Driving CPG Growth Post COVID - An R3 Report

Driving CPG Growth Post Covid An R3 Report from CAGNY 2021 March 2021

www.rthree.com

Long-Term Growth In Two Words: Efficiency & e-Commerce If future growth in the consumer packaged goods (CPG) industry were to be summed up in two words, they would be efficiency and e-commerce. In all the CAGNY presentations R3 attended this year, the message was consistent: growth has been the result of more streamlined operations and reaching more people outside of traditional retail.

How each company plans to sustain performance and achieve their goals is where the difference (and eventual stakeholder returns) lie, but there were some common trends that ran through the presentations that are useful for any marketer regardless of category.

Data is The New Oil. Now that everyone has bought into it, there’s no ignoring the cost and operational efficiencies that can be brought about with data.

From connected factories and supply chains (Nestlé) to consumer insights (Kellogg’s) and sales and distribution strategies (CocaCola), any company that is interested in growth needs to support action with data.

This is only good news for CPG marketers. More information across the value chain means a greater ability to make informed decisions. The challenge will be ensuring the data is fresh, integrated, and actionable, which means we’re likely to see an increased demand for talent with these capabilities.

WHAT IS CAGNY? Every year, the Consumer Analyst Group of New York (CAGNY) brings together investors and management teams from the world's biggest consumer packaged goods (CPG) companies to paint a picture of the consumer industry landscape. This year's conference was hosted virtually over four days and featured thirty brands and speakers like Alan Jope from Unilever, Dirk Van de Put of Mondelēz International, and Steve Cahillane from The Kellogg Company.

DRIVING TRANSFORMATION FOR MARKETERS & THEIR AGENCIES

2

Strengthening the Core For the majority of CPG companies, growth will come from strengthening the position of their core products. This is particularly true of food and household goods (versus brands like L'Oreal that rely on regular cycles and launches), and some are actively supporting this approach by reducing the number of SKUs they carry.

The focus on core renovation means incremental innovation, greater focus on dynamic creative, and making household names digital-first brands. We can expect to see the same familiar names, a similar (if not better) product, that is more easily available, connected, and reflective of current lifestyle trends.

80% of revenue for Mondelēz has come from core, advantaged categories. Oreo is a big one with huge headroom and a clear path to the next $1bn in revenue growth.

DRIVING TRANSFORMATION FOR MARKETERS & THEIR AGENCIES

J.M. Smucker expects its efforts to streamline cost infrastructure to deliver $50 million in incremental costs savings in the next three years.

Smart Sourcing & The Value Chain Cost infrastructure efficiencies across the value chain has led to significant savings for CPG companies. Companies are not spending less, they are spending smarter. P&G is using new tools like propensity modeling to decrease spend while increasing reach and relevance. The company is also investing in advancing its supply chain networking capabilities. Making more environmentally sustainable choices has also been a focus of more mature CPG brands.

For marketing, this signals the importance of ensuring that agency and in-house models reflect overall business goals and are designed with efficiency in mind. Contract agreements and payments also need to be reviewed to meet standards.

3

Big Wins in e-Commerce Some companies have done better with digital retail than others, but every CPG company has set a goal to increase their e-commerce sales to compensate for loss of revenue from point of sale affected by the pandemic. For L'Oreal in the US, e-commerce made 22% of sales in 2020 and showed an 83% sales growth. For Nestlé, e-commerce made 10% of net sales.

The drive to increase conversion on e-commerce means that marketers are aligning their omni-channel strategies accordingly.

It's not just about being present on the right platforms, but investing in talent, digital media, customer service and engagement, data and analytics, and getting the integration of martech stacks right.

Growth in Conagra’s $1bn e-commerce business has outpaced its entire total edible category in terms of retail sales in each of the past 6 quarters.

DRIVING TRANSFORMATION FOR MARKETERS & THEIR AGENCIES

Kraft Heinz simplified their business, moving from 55+ product categories to 6 consumer platforms, to expand opportunities to win and make them more focused and agile.

Streamlining Structure Smarter ways of working haven't been limited to external inputs and relationships. Companies like P&G (who implemented a new organization structure in 2019), Kraft Heinz and Spectrum Brands have looked at the design of their operating and marketing teams as one way to increase efficiencies.

With the continued focus on digital, social, and e-commerce, we anticipate that working structures of traditional brands will face an update in the near future. Goals of greater speed, agility, and a data-driven mindset highlights a need for updated capabilities, processes, and better resource allocation. – R3

4

The Line Up

DRIVING TRANSFORMATION FOR MARKETERS & THEIR AGENCIES

6

The CPG Landscape At A Glance Brand

Focus

Approach

Driving Transformation

Investment

R3 Score

Church & Dwight

Category growth

Speed, Agility

Consumer insight

e-Commerce

9.5

Clorox

Trend-driven growth

Consumer-centric innovation

Big bets, Experimentation

OOH business

9

Coca-Cola

Effectiveness, Efficiency

Ideas, Platforms

Strategic partnerships, New growth runways (tech, markets)

Digital, Analytics

10

Colgate-Palmolive

Innovation

Product innovation

Pricing, People-centric insights, Sustainability

Digital

10

Conagra

Trend-driven growth

Availability

Targeted strategy based on behavioral data

e-Commerce, Social

9.5

General Mills

Long-term growth

Speed, Measurement, Core markets

Startup accelerator, Investment arm

e-Commerce, Social

8.5

Hershey’s

Core brands

Marketing

Data analytics

e-Commerce

9.25

J.M. Smucker

Operational efficiency

Streamlined cost infrastructure

Reshaping portfolio to focus on key areas

Petfood

7

Kellogg’s

Trend-driven growth

Data, Analytics

AI, Machine learning

Sustainability

9.25

Kraft-Heinz

Agility

Sales teams, Planning cycles

Product renovation

e-Commerce, Creative

8

DRIVING TRANSFORMATION FOR MARKETERS & THEIR AGENCIES

7

Brand

Focus

Approach

Driving Transformation

Investment

R3 Score

Kimberly-Clark

High-growth categories

Scale, Speed, In-market execution

Building digital-first brands

Data, Analytics

9

L'Oréal

Product excitement

Product launches

Digital, Media

e-Commerce

7.5

Mondelēz

Purpose-driven

Speed, Strength of core brands

Core renovation, Incremental innovation

e-Commerce, D2C

7.5

Nestlé

Sustainability

Connected value chain

Data analytics, Intelligent enterprise

e-Commerce

7.25

Newell Brands

Distribution

Speed, Fulfilment, Integration

Omni-channel strategy

e-Commerce

9.5

PepsiCo

Developing and emerging markets

Revitalizing well-known brands

Mergers and acquisitions, Product innovation

Sustainability

7.5

Procter & Gamble

Market growth

Superior offerings, Superior execution

Efficient value-chain, Streamlined organizational structure

Models and processes

7

Spectrum Brands

Execution, Productivity

Smart sourcing, Connected value chain

Optimized organizational structure, Tech enablement

e-Commerce, Automation

7.5

Unilever

High-growth markets, Leadership potential

Scale, Brand and technology sensitivity

Sustainability

e-Commerce, Social

8.75

DRIVING TRANSFORMATION FOR MARKETERS & THEIR AGENCIES

8