Live from CAGNY 2025 with RBC Capital Markets' Nik Modi

Summary

Podcast Summary: The CPG Guys – Live from CAGNY 2025 with RBC Capital Markets' Nik Modi

Release Date: February 25, 2025

Hosts:

• Peter V.S. Bond – Head of Industry and Client Engagement at Flywheel, Omnicom’s E-Commerce Accelerator division.
• Sri Rajagopalan – Chief Revenue Officer at Think Blue Consulting, former Chief Customer Officer at General Mills.

Guest:

• Nick Modi – Analyst at RBC Capital Markets, renowned for his expertise in tracking publicly traded large market cap CPG brands.

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1. Introduction and Program Announcement

The episode opens with Sri Rajagopalan highlighting the burgeoning importance of retail media in the CPG and FMCG eCommerce landscape. Retail media is becoming the preferred channel for brands aiming to engage consumers with measurable performance metrics throughout the marketing funnel, both online and in-store.

Key Announcement:

• Cornell University Partnership: The CPG Guys have partnered with Cornell University to launch the first-ever Retail Media Strategy Executive Education Program. Scheduled for May 5–8, 2025, at Cornell Tech, this four-day immersive program brings together industry leaders and academic experts to delve into best practices for building effective retail media platforms. Topics include:
  • Collaborating on advanced tech stacks.
  • Measuring performance against key KPIs.
  • Establishing robust brand-retailer partnerships.
  • Utilizing AI-driven campaign design for scalable marketing goals.

Notable Quote:
Sri Rajagopalan [00:00]:
"By the end of the Retail Media Strategy program, you'll have gained a deep understanding of the retail media ecosystem and how both brands and retailers can accelerate organizational transformation to thrive in the future of performance marketing."

For more information, listeners are directed to the digital liner notes of the episode.

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2. Live Discussion with Nick Modi at CAGNY 2025

Peter and Sri hosted Nick Modi at the Consumer Analyst Group of New York (CAGNY) conference in Orlando, Florida. This marked Nick’s second appearance on the podcast, where he shared valuable insights from an investment perspective on the current state and future outlook of the CPG industry.

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a. Volume Challenges in the CPG Sector

Key Points:

• Flat to Declining Volume Trends: Two years post the pandemic-induced surge, volume trends in the CPG industry are now flat or declining.
• Price Sensitivity: Companies raised prices beyond critical thresholds, leading consumers to alter their purchasing behaviors, often crossing category lines to seek affordability.
• Cross-Category Shopping: For example, consumers shifting from central store items to perimeter goods in response to inflationary pressures.

Notable Quote:
Nick Modi [05:01]:
"Volume is a genuine challenge at this point, isn't it?"

Example Discussed:
Nick referenced how cereal consumers turned to buying eggs for affordability when egg prices were previously volatile, highlighting a gap in category-centric consumer insights models.

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b. Private Label and Retail Media Dynamics

Key Points:

• Rise of Private Label: Inflation and resource scarcity led consumers to trial private label brands, which saw improvements in quality and became stickier alternatives to national brands.
• Retailers’ Strategic Shifts: Retailers like Walmart launched consumer-centric, unique products rather than just the cheapest options, altering the competitive landscape for national brands.
• Media Influence: Retail media is now a significant trend, with retailers leveraging their owned media properties to promote private label brands, effectively requiring national brands to invest in retail media to compete.

Notable Quote:
Nick Modi [19:36]:
"Private label is corporate brand and they have first party data the retailers that they can use."

Impact:
Private label brands have evolved from being mere cost alternatives to becoming formidable competitors with high-quality offerings, leveraging retailer data and media channels to enhance their market presence.

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c. Organizational Design and Consumer Centricity

Key Points:

• Shift from Consumer to Stakeholder Centricity: Over time, companies have become more focused on stakeholders like investors and governments, often at the expense of consumer-centric strategies.
• Empowerment of Front-Line Employees: Employees closest to consumers, such as merchandisers and sales teams, are often underutilized and lack the authority to influence consumer engagement strategies.
• Need for Structural Reforms: To regain consumer focus, companies must redesign their organizational structures to empower those on the front lines and integrate consumer insights more effectively.

Notable Quote:
Nick Modi [17:02]:
"Who are the main customers for all of these companies? Who are they? Retailers, they're not consumers."

Example Discussed:
Nick criticized Coca-Cola for having too many brands, which dilutes execution while acknowledging their consumer-centric approach.

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d. Impact of GLP1s and Health Trends on CPG

Key Points:

• GLP1s and Consumption Patterns: GLP1s, drugs that impact weight loss, have had a debated impact on consumer consumption patterns. The retention rate on these drugs is low, questioning their long-term impact.
• Wearables and Real-Time Data: The rise of wearables providing real-time health data will increasingly inform consumer choices, necessitating adaptive strategies in the CPG sector.
• Product Innovation: Companies like ConAgra have proactively addressed health trends by reengineering their product pipelines, focusing on protein-rich offerings which remain popular regardless of GLP1 usage.

Notable Quote:
Nick Modi [43:37]:
"We're going to have real feedback on ourselves and it's going to inform our choices."

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e. Mergers & Acquisitions (M&A) and Geopolitical Uncertainty

Key Points:

• Robust M&A Environment: Despite slowing growth, Nick anticipates a surge in M&A activity as companies seek growth opportunities through acquisitions rather than organic expansion.
• Interest Rates and Investment: With interest rates stabilizing, companies are more inclined to engage in significant deals.
• Geopolitical Tensions: Ongoing global conflicts and regulatory uncertainties require companies to adjust business models for consistency and resilience.
• Private Equity and Venture Capital: A resurgence in accessible funding sources is enabling profitable businesses to pursue growth through strategic acquisitions.

Notable Quote:
Nick Modi [34:01]:
"The reason why companies buy these stocks or investors buy these stocks is for the consistency. That's why they get premium valuations."

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3. Critical Insights and Takeaways

• Retail Media’s Ascendancy: As retail media becomes integral to marketing strategies, brands must adeptly integrate it to engage effectively with consumers across all channels.
• Adapting to Private Label Evolution: National brands must innovate beyond traditional category competition, leveraging data and media investments to counter the enhanced capabilities of private label alternatives.
• Organizational Reforms for Consumer Centricity: Empowering front-line employees and restructuring organizational priorities are essential for regaining a consumer-focused approach in the CPG industry.
• Navigating Health Trends: The impact of health-related trends, such as GLP1 usage, combined with advancements in wearable technology, necessitates agile product innovation strategies.
• Strategic M&A Activity: In a landscape marked by economic volatility and geopolitical uncertainty, strategic acquisitions present a viable pathway for growth and stability.

Highlighted Quote:
Nick Modi [29:03]:
"These companies need to influence their outcomes a little bit more. And that's why I think the financials need to come down. Right. To give them that latitude."

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4. Conclusion

The episode underscores the multifaceted challenges and evolving dynamics within the CPG industry. From the strategic imperatives of retail media and private label competition to organizational redesign and the influence of health trends, leaders must navigate a complex landscape to sustain growth and consumer relevance. Nick Modi’s insights provide a critical lens on current industry practices, advocating for proactive adaptation and strategic investments to address both present challenges and future opportunities.

Closing Remarks: Peter and Sri expressed their appreciation for Nick’s participation and insights, emphasizing the value of diverse perspectives in understanding and tackling the industry’s pressing issues.

Final Note:
The episode concludes with a standard disclaimer, affirming that the content is for informational purposes and not intended as professional advice.

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For More Information:
Visit CpgGuys.com for additional resources, links to the discussed Retail Media Strategy Executive Education Program, and access to Nick Modi’s published white papers.

Transcript

[Sree Rajagopalan]

Retail media is rapidly becoming the go to channel for brands, aiming to engage consumers with measurable performance along the path to purchase. Retailers are increasingly empowering brands to accurately target meaningful audiences based on their longitudinal purchasing behaviors and execute media impressions across on site, off site and in store channels throughout the entire marketing funnel. For brand marketers, effectively incorporating retail media into their marketing budgets is essential for growth in today's omnichannel landscape. To address this critical need, Cornell University has partnered with the CPG Guys, along with leading industry executives and visionaries from around the world to launch the first ever retail Media Strategy Executive Education program. This immersive four day program at Cornell Tech May 5th to the 8th, 2025 brings together industry thought leaders and renowned faculty to share best practices for building compelling retail media platforms. You'll discover how to collaborate on creating best in class tech stacks, measure performance to ensure brands Access the necessary KPIs based on Campaign objectives and establish strong partnerships between brands and retailers. In addition, the program covers optimizing brand strategies using AI driven campaign design at scale to achieve marketing goals. By the end of the Retail Media Strategy program, you'll have gained a deep understanding of the retail media ecosystem and how both brands and retailers can accelerate organizational transformation to thrive in the future of performance marketing. See the link in the digital liner note to this episode to learn more about the Retail Media Strategy Executive Education Program at Cornell Tech May 5th through the 8th, 2025 welcome to the CPT Guys Podcast. Your hosts, Sree Rajagopalan and Peter V. S Bond explore how brands and retailers engage in an increasingly digitally driven world. And now, here are the CPG Guys. Hello and welcome to the CPG Guys Podcast. I'm your co host PVSB and when I'm not co hosting this podcast, I serve as Head of Industry and Client Engagement at Flywheel, the E Commerce Accelerator division of Omnicom. My co host, of course, he's the Chief Revenue Officer at Think Blue Consulting. He is the patriarch of the Raj Family media empire and of course the former Chief Customer Officer at General Mills. Of course I'm talking about my bff, sri. He and I were recently down in Orlando, Florida at the Cagney Consumer Analyst Group of New York conference. While we were there, we had the pleasure of recording this episode with one of our favorite analysts. Before we get to that, I'll make mention of the fact that if you follow us on Spotify or Apple, please give us a rating. Our favorite number is 5. Seriously though, the rating helps feed the algorithm makes our podcast more discoverable if you're not following us, please do. We really want to make sure that our episodes appear to you on a frequent basis. And the best way to make sure that happens is to subscribe so onto our main episode. We were very pleased to have join us our friend Nick Modi from RBC Capital talking about what we were hearing at Cagny conference and the general state of CPG from an investment perspective. I hope you enjoy this episode.

[Peter V. S Bond]

Hi and welcome to this episode of the CPG Guys where our guest is none other than Mr. Nick Modi. Second time appearance on the CPG Guys. Mr. RBC himself, industry loves him because he covers many of the publicly traded large market cap brands that we cover on the CPG Guys as well. So we're gonna get into all of that on this episode. Nick, first of all, Peter and I wanna thank you in a busy conference where you and the company are in very high demand because of what you do here at Cagney down in Orlando, Florida, or Bonnet Creek to be specific. You made time for us. Thank you for the generosity.

[Nick Modi]

Yeah, you bet. I'm happy to be with you guys.

[Peter V. S Bond]

And so we can't wait to get started. Peter, how you doing, man?

[Sree Rajagopalan]

I'm doing great, man. It's good to be here. You and me together again. This is our, what, second or third event this year? Already more to follow, More like fort when we get to the questions, we got a lot of stuff to talk about.

[Peter V. S Bond]

So Nick, I want to hit up one that's pretty obvious, right? I still remember as a General Mills employee, March 17, 2023, the world changed from three years of record growth, largely pricing and inflation driven. But that was hiding the underlying volume challenges. And you and I have spoken about this many times. So now we are two years have lapsed since nearly two years when March 17 comes by and volume trends look flat to decline, as most companies up here on stage have kind of alluded to. What's your outlook? How are you guys looking at it at Wall Street? Volume is a genuine challenge at this point, isn't it?

[Nick Modi]

Yeah, I mean, this has been an area of concern for us going back two years actually. And part of the issue I think that's happening and what I think is maybe short circuiting some of the big companies is when prices went up, they breached some critical price thresholds. And as the consumer was feeling, you know, ongoing pressure from inflation and other pressures, they started making different choices. And what was fascinating is that they started to cross category lines. Right? So if you think about it, you know Someone that might have been buying something in the, in the center of the store decided to go to the perimeter because it deflated. Right. Whereas the pricing was very sticky in the center. And I remember, and this is a kind of a, is going to be like a kind of a hot topic for me in particular because I haven't heard it enough here at Cagney. But think about eggs, right? And I remember, you know, when the, when the price of eggs went down dramatically after the last avian flu, this was going back a year and a half, right? What we saw observably through some of the numerator data, some of the other work that we're doing is that cereal consumers were buying eggs because they were looking for affordability and trying to feed their families. Now we have a situation where the price of eggs have skyrocketed, but I have not heard a single serial player discuss that opportunity.

[Peter V. S Bond]

And so this is the problem, Nick.

[Nick Modi]

This is the problem. And, but I think this is a function of legacy consumer insights models that are very category centric and not occasion centric.

[Peter V. S Bond]

Yeah. So the follow up I want to ask you to, that is, you know, we've sat through about nine presentations now and these are nine of the largest brands in the world, ranging from annual sales of annual revenue like gross revenue of 90 billion and higher to like 5 billion and higher. Right. So these are big numbers. Collectively these numbers could be larger than the GDP of many countries. The talent in these companies still discussing age old ways of succeeding, like Nick, I'm reminded of Marketing 5104 from my MBA class, Philip Kotler. 4ps that's what I keep hearing.

[Sree Rajagopalan]

We're seeing presentations talking about cutting edge 20th century strategies. Unfortunately we're in the 21st century, so.

[Peter V. S Bond]

No names, no companies. But overall when you look at talent, are we getting outdated?

[Nick Modi]

I think so. And it's not necessarily that there's not good talent, Right. I just think that there's not good infrastructure. Right. And so if you think about the investments in capabilities, they're just either speeding up existing systems instead of creating new systems. Now this is hard stuff. This is hard stuff. And the duration of a CPG CEO generally speaking has truncated over the years so they have less time in their seat. And so it's, you know, the, the motivation and the incentive to be disruptive. Whereas it's over your watch and you might have to deal with some disruption and some dilution of earnings is tough. I get it. Like, you know, everyone works on incentives, right? But this is the problem Right. And, and so, you know, I wrote a piece on, on Friday coming into Cagney and it was entitled Orlando, we have a Problem. And really what I, what I argued is that the entire industry should just take a step back on commitments, on financial goals, much lower goals for the next couple of years and let's reset and let's get ready for the, for the next 10 years.

[Sree Rajagopalan]

So acknowledges what you're saying. Don't try and hide it. Don't try and promise something that you know is not going to happen in the short run. Build for the long term.

[Nick Modi]

Well, I feel like we're hamsters on a wheel right now.

[Sree Rajagopalan]

Yeah.

[Nick Modi]

And we're in this rat race too. Right. And just look, this is coming from a, you know, stock analysts. It's like stop focusing on the quarters now. It's like we got some real work to do in this industry. And not every company is built the same. Okay. I don't want to make, I'm not going to talk about specific companies, but there's some that are doing it and some that are not and there are more that are not. Right. And that's the issue.

[Sree Rajagopalan]

I remember speaking with a chief customer officer at one of the companies that they're not presenting this year. They have in the past. But when asking this person, how do you deal with the quarter versus beyond that, this person said to me, my CFO reminds me that I am responsible for both delivering the quarter and the decade. And that can be a real balancing act sometimes. And right now what I hear you saying is delivering the quarter, if that's all you're focused on, you're not going to be in the position to deliver the decade.

[Nick Modi]

Absolutely. Like I think about the marketing model and how it's been flipped on its head.

[Sree Rajagopalan]

Yes.

[Nick Modi]

Right. The centers of influence have shifted. It's no longer the companies, you know, informing and influencing.

[Peter V. S Bond]

It's not a one way message.

[Nick Modi]

It's not, it's now peer to peer. And just like follow me on this logic. Okay. So marketing as a percentage of sales has been a key metric in the industry for such a long period of time. Right. And, and so 6% is aspirational. Right. You know, less than 5 is considered good. Exactly. And then even some companies, you know, you know, like the HPC companies that are up at 10%. Right. And the beauty companies are at 20. But here's the thing. If we, if we can agree, and I think, I think we can, that product efficacy is really becoming the most important thing in brand building because of peer to Peer selling and so the social selling, which is how brands are being built today, then why is R and D as a percentage of sales so low? Should we see a flip flop of that? Should the companies be investing more in disruptive innovation and technology? The reason they don't do it and they don't launch it is because it's margin dilutive. And this is the issue. Right, Absolutely.

[Sree Rajagopalan]

But let me flip that on its head because unless you're a pharma, we saw a couple presentations yesterday where they had an enormous innovation pipeline. Right, Right. The question becomes, are they expanding their portfolio so much that they have an inefficiency of the ability to generate profitability across the platform? Like we saw, probably the most preeminent performance company yesterday was Coca Cola. They're having great numbers. They talked very much about refining and simplifying their brands and that has helped them drive profitability efficiency versus these companies that are throwing an enormous number of brands out for innovation. And does that just make their assortment way too inefficient?

[Nick Modi]

It's, it's really a company by company discussion because it's not just about the innovation, it's also about the execution of the innovation. Right. And so let's, you know, take ConAgra for example. They had I think, a phenomenal, huge. A phenomenal portrayal of where the consumers presentation.

[Sree Rajagopalan]

Yeah.

[Nick Modi]

And I really, I really believe that from a consumer insights perspective, they are, you know, they've always been kind of.

[Peter V. S Bond]

Ahead of Bob Nolan.

[Nick Modi]

Yeah, they've been ahead.

[Sree Rajagopalan]

Put someone up on stage, not their CEO, not their CFO to talk about that. Yes, that, that was Bob is what everybody else.

[Nick Modi]

I think that that speaks to consumer centricity. However, I think they have too many brands. Right. So how can you lean into some of those great concepts and ideas in a much more meaningful way to really drive that. Right. Whereas, you know, if you're trying to spread it out over a course of 10, 15 different ideas at once, it makes it a little bit more complicated in the Coke situation. This is a fascinating story. And you know, I get a lot of pushback from, from Coke on this, but they should be growing much faster than they are, even though they're killing it right now. I mean, I've covered Coke 25 years. I've never seen the company in this good of a shape. Yeah. I mean, it's incredible what this management team has been able to accomplish with their bottles.

[Sree Rajagopalan]

They also did a massive reduction in their, you know, they talk a lot about the still portfolio.

[Nick Modi]

Right.

[Sree Rajagopalan]

And the importance of it but they also basically gutted venture and emerging brand group, started to divest themselves of many of the non carbonated brands that they'd been acquiring over the last 20 years. And that's led to them being successful.

[Nick Modi]

Well, and you know, getting rid of VB and putting it more in the regions I think helps because beverages is a very local business. It is. Right. But here's the thing about Coke is. And my criticism, right. And again, let me just disclaimer, they're killing it, they're doing well. But I always look at where the opportunities are, Right.

[Sree Rajagopalan]

Are you the Janet Jackson of cpg?

[Nick Modi]

What have you done for me lately, baby? That's right. Let me just finish the thought. Right. So Coke has struggled to create a bottle coffee business in the US which is a very fast growing, yet it's one of its biggest brands. In Japan, which is one of its biggest markets is Georgia Coffee. Right. So it's like, you know, when I kind of go around the world and I think of all these amazing white space opportunities for Coca Cola, how come they weren't first on energy? How come, you know, why are they struggling with Powerade and body armor? So it's like there's something in the system that is disallowing Coke from building the next mega brand. And yes, they built brands and they moved brands to a billion dollars. But I'm talking about, you know, how do you build the next Coke? And the management team would then say, well, you can't build the next Coke. And I think that's the problem is that I think they're limiting themselves. Yeah, I think they have a lot.

[Sree Rajagopalan]

Of opportunities, but they have pockets of success. Like Fair Life, right? Absolutely. They took a category that people thought was mature and flat and nothing was going to change. Absolutely premiumized the category and drove incredible revenue growth.

[Nick Modi]

Okay, so Peter, here's the question then for Coke and this is one of the questions I wanted to ask them. What can they learn from the Georgia coffee experience and from the FairLife Core Power experience to apply to all these pockets of opportunity they have all across the world?

[Peter V. S Bond]

My own experience from PepsiCo days, arguably it's been 10 years since I left PepsiCo and Frito on the bottling system because of the prevalence of the number of bottlers, anytime we wanted to try a new innovation, especially if it was a new subcategory or category, we had to get 107 bottlers a line. And the biggest pushback we'd get is my truck is already cubed out. I've Got you're asking me to pull out regular Pepsi to put something new in it. And I'm not incented to do it.

[Sree Rajagopalan]

Some of those bottlers carried lines that weren't Coke lines and that competed with.

[Peter V. S Bond]

Them and it was profitable.

[Sree Rajagopalan]

And that was kind of why they did the consolidation back in the 2010 era when Pepsi and Coke started gobbling it. But now they're divesting again.

[Peter V. S Bond]

Well, enough about Coke because we have 20 other things to.

[Sree Rajagopalan]

Listen, I want to give one thing about the profitability. Yeah. We talked about the volume growth. Now we've got with massive inflation and focus on price points. My question is how can revenue grow right in, in this.

[Peter V. S Bond]

Where's it going to come from?

[Sree Rajagopalan]

Where's it going to come from?

[Peter V. S Bond]

M and A.

[Nick Modi]

No. Yes. Yes and no. It depends on the company.

[Sree Rajagopalan]

Okay. Company specific.

[Nick Modi]

This is where management capability and organizational design becomes so critical. Okay.

[Peter V. S Bond]

So don't, don't leave that topic. Organizational design. Are you going to get into it?

[Nick Modi]

Yes.

[Peter V. S Bond]

So you. Okay, let's. Let's wait to hear.

[Nick Modi]

So think about just on the organizational design because I think this is really important. When these companies all built their empires, Right. They're very consumer centric.

[Peter V. S Bond]

Yep.

[Nick Modi]

And then over the years and decades they became less consumer centric and more stakeholder centric. Right. They're investors and the government and society and this. And I understand all of those pressures because I'm part of that constituency. Right. So I get that. But I think we need to figure out how to make these companies consumer centric again. And the one thing that always that I think about is how the people closest to the consumer in these organizations are the ones that have the least amount of say think about the route drivers for or the merchandisers or the sales field.

[Peter V. S Bond]

Sales teams.

[Nick Modi]

Yeah.

[Peter V. S Bond]

So if I was talking to a few here who are merchandising rooms and that's exactly what they said to Peter and me yesterday and this morning. We feel unempowered.

[Nick Modi]

Well, and all we're given is a.

[Peter V. S Bond]

Playbook and just go execute.

[Nick Modi]

Go execute. And this is the problem is that, you know, companies have to. Even the people on the front lines, they have, they are now market developers. They're not executors anymore because we're in a. We're in a new world. Right.

[Peter V. S Bond]

Y.

[Nick Modi]

And I and I speak to, you know, distributors and butlers and wholesalers all the time, you know, and I say you guys aren't just about execution anymore. That's what it used to be like. You're market developers. Y Right. So with AI, why, why are the companies not enabling their periphery to feed information, then let AI help translate the most core ideas that they can be executed upon. So I think the whole decision making matrix needs a little bit of a.

[Sree Rajagopalan]

Fine top down, not bottom up. And they're not seeing what their people that are at closest to the consumers.

[Nick Modi]

Yeah. Because let's face the facts. Who are the main customers for all of these companies? Who are they?

[Peter V. S Bond]

Everyday consumers?

[Nick Modi]

No, retailers. They're not consumers. Merchants. Buyers. Right, yeah, buyers, exactly. So I feel like buyers who actually tell.

[Peter V. S Bond]

Again, Nick, I don't want to cloud this conversation with my personal experiences from the last three years talking to the chief merchants across the board. But they're buyers who have been in positions for 20 years in a category and think they know it all, right?

[Nick Modi]

Correct. And things have changed around. Around them and that requires a little bit more of a nuanced understanding, which is the people in the field now. So like these are tweaks. This is not some, some like, oh my God, how can we change this? And we have to spend all this. No, this is just acknowledging what the issue is, is that you're actually not as consumer centric as you say.

[Sree Rajagopalan]

Yeah.

[Nick Modi]

And I can give you a gajillion examples of that. Right.

[Peter V. S Bond]

We won't name brands, but I do want to remind our audience. So Nick referred to a white paper at the top of the.

[Sree Rajagopalan]

We're going to put that in the hyperlink.

[Nick Modi]

In.

[Peter V. S Bond]

It's going to be the hyperlink, but you can also find it on the CPG guys. Nick has also published another white paper, which is a very next question. You can find that white paper.

[Sree Rajagopalan]

Let's talk about elephants in the room because there are a lot we're not talking about and I think that's the first one to sri's point. Private label. Nobody's talking about it. What's the deal?

[Nick Modi]

Yeah, I think no one wants to talk about it because it's a problem. Right. And it's a big problem. It's a big problem.

[Peter V. S Bond]

Tell us what the problem is in your eyes.

[Nick Modi]

Yeah, in my eyes. And this is why we've been writing so much about this topic and much to the company, I'm sure. But historically, look, we know that private label really hasn't caught sustainable traction here in the us it's not like Europe. Right. Or even in Canada. Like when I go meet with European investors, like all we do is talk about private label because they see what's going on there. But the European market and the US Market are very different.

[Sree Rajagopalan]

Yeah. You go to Canada and you see universally across the board, one fewer national brand in every category.

[Nick Modi]

Yeah, exactly. So what, what's going on in private label? Well, and it's all connected to what happened with the inflation. As inflation went up, as consumers were.

[Sree Rajagopalan]

Searching for value and there were restrictions on production because of scarcity of resources. So a lot of brands, some brands just did allocation where they said, okay, I'm going to fill retail, my most important retail 100%. And there were a lot of stocks. Other ones said, I'm going to refine my product portfolio and make sure I deliver my core products to everyone. But that left a lot of open space and people couldn't get their brands that they liked. So what did they do? They had to go find other brands.

[Nick Modi]

Correct.

[Sree Rajagopalan]

Private label became a viable option for trial.

[Nick Modi]

It did. And that was the issue because some of the quality has improved. And then you have what happens when.

[Sree Rajagopalan]

A consumer tries private label and they find out the quality is as good or better than the national brand?

[Nick Modi]

It's much stickier.

[Sree Rajagopalan]

They have no reason to go back.

[Nick Modi]

Correct. It's much stickier, especially when they're under ongoing inflation duress. Right. But then you had Walmart and a couple of other retailers, right. Start saying, wait a second, our private label doesn't need to be the cheapest in the store. Right. Whereas historically then price gap management becomes a way for the brands to manage the private label risk. Now we're in a whole new kind of era where the retailers are saying, hey, we're going to launch consumer centric unique products for our customers, like better goods, as an example. And that changes the whole calculus on how the brands compete. And so I think part of the issue is obviously you're in a public forum and you know, you don't want to be a big CPG company talking about your retailers. Right. Because things could get a little messy. So I get that. But the reality is that they need to evolve their private label mitigation strategies because it's not private label anymore, it's retailer brand. Like we need to like really delineate. Private label is one thing.

[Sree Rajagopalan]

It's a corporate brand.

[Nick Modi]

It's corporate brand and they have first party data, the retailers that they can use. I mean, when I first started my career, right, yeah. You know, it was all the big CPG companies providing all the data to the retailer. Now the CPG companies are buying the data from the retailers. I mean, it's crazy.

[Sree Rajagopalan]

Not only that they're buying media, right. From and that's another one we didn't hear anything about here is retail media. Nobody talked about it, but it's the biggest trend in media going on. And the question is when a. When, When a retailer gives preference to its private corporate brands on its owned and operated properties, its websites mobile app, and then it turns around and it asks manufacturer to buy into retail media to counteract the programming that they're doing on the merchandising side.

[Nick Modi]

That's right.

[Sree Rajagopalan]

That's like, that's like asking for protection money from a bunch of people from Brooklyn, if you know what I'm talking about.

[Nick Modi]

That's right. Right.

[Sree Rajagopalan]

Isn't that kind of crazy?

[Nick Modi]

It is crazy.

[Peter V. S Bond]

The one thing that come to my mind about when he gets to retail media and I'm thinking private label, you know, private label has the ability to get media for free. Although I hear that that's not the case. I'm concerned that that may be the case.

[Sree Rajagopalan]

Right.

[Peter V. S Bond]

And I'm going to mix the two of them here. Retail media, no one discussed it. At Cagny, you talk to every cmo, it's top of mind. The growing budgets and asks are concerned. But I want to come back to private label for one quick second. Right. Like no one's addressing it. It's the elephant in the room. You've acknowledged it, It's a problem. You've acknowledged that private label is changing and becoming brands today. But the question I want to ask you is, is private label more of an opening price point or do you see a long term threat to legitimate large market cap brands?

[Nick Modi]

Yeah, I think it's both. Right. So that's the thing. It's like, okay, let's just take Walmart as an example. Right. They have great value and they have better goods and they have some other stuff in the middle. Right. This is what's happening now. And the higher end stuff is very unique, but it's very affordable too. Right. So it's, it's bringing excitement that the brands typically bring. Now I'm not saying the brands are not bringing excitement because I think there's a lot of innovation that we've seen over the last two days where, hey, that's some pretty great stuff. I mean, I had my kids in the. Sure. You know, in the conference, watching all the presentations, taking notes and I saw their reaction to certain things. I mean, so it does resonate with the next generation of consumers, but the bar has been raised.

[Peter V. S Bond]

But they also have a choice now with private label, which it didn't previously.

[Sree Rajagopalan]

And they have data to Inform them on which consumers they need to push to try their private label and if they can convert them. And to your point, with the high quality now, suddenly they are a major threat to the quality consumer that brands had relied upon believing into their brands for years.

[Nick Modi]

And think about how the social media thing affects us like y. Let's take like a company like Elf for example where they can. The consumers are showing. Right. A company like elf, the consumer showing, hey, this product is like this product but this product is much cheaper. Yeah, right. Well guess what's happening all over social media right now with some of these retailer brands the same doing the same thing. Okay.

[Sree Rajagopalan]

Yeah.

[Nick Modi]

And so it's just raised the bar. And again, I think that companies have the resources, the science, the technology to disrupt. There's no retailer or co packer that can keep up with the R and D functions of these scaled companies. It's just they're not investing and leaning in enough. You know, they're taking a marketing first approach, but they need to take a product first approach.

[Peter V. S Bond]

Yeah, it's a major issue though. But one last thing on private label, piece of data that I had access to at least a few months ago for the first time in history. Right. Private label has always been challenged by access to raw material and ingredients because you know, given on a, based on a given commodity, large brands were buying up all the stock in the room to, to manufacture and grow.

[Sree Rajagopalan]

We've had one company yesterday say they control like 40% of the tomato production, something like that in the, in, in the country. That's enormous.

[Peter V. S Bond]

And now we're in a world where with volume decline for large brands, private label has unprecedented access to ingredients for the first time. Is that a problem for large brands?

[Nick Modi]

Absolutely, it's a problem for large brands. Right. I mean, you know, if you can't secure, you know, enough supply of certain input. Right.

[Peter V. S Bond]

I think the industry is largely ignoring this, not acknowledging it, that in raw material and ingredients is shifting hands for the first time. But enough about private label. Peter and I walked in expecting at least mention of E Commerce and omnichannel because for many people, many brands, it's.

[Sree Rajagopalan]

The only growth, it's the only channel that's growing.

[Peter V. S Bond]

And you mentioned.

[Sree Rajagopalan]

And growing significantly.

[Peter V. S Bond]

You also mentioned, you know, we live in a world where it's peer to peer, which means social is influencing everything and you can't not have leadership that doesn't understand or isn't really in the middle of omnichannel strategies. We didn't even see a mention like what's going on, Nick?

[Nick Modi]

I'm not sure. I mean, it seems like a big miss.

[Peter V. S Bond]

I mean, are you walking in expecting mentions or is that phase over for brands?

[Nick Modi]

Well, you know, look, I think, you know, in fairness to the companies, you know, they try to deliver different types of messages every year because they don't want to sound repetitive.

[Sree Rajagopalan]

Right.

[Nick Modi]

Now, E Commerce and Omnichannel was a big topic over the last few years. Right. So in fairness to the companies, I kind of get with what they're trying to.

[Peter V. S Bond]

What excites you this year? What's the big takeaway at Cagney?

[Nick Modi]

Yeah, well, I mean, you know, go read that note. We weren't very. Yeah. Coming into it.

[Peter V. S Bond]

And what's the one thing that you say? Two years ago, the one thing was, look, they got their eyes on the ball in ecom. Everything from talent to investments to capabilities to retail meeting. What's the one team this year?

[Nick Modi]

Nothing. Nothing. And let me just make a point about Omni because I think this is a really fascinating point. If you look at what's going on with promotions in general, the lift on promos has not been what it, I think was expected to be and what had been. Right. What's going on? Okay, sure, inflation is weighing. I think that's fair. But I think there's something much more nuanced that's happening, which is if you think about where all the value is being delivered, it's being delivered in digital formats in a much more meaningful way than we've seen historically. However, you know, we've done a lot of work, you know, 60ish.

[Peter V. S Bond]

You mean normal paper circulars on Sundays, Right.

[Nick Modi]

Yeah, but this is my point. If you think about the majority of the buyer. The buyer. The consumer that is purchasing these products in the store.

[Sree Rajagopalan]

Yep.

[Nick Modi]

Okay. 60% of that consumption are people over the age of 45. So think about what's happening. I call it a shiny object syndrome. We want to get these next generation of consumers.

[Sree Rajagopalan]

They're not the ones, but they're buying right now.

[Nick Modi]

And you're. Exactly. So you're not actually delivering the value where the people that need it to.

[Sree Rajagopalan]

The wallet that matters and the people that are spending the most on your. On brands.

[Nick Modi]

So I again think about how easy that is to fix. Right. When I take a step back and I'm like, you know, and I've been very negative on my sector more so than I've been. I've come for this industry for 25 years. Okay.

[Peter V. S Bond]

It sends an alert to us that we have an underlying Issue.

[Nick Modi]

Yes.

[Peter V. S Bond]

And we're not solving it collectively.

[Nick Modi]

Correct. And these things are easy to solve. It's not like you need to make a massive investment to re pivot some of your promotional dollars to your core consumers.

[Peter V. S Bond]

And it needs to be in store in that case.

[Nick Modi]

Correct.

[Peter V. S Bond]

Walking through the aisle in the end cap.

[Sree Rajagopalan]

Correct. We talked about the assortment mix and how it has to be. Whether it's diluted to profitability or not is dependent upon the company. But what we hear a lot about is, well, we want organic growth. And everybody's talking about M and A, it seems in these presentations. Are we going to see any organic growth in the next year? Is it a two or three year down the road before we really start to see? Because most of what we're seeing is decline. We had one manufacturer that started off and said, we won't even give you a guidance right now. Like that was pretty bold not not to tell a bunch of analysts. And they won't give you a guidance as to where they're, where they're going.

[Nick Modi]

Just shows you the environment that we're in. Right. I mean, so look, I think given the state of play right now, it's really hard to envision with confidence we're going to get back to organic growth. Right. And remember a year ago at Cagney, it's like, oh, look, first half is going to be tough, second half is going to be much better. And we were like, you know, we wrote a note. It's like people are too optimistic on the back half and that ended up being the case. We have the same shape of kind of how companies are thinking this year. And that's what I call the Hail Mary strategy. It's like, well, you know, comps are easy in the second half. Let's just get out of this morass and then things will be better. I'm just not willing to bet on that at this point. But we'll track it and I think it'll be dependent on company to company strategy.

[Peter V. S Bond]

But Nick, comps may be easier because of last year's performance, but is that the benchmark for looking at growth? Is that the only benchmark?

[Nick Modi]

That's kind of where we are right now. Here's my issue. Is that the price points, okay, if you go back to 2019, we did this math and I put out this report a couple weeks ago. You index wage growth for the middle income cohort. So that's the 20th to the 80th percentile.

[Sree Rajagopalan]

Okay, so you're taking off the right.

[Nick Modi]

I'm taking off the very high end, which is not as effective, and the low end, that saw a lot of wage growth because of minimum wage laws and things like that. The 20th to 80th percentile. If you look at their wage growth index of 2019 versus CPI food. Beth. Al Overall CPI, there's a massive gap.

[Sree Rajagopalan]

Meaning the grocery store, their disposable income is going more to the grocery store than it did before.

[Nick Modi]

Yes, that and the gross, what they're buying day to day has inflated, has become less affordable to them.

[Peter V. S Bond]

Yeah, yeah.

[Nick Modi]

So we did some math. We said, all right, let's just assume the current trend of inflation and wage growth stays where they are. And that's probably not a great assumption given what's been going on with Trump 2.0. If we just hold it flat, the lines will meet again at the end of the year, meaning that the wage growth will have caught up to the inflation. Okay, okay, so, so, so here we are. It's either we take corrective action now to get a quicker return of volume, which I do not believe the companies are prepared to do. Some are, others, most are not. Or we just wait it out until the end of the year. Right. And so that's kind of like how you should think about it. Right. That's really what's happening. And I just think that these companies need to influence their outcomes a little bit more. And that's why I think the financials need to come down. Right. To give them that latitude.

[Peter V. S Bond]

So financials, speaking of financials coming down, EBITDA pretty much consistently. We saw people, volume growth, negative ebitda, decent growth. One even announced dividend increase today. The only way you can do that is cutting costs. Having come from practitioner backgrounds, Most of these P Ls are remarkably sharpened pencils. Are layoffs imminent?

[Nick Modi]

Well, they've been going on. Right. They've been happening. It's just not being publicized as much as maybe the tech sector or whatever.

[Peter V. S Bond]

Restructuring.

[Nick Modi]

Yes.

[Sree Rajagopalan]

A lot of other noise in the ecosystem right now.

[Nick Modi]

And it's happening. Yeah, of course.

[Peter V. S Bond]

Yeah.

[Nick Modi]

I mean, that's something that's been happening and I think it'll continue to happen. Just going back to M A real quick because you had asked. I think we're going to be in one of the most robust M and A environments that we've seen in a long time. In a good way, in terms of things happening. Why do I say that? Well, growth is slowing, so obviously, you know, people will look.

[Peter V. S Bond]

You gotta look somewhere to grow.

[Nick Modi]

The administrative administration is, I think, gonna be much more lenient on bigger deals happening. Right. And interest rates have come off their peaks. So it's like a really robust. So like I think about like there's.

[Sree Rajagopalan]

A lot of pent up frustration. I know on the, on the venture capital and private equity side, those markets have been dead.

[Nick Modi]

Right.

[Sree Rajagopalan]

For two years.

[Nick Modi]

Correct.

[Sree Rajagopalan]

And now suddenly I'm starting to hear, okay, we're. Because if you, if you were a profitable business, you could get PE in vc.

[Nick Modi]

Yeah.

[Sree Rajagopalan]

You couldn't. If you were, if you were burning capital to raise a business, nobody get money. Now I'm starting to hear the handcuffs are a little bit off.

[Nick Modi]

Correct. And so I do think we will see activity in, in the marketplace and I think about M and A from two different angles. Like I want to see obviously, you know, certain adjacencies being picked up. Like, you know, hey, Hershey wants to build a salty snack business. Do they look for a more regional snack player? Right. We won't name name names. That would make sense to me. But also let's think a little bit more creatively. Like I love this what Nike did with skims. Right. Like I love that idea. Like they've never partnered with an outside company. But like that's how you bring consumer centricity to your business model. Right. And so I like this is also.

[Peter V. S Bond]

A brand that's oriented. Yeah, it's peer to peer. Classic definition of peer to peer. And influencers are everyday users on TikTok.

[Nick Modi]

Correct.

[Peter V. S Bond]

Speaking of which, do you think the large market cap brands understand that world to the extent that they need to? They're good at it.

[Nick Modi]

No, they're not good at it. I don't think they understand it.

[Peter V. S Bond]

They're good at Facebook though.

[Nick Modi]

They're good at Facebook.

[Sree Rajagopalan]

I'm saying, I was going to say MySpace, they've got that down. They've got MySpace.

[Peter V. S Bond]

Facebook doesn't exist. But TikTok. Yeah.

[Nick Modi]

Back to what he was saying. So look, this is one of the more fascinating things to me and something that I've been talking a lot about as I've been making my presentations to the industry. The marketing model has flipped. Right. So it used to be that the physical world would inform the digital world. Now the digital world is overwhelming the physical world. But we're not seeing the virality being bought into the physical world.

[Sree Rajagopalan]

It's not actually being activated. The opportunities being presented.

[Nick Modi]

Yes.

[Sree Rajagopalan]

They're just not activated.

[Nick Modi]

They're not meeting the consumer where they are. And so I'll give you a great example. Yeah, I take the protein Coke, which is basically a Combination of a Coca Cola product. The Coca Cola with core power.

[Sree Rajagopalan]

That's their shelf stable.

[Nick Modi]

The protein.

[Sree Rajagopalan]

Protein drink.

[Nick Modi]

Right. And you mix it and people are, they're making dirty soda and, and they're, they're, they're making protein Cokes and they're showing their recipes online. And I say to Coke, like I don't see core Life vanilla and Coke merchandise together.

[Sree Rajagopalan]

We're not talking about launching a new product.

[Nick Modi]

Correct.

[Sree Rajagopalan]

You're talking about just merchandising.

[Peter V. S Bond]

Two products take advantage of an adjacency.

[Nick Modi]

Another great example is the candy salad. Young people are just buying a bunch of different candies and they're, and they're having parties and it's like it's just all mixed.

[Sree Rajagopalan]

Candy salad.

[Nick Modi]

Candy salad.

[Sree Rajagopalan]

Brilliant.

[Nick Modi]

I thought people were trying to avoid.

[Peter V. S Bond]

Coming to a store near you. Candy salad.

[Nick Modi]

So why are the. Why are the confection companies not all over? I think one company is. Ferrero, I think is doing some of this.

[Peter V. S Bond]

But I want to go back to an earlier question connected back to this social influence talent. Here's my own again. Again, I don't want to cloud this with my own experiences, but sitting in C suite, talking to C suite every day for a living, last few years, what I'd hear back from CMOs of large market cap companies. I don't have an account on TikTok because it, you know what the privacy concerns, I didn't know how to respond to that statement. The problem is if you don't have an account, you don't have to post every day. Most of these people are scared of posting. And I understand they come represent large market cap, they have corporate comms. But shouldn't you be following and understanding?

[Nick Modi]

Yeah, I think that's right. And you know, a lot of these companies have built social selling capabilities or social listening. Sorry, Capabilities. Right. So but if they have all these capabilities, why are we.

[Peter V. S Bond]

What are you doing with that? Yeah, what are you doing?

[Nick Modi]

The problem is companies are overwhelmed with information and they don't know how to process it. I think that is the big problem. It's taking the information and actually activating it, I think is the issue. Everyone has data.

[Peter V. S Bond]

So that's a problem though, Nick, because the belief was to be a top dog or be a CEO, you have to come through the system and you have to have experience sales, you have to have experience marketing. This worked in the physical world for some reason, this digital world. That requirement doesn't exist to be a CEO or C Suite and it's a miss. It's A skill set miss.

[Nick Modi]

It's a massive miss. And then think about the boards. Yeah. They're not all, they don't have anyone.

[Sree Rajagopalan]

To ask the right questions.

[Nick Modi]

Right, exactly. That's why like when I go present.

[Peter V. S Bond]

To boards, TikTok on the board. Come on, come on, Nick. They all use it every day.

[Nick Modi]

But like when I'm, when I'm presenting like I do about five or six, you know, board of director presentations for my companies, they've asked me to come in for an outside perspective and you know, I spend a lot of time on these things.

[Peter V. S Bond]

Right.

[Nick Modi]

Like I spend a lot of time and I go in there and I see their faces sometimes on some of the things I'm saying and it's clear that this is new stuff to them. And so I think that's part of the issue. Right? This is why the periphery becomes so important. You already have a built in advantage of people that are close to the consumer, know what's going on. They're young, use them.

[Peter V. S Bond]

To me, Nick, everything we've discussed, many of these are overcomeable. The one that I really struggle with, again you referred to the board. We're not going to take names, not going to talk brands here. When your board is outdated with yesterday's skill sets, you have no hope of learning these new ways. And you gave examples. You've got social listening platforms. Your board is not interested with outcomes from the social platforms.

[Sree Rajagopalan]

There were a lot of CEOs up there talking over the last day and for the rest of this conference that talked about things that they have no ability to double click down on. And that is one.

[Peter V. S Bond]

But that's. Nick has just highlighted the issue though. If your board is not asking you, why should you?

[Sree Rajagopalan]

Because they don't know to ask that. Nick, I want to talk about one thing that also we were kind of shocked about the biggest, the hottest topic for syndicated market research and consumer insights companies Circana, Nielsen IQ Numerator right now are webinars or presentations around the fundamental impact that GLP1s are having on volume. We saw two manufacturers refer to GLP1s here. It's another elephant in the room. What is going on? How are they not talking about how this is transforming their food? I saw one company today talk about I'm going to take the products I already have and my innovations. I'm going to glaze them, I'm going to cover them in more sugar. Are they just like whistling into the wind? What's going on here?

[Nick Modi]

Well, I think there are a couple things I have some I think more unique views than most on this topic. So let me just kind of go through them real quick. First, GLP1s is an issue. How big of an issue? I think this is the question and the reason why I bring this up is because a lot of the studies that have been done about the impact of GLP1s on consumption, where we're done pre post at a time where inflation was starting to affect the consumer. So the question becomes what is cyclical versus what is structural? It's hard to.

[Sree Rajagopalan]

Dependent versus independent variance.

[Nick Modi]

Correct. Okay, so that's number one. Now I speak to our biotech team all the time. They cover all these companies that make the GLP1s. The retention rate on these drugs is very low. You know, 30%. Yeah, okay. Maybe they'll go up over time, but they're very low. So you lose your £25, you get off the drug, and then, you know, some just don't return. Right. So, you know, there's, there's, I think there's a lot of debate over, over the actual impact. That's the first point. The second point is I think not all companies have uniformly really thought this strategy out on how to respond through their product pipeline like ConAgra. I think that a phenomenal job, like, wow. I was wowed. Right? Like, I thought they really knocked it.

[Sree Rajagopalan]

Out of the park.

[Nick Modi]

They put their, they put their foot forward on it and I think they really kind of addressed it in a way which is like, hey, even if it's not an issue, people still want protein.

[Peter V. S Bond]

They're putting tags on innovation that says GLP1 friendly.

[Nick Modi]

But, but the thing is, it's like, forget GLP1s, right? Protein is a big thing. It's like over social media, like protein, protein, protein. Right. And so they win no matter what. Right. Even if GLP doesn't.

[Peter V. S Bond]

Absolutely.

[Nick Modi]

They win anyway in that now again, they have to focus the resources. But you know, I think they, they have the right idea. I'm more worried, I'm less worried about GLP1s. I mean, I threw the first obesity conference on Wall street in 2001. That was 24 years ago.

[Sree Rajagopalan]

Yeah.

[Nick Modi]

This is not a new topic. One of the greatest new product launches ever in the last 30 years in CPG is Coke Zero Sugar.

[Peter V. S Bond]

Okay.

[Nick Modi]

It came out of a risk. Right. So it's not like the companies are sitting in vacuums either.

[Sree Rajagopalan]

Okay.

[Nick Modi]

My bigger concern is the evolution of the wearables market. Okay.

[Peter V. S Bond]

So far, nothing's been done about it.

[Nick Modi]

Nothing's been done because Think about, like, I was wearing a continuous glucose monitor. I was getting real time feeds on what foods were affecting my sugar levels. These wearables are going to become smaller. It's going to have more ubiquity, and it's going to measure more stuff.

[Sree Rajagopalan]

They're going to be in my smart glasses and it's going to give me those measures. Like, I can't ignore it, right?

[Nick Modi]

And this is the point, is that we're going to have real feedback on ourselves, okay? We're gonna have real feedback on ourselves and it's gonna inform our choices. And I think this is what the companies really need to prepare their R and D pipelines, Nick.

[Peter V. S Bond]

So you bring back memories of an exciting project I've worked on seven years ago. But we're gonna talk offline about it because I had to get in front of Congress on it. But we're gonna talk about variables later. But, Nick, I want to wrap this up by asking you a question on geopolitical uncertainty. PepsiCo certainly acknowledged it. We have a very different economic climate which has shaped up over the last five years. We have lots of geopolitical tension in wars emerging and just conflicts all over the place. We have cultural changes, DEI changes coming up in the country. We have a new government, lots of change, and a regulatory environment which no one knows where it's headed. Thoughts? What are you guys, what are you guys selling?

[Sree Rajagopalan]

M and A and. And how that's changing? What are other things that brands are really faced with that they have to. They have massive uncertainty about?

[Nick Modi]

Well, this is, this was the whole point of my report on Friday, is that the reason why companies buy these stocks or investors buy these stocks is for the consistency. That's why they get premium valuations. Okay. And they have not been able to deliver that consistency because so much has been changing around them. That's why I think they need to really spend time on adjusting business models to make sure that they can really, really manage consistency in this new macroeconomic environment. Because it's not going to change, right? It's only going to get more volatile. We're only going to get more conflicts and more issues that these companies have to deal with. So it's like, make those choices, tough choices now, so you're prepared for the future.

[Sree Rajagopalan]

Nick, thanks for taking time to speak with Shereen and me at Cagny. We hope you enjoy the rest of the conference and we look forward to coming back on the podcast soon to share your ideas because it makes my head scratch a lot of these things, and it's good to get a different perspective on this.

[Peter V. S Bond]

Absolutely.

[Nick Modi]

Thanks for having me. I appreciate it.

[Sree Rajagopalan]

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