buyer, they yelled at you for a while, you'd have some money in your pocket from your trade checkbook, you'd negotiate it, you'd negotiate the end cap and bam, four weeks later you'd have the end cap and you had the ad and you had the incrementality from a revenue and case perspective. Now the conversation be really, okay, who's your best shopper? Here are the three brands in my portfolio that appeal to those shoppers. What can we do with these brands to really drive loyalty and incrementality with those shoppers, with these brands, with the right offers and personalization? And that's one of the reasons why getting your digital shelf, getting your content right, making sure that you have the right personalized offers to the right shopper is so critical. So we're really kind of beginning to get into that golden age. It's going to be a major shift. It's starting now, but we're going to see a major shift in the next five years. It's also going to be enabled by AI and automation as well.
Peter Crosby (18:22):
Yeah, I love that shift because it's so much more sustainable over time. We've been in this era where there was plenty of money to throw around growth at all costs. I just want more new customers. More new customers. But the truth is is that really the set of customers is not growing. We don't see population growth like we used to or anything like that. So it's what are you going to do with the people who know you and the people who know your brands and how do you make the most out of that given the data and as you said, new opportunities in AI and things to drive conversion rates at a higher rate and at each stage in the funnel than we've ever seen before. I think that's where if you were talking about sort of less innovation maybe, and I'm asking this as a question, the innovation may not be so much at the skew level of what are the 19 different products we're going to put out this year, but rather how do we innovate to drive more juice out of every squeeze that we're doing? Is that accurate?
John Carroll (19:23):
Peter, you're spot on there. I couldn't agree with you more. I mean, innovation should be defined just beyond product and innovation. We're just seeing so much more innovation around how do I get more creative from a trade spend perspective? How do I develop better process through automation and ai? How do I really understand the elasticity of my brands? And then there's a lot of really great tools out there to help us do that. So it's great that you have the tools, but you also have to have the people that actually can interpret what the tools are saying and bring the insight to life. So we're seeing a lot of that lot of innovation from a creative standpoint and how we're communicating to consumers as well.
Peter Crosby (20:01):
And are you seeing the numbers that I'm seeing, which is for all of that activity that we're talking about, probably sort of flat to 3% growth expectations in this sector?
John Carroll (20:14):
Yeah, I think we're going to start seeing that next year. We're going to probably get back to more of the traditional, that zero 3% really client one to 3% growth rate. It's going to continue to be healthy overall. The other interesting thing too is you've got the in-home consumption is going to continue to grow over. They're hybrid work is going to continue to be a reality. A lot of people are coming back to the office, but I think this reality of hybrid work is here. It's not going to be five days a week. For most companies it may be two or three days a week. So you're going to have people that going to continue to eat more at home, whether it's breakfast or lunch. And so I think that's going to contribute overall to growth as well.
Rob Gonzalez (20:53):
I want to tie a couple of these themes together. So we've got growth sort of
Reverting to historical norms for the space as opposed to the last couple of years where price increases have allowed companies to do pretty well in the environment. And if you're a CPG company and you want to get your disproportionate share of that growth, tell me if you agree or disagree with this, but it sounds like one way to do it would be to know what the retailers are that are being innovative from a personalized go-to-market perspective and plan on spending whatever incremental dollars that you're associating over with retail media and whatever trade dollars that you want to trade over. Try maybe, I don't know, whatever favored nation status thing you've got going on, but try to disproportionately favor the programs that are further along in their maturity. So you mentioned Hy-Vee, HEV, Meyer, great, great up and coming programs. If you're the first doing joint business planning omnichannel with them and you've got incremental dollars to spend, that could be a place where you can get a disproportional amount of the growth that is available. Am I tying those things together correctly or would you disagree with any of that?
John Carroll (22:19):
No, I would agree with that. I mean, I think if you look at CPG, call it the last decade, the idea of winning with the winners and investing with the winners from a trade spend perspective has been pretty consistent. That's a tried and true strategy. Now what is different is what you said, which is who are the innovative retailers that are really reaching the right consumers and the right shoppers now to really build and grow your brand? So I think that's kind of the nuance and the gasoline on the fire of that strategy. So I agree with you on that. Rob
Peter Crosby (22:52):
And John, given I imagine all the moves that they're making on sort of that side of the house, how are we driving incremental growth? But there's also got to be, I would imagine at those growth rates, an impact on the costs too, and a lot of the costs that are present in this industry are labor costs. What are you seeing out there in terms of what might happen in 2024 on the labor side?
John Carroll (23:19):
So labor market is still very strong. I mean, for us, 30,000 plus people we're in stores every single day. So it's gotten better since the pandemic, but laborers, we continue to see strong overall. Is it going to be as strong as it has been in the past during the pandemic and after the pandemic? Maybe not. What I'm seeing personally is you're starting to see some declines in technology jobs. You saw the layoffs from an Amazon standpoint and a Microsoft standpoint. So I think those jobs will be more competitive, but the labor jobs out there, I mean, again, there's no robots and AI out there right now that are doing the work that's probably a couple years or more than a couple years ahead for us. So we still see a very strong labor market. It's going to continue to put cost pressure on retailers. It's going to continue to put cost pressure on manufacturers as well. So that is definitely a piece of the pie. And we see most of our clients, whether they're a retail client or a CPG company, really focus on the bottom line from a cost perspective. I mean, they're trying to take as much cost out as possible so they can reinvest it and grow the business.
Rob Gonzalez (24:22):
Just to round all these themes out, so much uncertainty. What will be the focus of planning for 24? What are the essential requirements to achieve the highest level of performance and lowest cost? Am I barking up the wrong tree on these mid-market retail media programs or emergent retail media programs? Are there better places to be focusing? What's the takeaways of all this for 24 planning? If you're a large branded manufacturer in CPG,
John Carroll (24:56):
I think the key takeaway is especially planning with customers is every customer is going to have a different strategy. So really understanding what that customer's strategy is the key to success. Whether we want to drive more traffic or we want to drive our bottom line or we want to grow our retail media networks. I mean, it's got to be this joint planning process to really understand what those objectives are and then linking what your objectives are as a manufacturer and what your brand objectives are to the retailers that you can work with to really best grow the business on behalf of the shopper and the consumer. I do think that this focus on units, because at the end of the day, retail is a turn business. It's about real estate, so how fast can you turn products in the real estate that you own to drive your return on investment?
So I do think there's going to be much more focused on transactions and units, and what we're seeing is most clients are very focused on that with the retailers, but taking a step back, it's more of a joint venture planning process with the retailers. I think manufacturers need to open their minds a little bit more to these retail media networks. I think retailers, in my opinion, need to think about these retail media networks not just as profit builders. I mean, that's part of it. You listen to earnings calls from Target and Walmart, they look at it as an 80% margin piece of their business. They need to look at it as an effective way to drive their business with their manufacturers together to grow with the shoppers. So I think that's kind of the theme of planning this year. It is definitely uncertainty, but it's getting smarter about developing those right relationships and deploying resources with the retailers that you're going to win with your shoppers and their brands.
Rob Gonzalez (26:40):
You've been in CPGA long time with Proctor and Gamble and Coke and Acosta. How much of a culture shift is that for branded sales teams where they're asking them to create bespoke joint business plans with more customers? I mean, in the past you would always do it with a Walmart. Walmart's got its own strategy, but you go down the list and say, I'm going to create a bespoke joint business plan understanding the priorities of each retailer and that my strategy is going to have to shift customer by customer. How much of a culture shift is that for companies? Is that a lot of change management to do what you're suggesting or am I just completely out of touch the way that the sales teams operate?
John Carroll (27:23):
No, no. I think that there's been a trend towards more customization from a retailer standpoint. If you look at the big CPGs, the p gs of the world, the PepsiCos and the Cokes, this has been their strategy for a long time now. They know how to do that. It's kind of the mid to smaller sizes that I think we really need to work with to help them work on behalf of the retailer to understand their objectives and strategies and then develop programs that make sense for their shoppers. So one of the things that we do so well at Acosta, we have relationships with all retailers in all categories. So we're well penetrated with those retailers and we help our manufacturers, our CPG clients develop the right plans to help those retailers drive their business. So I think the big manufacturers have been doing this and it's been a journey for them. I think it's kind of the mid-size to the smaller clients that we have and the CPG companies that will really benefit from this moving forward.
Peter Crosby (28:15):
The closeout here, John, that actually brings a question to my mind, which is I remember pre pandemic kind of the big story was the upstarts spending venture money to steal market share and innovate and really understand the digital magic that would happen, and it seemed like they were just going to sort of cut and slice away at market share until they became big companies themselves. Then you have the pandemic, which sort of rising tide lifted all boats to a certain degree, but it feels like we now might be back now that venture money has dried up that we might be in a time where all the power, a lot of the power shifts back to the big ones. They have the power with the retailers, they have the resources to do this kind of innovation, et cetera. What do you think the sort of small to medium kind of companies, what is their power in this time coming up? Do they have a play that they can make that can be competitive?
John Carroll (29:23):
It is a difficult time for startups. There's no doubt about them. And if you don't have a differentiated brand proposition, both from a branding perspective and functional aspect of it, whether it has less sugar or it does X, Y, Z for you has a different taste, I think you're going to have a difficult time overall. So the small upstart brands play a huge part of what's going on from an industry standpoint and always they've always pushed the needle and the strategy for the big manufacturers has been, let's see how the small ones do, which ones are successful, and then we'll buy them and we'll integrate them into the company. I think you're definitely going to see a slowdown because the money is definitely drying up, but you've got great brands out there that are well differentiated that will continue to drive the innovation pipeline and you're going to have large companies that are going to keep an eye on them overall.
Peter, I think what you said, what the large companies are really great at is the innovation around what am I going to do from a category management differently standpoint? What am I going to do from an AI standpoint? What am I going to do with a media standpoint? That's what they're really well positioned to do is these smaller startup companies that figure out the next kind bar, right, the next low sugar product. I mean, there's so many great brands that you can talk about that have been embedded by startups that have been bought by larger companies. So I do think you're going to see a bit of a depression slowdown. I think the other thing too that we find with smaller companies, it's just hard to get a buyer's attention these days. It's not like the old days. I used to go sit in the office of the public's office or the Winn-Dixie office. I'd sit in there for two hours for a 15 minute call, but at least I had a face-to-face discussion with the buyer. Buyers are working really hard today. Now they have Zoom, so they're doing zooms all day long, but it's even harder for these smaller brands to get in front of these buyers, and that's one of the things that we work on from an Acosta perspective to get the really high potential smaller brands in front of those buyers. But it is definitely a different environment than it was before on the face-to-face discussions.
Peter Crosby (31:19):
Well, John, thank you so much for coming on and giving us this perspective. I mean, the exciting seat that you are in right now has this sort of bird's eye view of what's happening out there, and it's a real benefit as we head into the holiday seasons and hopefully our listeners will be able to take a little bit of a breath and think about 2024 and take some of this advice on their way. If folks wanted to reach out to you or get more information, is LinkedIn the good place to go or what would you like?
John Carroll (31:52):
LinkedIn was the best place to get me. I'm on there mostly every day and it's got my email address to Acasa and yeah, that would be the best place to get ahold of me.
Peter Crosby (32:05):
Well, we both honor your leadership over decades in this industry. Your wisdom or your humor,
John Carroll (32:12):
That's been decades. Wow. Thanks for reminding me. I really appreciate that.
Peter Crosby (32:17):
Sorry about that. I meant it as a good thing, but when you bring it here and you share with our community, we are super grateful. So thank you so much.
John Carroll (32:28):
I appreciate it, and they appreciate everything you're doing, Peter with the podcast and the Digital Shelf Institute and same to you, Rob. It's always a fun conversation.
Peter Crosby (32:35):
Thanks. Thank you. Thanks again to John for investing in the DSI community. Join in by swinging on over to digital shelf institute.org and becoming a member. Thanks to you for being part of our community.