Message to CPG CEOs: Lower Your EPS Targets Significantly! with RBC Capital Markets’ Nik Modi

Summary

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.

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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."

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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."

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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."

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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."

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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."

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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."

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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."

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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."

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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."

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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."

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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.

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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.

Transcript

[Sree Rajagopalan]

Chain Drug Review's focus is on reaching the key decision makers across all retail channels, delivering comprehensive coverage of the latest shopping trends and in depth category analysis on health, beauty, over the counter products and wellness. Whether it's the latest trends, emerging technologies, or strategies for adapting to new consumer behaviors, Mass Market retailers deliver the critical information retailers need to navigate this dynamic environment. To subscribe to the newsletters of CDR and mmr, simply follow the hyperlinks in the digital liner notes of this episode. Chain Drug Review and Mass Market Retailers are published by Retail Media iq. Welcome to the CPG Guys Podcast. Your host, Sree Rajagopalan and Peter V. S Bond explore how brands and retailers engage consumers in an increasingly digitally driven world. And now, here are the CPG CPG Guys hello and welcome to the CPG Guys Podcast. I'm your co host pvsb. I also moonlight as Head of Industry and Client Engagement at Flywheel, the E Commerce acceleration division of Omnicom. My co host is of course the patriarch of the Raj family media empire. He's also Chief Revenue Officer at Think Blue Consulting. He's the man known as sri. Today's episode was recorded in Chicago between SRI and our dear friend Nick Modi, who is the co head of Global Consumer and Retail Research at RBC Capital Markets. Nick penned an article that just came out where his recommendation to consumer goods companies and their boards is it's time for them to to cut their earnings per share significantly. It's a very challenging time and Nick details exactly why he's arguing they make this change. Sree has a great conversation. We hope you enjoy it and if you do like what you're hearing, please make sure on Apple or Spotify to give us a star rating and to leave us a review that will improve the likelihood that our podcast can be found by other industry contemporaries. With no further ado, here's sri and.

[Peter V. S Bond]

Nick of course it's my privilege to welcome back to the show none other than Mr. Nick Modi himself, Managing Director and Analyst for RBC Capital, a friend of the CPG Guys who's been on twice before. Another two times and he'll earn the famous CPG Guys Letterman jacket. But it's a pity he can't take a swag from somebody. But this is of course it's free media. We give it to anybody who appears five times on the show. Nick of course has just recently published a report. I would actually call it a scathing report that actually this is the title. So I'll let you all kind of listen to this episode and judge for yourself. The title of this report says CEOs is it time to cut your quarterly earnings estimates and EPS estimates. And that title intrigued me Significantly, having a 30 year career in CPG, kind of being married to deliver the quarterly EPS estimate. And that's what entire playbooks were written out of. So, Nick, it's a pleasure that you're making time for me late on an evening, on a weekday over here. Welcome back to the CPG guys. Man, how you doing?

[Nick Modi]

I'm excellent. Thank you for having me back, sri. Appreciate it.

[Peter V. S Bond]

Awesome. So let's jump straight into it, Nick. You don't need any introduction to the industry. We've already had you on the CPG guys. Of course, in the digital liner notes of this episode, there'll be links to the previous episodes that listeners can listen to on the go and access. So I'm going to first start with how we met earlier this year and an earlier episode we had with you, which was more of a Cagny recap. You and I have chatted briefly in the past few weeks and we've kind of questioned why CAGNI even exists. In your mind, somebody reporting out on CPG performance routinely and often. Why does CAGNI exist? Should it exist in the future?

[Nick Modi]

Yeah, I think. Look, if you think about the whole genesis of Cagny, right, It was at a time before company CEOs would webcast earnings results or management presentations. And it was a time for people to gather and rub elbows with managements of a lot of these wonderful companies. And time has evolved and now it's become more of a just gathering of people. I mean, I love to go to see my clients, to see the companies, to see them in person. It's probably the only time of the year you get everyone together, right? So it's become more of a social dynamic. I think from a content perspective, there's still value on the companies getting up there and presenting, but I just think that things have to evolve just a little bit. I think what investors really want to hear at Cagny is how companies are addressing the market. How are they addressing their challenges? Right. I mean, it's wonderful seeing the advertising and hearing about the next new product innovation, but what are they really doing to address retailer media? What are they really doing to prepare for a much more volatile geopolitical landscape? Right. I think that's really what investors want. They want to get that clarity. And so I just hope going forward, as the companies prepare for Cagny, they take a very investor or consumer centric approach. Right. They're There to address the investor population. And I think they should do it in a way that addresses those investors questions.

[Peter V. S Bond]

One of the things I've heard you say publicly in this report kind of hits upon it is if you look at historical performance of the consumer staples stocks, ones that you track and then the industry as a whole. Right. So how many stocks is it that you track routinely?

[Nick Modi]

Well, I cover officially 32 companies, but I track close to 500 across the entire supply chain.

[Peter V. S Bond]

So if you look at a 30 year performance, the numbers are actually not that great. Can you give some highlights on what they sound like?

[Nick Modi]

Yeah, I mean if you go back, you know, the consumer staples sector relative to the broader market, so that's the s and P500 over the last decade has underperformed by close to 100 percentage points or 100%.

[Peter V. S Bond]

That's a big number, man. Like 100 percentage points versus other sectors. Like are you kidding me, man?

[Nick Modi]

Yeah, it's not been very good. And the thing, you know, and the reason why I wrote the report I wrote is I've been covering this industry for 25 years. I love this industry. I, I think it's a phenomenal industry. Great margins, great returns, amazing brands. But the sector has just become a place where people want to hide out when things are scary and that's it. And when things get better, no one wants to own these stocks again.

[Peter V. S Bond]

But Nick, even in that environment, how can 100% decline compared to other sectors be stability? How's that stability?

[Nick Modi]

Well, that's kind of my point. Right. And if you go back and look, go back to the early 2000s when I first started covering this industry, the only times the consumer staples sector has really outperformed the market, the broader market, is during times of significant distress. Right. The dot com bubble bust, the great financial crisis. Right. And moments like that. And so I just think that we need to do better. 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. Right. Because I think all the near termism has costed many of these companies from really capitalizing on long term trends.

[Peter V. S Bond]

So your report kind of highlights and has a conversation, kind of puts the data out there about this near termism. Right. But the title of the report kind of says it's time to bring EPS down. Tell us more. What did you mean with that title? Is Wall street generally trying to communicate? Are you trying to communicate to CEOs or consumer staples? I'm going to give you a One Time Buy. We're going to give you a One Time buy as long as you're consistent, even if you have to adjust.

[Nick Modi]

Right.

[Peter V. S Bond]

But as long as you're consistent.

[Nick Modi]

Yeah, that's really the message. And again, I'm not trying to be hyperbolic or alarmist, it's just I've been covering this industry for 25 years and I see the deficiency in certain capabilities that I think are going to be really, really important as we move into the future. And cutting marketing and cutting analytics in this moment in time is not a very good idea in my opinion. Right. So the way I really think about it, and really what I was saying in this report is like, listen, you could keep on revising Your earnings downwards, 1%, 2% here and there, but that's been going on for the past six quarters for many of these companies. Or you could just do it one time, create a target that is very believable and create enough flex in your P and L that you can invest in these capabilities. And let's just face the facts. The world is much more volatile, so we're going to have to absorb a lot of risk. Right. How can you deliver a number and still absorb that risk while still investing in your business? That requires numbers to come down. And that was really the whole intent. I'm not saying that these companies can't grow in line with their historical algorithms. I just think we need to take a step back. We need to realize that we're deficient in certain areas. We need to rebuild investor confidence. And I think that takes a good one to two years to do.

[Peter V. S Bond]

And so, Nick, one of those historical precedences that existed even when you came on the show, let's say early February versus where we are, mid to late April, in the eight, 10 weeks that have transpired, there's a new word, kind of the word of the day, the word of the month, the word of the last 12 weeks, and it's called tariffs. Tell us about what you guys are seeing as analysts as an impact to the consumer staples industry. Is tariffs real? Is it short term? Should companies panic the way that they are? What's the outlook here?

[Nick Modi]

Yeah, so I think there's a lot to this. Right. Number one, obviously there's going to be some income statement headwinds that come with the tariffs. So Kimberly Clark just reported today they took down their earnings, rightfully so, I thought. And they called out $300 million of incremental tariffs. I think that's smart because in a normal scenario, what many of these Companies would be tempted to do is try to figure out a way to offset it so not to have to lower their numbers. But I think what a company is starting to realize is, hey, we can't cut back on critical spend right now. We gotta keep going because it has an impact long term. I mean, think about what happened during the 3G era, right? Amazing, amazing profit growth. But then Top Line started to struggle and these stocks didn't respond to the earnings growth because no one thought it was sustainable. How can you sustain these types of margin gains when your volumes are negative and you're losing market share? And so I think a lot of the companies are starting to come around to this thought process, right? And so obviously tariffs will create some headwinds, it'll create consumer anxiety, right? And that's partly what we're seeing in the, in the March quarter is we're seeing weakness. And I think that's part of people worrying about prices going higher at a time where prices are already too high. Right. And we probably have to see some retrenchment there. The third thing, and I think this is really where analytics become really, really important. Not every company has the same supply chain. So some companies are advantaged versus others. Some companies might have much more US production. Well, that's part of the chessboard, right? And that's, you got to take advantage of it. And if you're not, if you're not, if you're one of the companies, that's not advantage, you're disadvantaged. You got to figure out how to mitigate risk, right? So I just think it's going to be, there's going to be a lot of analytics that needs to be done to really understand how best to navigate this situation.

[Peter V. S Bond]

One such question I have for you on analytics is. Analytics is partially science, but it's also partially art. Traditionally, the leaders that have risen to the top, they're very good on the art side, which is the art of taking the output that's given to them by other teams, massaging it in storytelling. And they've been P and L managers. So can we talk about talent for a quick few here?

[Nick Modi]

Yeah, absolutely.

[Peter V. S Bond]

If you go back last 20, 30 years in history, my, my humble belief here, you know, the leaders at most CPGs are either financial leaders, CFOs, or they're, they've been the old school, used to be marketing leaders. What do you believe is the right talent set that should be leading these companies? And I don't just mean CEO, I mean generally leadership from a, let's say Go to market perspective or operational leadership. What talent base would excite you?

[Nick Modi]

Yeah, it's actually an interesting question. I'm less worried about the talent. I wasn't very smart coming into my job, but I've been doing it 25 years.

[Peter V. S Bond]

Who you can name?

[Nick Modi]

But the point being, Sree is experience matters.

[Peter V. S Bond]

Okay, tell us more about experience. What type of experience matters?

[Nick Modi]

You need to have some kind of intuition, right? We can all process data. I look at data all the time. I mean that's my job. But sometimes I say, well, this is not telling the complete picture because I know based on my 25 years of.

[Peter V. S Bond]

Looking at this, if you look at the 30 year historical performance, I mean I looked at your report and I read it cover to cover, word by word. If you look at the 30 year performance and you benchmarked it to other sectors, like you said, a minus 100 basis points. I'm sorry, not a minus 100 basis points. Yeah, that's, I'm sorry, that's pretty pathetic. And what kind of intuition of a group of people delivers -100% results compared to other sectors? Now we can say compared to other sectors. But that's not an excuse.

[Nick Modi]

Well, let's, let's, let's tease out some, some of that, okay. Because not every company is built the same. I'm giving you an aggregate number.

[Peter V. S Bond]

Absolutely.

[Nick Modi]

Let's take Church and Dwight as an example. Okay. Their brand managers have been doing that job for a very long time and they're very good at their job. And that's why they out execute companies that are much larger and maybe have brands that are much bigger in terms of market share. Because these brand managers are spending so much time, they are experts in their category. It's like, it's like an analyst for a sector. Right. In my job, if I, if I kept on switching industries, I would never be able to have the intuition to provide forward looking perspective. That is accurate. Right. And so I think the whole notion of building talent for the next role has gotten in the way of building expertise, domain expertise. And in this world where things are changing so quickly, I think domain expertise is required. I think, I think what's happening with today's leaders is they're lacking intuition because they haven't been in their role long enough. Does that make sense?

[Peter V. S Bond]

Completely understand? Yes.

[Nick Modi]

So that's, I think it's less about.

[Peter V. S Bond]

Talent and it's because they're usually seen as a emerging leader and they're fast tracked to 15 rotations and they just haven't been long Enough in an operational role, a sales role perhaps, or a given brand marketing is.

[Nick Modi]

That's exactly what now think about the world that we're walking into. With AI, you need human intuition to really accentuate and magnify the capabilities of AI. And so I just think the industry really needs to rethink how they rotate their best people around.

[Peter V. S Bond]

Let's talk AI for a bit. AI is a phenomenon that I don't think our industry totally grasps yet the intensity. And that proof in the pudding was Cagney, where most leaders that presented on stage said, hey, my IT leader or CTO has a mandate, which means they're hinting at chatbots and customer service on a web page. What's your opinion? What change is AI going to bring about in the industry?

[Nick Modi]

Yeah, I think the way the industry is thinking about it now, it's like in very siloed ways, right? Hey, here's innovation, here's marketing, here's sales, here's this function. And then AI is going to make each of those individual silos much more efficient. Okay? But what I think is going to happen, or what should happen is AI needs to be an enterprise level initiative that helps bring all of those different capabilities and functions together. So the organization almost has to be redesigned to take advantage and leverage AI. And let me give you a few examples, right? We should get to a point where we have box level assortment. You know, this retailer and that retailer that might be two miles apart should not look the same, should not have the same planogram because they have different shoppers. That's where we should be. We should be at a point, the capability already exists where companies should be able to do one on one personalized marketing at scale. That's not very costly. The capability already exists today. Why don't we see it? Right? We should be.

[Peter V. S Bond]

It barely exists.

[Nick Modi]

It barely exists. You know, P and G, I think is on the cutting edge in terms of using AI in innovation. Right. And coming up with product concepts and molecules much faster. Right? So these are the things. But the thing that I worry most about with the industry is how shoppers will shop in the future. Leveraging AI. It won't be you or me making the choices. It'll be an actual AI agent.

[Peter V. S Bond]

So publicly again, I've heard you talk about, you gave a fabulous example of your own agentic AI shopping. Can you take us through that and explain why you see that as agentic AI? Because to me, when I heard you give the example of how you were shopping for Easter, it's actually Pretty scary because the way a CPG brand represents itself, it wouldn't make the cut.

[Nick Modi]

Correct. Right. So it's almost like a prompt, like you would have in any AI platform. I'm having an Easter party. I'm having 20 people. 10 are children between the ages of 5 and 10. We're gonna have an Easter egg hunt. We're gonna have a traditional Easter style dinner. And I'd like to make popular cocktails for Easter. I have three vegetarians and two people with celiac. Boom.

[Peter V. S Bond]

But nowhere in that little dialogue over there did you name a brand.

[Nick Modi]

I didn't name a brand or a category. And that's the question. So think about how things have evolved. Right. We went from shopping in the store, going down the aisle, beverages. I didn't say anything. Right. But that's the point. And wait till voice ordering. And this is where the older generations are going to really adapt voice ordering because it's going to be so easy and seamless. Right. It's not going to be complicated for them to get on a device and do all this kind of stuff. So the core CPG shopper is still the older consumer. Right. So the industry's really got to wake up. And you know, you went from a situation where you were going down the aisle, seeing all the options, if your packaging popped, maybe you had a chance. Then you went to the online where maybe you pay some retailer media dollars and you're up front and center at the top of page one. Now you're going into an environment where the agent is making the decision based on what product efficacy, customer reviews ingredients. Right. So it just really, really has complicated the path to purchase. And I'm not sure that most companies I follow are prepared for this moment.

[Peter V. S Bond]

So let's talk about that preparedness for a second here. I'm not talking about talent. Let's leave that to the side for a second. Because to be prepared, you have to have the talent that understands it. But let's just leave that to the side for a second. I'm talking about all the underlying basic pieces that determine the outcomes to the algorithm. You just mentioned ratings and reviews, perhaps the digital images, how search is planned for brand keywords versus category versus other terms. Efficacy was a good one. You just said you use the word vegetarian, which I'm not so sure most brands that are out there in the marketplace will ever, will ever find anything. If you put that search in your agent, search term in your agent. Take AI. Do you think cpg, again, leave talent to the side for a second? This is purely algorithm influence. Is it ready?

[Nick Modi]

No, I don't think it is to your point. And I'm not even sure like, you know, if companies have really figured out exactly how they would actually get their product in the basket or actually what governs it. Right. Like what does govern it? I don't even know. Right. Is it customer reviews? When I did my Easter example, I said, find me the products with the best online reviews. Right? And so if you think about it now, all of a sudden it's not the might of the marketing only that matters, it is the product efficacy. Because we're in a social selling world now where it's not. I'm taking cues from these big marketers, I'm taking cues from you or other people or even people I don't even know, but I follow on Instagram or another social media platform. Product efficacy is how recommendation happens. And so every company has to really think about blind wins, product superiority, things that we've heard from companies like Proctor and Clorox. This is, I think, the way forward.

[Peter V. S Bond]

So Nick, I want to counter that by saying if you looked at social commerce, I learned today that TikTok is now the 9th largest beauty retailer in the US which is insane if you thought about it. Hudo TikTok Social Commerce is the 9th largest beauty retailer. That is crazy. That's larger than most grocers. That said, for large CPG brands, entire business models are built on preserving brand equity by risk aversion. The whole notion of influencer and social commerce. You have to get away from being risk averse to being bold, which CPG companies are not built to do. They have entire corporate comms teams. I've been subject to much of that. They have PR teams, publicity teams that manage all that stuff. What's your advice for them? Because they don't have the structure to respond. And that's the reason they also don't want to invest in one on one marketing.

[Nick Modi]

Right? So look, there are, there are a few solutions here, okay? Number one is we need to invest, okay? And that's why I made the comment about numbers have to come down and every company knows I'm right. You know, they might resist, they might not think they have the permission, but they do. I mean, look what happened with Constellation. When they cut their number, stock went up. Look what Kimberly Clark did. They cut their number for earnings from high up high single digits to flat. And the stock is only down one and a half percent. Okay? So trust me, investors want visibility in this sector. That's what they want. If they want growth, they'll go to technology, they'll go to biotech, they'll figure it out in another industry. But they want consistency and visibility in this industry. And you can't do that when you think numbers are still coming down. So that, that's point number one.

[Peter V. S Bond]

Isn't that the issue that you're pointing to? That in the three years of COVID 2020-2023, the industry largely forgot our role is stability. And with the pricing actions we took, we got 50% bump in stock prices because we suddenly became 10 and 15% growth giants year over year like tech and hence we have the stock price. But that fall from almighty has been pretty painful because most stocks have settled to pre Covid historicals. Isn't that the issue? Like the loss of way here?

[Nick Modi]

Well, it's part of the issue. But tree, this issue has been around even before COVID happened.

[Peter V. S Bond]

Right? When you say it's minus 100%, it's long before COVID Right?

[Nick Modi]

Exactly right. So look, there's a lot of solutions, right? So first you got to create the P and L flex to invest in capabilities. Second, you can't get.

[Peter V. S Bond]

Let me, let me counter that as well. So yeah, without the PNL flex, you can't really invest in capabilities.

[Nick Modi]

Right.

[Peter V. S Bond]

Yet leadership prioritizes delivering the dividend for the quarter and eps.

[Nick Modi]

Right?

[Peter V. S Bond]

So how do you break out of this? Your report certainly tells them break out of it.

[Nick Modi]

Right?

[Peter V. S Bond]

How do you break out of it? What do you want to see? What actions do you want to see?

[Nick Modi]

Well, I want to see actions like what we saw from Kimberly Clark. I want to see numbers come down because investments are still going to happen. That's number one.

[Peter V. S Bond]

So I want to decompose that a little bit more. Right. So are you saying, Nick, if a CEO were to step up, a company was to step up, leave the CEO title alone and say, look, I need to set aside and I need to develop capabilities. As you just mentioned, AI is a big part of it. Without solving AI, I think you and I both see eye to eye. Your brand is doomed. Three years out, five years out, you may be non existent because someone else will eat you for lunch. In that sort of scenario, if a company came and said to you, look, I'm going to take my earnings estimate down, it's not what you thought it was. My dividend is going to settle out at a certain number. There'll be no growth in dividend for two years. Would you then say, give me the plan, I want to know where you're investing.

[Nick Modi]

Yes.

[Peter V. S Bond]

And once, you know, do they get a buy on a reduction, significant reduction in stock while you can't promise anything over here.

[Nick Modi]

Right.

[Peter V. S Bond]

Is that the thinking?

[Nick Modi]

I think when you look at how investors would react or have historically reacted, situations like this, they want the visibility.

[Peter V. S Bond]

So do you get the visibility today?

[Nick Modi]

Well, you don't have it now, but if I felt like flat earnings growth is achievable even in this environment, then that makes me a lot feel a lot better than oh, they're trying to deliver 7, 8% earnings growth. Right. And so historically, look, we've seen this happen time and time again. Investors do respond to this in this industry because they want the visibility. But the other thing that I, I would encourage companies to think about is if you do do that, where is the money going to go? I want to know what capabilities you're building.

[Peter V. S Bond]

That's my point, Nick. You're going to want to actually know. I'm putting into solving agentic AI. I'm putting into innovation. Here's how I'm informing innovation. I'm taking bold new steps that are going to define the future of not only how I'll source innovation, but how I'll build it to how long will that innovation last? Trends, predictability. You want to see all of the above assortment planning.

[Nick Modi]

Yes. And that's all very achievable.

[Peter V. S Bond]

And can I flip the question to the other side of the fence? So we talked about talent on the CPG side. I listen to a lot of quarterly earnings calls across the board in multi sector, not just Food and Bev. Sometimes I feel analysts are not asking these questions. And one such question is in the industry you and I touch Food and Bev. Staples, Retail media isn't right in the middle of it. And the numbers are not small, you know, for the companies you and I track and observe. 100 million plus dollars. Yeah, that's a lot of money.

[Nick Modi]

It's a lot of money.

[Peter V. S Bond]

And 200 million, 250 million, 300 million. It peaks out there. Do you think Wall street is asking the right questions about this? Because I rarely see any one of those quarterly estimate calls ever ask a question or dig in like you are today.

[Nick Modi]

Listen, I, I think obviously on public forums, you know, sometimes companies are hesitant to bring up sensitive topics. And this is a sensitive topic. Right. Because the reality is, you know, do.

[Peter V. S Bond]

You consider Cagney a public forum?

[Nick Modi]

Yeah, I do.

[Peter V. S Bond]

Because it is kind of closed door.

[Nick Modi]

Well, it's closed door, but everything is webcasted. Right.

[Peter V. S Bond]

Fair enough.

[Nick Modi]

You know, so so, so to me it's, it's a, it's a public forum. But when I, when I think about this topic on retailer media or even talking, addressing private label, there's sensitivities with the retailer. So I understand why they may not talk about it. I agree with you. I don't think investors truly understand what is going on with retailer media and how much of a challenge it is for the suppliers to think about like where do I spend the money? Part of that is because they don't have the capability to understand where they get the best return.

[Peter V. S Bond]

That's the root cause. So what would you want to hear on retail media from the industry?

[Nick Modi]

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 and that they have to make the right decisions and fish where the fish are. Right. And that at the end of the day is what I think. But I don't think they're there yet. Right. I think they're just saying like, oh my God, there are 200 retailer media platforms. Like what do I do? Because let's not kid ourselves. This is not a one to one marketing to retailer media exchange. We all know it's incremental.

[Peter V. S Bond]

Absolutely right.

[Nick Modi]

And that's part of why they don't want to talk about on these public calls. Right. But sri, just going back to your other question, original question about what can they do? One of the things that, you know, and Look I again, 25 years, so maybe I'm allowed to be more creative than, you know, than some of the executives.

[Peter V. S Bond]

You've earned that.

[Nick Modi]

Yeah, I hope I have. But maybe we're just chasing the wrong metrics. Maybe, maybe quarterly earnings is not the right metric.

[Peter V. S Bond]

That that's the problem.

[Nick Modi]

Maybe it's product superiority is the right metric.

[Peter V. S Bond]

And then from a Wall street perspective, isn't it a new scorecard that you all have to develop then? Because today's scorecard is give me 4 cents and I use 4 cents here pretty fictitiously, whatever it is, like a 1% increase in the dividend which has to relate to X adjustment in eps. That's the template of the scorecard and that's why leadership is P and L oriented versus growth oriented.

[Nick Modi]

Well, you know, fine. If they want to chase the numbers and they think that's what they want us to do.

[Peter V. S Bond]

No, that's not what I'm saying they want to do. That's the scorecard you all have given them.

[Nick Modi]

Right. Well, that's actually like a template and said fill it. That's what the disconnect is.

[Peter V. S Bond]

That's what I want to hear from you.

[Nick Modi]

Yeah, that's where the disconnect. If you think about like let's take the 3G era. Yep, amazing profit growth.

[Peter V. S Bond]

Yep.

[Nick Modi]

Right. But the stocks started to underperform despite big earnings beats because the investor was like, wait a second, this isn't sustainable. How can your volumes go down, your share go down and your margins keep on going up? Like this doesn't make any sense.

[Peter V. S Bond]

Exactly what's going on now.

[Nick Modi]

Right. And there was a correction. So whether investors can articulate it or not, they actually care about the long term. And I show it through quantifiable means. 80% of a given consumer staples company's market cap, publicly traded market cap, is in year 10 and beyond of the forecasts. So that means years one through 10 is 20 to 30% of the market cap. And then that makes the three months of profit even smaller. So what are we really doing? Well, let's get pull the frogs out of the boiling water and let's recognize that whatever they've been doing on the hamster on a wheel hasn't really been working as per the long term returns. Now again, not every company is built the same.

[Peter V. S Bond]

Can't argue data.

[Nick Modi]

Right. This is an aggregated comment. I would say it's probably relevant for 70% of the industry. There's 30% that actually gets it right. Okay. And you can see that in the stock prices. But it's like, it's like this. If when I started really seeing benefits to my health and my weight was when I stopped worrying about my weight and I worried about the actions, I worried about drinking enough water, making sure I was working out, cutting down on the bad foods and then only then did it work. But it took me 49 years to figure that out. Right. So that's my point is that are we focused on the wrong metrics? My metrics now are, am I doing the right behaviors? Right. And I don't think it's any different for these companies.

[Peter V. S Bond]

So I got a couple more questions for you here. One is on behaviors. So lot of industry turmoil and the current administration and expected legislation change, especially in the food and beverage sector. Are y'all looking at that closely? Are you all, what's the outlook?

[Nick Modi]

Yeah, I mean obviously everyone's paying close attention, but it's so hard to understand exactly how it's going to play out. Now a lot of the stuff that they want to do Whether it be removal of this or take snap out of that, there's a legislative process. Right. And you know, I remember when I.

[Peter V. S Bond]

But with the current administration, do you really think we're gonna go through some lengthy legislative process?

[Nick Modi]

I do, I do, I do. Because I think at the end of the day, everything's gonna go through the court system. And you know, and so we're really gonna be testing the courts quite a bit over the next year. I mean, I remember when I covered tobacco, the government wanted to ban Menthol in 2009, and it still hasn't happened. So it's 2025 now. Do I think that certain ingredients need to come out of the food system? Of course. And do I think it's going to have a big impact on the industry? No, I don't. Because it's going to be ubiquitous. If one company decides that they were going to get rid of it and another company doesn't, and there's a very distinct difference in how these products look on shelf or in the actual bowl or plate, that's where the problem arises. But if everyone is doing it, then it doesn't really. It doesn't really matter. Right. And so I'm not too concerned with some of this stuff.

[Peter V. S Bond]

So let me then jump into the next three months. What are you expecting to see from the industry? What's your outlook as you look through the numbers, the data? You know, obviously the stock market in the last, let's say three odd months, consumer staples is significantly underperformed, but it's still benchmarking to the overall stock market. I'm only talking last three months, not the 30 year number that you gave.

[Nick Modi]

Yep.

[Peter V. S Bond]

Do you see something changing in the next three months or is there still a lot of trepidation in the mix here?

[Nick Modi]

Sri? I feel, I feel like we're on the precipice of companies finally acknowledging things that we've been talking about for the past 18 months. Right. We're seeing it. Numbers are coming down. People are acknowledging the challenges. It's unfortunate that it took this long, but we're here and I think that we're starting to see some of the right choices being made. And that gives me hope. Right. Because I don't think that we have problems that are unfixable. I just think it takes courage. I call it courage arbitrage. Who has the courage that others don't to actually make some of those tough choices to put us in a better position where that 80% in years 11 through infinity on the forecasts are okay, right.

[Peter V. S Bond]

That is crazy.

[Nick Modi]

We want the 11 to infinity to exist. We don't want it to disappear. And if companies don't make the right choices, you know, that's, that's something that is a probability.

[Peter V. S Bond]

One area we didn't get into which you and I have spoken outside of this conversation is innovation. Innovation in the industry largely seems to be indicated as strategic. M and A is the way go forward for the next few years. Do our companies sitting, are they cash rich? Are they sitting on a bunch of cash? Do they have the cash flow? Do you see a lot of consolidation happening and is this the way to innovate?

[Nick Modi]

I don't think it's the way to innovate. I do believe once the markets settle, we will see activity. That was something.

[Peter V. S Bond]

Is it more a consolidation or is.

[Nick Modi]

It something else that's more consolidation? Bolt ons, you know, a combination of the two. Capability wise also. Right. I think there's a lot of capabilities that need to be acquired because maybe building it might be too expensive. But when I think about innovation, I think the industry has to really innovate how they think about innovation. Maybe it's not about launching a new product based on a trend that's going on. Maybe it's just simply merchandising or partnering with other companies to provide a solution to the consumer that they're looking for. Maybe it's about product efficacy. Right. Maybe it's about the product quality and that's where the investment needs to be. So I think there's a lot of other ways to think about innovation that the industry is not doing. I think they're making it maybe a little too hard on themselves on trying to chase some of these trends, or saying, I don't want to chase these trends because you know, it's a fad. But you don't need to actually create a new product. You can execute it at retail in a way which allows you to capitalize on the trend.

[Peter V. S Bond]

I got one last one for you. Yo, Nick. And that is advice to the industry. If I gave you the microphone here for the next couple of minutes and said, you're now in a room full of CEOs in the consumer staples sector. And they've literally said, Nick, they're not asking you what would make you happy? Nick, they're saying, you look at all of us, you track all of us. If there are one or two pieces of advice that you think we should act upon immediately. And remember, my question is immediately versus long term versus investing in the next six months. What would warrant an immediacy.

[Nick Modi]

So I think there are a couple things. Number one, do not cut back on insights and marketing.

[Peter V. S Bond]

So let's talk about that a little bit. Right. Historically, when the P and L needs a trim, there are three areas that leadership goes to. First is T and E. And the industry now is full of news that we can't travel, we can't come out to this, we can't come out to that, can't go to conferences, yada yada yada. The second is data and insights. It's seen somehow as a luxury and a discretionary purchase, which I don't understand. Maybe tne is you can be choiceful but data and insights is how you run your business. And the third one is media, retail media being one of them. Talk to us about all three. T&E. Agree. Disagree.

[Nick Modi]

I agree. T and E. I think there's tons of ways to, you know, and in the post Covid world there's a lot of ways to access information without having to actually get on a plane. Trust me, I've leveraged that quite a bit because you know, I travel a lot.

[Peter V. S Bond]

Yeah, I mean we literally talked a little while ago about do we even need an in person cagny versus a. We have so many webcasts and webinars and things of that nature. So I get that part about insights and data that one mind boggling to me. You probably need more data to generate more insights now than ever.

[Nick Modi]

Absolutely. And I think that we also have to re innovate and think about how we use data because everyone has these templates, they look at the data, they got a lot of data coming in.

[Peter V. S Bond]

They got these data lakes, metrics from 30 years ago.

[Nick Modi]

Metrics from 30 years ago. But it's just a lot of data and I don't know if it's being leveraged and processed the right way. So the way I've kind of thought about my job, right. Because I look at data all the time, is that instead of getting inundated with the data, I have problems that I'm trying to solve and then I find the data to help me solve them. And the data will not be just from one source, it'll be from multiple sources. But that's kind of how I go about doing my job. And I don't think my job is any different than how a consumer brand would try to think about their own brands and the challenges that they have.

[Peter V. S Bond]

Yeah, no, no doubt about that one. And the third one, Nick, I'll ask you, is the media? There's a Lot of cutbacks in media. Traditionally, media has been a hole filler on the P and L to close the quarter to deliver an EPS estimate.

[Nick Modi]

Yeah.

[Peter V. S Bond]

And there's a lot of that floating around. Media budgets have been pulled back. What's your take there?

[Nick Modi]

I think what's important for the companies to understand is that. And you could just look at historical performance. Typically when a company beats earnings and they're celebrating because they beat the quarter and they cut back, they do it by cutting back on marketing. The stock typically goes down and that's because investors can see through it. They understand that, wait, this is not sustainable. Right. So it's just, you're not doing yourselves any favors. That's why I called hamster on a wheel. Like they keep on doing this practice because it's, it's a legacy practice, but it actually doesn't work. Right. And you can see it in the data. I mean I have plenty of examples I can share with people on this very topic. And by the way, anyone listening to this, I'm happy to have the debate. If you, if you really feel strongly that I am wrong, call me.

[Peter V. S Bond]

Which aspect are we discussing here? Anything on the media.

[Nick Modi]

On the media. On the cutback. On my entire philosophy.

[Peter V. S Bond]

Yes, the conversation. Absolutely. Versus long term, changing the metrics.

[Nick Modi]

Let's have the chat. That's what the industry needs.

[Peter V. S Bond]

Are happy to facilitate that dialogue. And perhaps in the future we can have a brand and you as an analyst kind of come have a chat about this very topic. And I'd love for, love to also enable you to be able to see from a brand lens, you know, why they hold back on many of the things that you said.

[Nick Modi]

Oh, I know why they hold back.

[Peter V. S Bond]

It's to deliver the dividend.

[Nick Modi]

That's right.

[Peter V. S Bond]

I'm telling you, man, like that's.

[Nick Modi]

No, I, I know that 30 years.

[Peter V. S Bond]

I'm finding it hard to let go of that philosophy that at the end of the day, what mattered. And when you're junior in your career, you don't understand this. Right. The more senior you get, you realize that your sole mission and purpose is to deliver the dividend.

[Nick Modi]

If you're public and listen, I'm not going to say that my part of the industry isn't part of the problem. I think every part of the supply chain and the stakeholder base is part of the problem. Right. Asking these very near term questions. And I get it. And that's part of the problem. And that's what has trained many of these executives, think that that's what matters. I'm just saying pull yourself out of the boiling water, go back in and realize how hot it is. Because it actually isn't as important as you think in terms of three months of results.

[Peter V. S Bond]

So here's the deal we'll make Nick, if you're ready for it.

[Nick Modi]

Yeah.

[Peter V. S Bond]

The CPG guys will keep coaching the industry that you need to move away from quarterly estimates to maybe this one time adjustment, but be consistent with that adjustment and then deliver what's realistic, especially given the last few years of inflationary pricing. Then reinvest if you have to, but share the playbook of where the reinvestments are going. So we'll do our part now. We'll ask that you do your part on the scorecard with Wall street too. Because it requires both sides to meet in the middle and both sides need to do it not just for their personal gain, but for the consumer. Because you know who the biggest loser is in all of this when these adjustments are made? The consumer. Because they're not getting world class innovation, they're not getting the right prices.

[Nick Modi]

That's correct.

[Peter V. S Bond]

Not getting the right products, the right packaging, none of that stuff.

[Nick Modi]

Yeah. We just have to do a 20 year audit and realize how many emerging brands have come to the table because the, the big brands have not done the service to the consumer. Right. And so we just got to get back to being consumer centric. That's simply, that is the advice, you.

[Peter V. S Bond]

Know, So I said that was the last question. But sorry, I got one more since you brought it up. And that is, who's winning these days? Well, emerging brand.

[Nick Modi]

Yeah, no, look, I, I, I think the companies that are focusing on product superiority are winning. Right. Sometimes that's emergency value. Yeah. The, a good narrative story. Right. And, and so marketing still matters. Right? That emotional connection and making it relevant in certain occasions and creating disruptive innovation that sometimes might be margin dilutive, but hey, that's what the consumer wants. And you can build scale over time and build your margins and profits. But we have to stop being scared of negative mix due to innovation. That is something that I think the industry has to get away from. And here's the last point I would make is that there is so much robust information in the periphery of every organization. Merchandisers, route drivers, salespeople, whoever. And I think every company needs to figure out a way to manifest, to collect, to aggregate, to figure out how they can leverage that insight that is within your four walls and help inform the center in terms of being consumer centric. Because I promise you, you know When I listen to my son talk with his friends about what's going on in TikTok and how they engage with products that these companies sell, it's very different than what I'm seeing in investor presentations and in my interactions with the companies.

[Peter V. S Bond]

So I did want to mention that at the time of this recording, when this recording will be released, we already would have released an episode by Sean Modi, who your son was at the Cagney Conference. The CPG Guys was so impressed by what he had to say to us, including an article that he presented to us. The topic of that was Investor and Performance from the Eyes of a Gen Z what He Saw, which is absolutely fabulous. For those of you that didn't hear or watch that episode, you can find the links on the digital liner notes of this episode to our audience. A reminder, you can find all of our content simply by going to a web Browser and typing cpguys.com as the URL of you or anyone you know can contribute to this ongoing discussion of the industry and shaping the future outcomes of what happens here. Please do drop us a line and [e-mail] Again, that's contactpguys.com I'll ask you to leave us a rating on the Apple Podcast or on the top right corner of our website on cpguys.com the rating tells us how we're doing. A review will be very helpful because it'll tell us whether we're having quality discussions on the right topic to our audience and our followers, especially on LinkedIn. I can't say thank you enough times. Your clicks, likes, DMs, meeting us at conferences, recording podcasts, doing what Nick did with me, impromptu recording a podcast episode with me and of course our sponsors through the year. Without you, we don't exist. So thank you, thank you, thank you, thank you, thank you Nick. Thank you for having an open and frank conversation with me about the state of the industry. You're always welcome back on the show. I was looking forward to record this one. Thank you so much for joining me.

[Nick Modi]

Thank you for having me.

[Peter V. S Bond]

Thank you, Nick. And with that, we'll wrap this episode. Wait for it off the CPG Guys.

[Sree Rajagopalan]

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