Podcast Summary: The CPG Guys – "Message to CPG CEOs: Lower Your EPS Targets Significantly!" with RBC Capital Markets’ Nik Modi

Release Date: April 26, 2025

In this insightful episode of The CPG Guys, hosts Peter V.S. Bond and Sree Rajagopalan engage in a profound discussion with Nik Modi, Managing Director and Analyst at RBC Capital Markets. The conversation centers around Nik's compelling report advising Consumer Packaged Goods (CPG) CEOs to significantly lower their Earnings Per Share (EPS) targets. This summary delves into the key points, discussions, insights, and conclusions presented during the episode.

1. Introduction to the Episode [00:00 - 03:30]

The episode kicks off with Sree Rajagopalan introducing the podcast and its focus on how brands and retailers engage consumers in a digitally driven world. Peter V.S. Bond then welcomes Nik Modi back to the show, highlighting his recent scathing report titled "CPG CEOs: Is It Time to Cut Your Quarterly Earnings Estimates and EPS Estimates?" Bonds expresses intrigue over Nik's bold recommendation, given his extensive 30-year career in CPG.

Notable Quote:

Peter V.S. Bond [02:22]: "Nick, it's a pleasure that you're making time for me late on an evening, on a weekday over here."

2. Historical Performance of Consumer Staples [06:02 - 07:50]

Nik Modi presents alarming data on the underperformance of the consumer staples sector over the past decade. Comparing the sector to the broader S&P 500, consumer staples have underperformed by nearly 100 percentage points, a figure that underscores significant challenges within the industry.

Notable Quote:

Nick Modi [06:14]: "If you go back, the consumer staples sector relative to the broader market, the S&P 500 over the last decade has underperformed by close to 100 percentage points."

3. Near-Termism vs. Long-Term Focus [07:50 - 09:43]

Modi criticizes the industry's short-term focus, attributing it to the persistent underperformance. He emphasizes that this near-termism has hindered companies from capitalizing on long-term trends, advocating for a return to fundamentals and consistency to drive value creation.

Notable Quote:

Nick Modi [07:07]: "We need to get back to basics, back to fundamentals. Understand that consistency is really what drives the value creation of these companies and not be so near-term focused."

4. Impact of Tariffs on the CPG Industry [09:43 - 12:06]

The discussion shifts to tariffs and their implications on the CPG sector. Modi acknowledges the income statement headwinds posed by tariffs, citing Kimberly Clark's $300 million incremental tariffs as a strategic acknowledgment of these challenges. He stresses the importance of leveraging analytics to navigate supply chain complexities and mitigate risks.

Notable Quote:

Nick Modi [10:19]: "Tariffs will create some headwinds, it'll create consumer anxiety... Not every company has the same supply chain. Some companies are advantaged versus others."

5. Talent and Leadership in CPG [12:06 - 15:42]

Addressing leadership and talent, Modi argues that the industry suffers from a lack of domain expertise. He critiques the traditional rotation of leaders without allowing them to develop deep insights into their roles, which diminishes their ability to leverage intuition alongside data analytics effectively.

Notable Quote:

Nick Modi [13:21]: "I think domain expertise is required. I think what's happening with today's leaders is they're lacking intuition because they haven't been in their role long enough."

6. The Role of AI in Transforming CPG [15:42 - 19:38]

AI emerges as a pivotal theme, with Modi highlighting its potential to integrate and enhance various business functions. He envisions AI as an enterprise-level initiative that can personalize marketing at scale and revolutionize the shopping experience through agentic AI, where AI agents make purchasing decisions based on product efficacy and consumer reviews.

Notable Quote:

Nick Modi [16:09]: "AI needs to be an enterprise-level initiative that helps bring all of those different capabilities and functions together."

7. Retail Media Spending and Investment [19:38 - 24:25]

Modi critiques the industry’s retail media expenditure, noting that indiscriminate spending across numerous platforms leads to inefficiencies. He urges companies to quantify the return on investment (ROI) for spending on specific retailers and make informed decisions to optimize their media budgets, rather than spreading resources too thinly.

Notable Quote:

Nick Modi [28:08]: "What I would want to hear is them telling me that they have some kind of quantification that spending more on retailer X will give them a better return than retailer Y."

8. Innovation and Mergers & Acquisitions (M&A) in CPG [34:34 - 35:03]

When discussing innovation, Modi distinguishes it from mere trend-chasing. He advocates for product superiority and quality over disruptive, margin-dilutive innovations. While he acknowledges that M&A can play a role post-market stabilization, he emphasizes that true innovation stems from enhancing product efficacy and consumer solutions rather than consolidations alone.

Notable Quote:

Nick Modi [34:57]: "Innovation in the industry has to really innovate how they think about innovation... It's not about launching a new product based on a trend that's going on."

9. Advice to CPG CEOs [36:39 - 41:52]

In a pivotal segment, Modi offers direct advice to CPG CEOs:

1. Do Not Cut Back on Insights and Marketing: Maintaining investment in data and marketing is crucial for long-term growth.
2. Create P&L Flexibility: Lowering EPS targets provides the necessary room to invest in vital capabilities like AI and innovation.
3. Focus on Long-Term Metrics: Shift from short-term EPS achievements to metrics that reflect product superiority and consumer-centric strategies.

He underscores that investors crave visibility and consistency, and adjusting EPS targets can restore investor confidence and facilitate strategic investments.

Notable Quotes:

Nick Modi [36:45]: "Do not cut back on insights and marketing. Data and insights is how you run your business."

Nick Modi [24:25]: "I want to see numbers come down because investments are still going to happen."

10. Conclusion & Future Outlook [41:01 - End]

The episode concludes with a reaffirmation of the need for the CPG industry to embrace consumer-centric strategies and long-term planning. Modi emphasizes that the ultimate beneficiary of these changes will be the consumer, who will receive better products and fairer prices. Peter and Sree encourage ongoing dialogue and invite listeners to engage with their content, highlighting the importance of community input in shaping industry outcomes.

Notable Quote:

Nick Modi [42:09]: "We just have to do a 20-year audit and realize how many emerging brands have come to the table because the big brands have not done the service to the consumer."

Key Takeaways

• Significant Underperformance: The consumer staples sector has lagged the broader market by approximately 100 percentage points over the past decade.

• Shift from Short-Term to Long-Term: The industry must move away from near-term EPS pressures to focus on sustainable, long-term growth strategies.

• Strategic Investment: Lowering EPS targets can free up resources for critical investments in data analytics, AI, and product innovation.

• AI Integration: Leveraging AI at an enterprise level can transform marketing, personalization, and the overall consumer shopping experience.

• Retail Media Optimization: Companies need to strategically allocate retail media spend based on quantifiable ROI rather than spreading budgets thinly across multiple platforms.

• Leadership and Expertise: Building domain expertise and allowing leaders to develop deep industry insights are essential for navigating future challenges.

• Consumer-Centric Focus: Aligning strategies to prioritize consumer needs and product efficacy will drive market success and innovation.

Final Thoughts

Nik Modi's candid analysis serves as a wake-up call to CPG leaders, urging them to reassess their financial and strategic priorities. By acknowledging the sector's underperformance and advocating for strategic recalibrations, Modi provides a roadmap for restoring investor confidence and fostering sustainable growth in the dynamic CPG landscape.

For more in-depth discussions and insights, listeners are encouraged to visit cpgguys.com and engage with the ongoing dialogue shaping the future of the CPG industry.