The Spin On Unacceptable Performance

spin free2

Food and CPG leaders are putting a spin on failure with reports that company profits surged while revenues fell–blaming industry conditions for the latter.

This is unacceptable…

…proving just how far removed they are from new value elements in their customer base and market environment.

The carnage of one-sided performance is staggering. On what platforms will these companies rebuild?

Boards have not set the right expectations. They pronounce slashing costs as acceptable without first re-examining business models or conducting a thorough review of factors essential to value creation and growth…including failures in the integration phases of their acquisition strategies.

Control is irresponsibly handed over to big-name consulting firms paid to make outrageous, value-destroying recommendations.

The greater tragedy is that reported results socialize failures into the industry as justification for others to perform similarly.

Growth has people at its core. Profits surge and revenues increase when CEO’s mobilize their people to do innovative and valuable things for customers.

Subsequent market traction is what drives momentum, thrust.

When revenue growth unravels, so does momentum. When that happens, amassing profits alone means little.

Food and CPG chiefs must realize that today more than ever, their organizations are just one innovation, just one lost customer away from getting whacked by a competitor—eliminating further need for them in the marketplace.

They are subject to the same lessons learned by those in more enlightened industries: The capability of Doing Better with Less must be assimilated into organizations and performance expectations.

Unfortunately, top food and CPG companies are Not Doing Better With Less.

They are Doing Less With Less.

There’s nothing acceptable about that. Nothing to applaud. Nothing to feel good about.

No matter the spin.

Food Industry 3.0

businessman looking out the window freeIn the digital age, they that own the data own the customer.

And the innovation.

And the growth.

And the first-mover advantage.

Unlucky manufacturers are still inserting millions of dollars and resources into the vast value-trapping black hole between themselves and buyers. Data about shifting user preferences is not readily available or if so, shared late and at significant additional cost.

Little about this data is predictive. Brand access to consumers and users is tightly controlled by intermediaries. Supplier innovation remains a shot in the dark.

But recently, we read headlines such as Kroger and Whole Foods’ possible interest in acquiring Blue Apron.

ConAgra’s and Campbell’s alliance with Peapod.

Tyson’s alliance with Amazon.

Obvious growth opportunities with recurring revenue in new channels, yes.

But the bigger advantage is overlooked, and it’s this:

Granular data derived from these big data alliances can transform manufacturers business models and restore their ownership of the customer.

Consider: It was Google that confirmed the rise in consumer interest in functional foods—not one of the industry’s common research companies. Google queried food category search data from January 2014 to February 2016 and spotted early risers and fast decliners signaling shifts in consumer wants and behaviors.

Amazon, Blue Apron, Peapod and a growing number of others like them are not just online product sellers. They are big data companies.

Tyson’s new home meal kit alliance with Amazon provides insights into purchasing patterns by consumer type and early trends to innovate upon.

Wait. There’s more.

Tyson can also use granular data to zero in on new investment opportunities, to extend insights to other channels, employ better inventory controls, implement manufacturing 4.0 processes and create personalized experiences with their brands that everyone talks about but few know how to deliver.

If Kroger or Whole Foods acquires Blue Apron, the benefits of analyzing consumer behavior from that source include brick & mortar tailoring offerings in a local, more personalized way.

Whether these companies have caught on to the real advantages of their new alliances is unknown.

Looking ahead, we see manufacturers developing and rolling out new products that are customized to local tastes and preferences—even neighborhood hot-spots. No more sweeping the US market to gain as many points of distribution as possible. Redesigned business and operating models become almost no-brainers.

Bullseye.

The practice of inserting millions in trade spending and sheltered income into a system that offers no value to users and consumers and no reciprocating benefits to manufacturers becomes obsolete.

Trends such as those published by industry research companies will prove generic and incomplete.

The usual business performance metrics get tossed out.

Predictive modeling of demand prevails.

Food Industry 3.0 arrives.

In the digital age, they that own the data, own the customer.

They own the world.

Food Industry 2015: Turbulence and Sailed Ships

Food industry CEOs are still not seeing the results they want in revenues, market share, profitability and innovation.

Many still hold only superficial knowledge of new and evolving events affecting outcomes.

In hindsight, these CEOs relinquished their responsibility to carry out an accurate, first-hand examination of the impacts that a mature, evolving industry will have on their businesses.

Despite seismic shifts, a number of executive teams were too imbedded, insular and disbelieving to bring about anything but incremental change. New industry behaviors were  “floated” on top of long-standing operating models and the same year-over-year strategies.

The market will leave these companies behind in 2015. For the rest, steps to avoid the unthinkable must be taken swiftly, boldly and accurately.

A high level review of 2014

  • Amid overall economic recovery and consumer optimism, layoffs, cost cutting and slow growth were widespread in the food industry.
  • The quality of sales, earnings and investments were not great: high cost and low mileage from new units, new stores, new products, new opportunities.
  • Inserting low-value funds into the supply system continued despite new practices that, at their core, seek to eliminate non-value elements in service to operators and consumers. Trade spending was up in foodservice, down in retail.
  • RFPs designed to extract every bit of savings stretched resources on all sides of the table, distracting and pulling them away from other growth initiatives.
  • Billions of dollars that once flowed through broadliners and traditional retailers migrated towards alternative routes, channels and outlets.

Headline-grabbing acquisition announcements were outcomes of underlying issues above.

Expect the same and more in 2015

  • The nature of supply chain competition will change. Major rivals will be publicly-owned. Expect M&A announcements every quarter (look for a few surprises in 1Q).
  • Scrutiny over trade spending levels between merging supply chain entities will pressure manufacturers for highest rates.
  • Fresh, forward-moving brands and products bolted on to global portfolios will require patience and nurturing in order to scale to the masses.
  • Traditional research sources will be grow obsolete, replaced with “Aha” insights as tools that unlock new opportunities.
  • Snacking accounts for half of all eating occasions. E-commerce and doorstep delivery will continue creeping up on bi-weekly supermarket shopping.
  • Operations excellence will continue as table stakes to offset the price tag and risk to customers that switch out suppliers.
  • The cost of doing business will be higher than ever for everyone–backing up hard on manufacturer margins.

Clearly, “a few new things” in 2015 strategy pipelines just won’t do.

Time is running out to transform thinking, leadership and business practices of the past. Unfortunately, that ship has already sailed for some now finding themselves in the process of painfully managing business contraction.

In 2015, three overarching food industry themes belong in every CEO wheelhouse and should be integrated into every organizational strategy:

Resource Optimization: Re-profile executive and leadership positions with broader, best-in-class attributes better suited to deliver results on a grand scale. This may include separating long timers as legacy behaviors, practices and attitudes must be refreshed to fuel momentum. A departure from the way most companies are used to working, only those without blinders or dependencies can execute a successful resource optimization plan.

Consolidation: You’ve heard us say that Consolidation is code for “stripping out” in many forms: supply systems, retailers, manufacturers, brands, products, practices, functions. Work-around plans crafted and mastered by A-team executives must be driven to avoid fallout and maximize outcomes from every form of consolidation: when customer decisions favor competitors, when competitors are folded into global portfolios, and especially, when customers themselves acquire or are acquired.

Shared Growth: Hitting targets or delivering growth over last year alone isn’t enough. Competitive advantage and staying power have new meanings: 1) Growing categories, not just items; 2) Improving customer market share, not just your own; 3) Understanding how trading partners make and lose money and managing to win-win. The purely transaction mindset is dead.

How will you confront these themes to keep your organization alive and out of the market’s rear-view-mirror? It’s a major challenge for even the best leaders.

Category Management: What If Your Company Doesn’t Make the Cut?

jobless_with_no_safety_net_falling_through_cracks_ineiCategory management is a hot topic in the foodservice industry. Broadliners are undertaking n-step strategic sourcing (lower cost suppliers, demand aggregation, bidding and negotiation)–the more holistic catman comes later. Many manufacturers are participating in training programs. Some have or are going through the process assuming each progressive step is a sure sign that “preferred supplier” status is within reach.

But what if your company doesn’t make the cut? What if you end up on the outside looking in? What if your line is eliminated and your business is converted to a competitor?

Manufacturer CEOs struggle to find the logic in these questions. They believe their brands and products can bypass the principles of strategic sourcing, or that relationships with long-time category managers will influence outcomes. They predict operator revolt and hold-out if they are de-listed.

There may be some consolation in this thinking–and plenty of faulty reasoning. Distributors won’t sell fewer cases of French fries, spaghetti sauce or brownies after some lines go away; they will run more efficient and profitable operations. They will make it worth their end-users’ while to convert. Operators will source hard-to-find products online. On the flip side, the catman process is ongoing. Winners in Round One can expect margin pressure and significantly more resource investment to maintain their preferred status in Round Two.

When pressed about plans for various “what if” scenarios and outcomes, manufacturer CEOs are quick to say that chains are an option. Or regional broadliners. Or Restaurant Depot. These aren’t plans; they are reactions–fortified by assurances from VPs that recovery is a matter of shifting attention elsewhere and volume and profit will follow.

The hard truth is that events will turn out badly for many manufacturers. These are not like-for-like alternatives to what’s at stake. There’s limited volume available to suppliers excluded from strategic sourcing and category management. What’s more, brand reputations slip with every loss.

Serious Implications For Manufacturer CEOs

“Consolidation” is code for “stripping out”. Low innovation has produced an overrun of poorly differentiated, non-essential products in the supply system. As customers merge and strategic sourcing continues to strip out cost and duplication, volume and profit recovery for excluded manufacturers will be outpaced by time, aggressive competition for what’s left over and mounting investment to try to win new business in a risk-averse environment.

Please, think about this carefully. Without a meaningful assessment of what’s at stake and a build-out plan in the event of catman or consolidation fallout, your company’s worth will likely decline, leaving only three options: 1) manage the contraction, 2) merge, 3) sell off assets.

As the Keeper, Defender and Builder of Company Value, “what if” scenarios reside in manufacturer CEO’s wheelhouse. Decisions are high stake and there is little time to weigh their impact or options. Build out plans must be put in place immediately.