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.

Press Release: Impacts On Food Manufacturers a Lost Feature in Sysco Merger Discussions

Feb. 19, 2015CHICAGOFood industry consulting firm, Blueberry Business Group, says impacts on food manufacturers is a lost feature in media and analyst discussions surrounding Sysco Corporation’s proposed merger with US Foods.

Last week, Sysco agreed to divest 11 facilities in a bid to secure FTC approval for the merger. These facilities reportedly represent annual volume of $4.6B and would be acquired by Performance Food Group for $850M.

Sources say the FTC is balking at the proposal amid complex monopoly concerns. Yesterday, the WSJ reported that Sysco hired legal representation in anticipation for a possible FTC suit to block the merger.

Blueberry says discussion about merger effects have focused on competing distributors and operators–the industry term for away-from-home eating locations such as restaurants, hospital cafeterias, university dining halls or military feeding–while impacts on manufacturers that produce food and non-food products for the industry through the distributor system haven’t been given much press.

“Merger delays bear down on thousands of companies collectively producing many billions of dollars in products for the industry,” says Blueberry President Debra Bachar. “Game-changing decisions around resource investments and where to place bets to drive their own growth are in limbo.”

Foodservice distribution has historically been straightforward. Producers sold and shipped products supported by promotion funds to distributors that stock tens to hundreds of thousands of products for re-sale to operators on a mark-up.

While still in practice, Ms. Bachar says the supply system has now exploded into many new options available to manufacturers to push products into the market and  in turn, for operators to source products from manufacturers. “Margins are under pressure as manufacturer resources are spread across many routes and gateways including powerfully growing regional distributors, Cash & Carry, group purchasing organizations and e-commerce.”

“Manufacturer CEOs have generally been dissatisfied with their organizations’ growth and returns on investment over the last few years. Unknown outcomes of the mega merger and other events around the corner translate into substantial risk and uncertainty for their companies.”

Blueberry associate Bill Pierrakeas agrees, “There’s no foodservice precedence for what’s happening now. Manufacturer mindsets must assume zero market share in the new paradigm to build new practices into every growth strategy.”

“Successful manufacturers are ‘students’ in supply system economics, including those driven by consolidation. Getting the facts on how money is now made and lost in the end-to-end stream must be factored into every growth strategy to re-configure value,” says Blueberry associate Scott Norman, underscoring the industry’s new economics element.

Lastly, Ms. Bachar shares a reality. “The foodservice industry is undergoing the most profound change in its history. A number of excellent manufacturers will come face-to- face with consolidation fallout and won’t make the cut. Those will be having hard discussion about business contraction, from selling off assets to looking closely at their own M&A options.”

Her advice to food industry CEOs? “Select an unbiased food industry expert with an extraordinary handle on current events to assess and quickly help your company get on the right track as developments continue.”

Contact
Debra Bachar, President
debra@blueberrybusinessgroup.com

The Sysco/US Foods Merger: Ready, Set…

readysetgoOver the weekend, Sysco proposed to divest 11 US Foods facilities in a bid to secure approval from the FTC for their pending merger. Located in the western US, these facilities represent annual volume of $4.6B and would be acquired by PFG for $850M.

If approved, the merger still adds a significant $14B in sales to Sysco’s treasure chest and the gap in size grows wider between the top two national broadliners.

This afternoon, an unnamed source said that Sysco and the FTC remain at a standoff as antitrust regulators balk at the proposed settlement.

Manufacturer executives wonder what these developments and delays mean for their business. Strategies, program funds, capital and other resource investments must return better revenues this year. Decisions that guide growth and where to place bets are in limbo.

Blueberry believes CEOs must get more involved in aggressively addressing matters at hand. Before getting to that, we offer the following observations and opinions on recent announcements.

  • Divesting $4.6B in sales appears to bring competitive balance nationally, but does not address monopoly concerns at local levels and in major overlapping markets such as Chicago, Metro NY, Carolinas, Florida.
  • We don’t know who the FTC subpoenaed last week relative to the merger or the basis for doing so. We know the recipient was not PFG.
  • If the deal fails to go through, PFG could still acquire the 11 USF facilities. The remainder of USF could be picked up by other regional broadliners. Or PFG could step in to acquire all of USF with FTC approval. It would be important to consider strategic interest from other regional broadliners to expand west or east as well.
  • Achieving post-acquisition value is predicated on top line revenue for both entities. PFG as a newcomer to western markets would work hard to secure and grow the current base. It is unlikely that in the near term they would take supplier actions that adversely affect operator wants or purchasing patterns.
  • It is unknown whether a Transaction Service Agreement between Sysco and PFG would include a non-compete clause.

With all this said, consolidation is a natural occurrence in a mature industry. It is not a disruptor in the defined sense to foodservice.

The real disruptor? New purchasing behaviors. Yes, consolidation is the headline-grabber–but also a distraction. Purchasing behaviors and new supplier selection criteria–not the merger–are transforming the way manufacturers must do business.

As often as we beat this drum, many remain stuck in long-standing business practices, thinking and operating models.

As keeper of the margin, it is the operator–not the manufacturer or the distributor–who determines the value of transactions in the supply system. And operators have proven very willing to experiment with new sources of value in a system that has exploded with options.

For manufacturer executives, we offer the following recommendations:

  • Addressing the environment resides in the CEO’s wheelhouse as the Defender and Builder of their organization’s value. This is not a sales and marketing issue.
  • Get solid in reviewing scenarios with corresponding counter measures. As radical as it sounds, mindsets must assume zero market share in new paradigms.
  • Organizational assessments should take place in the context of markets in transition and along four dimensions: Demand Creation, Executive Team capability, Operations and quality of Internal Communications for execution.
  • Become students of today’s supply system economics. This requires facts on how money is made and lost in the end-to-end stream, then re-configuring value propositions along new preferred supplier criteria and as a cost-effective trading partner.
  • Many excellent suppliers will not make the cut in strategic sourcing and category management due to factors such as cost and margin constraints, and data and analytic requirements. These suppliers must be equipped with a plan to manage the business contraction–including their own M&A options.
  • Events will back up hard on manufacturer margins. Strategic freedom on where to compete comes first by way of operational efficiency and excellence. This area of the organization requires fresh scrutiny for survival and growth.

Blueberry has an extraordinary handle on current events and their impacts on your business. We invite you to contact us to help insure your company is on the right path for best outcomes as developments continue to evolve.