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- [00:00]
A
This is Nick Modi from RBC Capital Markets and you're listening to the CPG Guys.
- [00:07]
B
Hello and welcome to the CPG Guys podcast. Set at the intersection of commerce and tech, your hosts, Sree Rajagopalan and Peter V. S Bond explore how brands and retailers engage consumers in a digitally driven world. And now, here are the CPG Guys.
- [00:27]
C
Hello and welcome to the CPG Guys podcast. I am your formidable host, pvsb, who also moonlights as head of industry and client engagement at Flywheel, the commerce acceleration division of Omnicom. I am joined by my bff, my Ride or Die. He is the Chief revenue officer at ThinkBlue Consulting. He is known by his daughter's fans as Papa Raj. Of course, I'm referring to Rhea Raj and Cat's Eyes Lara Raj. He is the father of pop stars. He is a man known as Sri Sri. Welcome. How you doing? As we speak, you're out in. I'm in snow covered Guilford, Connecticut after the third snow of the last five days. And you're where, Sree? Remind me.
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D
Palm desert. It's 85 degrees and sunny and dry.
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C
Hating on you. Hating on you.
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D
Last night's dinner with one of our clients was terrific. Fully attended dinner. I was at the Morton Steakhouse. Not that I eat meat, but, you know, you would have enjoyed the ribeye or the tomahawk steaks. I'm pretty sure even the steakhouse.
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C
Did you have asparagus? Did you have some of the potatoes? What'd you eat?
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D
He got the asparagus. Right, But I didn't know that the same steakhouses have now learned how to make a tofu steak. How about that?
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C
Wow. There you go. Not too bad.
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D
No more referring to me as the former CCO of General Mills. That's like old news. Nearly two years and I don't like the results. So we got baraj.
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C
So before we get to our very special guest, I want to make mention of the fact that please do follow us on your favorite podcast platform, Apple, Spotify, YouTube. If you're on Apple and Spotify particularly, leave us a rating. We like the number five. It's up to you, but it helps make our podcast more findable by industry contemporaries who want to be educated and entertained. So Sree and I just got back from Cagney, the consumer analyst group in New York conference, and we met up with one of our dear friends, Nick Modi from RBC Capital. Nick, we. While we were there, we had a wonderful presentation ceremony. Make sure you check it out on our LinkedIn page. Nick, has been on the podcast five times. This is his sixth visit and after five, you know, he earned his CPG guys five timer varsity jacket. So we had a lovely little ceremony in the lobby of the Hilton Signia. I'm also pleased to report SH was a little distressed after he checked out because he realized he left a pair of his prize New York Yankees sweatpants in the hotel room, thinking it was lost forever. Today I got a message from the hotel saying we found it. If you want us to ship it to you, enter the address, you pay for the the shipping and so it is on its way back to its rightful owner, sri. How happy are you for that? More importantly, let let us why why
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D
that was got on the MLB flagship store and cannot be replicated.
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C
Yeah, we couldn't. You can't go online and find it. It was only available there.
- [03:23]
D
Don't for one second assume that for the last week I haven't been trying to buy a replacement.
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C
And sri, I found something for you online and as much as it loathed me to share it with you, I did. And you procured it. What exactly is coming your way that it has to do with Yankee swag? You want to share with everybody?
- [03:43]
D
No, I'm going to wait to wear it on the show.
- [03:45]
C
Okay. All right, well, we'll leave it that. But anyhow, I might have to stand
- [03:49]
D
up and show it. That's all I'm going to say.
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C
Please join SRI and me in welcoming our dear friend Nick Modi. Hey Nick, how you doing? What's going on?
- [03:56]
A
I am excellent guys. Thanks for the jacket. It's actually quite comfortable and warm in this very cold, snowy, dreary climate that we're in in New Jersey.
- [04:06]
C
Yeah, it's pretty bad up in Connecticut. I'm sure it's not much better. A little bit more temperate than here, but not much. It's sort certainly is in Palm Desert, California where the third of this trio is luxuriating this morning. But one of the things we like to do is talk to Nick about general themes what we heard at cag. Sree and I have been writing about it all week. We did a podcast on our own but Sree and I come from it come at it from practitioners standpoint, we want Nick because he helps level set how Wall street thinks about these presentations and how it makes them consider balancing out portfolio investments. Whether something is investment grade for the future. It's built to it. So we thought we'd invite Nick on to kind of walk through some of the highlights and not so highlights of the event. And you want to kick us off here and how you want to take this.
- [05:12]
D
I thought we were going to have fun today. And you want to talk about results and forecasts. I think that's what we're going to do. Nick, you up for.
- [05:17]
C
Yeah, absolutely.
- [05:20]
D
Try. One of the things Peter and I consciously avoided doing is get too much into the numbers. We'd love to chat results forecast in the future. And so what we ended up doing, Nick, is we actually tiered our results based on how presentations went, what CEO spoke to and things of that nature. So what we'd love to do is first talk about our bottom tier and then work our way up from there. If you're good with it.
- [05:49]
A
Yeah, let's do it.
- [05:50]
D
And we have three tiers by the way. And we actually Peter and I sat down, we listened to 21 different presentations. So that's every beverage and food brand as well as healthcare, beauty and health and wellness personal care. So we actually gave a composite score to each one of them on a variety of factors ranging from portfolio stability, RGM initiatives, omnichannel strength, use of AI forecast and outlook for the future. So a whole variety of different characteristics we rated him on. Let's start with the bottom tier. And as per our podcast, which we released just a few days ago, right at the bottom of everything was a presentation that kicked off all of Cagny and kind of set the tone for the next couple days with how stock performance was in the market, real time for the food sector, and that is General Mills. So it was an underwhelming presentation. Really didn't get much out of that presentation other than listen to the same conversation about the Remarkable Experiences framework which has been around five years and clearly it's not delivering DID here. There's been a reasonable amount of investment made in pricing back into the marketplace and it's been done very early in the fiscal. So by now we should have seen the results. I think Walmart might be the only retailer where the numbers are starting to show up. Maybe Amazon to some extent. But for a food brand, that's for a Staples food brand in non refrigerated or frozen. There's some activity there, but it doesn't look like there's any aha moment there at all. So love to hear your opinion. Let's start with General Mills and work our way up.
- [07:36]
A
Yeah, no, it's a good starting point. Well, let me just take a step back. I think generally speaking I thought the presentations at Cagny were better than what I observed a Year, two years, three years ago. Mainly because, if you remember last year, there was just a lot of denial and deflection. Oh, prices aren't too high? No, the consumer's fine. And I think we're now in the accepting you have a problem and before you can fix it, you got to accept you have the problem. And so I felt good about the recognition of that and that they're actually doing something to address it. And look, sree on General Mills. I get where you're going with your commentary. I would have a slightly more constructive take. And the reason being is this is they were one of the very first to acknowledge that prices cross certain cliffs and they addressed it. Did they go deep enough? We'll see. But when I see them at least holding or gaining share in eight out of their 10 categories, I think that is a good outcome relative to what I see across a lot of the other packaged food companies. I think there's still not a clear level of understanding of what is actually happening with the consumer. And so everyone is getting blindsided by weaker category growth. But they shouldn't because you guys read our outlook coming into the year. We very clearly said it's going to get tougher before it gets better, if we can see that. I'm not sure why others that have more data than we do can't see it other than the fact that they just don't want to acknowledge it. Right. And so I think what General Mills is doing, I'm actually, actually supportive of this is a big tanker that needs to shift. And I think there are small steps culturally and capability wise and they're heading in the right direction. Could they go faster? Absolutely. Could they go deeper and greater? Absolutely.
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C
Nick. So when we look at ad tech space, okay, retailers are often, they're ultimately, when they want to invest in ad tech, they're faced with the options of building or buying. Yeah, right. Walmart and Amazon can build. They can build because they can amortize it across 5,000 stores. You start going down to smaller regional players and buying's the only way to do it. So as I start thinking about the management teams at companies like General Mills, their management team is basically built. Am I wrong that most of the people that are in senior leadership at General Mills came up through the organization? The question is, we heard other presentations, Unilever notably, and we'll get to that in a little bit, where they talked a lot about being built for the, being staged and ready for the future. And they made a decision that they needed to buy, they needed to go out and find some skills that weren't necessarily inherent in their existing leadership and not on their board so that they could make the tough decisions. Is that something that, that, that holds companies back if they are too, too wed to their, their built strategy of. Everybody in leadership is homogeneous. They came up from the ground up. You know, that's certainly how Procter and Gamble's already always worked, but, you know, it's worked well for them. I mean, what, what are your thoughts on this build versus Buy in terms of leadership teams in this day and age, of the challenges we're facing in, in, in growth, growth pressures.
- [11:05]
D
Let me underscore. Peter, I think, Nick, the question is not a General Mills question. It's the industry.
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C
No, yeah, I, no, it isn't. I'm just saying what, what, what do we think about companies that are, that are still kind of limiting themselves in that respect?
- [11:21]
A
Yeah, I think, I think, I think you guys have a good point. And I think this is a big issue in the, in the industry. I think there needs to be a good balance because you also don't want to be that disruptive. You want to evolve the culture. You don't want to disrupt the culture. Right? And look, a lot of people, like at a General Mills or a Procter and Gamble, you know, you have a lot of local communities working at the company. You don't want to blow that up because that is an important element of the legacy of the company and the culture of the company. With that said, I think we can all accept the fact that there needs to be some level of disruptive thinking to kind of disrupt the schema, as I like to call it, or take the frog out of the boiling water. But you got to be smart about what the types of people you bring in, right? And so, like, you know, it's funny, rbc, I think, has done a phenomenal job at this. It's a very good culture. But we have hired a lot of people from the outside. But those people have really fit well in the culture, but they have a lot of capabilities that RBC didn't have priority. And I'm seeing it, I'm living it right now. Now, when I was at my prior shop at ubs, that wasn't the case. They were just hiring people based on, you know, how good they were at the prior organization without really understanding how they fit into the culture. So I think it has to be a very thoughtful process. And this requires actually an evolved HR capability. Right? This is not like you can't just do this you know, this really takes a lot of thought and research to make sure you get the right people.
- [12:45]
C
Is that something you talk to leaders about as you're having conversation with them much, much as you do about financial investments and, and what have you capital allocation? Is, is that something that, that you try to advocate for as you're talking to these, these, these consumer brands?
- [13:03]
A
Absolutely. But I'll take it a couple of layers deeper. There's two other things that I talk about, right. It's like one, how do you bring the periphery of the organization into the culture and decision making process of the company because they are closest to the consumer. Right. So think about route drivers or the, or the merchandisers at Coke and Pepsi or whoever. Right. And then the second thing is, you know, like, let's take the marketing function. I believe that every marketing function should have a deputy CMO or what I call a Chief Cultural Officer, which is a younger person that is much more connected to what is happening right now in social media and just having a better feel for that. Right. Like, it's amazing. When I take my son Sean, who comes with me to a lot of the local events in New York because he goes to college in New York, and he's listening to all the companies speak, he'll start pointing things out like, oh, this is what they're doing online and this is what, why aren't they doing this trend? And it's just, and he's not even trained in this area, he's only 19. Right. And so I just think there's a massive opportunity for the companies to find those people lower down in the organization that just can bring a lot of relevancy to many of these brands. Does that make sense?
- [14:18]
C
So sri, what else do we want to talk about in the lower tier?
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D
I've got a whole bunch here and let Nick pick what he wants. We have Mondelez on the lower tier and you know, little underwhelming. They're struggling with the results as they acknowledge out there. So we'd love for you to touch on either. Smucker's Mondelez, Vita, Coco Molson, Coors, JBS, we've got all of these and PepsiCo. Underwhelming. Love to hear your opinion. Some of these.
- [14:47]
A
Yeah. So let me, let me just give you a couple of thoughts. Like on Smucker, I really appreciated their messaging around really focusing on organic growth because I think this is a company that's done a lot of deals and maybe that has distracted to some degree capability building. The thing about the whole bring in from the outside, whether it's people or whether it's assets or brands is it doesn't matter what you bring in if your core, the foundation is not ready to accept it. Right. And so I think that Smuckers to focus on organic growth I think is a good move. I think resetting the promotions on Hostess while will be tough for volume I think is a good move. Right. They got a really good portfolio. They got great brands. Right. You know, you'll be hard pressed to find a brand like Uncrustables in anyone else's portfolio. Right. And they have still significant opportunity and upside. So I will, I welcome that message. Capability wise. I think, I think they have a long way to go. Absolutely. I think they have a lot to do. I think the whole industry outside of maybe a few companies, Coke, Proctor and I'm sure we'll talk about them. Besides those two companies, I think this whole notion of agentic commerce is really thrown a lot of these companies for a loop. Right. And I, I don't know if 90% of the, the companies in this industry are ready for what I believe is going to literally be the most disruptive thing in the industry. Right. Because the path to purchase has completely changed and everything organized within these companies is aligned around a certain path to purchase. Right. I mean some of these companies are even struggling to do Omni. Right. And just having click and collect and having all the capabilities to, to connect with the consumer and the ways they shop right now. But what happens if we shop through prompt over the next two years without brands?
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C
Or do you anticipate retailers fighting that transition tooth and nail where they go from being a consumer engagement platform to being a supply chain logistics platform by allowing agentic shoppers to basically connect with them. Is that, is that something that you see the industry fighting against? What are the concerns here that brands should be aware of and how should. Maybe it's an opportunity for them to build stronger relationships with their retail partners.
- [17:00]
A
Yeah, I think, I think that's right. And I think, you know, retailers, if I were to criticize them, I think need to get out of the slotting fee game because you gotta be consumer centric in this world of agenta commerce or you're gonna get lost. Right. And so, but here's the thing. Of course these companies don't want to shift to this kind of agentic world quickly because it's going to be disruptive. But guess what, there's going to be a company that we don't even know about right now that's going to come out of left field, that's going to be an agentic only commerce platform. And then what are these companies going to do? Right? So like you got to move. If you don't, if you don't move, someone else is. And so to me there's a sense of urgency right now. This is why in my Cagney recap I encouraged again for companies to just eliminate their profit targets so they can invest. Because we are at a very critical juncture right now. If many of these companies, the large ones especially and the mid sized ones, don't start investing aggressively in terms of these capabilities, they are going to get leapfrogged by some company we don't even know about.
- [18:07]
C
Nick, let me, let me ask one thing on that. It's very important when you say abandon your profit targets. I saw SRI and I both saw a lot of companies up there priding themselves on the consecutive quarters or years of increased dividend delivery. Are you saying that if they have established themselves as a dividend stock stock that they should walk away from that to do investment or you're saying you kind of still have to do that? But as for the actual profitability of the company, what are you saying here to companies? I mean in terms of.
- [18:40]
D
Nick, on that angle, on that angle, out of the 21 we watched and reviewed, I think at least 16 committed to the dividend and dividend growth.
- [18:50]
A
Yeah. So look, this is, this is what I say is why not just go to flat growth targets, you don't need to cut your dividend then you just hold your dividend steady, which is fine. Right. Because the valuations of these companies barring the last couple of weeks because everyone's so worried about the AI bubble. I mean General Mills and the food stocks were not down really because of General Mills guide down on Monday. They were down because they were all up on Friday and AI stocks were down, were up on Monday. Right. And so this is what's going on.
- [19:20]
D
We want to understand a little bit more Nick though, how does the AI sector and the stocks impact the food sector where Monday took down the whole food sector. Just share with audience a little bit more how they can interpret that.
- [19:34]
A
Yeah, this is all about money flows. Right. So think about, you have my clients are institutional investors. Right. And so they're allocating capital and money to different stocks and sectors. Right. And so the consumer staples industry for the last three years has had pressured fundamentals, but also not as much growth as AI. So people have just been shifting a lot of their money and going into AI stocks and AI and AI kind of centric stocks. Well, when everyone starts worrying that all of a sudden there's this new clawbot or whatever, right. That might disrupt existing AI or we're now coming to a slowing capex cycle in AI, right. Then all of a sudden people start freaking out that oh wait a second, maybe I have too much of these AI stocks and they start shifting back into other industries to limit their risk. Right. So it's this money flows game that I know many of your listeners may not be aware of because they're not investors. Right. They're practitioners. But it's important to understand stocks don't necessarily signify fundamentals. Right. There's a lot of other things and dynamics and factors that drive stock price performance outside of pure revenue growth, volume growth, earnings growth. Right. So what I'm saying is what the company should do to really accelerate capability building in some of these critical areas so they, they don't get disintermediated is just eliminate all of your growth targets for the next two years. Yeah, sure, the stocks might take a hit, fine. But at the end of the day, you now created all this flexibility to really invest. And you know, it's funny, I hear like, oh well, if I had extra money, I don't know where we would invest it in. That's kind of the problem is that the reason why a lot of these companies struggle to think about where to invest the money is because the amount that they have allocated to invest is not enough to actually be disruptive. Right. To change the capability set. It's more around the edges. Right. And I think we really need to get aggressive to build capabilities. So you are ready for agentic commerce. You know exactly how your product is going to show up in the basket. You have the best quality through an R and D standpoint. So the consumer will talk about it online and give a five star rating on Amazon or whatever. Right. I mean these are the things that are going to really, really matter. You've got to change your supply chain to be more short run. So you can go after the cultural relevancy of what's happening on TikTok and Instagram. Right.
- [21:52]
D
Explain short run Nick for audience yeah,
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A
I mean you, you have obviously these massive legacy brands and you have these long run, very efficient lines. Right. And you're just making bottles over Optimized
- [22:03]
D
supply chain is what I would call it.
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A
Yeah.
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D
And it's fine for truckload deliveries into a warehouse.
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A
Yeah. You need a twin speed supply chain. Right. One that can go long Run. And one can also go short run, where you're kind of churning products, you know, much more frequently.
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D
Yeah, I mean, yes, it does take money and requires allocation of capital. Right. Which we didn't see a lot of exciting things. There was mention of allocation of capital, but nobody, not a single presenter, gave any details of where the capital is going.
- [22:37]
A
Right. I mean, yeah, go ahead. No, it's fine. I mean, I, I know exactly like the areas that they're investing in. The question is, are they doing it fast enough and are they going further, far enough. Right. Like, are we just investing to catch up to today because you're behind, or are you actually investing to be ahead of the curve? So by the time all the investments manifest in actual things and products and services, you're actually ahead of the curve? I'm not sure the answer to that for a lot of these companies.
- [23:11]
C
Fair enough.
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D
Well said. Indeed. So back on AI, there were three that I think stood out to me. Newell Brands and their whole Quantum LEAP project with 19 agents across the company, across R and D innovation, P and L trade, consumer insights. Then you had the P&G CEO talk to the use of clean rooms, which frankly, it was a little surprising to hear a CEO get that level of detail. But apparently P and G is using AI across all employees, data scientists, analysts, knowledge workers, consumer insights. They have an actual data lake that's built. The large language model is in Binglot. Unilever and Kimberly Clark were the other two which kind of went down that path. Kimberly Clark will be on a podcast soon here on the CPG guys, where I actually talked to their Chief Brand Officer, Chief Growth Officer Patricia Corsi, and David, the head of R and D, where they did kind of tell me that they're using 60 plus years of history feeding that model. So there were five of them which really spoke of AI in a big way, but it was pretty void from the other 16. And you think, do you feel this industry is going to get impacted by agentic AI and that it's. Whether it's for internal productivity or external shopper contact, it's buckle up all the way and the time is now versus tomorrow.
- [24:30]
A
Absolutely. I'm now. That was the whole point of my diatribe five minutes ago. Right. I mean, this is. We are in mission critical moments right now. Like it's time. Because if you don't do it now, you're going to regret it. Right. Because we see it coming, guys. We see it. Let's not like kid ourselves. Like we all see it happening, right? And it's happening fast. Like the amount of speed and capability that these services are seeing evolve over the weeks and months is crazy. Right? So yeah, we are, we are definitely going to see disruption. And it's funny. Why are consumer stocks benefiting from AI stocks doing poorly? It's because everyone thinks that they're protected from AI, but they're not. Right? Because if the agentic commerce thing really starts and we start shopping through prompt, that's very disruptive to every company that was at Cagny.
- [25:21]
C
You know, Nick, it reminds me of the market crash in 2008. On that day, 499 of the 500 of 500s and P 500 stocks declined. Do you know what the only stock that went up was?
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A
Which one?
- [25:36]
C
It was Campbell's Soup. People thought that soup was the one thing that if times were really bad, Campbell's Soup would capitalize on the situation. Very interesting how how investors react to certain situations. So thank you for that masterclass. We appreciate it.
- [25:56]
A
You bet.
- [25:57]
D
So Nick, I'm going to jump into another two food stocks over here if it's okay. Right after generals came ConAgra Brands. Watching the presentation, it actually landed well on us. But when we started reading it, we felt the PPA price pack architecture that they kind of spoke to RGM efforts that they spoke to was on actually the weaker side. Surprise. ConAgra again, they're frozen. So I actually understand this one, but it doesn't matter. Intermediaries like Doordash, Instacart are how frozen gets delivered home these days. There was literally no mention or minimal mention of their omnichannel efforts. Didn't see much on the M and A side. The things that we liked on conagra were the portfolio portfolio stability industry built. And of course the consumer understand they have Bob Nolan, which we feel is a secret weapon. Putting him on stage versus just having the CEO CFO was a huge plus. He showed a command of the consumer thoughts.
- [26:55]
A
Yeah, yeah, I thought so. I mean, you know, conagra always has really interesting perspectives on the consumer that I actually align with a lot of their views. I think the issue for them is just the breadth of their portfolio. Right. Like when you think about it, it's too big and yeah, it's too. I don't want to say big portfolios bother me. I just think that the way they've oriented their marketing model doesn't lend itself to a portfolio that is that vast. Right. Because they really can't invest and they're relying on a lot of digital to drive brands that have kind of fallen out of relevancy in some instances. Right. And so if you think about the frozen and the snack part of their portfolios, phenomenal. Right. And applying these insights on that and if you can put real resources behind it, that's a game changer. But I just think that they have this tale of brands and that's really detracting from their ability to grow and create value.
- [27:52]
D
Thoughts, Peter Go Negra
- [27:55]
C
Listen, they were on trend for a lot of things that last year they stood out. I think they were one of only two companies that talked about the impact of GLP1. Just as just last year, Nick, as you mentioned, everyone was kind of in denial about how the impact price had had on volume. Nobody, nobody wanted to talk about it. Nobody talked about the impact that GLP was having on volume. And they came back out. They talked a lot about protein this year, which is a, which is to a degree a derivative of GLP1. Right. People who are on the GLP1s are craving protein. That helped keep, that helped drive the success of the weight loss component of it. I thought they had really great. And they talked a lot about flavors, which we heard from quite a number of companies, not just McCormick, but other ones. So I thought that they did it. But SRI was right. They kind of fell short on some of the areas that we thought were pretty important around price pack architecture. On revenue growth management. Bob knocked it out of the park from a consumer insight standpoint. But I don't know if that's enough to really make them a, a juggernaut of a company the way that, that they could have been. I think there was just. They left some stuff on the table is. Is all I have to say. I know you have, you have 45 minutes. Right. So you can't cover everything. You have to make judicious choices. Other companies, though, they managed to get, they managed to get that stuff in. They didn't have to like, they went crazy on innovation. Right. They put so many products in front of us and it's like, do you have to do that? Just focus those and then talk about some of the other areas that you're investing against so you can, so that we can, as investors, as a community can feel reassured that you're not just putting out more new products and paying slotting allowances and trying to get them into the shelf, you know, show us that it's a little bit more than that.
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A
Yeah. And that gets to the whole point of the vastness of the portfolio. Right. That kind of Supports that.
- [29:59]
D
Exactly. All right. We can't really have this conversation without talking about Kraft Heinz. Kraft Heinz was clearly a last minute ad. 7am in the morning on a Wednesday or a Thursday. They weren't supposed to be in the lineup given they were supposed to split up. New CEO walks in from the old Kellogg's world, kind of decides, we're not gonna split up mid tier for us. I mean, the truth is Kraft Heinz does have a solid portfolio. They dominate in the categories with their brands, especially Heinz and the entire Kraft Mac and Cheese portfolio. The things we were rating everybody on, we had to be fair. Like we didn't hear anything about AI, we didn't hear anything about Omnichannel, didn't really get into portfolio ppa, rgm, none of that stuff. Organic volume growth has obviously been a huge challenge. Didn't talk M and A, but we get it. That's not what he came to the stage four. He came to explain why they're not going to break up and he did that. Thoughts?
- [30:57]
A
Yeah, I don't cover Kraft Heinz, but I know Steve pretty well. I think highly of him. I think, you know, he's come in with this recognition. I remember having conversations with him at Kellogg's about the whole 3G era. And I think he was of the same view of, of mine that, you know, you can't gut these businesses and just go for margin. You know, these are durable, sustainable brands that you need to invest in. And so I think bringing that mentality to Kraft Heinz will be a good thing. Right. Here's, here's the one thing that I would take away from the Kraft Heinz presentation is this very clear acknowledgement that they need to offer products to the low end consumer. And you know, one of the things that I've been talking about a lot is that we're talking about K shaped economy. Listen, K shaped economy is not a cyclical dynamic. This is a structural issue that we have in our country. Globally, quite frankly, income bifurcations are separating everywhere in the world. And it's been going on for 40 years. Right. The rich are getting richer, the poor are getting poorer. So we can't just have portfolios that are built around trade up. It's not going to work. You're just going to lose consumers. Right. And so I thought he did a good job of illustrating why they need to be positioned at both ends of the market. And he was one of the very few management members at Cagny that actually went there.
- [32:10]
C
If there's any company that's built for a K shaped economy. It's a company by the name of Kraft, just by virtue of the letter. But all kidding aside, I thought the most telling part of the presentation was actually the question that was asked from the audience right before they went into the separate room. Someone said, listen, you're telling us that you're going to succeed based upon these conditions, but we've all heard that from you guys in the past. Why should we believe you now? And the message that kind of, I thought Steve said was, well, because now, you know, my team's running the show and Steve's got to his credit, Steve's got a great track record. But I don't know if the analyst community was necessarily bought into that fact that, that it's all based upon the leadership.
- [33:03]
A
I think, you know, consumer staples investors don't forgive easily. And you remember, like, look, this is a. Everyone's an expert in consumer goods. You put, put any of us into semiconductors or biotech, and, you know, we have to rely more on outside perspective than our own. Right? We're all grocery shoppers, so we know. So I think, you know, and, and consumer staples investors, you know, there's not a lot of turnover. So people have been around a long time. And so I get it. You know, I face the same issues when I'm trying to convince people that Kimberly Clark is a very different company today than it was five, six years ago, because it is. But I spend more time than I think most thinking about capabilities. Right? And so when I looked at Kraft Heinz, again, I don't cover the company, so I'm not as in the weeds. But I saw what Steve did when he came to Kellogg's, and I think that mentality will be helpful to Kraft Heinz. Whether or not it's going to completely change the game, I don't know because I haven't done the work. But I do know the philosophy he's bringing to the company is better than the philosophy that they had at the company.
- [34:08]
D
All right, here's one that I. We won't discuss the beauty brands today. Those are already covered in our podcast. It's not your sector. But here's one that I personally love. Little bias here, because they come into California and Peter, who is it? Who is expanding distribution to California?
- [34:24]
C
That would be UT brands. UT sprans, their first appearance.
- [34:28]
D
Why don't we love them? Why do we love them?
- [34:30]
C
We love them because. I know why you love them. Because if, if you were to take the four of the five up to what, 1, 155th and walk out onto the street, in, into Yankee Stadium, you would see the official potato chip of the New York Yankees. That would be odds.
- [34:46]
D
The ads on all, all the, the wall, the outfield, it's everywhere.
- [34:51]
C
The UTs, girl, it's, it's classic. And I gotta say, California, baby,
- [34:57]
D
biased on that one. I love that brand. I love those chips. The economical, they're affordable.
- [35:03]
C
They had a very different story than anyone else. Sri. A very different story than anyone else who showed up. Nick, was that one that you were paying attention to?
- [35:14]
A
Yep. I cover odds. Look, I think Howard is a very sharp CEO, right? I think they had a good strategy. They're obviously outperforming the overall category. The problem is this, okay? You have a situation where you have all this noise around GLP1s and MAHA, blah, blah, blah, that puts a little bit of a cloud of uncertainty over all of these companies, especially the smaller ones. Then you have Pepsi talking about price cuts right now. I don't think UTS is going to be as impacted because they have so much upside on distribution to the, to the opening salvo of this conversation on this company. But investors are not as convinced, right? And so that's, that's what people worry about is like, wait a second, Pepsi's cutting price. How are you going to grow and how are you going to hit your targets? Well, I think they've factored in a lot of that stuff. I mean, US does a pretty good job of understanding what's happening in the marketplace. So I'm optimistic on them. Look, long term, we've written in the past, we think that this would be a good strategic target for a lot of companies that would want to get into the salty snack space. I know it may not be in vogue right now, but this is still a good category with a lot of expandable consumption. And so I like kind of the near term prospects for us, but I also like the long term strategic value. You know, as well.
- [36:34]
D
You know, the California expansion is very appealing to me. Do we talk PepsiCo? I think I did not.
- [36:40]
C
Sri. We, we need to talk about them. They're, they're the, they're the elephant in the room.
- [36:45]
D
We say elephant in the room. What do you say, Nick?
- [36:48]
A
Yeah, I mean, I'm a little mixed right now on kind of how to think about Pepsi.
- [36:53]
D
That's where we are, by the way. It's, it's mixed opinions at this point. We don't know whether it's swing left, right up, down.
- [36:59]
A
So let me, let me give you kind of the good things and then let me give you my concerns. Right. The good things are, I think, you know, they really have thought about price cliffs and I think their decision to cut price, especially on those family sized bags is going to be important and I think will, will be beneficial to them.
- [37:17]
D
I think the impact of that only six months out because it's just a brand new decision.
- [37:22]
A
Correct, Correct. But we've, we've kind of tracked some of the activity they had in their test markets and you know, they saw some improvement in their business. Then they have a pretty strong innovation slate and they're going to get shelf space. Okay. So I think these are all good things. Right. But here's my issue on beverages. It's pretty clear to me owning your butler is not a good idea. And when I look at any other industry and I look at Coke, you'll get McDonald's. Their company owned franchisees don't do as well as independents. Right. You can look at, you can just, it's just, it is the realities of the world. Right. And so I'm not a big fan of them owning their distribution, number one. Number two, this whole notion of combining Frito and beverages, I don't, I think
- [38:12]
D
from a financial standpoint, it's the one, North America.
- [38:15]
A
Yeah. I think on the, from a financial standpoint, I get it, that it makes sense.
- [38:21]
D
There's proven to be a lot of productivity. I don't think we can deny that by combining routes and things of that nature.
- [38:26]
A
Correct. I don't think that is in question. My issue is the execution of it. Right. How are you going to convince a person that was carrying a bunch of air chips that they should also be taking pallets of Pepsi Cola into the store? Right. Okay. Maybe you can fix that with incentives. But what about coverage? Every buyer, I mean, every category is different buyers. Some, some categories have multiple buyers. Right. So I think there's just this, I don't know, maybe because I spend too much time with some of these frontline people. I just think it's going to be a lot more complicated than they think. Just like 10 years ago I said Coke has a superior model by refranchising. And I got a lot of pushback at that time from, from a lot, even in people in the industry. But here we are. Right. So that's, that's kind of my issue. Right. It's like I, I think strategically, you know, they're all, they're, they're doing things the right way, they're thinking about things the right way. You know, they got amazing brands they got amazing infrastructure. Frito's an incredible business. But some of this combination stuff, I don't know. I'm. I don't know. I'm skeptical.
- [39:38]
D
I. I'm going to leave it as a little bit of a wait and watch game. We agree with you. You know, you know, you know, I'm alma mater from PepsiCo. I work both the systems, both the beverage and the snacks side. Snacks is a well oiled machine. Has been on the Frito Lay side. Combining it is a big, huge, massive endeavor. And for that reason and knowing how they have operated in the past DST ecosystem, lot of productivity will come out in the process. But I'm not sure. The skill sets between beverages and snacks are not the same. So we'll see how that goes. We'll watch it.
- [40:12]
C
SRI how long, how long ago did, how long ago did Pepsi Cola acquire Frito lay and form PepsiCo?
- [40:19]
D
Oh my gosh, Peter. We're talking over five decades. No, seven decades.
- [40:23]
A
In the 50s, it was like in the 1960s, right? Or something like that.
- [40:26]
C
Like I remember the Joan Crawford movie. I think Mommy Dearest and, and that. But I think my point is this. How long have they've had seven decades to figure this out? You know, that's. I don't know. What do they need another seven? I guess that's just my question.
- [40:43]
D
I'll leave it as a wait and watch therefore.
- [40:45]
C
Peter.
- [40:46]
D
That's the reason why I say that. But we can't talk about popsicle and not mention Coca Cola. So we actually thought Coca Cola was one of the better stories presentations. Looks like they're in the organic volume growth story. They got that consumer messaging right. Digitally, they are where the consumer is. They're even on social platforms. Good PPA story. Use of RGM to inform PPA clearly. Omnichannel supremacy across the board portfolio stability. I don't need to tell you anything about it. The strength of that global footprint seemed to also be a massive, massive muscle. Thoughts?
- [41:29]
A
Yeah, listen, you know, I've covered Coke for 25 years. You know, it feels a lot better today than it did 20 years ago. Right. I think James Quincy and John Murphy have had just an incredible impact and even, even some of the leaders before them that started some of these processes like refranchising. Right. But I think James and John have done a really good job of just steering the boat in the right direction. Stabilizers, if you will. Right. Disruptors and stabilizers. And I think Enrique, the incoming CEO is going to put some boosters on the company. Right? I really think based on his background and what he's accomplished in his career at Coca Cola, I think a lot more open to risk taking. I think that's a good thing for Coca Cola. I think there's just so much upside for them. Think about all the white space around the world that they could participate in. Like their biggest brand in Japan, which is one of their biggest profit markets, is a bottled coffee. It's actually not Coca Cola. But yet in the US and many other markets around the world, bottled coffee is nowhere to be found as a percentage of that geography's business. Right? And so, and that's just one example. What about, we can go sports drinks, we can go iced teas, we can go. And so you have this massive canvas with this massive footprint and all they need is the paintbrush with the right paint, right? And so I'm, I'm like super excited for the company in terms of what lies ahead. Now, look, near term there's some aluminum, right? There's some issues that they're gonna have to deal with. Obviously the Snap waiver changes in certain states in the US Market or Mexico, tax on soft drinks. Like they got to deal with some stuff in the near term. But when I think longer term, you know, I think, I think they're really well positioned. And once they get the digital situation sorted out and they get their data lakes going and they get the connectivity with the bottlers seamless, it's going to be, it's going to be.
- [43:28]
C
And Nick, the Snap situation was that just to a large degree a manifestation of their own actions when they lobbied hard to get their products covered under Snap. And now it, now there's increased scrutiny on in the Make, Make America Healthy Again movement, that some of these products just aren't really healthy and they didn't belong in Snap to begin with. I mean, what's the, what's the background here?
- [43:57]
A
Yeah, I mean, yeah, you, you kind of phrased it properly, but here's, here's what I would say. It's like, so you, you can't buy diet soda now with Snap, but you can buy juice drinks. Well, let's, let's do the comparison on what it means for your health, right. When you talk about sugars and added sugars and things like that. So it's, it's just a, it's kind of a wonky thing, quite frankly. But they're gonna have to deal with it. And I think that they have enough price pack architecture muscle at the company to manage the affordability equation. And their bottlers are local enough where they can address these things market by market instead of having to have a blanket approach. And so, you know, I think that's one of the benefits of their system.
- [44:38]
C
I think what amazed me is they showed all of the size of the brands in their portfolio and not even trademark Coca Cola, but take it down a level to just brand Coca Cola. So trademark would include Diet Coke and Coke Zero and everything, but just core Coke is over $50 billion in revenue. That is larger than many if not most of the companies that actually presented at Cagney that one brand that is just sheer volume power.
- [45:08]
A
Yeah, yeah. I mean, and think about it like they're growing portions of that portfolio still. Coke Zero, even Diet Coke is growing again. So you know, look, the famous quotes, you know, I won't, I won't mention the executive that said it, but I'll credit to an executive that said once to me, Nick, there's no such thing as lazy markets, only lazy marketers. And I think we have to remember that. I think that's a great quote because there's no such thing as a dead market. Oh, no one wants, no one wants to drink or eat or use this stuff anymore. Yeah, that's what they said about Coca Cola for two decades until they figured it out. Right. Until they made it relevant culturally to the consumer. And I think there's a big lesson
- [45:48]
C
in there to some degree. Yeah. To that point on the lesson, SRI and I made note of the fact that the ones that had really got our attention, the ones that had a very positive outlook and looked at the opportunity and the CEOs that basically said, hey listen, we're in very mature categories and it's just not going to grow anymore and we're kind of mired in this limited growth potential. Those are the ones that aren't going to succeed. It's a self fulfilling prophecy in terms of how you perceive the market in which you compete.
- [46:22]
A
Absolutely. And then the way you think about your portfolio, you know, it's like, are you thinking about it as subcategories that we are all very accustomed to defining from the scanner data companies. Right. In terms of oh, this is this subcategory and look at the market shares and. Or are you being consumer centric? And I think one of the things that Coke is going to do that they didn't really talk about at Cagny, but this organization is going to become incredibly consumer centric in their approach under Enrique. And once people start to see kind of how that evolves, I think it's everyone's going to realize and recognize, like, wait a second, there is a lot more opportunity here than I originally thought.
- [47:02]
D
Fair enough. So as we wrap up this episode, we're not going to talk about the health and wellness personal care companies here. But what I'd ask you, Nick, is to give our audience kind of a summary of themes emerging and what you're looking for for the balance of the year from these food, from the food sector. What's your expectations?
- [47:21]
A
Yeah, look, I think we got to fix this asymmetry and pricing strategies. Some companies have cut price, others have not. You know, and it's. Something's going to have to break, Right. My sense is more are going to have to follow and I think that would be a good thing long term though it's not going to feel very good for earnings in the near term. So I think that's one thing I'm. I'm expecting to happen. The second thing is really using GLP1 as an opportunity versus a risk, a runaway risk. Right. I mean, you know, if you're on GLP1, you just want smaller portions and guess what, in many instances, you can make more money as a company selling smaller portions. Right. And so where's the opportunity there? And look, we're all focused on metabolic health and that's what GLP1s is all about. So how can we reconfigure innovation and portfolios around that? And there's also a lot of side effects. That's a lot of opportunity as well. So to me, it doesn't need to be a runaway risk to me. You can lean into it. Right. So that's number two. Number three is like, look, these companies have to really start understanding that brand equity is not the end all, be all in today's environment, you know, brand relevance trumps brand equity. Right. And it's time to culture, not time to market. And I think that's why I'm so intent on saying just invest, invest, invest, so you can build the capability to do just that. Right?
- [48:45]
C
Hear, hear. Nick. I think about when I first started working at, when I was at Dunhumby with Coca Cola in 2010. They were at the beginning of that journey. They were such a brand equity focused company that they couldn't see the consumer in the equation. What a juxtaposition to now see them being laser focused, just as them as an example, laser focused on the consumer and seeing their numbers start to play that out.
- [49:13]
A
Yeah, I mean, per my imagined piece that we put out, you know, like looking out the next Five years. Like, when you think about the future, if they can invest in the right capabilities, the future is incredibly bright for this industry. It really is. And there's so many incremental revenue opportunities and business models that I see emerging where these companies are not just transactional companies, they're ecosystems. Right. And I just think once they start figuring it out and they start investing in these capabilities, like, margins should go higher, not lower. Right. I know, like, a lot of the talk we have is like, oh, private label and, you know, commodities and this and supply chain. But that's in today's structure. Right. If you really think about the future and these companies really evolve to those realities, then this is going to be an incredibly attractive industry for every stakeholder.
- [50:09]
C
Wow, what a great episode. Nick, your insights are always refreshing for us, Sree and I, as we talk about our practitioners. You come at it from a bit of a different angle, but certainly there's some overlap in what we saw. Sree, I don't know. Anything you want to. You want to take away from this. That really caught your attention from what Nick said.
- [50:29]
D
Very simple, Peter. He said it multiple times. The need of the R is pricing, and we didn't see that across the board. It was a mixed bag. You know, PepsiCo was the one that spoke to it pretty intently. General Mother has invested in it and already said they've done it a few months ago. Others need to follow. So it's a little bit of a wait and watch game. AI is another big one. It is going to impact us. It is impacting us. We heard a handful, but didn't hear any large collections speaking to it. Brand equity will triumph everything else at the end of the day, as long as brands invest in that brand equity. Last year there was a lot of talk on M and A. It looks like that is starting to get more stable this year than last year. It felt like desperation. M and A. This year there was acknowledgement that's not the case. I think I did see a little bit of hope in a lot of companies despite strong volume challenges the conversation about trying to find white space, et cetera. So I'll sum it up with that, Peter.
- [51:28]
C
I'm still reeling from the fact, for the first time in five years, Jam Smuck used the word E commerce in a presentation. So that. That kind of set me back on my heels. There's. There's hope. Keep hope alive. Sh. Keep hope alive to our audience. Hey, if you like what you're here, make sure you follow us on whatever your preferred podcast platform. Is Apple, Spotify, YouTube and to the 43,000 plus listeners and followers on LinkedIn who turn to us for content to educate and entertain them. We really apprec all your likes, all your comments. Please do keep it up. It means a lot to SRI and me. We've created an interesting and active community and we don't do that without you. So Nick Nick Modi, RBC Capital Markets thank you as always. Episode number six in the in the book. You look absolutely keen in your CPG Guys varsity jacket. Please do. Please do. Rock it. Make sure you're posting pictures on social media so you get your creds hanging with the CBG Guys. We really appreciate you taking time out of this snowy New England winter day
- [52:34]
A
to thank you gentlemen for having me. Appreciate it Shree.
- [52:38]
C
As always, thank you for joining me on this mission, this quest, this journey that we're on. Wouldn't want to do it with anyone else. To our audience. Thanks again and we look forward to speaking with you on the next episode of the CPG Guys Podcast. Goodbye.
- [52:57]
B
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