The Age of Immersive Commerce with 5 New Digital’s Michael Zakkour - Part 2

Summary

Podcast Summary: The CPG Guys – "The Age of Immersive Commerce with 5 New Digital’s Michael Zakkour - Part 2"

Introduction and Guest Overview

In the second installment of their two-part series on immersive commerce, hosts Peter V.S. Bond and Sree Rajagopalan welcome back Michael Zakor, founder of Five New Digital and Managing Director at Sellside Group. Released on January 4, 2025, this episode delves deep into the evolving landscape of digital commerce, emphasizing the pivotal role of platforms like TikTok, trends in mergers and acquisitions (M&A) within the Consumer Packaged Goods (CPG) and Fast-Moving Consumer Goods (FMCG) sectors, advancements in the Far East's commerce technologies, and the integration of Artificial Intelligence (AI) in retail.

The Impact of TikTok's Potential Ban on Commerce and Influencers

A significant portion of the discussion centers on the looming threat of TikTok's potential ban in the United States and its broader implications:

• TikTok's Role in Immersive Commerce: Michael emphasizes TikTok's transformation from a social media platform to a commerce powerhouse. "On Black Friday alone, TikTok shops realized $100 million in 24 hours of sales," he states (17:07), underscoring the platform's massive influence on online sales.

• Influencer Economy Concerns: The hosts express concern over the livelihoods of millions who rely on TikTok as their primary income source. Sree remarks, "They think that, you know, they get paranoid about this and they are concerned about the consumption and the influence" (23:54).

• Political and Geopolitical Dimensions: The conversation touches on the political tensions surrounding TikTok's ownership. Michael clarifies, "It's actually Singaporean, right?" (19:11), and discusses the U.S.-China rivalry's impact on the platform's future in America.

• Economic Implications: The potential shutdown isn't just a social issue but a significant economic disruption. Michael draws parallels with Argentina's Twitter shutdown, highlighting the cascading effects on creators and businesses (25:26).

Mergers and Acquisitions (M&A) Trends in the CPG/FMCG Sector

The episode transitions to an analysis of current M&A activities within the CPG and FMCG industries:

• Strategic Consolidation: Michael observes a trend where large CPG companies are shedding non-core brands while acquiring strategic ones. "They're doing a massive shedding of non core, non strategic brands... to do a massive wave of acquisitions of what they believe to be core and strategic brands" (34:19).

• Impact of Digital Transformation: As companies undergo digital transformations, the criteria for what constitutes a "core" brand evolve. Michael notes that brands once deemed valuable may no longer align with the new digital-centric strategies of their parent companies (35:20).

• Opportunities for Smaller Firms: This strategic consolidation presents opportunities for smaller CPG firms, PE firms, and family offices to acquire valuable brands at favorable valuations. Michael emphasizes the importance of understanding the critical mass of buyers and sellers to capitalize on these opportunities (40:32).

Evolution of Commerce in the Far East vs. the United States

Michael provides a comparative analysis of commerce advancements between the Far East and the U.S., highlighting how countries like China and India have leapfrogged traditional infrastructures:

• Leapfrogging Infrastructure: He explains, "China was so far and remains far ahead of us in the development of commerce technologies... because they had what we didn't have." Michael uses the analogy of building a tent, where newer infrastructures can integrate modern technologies without legacy constraints (42:02).

• Case Studies in E-Commerce: Michael cites Alibaba's transformation of the automotive sales process from cash-based transactions to online sales as a testament to the Far East's rapid commerce evolution (46:27).

• Cultural and Regulatory Factors: The discussion acknowledges that while these regions have made significant strides, they also face challenges like regulations and corruption that can hinder growth (47:40).

The Role of AI in Retail and CPG

AI's integration into retail and CPG industries emerges as a critical theme towards the episode's conclusion:

• Operational Efficiency: Michael argues that AI is primarily being used to enhance operational efficiencies, such as supply chain optimization and inventory management. "It's being implemented at scale on what I call the two great enablers of our industry... supply chain, logistics and fulfillment and operations" (52:23).

• Perception vs. Reality: Despite AI's tangible benefits, there's significant skepticism within the industry. Michael attributes this to a lack of awareness about existing AI implementations that are already driving efficiency and growth behind the scenes (50:21).

• Human-AI Collaboration: He advocates for a collaborative approach where human creativity works in tandem with AI's analytical capabilities. "The human AI collaborative experience will produce the best results" (50:48).

Conclusion and Future Outlook

As the episode wraps up, the hosts reflect on the insights shared and outline their upcoming engagements:

• Strategic Importance of Creator Economy: Sree underscores the global significance of the influencer economy and the potential disruptions caused by policy changes affecting platforms like TikTok.

• Upcoming Events: Peter and Sree announce their participation in major industry events such as CES, NRF in New York, and FMI in Florida, where they will further explore topics like the Cornell Retail Media program and engage with industry leaders.

• Final Thoughts: Michael expresses optimism about the future of immersive commerce, emphasizing the continuing evolution of digital platforms and the integral role of AI in shaping the industry's trajectory.

Notable Quotes with Timestamps

• Michael Zakor on TikTok's Commerce Impact: "On Black Friday alone, TikTok shops realized $100 million in 24 hours of sales." (17:07)

• Sree Rajagopalan on AI Perception: "They're using AI to replace the dreary, repetitive operational kind of things that aren't really sexy, but they actually move the numbers." (50:21)

• Michael Zakor on Commerce Evolution: "China started building their tent 20 years ago. We started putting our tents up 140 years ago." (42:32)

Final Remarks

"The Age of Immersive Commerce with 5 New Digital’s Michael Zakkour - Part 2" offers a comprehensive exploration of the dynamic intersections between digital platforms, consumer behavior, strategic business maneuvers, and technological advancements. By dissecting current trends and forecasting future developments, Peter V.S. Bond, Sree Rajagopalan, and Michael Zakor provide valuable insights for brands, retailers, and industry professionals navigating the rapidly evolving CPG and FMCG landscapes.

For more information and to engage with the CPG Guys community, visit cpgguys.com.

Transcript

[Peter V S Bond]

Hey, it's pvsp with the CPG guys. If you're planning on attending CES, please join us on Wednesday, January 8th for a breakfast briefing sponsored by CVS Media Exchange. I'll be hosting a panel involving Parbinder Dhalarwal, the General Manager and VP for CVS Media Exchange at CVS Health. Joining us will be Andrew Lipsman from Ads, Media and Commerce. Andrew and we'll be talking about some research that Andrew recently conducted interviewing CPG brands about their retail media investment plans for 2025. Really great information. You'll find it incredibly insightful. Again, it's on Wednesday, January 8th from 8 to 9am if you're interested in attending, drop us a line at contactpguys.com or click the link in the digital liner notes of this episode and you'll be able to learn more about this and we'll get you registered for the event. Looking forward to seeing all of our industry friends at CES this January.

[Michael Zakor]

Hi, I'm Michael Zakor, the founder of five New Digital and a Managing Director at sellside Group and you're listening to the CPG Guys.

[Sree Rajagopalan]

Welcome to the CPG Guys podcast. Your hosts 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 Guys.

[Shree Rajagopalan]

Hello and welcome back to this episode of the CPG Guys. This is part two in a two part series with a very special guest. I'm of course Shree, co founder and co host of the CPG Guys, co founder and partner Think Blue. Your key to unlocking your profitability potential. As builders, connectors and amplifiers, we shape the future of commerce to drive your growth. Please do listen to my older daughter Rhea Raj's music www.riaraj.com that's R H E A R A J and my younger daughter Lara Raj as a member of the Geffen Records Universal Music Group Yatsai who have just completed the tour of the Jingle Ball series and we are off to Tokyo and Sydney for performances Apple Music Awards in the Way Touch the hit single is now past 200 million plays on Spotify. And joining me today is my fellow co founder Mr. And when he's not co hosting his podcast he serves as head of client engagement at Flywheel, the E Comm Acceleration division of Omnicom. Peter, pleasure doing this with you. Episode over Episode. How you doing today? Where are you? What's the plan for the holidays?

[Sree Rajagopalan]

Well, I'm in Connecticut getting ready for Christmas with the daughter and then up to Canada to see the mother for a couple of days. But meanwhile, what I have been doing surreptitiously, Sree. I've been plotting a hostile takeover of the Raj family media empire. I may have to hip check you out of that chair and take over control of the business holdings for Lara and Rhea. That's getting too big, man. I think it should be me in charge there. Over there. What do you think?

[Shree Rajagopalan]

The numbers are growing by the day when we're talking hundreds of billions. Yeah, you're right. But I just got a new chair, so I'm happy to give you the old one. In fact, I was about to. After the recording of this episode, I was able to call bulk pick up. You saved me the trouble.

[Sree Rajagopalan]

There you go, la.

[Shree Rajagopalan]

We have to do bulk pickup because here in California, you can't dispose of anything without process and bureaucracy. But otherwise, all good. You ready for the holidays?

[Sree Rajagopalan]

Everything has been shopped, wrapped, waiting for Santa to arrive. As you can see, his little helper made an appearance on my microphone this morning. For those of you watching on video, by chance, I am joined by the elf on a shelf. Ms. Frazzle. Very exciting day here in Connecticut.

[Shree Rajagopalan]

We had the most interesting conversation on presence. Because this year there's no presence under the tree.

[Sree Rajagopalan]

Nothing.

[Shree Rajagopalan]

Because they asked me where the heck are our presents? And I said, I'm taking you to Tokyo. At least for three of you that are not performing, myself included. I'm buying you tickets to Tokyo to Sydney. Labels aren't paying for it. It's my money. Our money.

[Sree Rajagopalan]

Shree. Are you going to take him to Disneyland like I took Nadia or. What's the deal here? Is that going to work out?

[Shree Rajagopalan]

Tokyo?

[Sree Rajagopalan]

Yeah, I think you should. I think you should. Out. I think they'll. They'll love you forever, Shree. What daughter doesn't want her daddy to take her to Disneyland?

[Shree Rajagopalan]

I could not agree more. Right. And that perennial lasts forever, stands the test of time. But before we get to our guest, we want to ask you to consider following us in your preferred listening app. If you already don't do so. This will ensure you automatically receive new episodes as they release. And while you're at it, follow our sister podcasts, the FMCG Guys and CPT Scoop, who are both highly rated, unchartable, just like the CPG guys. Now announcing. You know, we got to stop saying announce announcing, because we've already announced it. The first retail media executive education program in our industry from May 5 to the 8th, 2025, at Cornell Tech. All the way in New York City. The CBG guys are strategic partners with Cornell University for this immersive four day program that brings together industry thought leaders and renowned faculty to share best practices for building compelling retail media platforms. You will discover how to collaborate in creating best in class tech stacks, measure performance to ensure brands Access the necessary KPIs based on Campaign objectives and establish strong partnerships within brands and retailers. In addition, the program will cover optimizing brand strategies using AI driven campaign design at scale to achieve marketing goals. Links to our Podcast sister Cast social media profiles of my daughters Rhea and Lara for more information on the Cornell Retail Media program, you can find it easily by scrolling over to the digital liner notes of this episode.

[Sree Rajagopalan]

Hey Sree, you know I just I would be remiss if I didn't say to our audience if you are a CMO or you are a Head of media at a at a big brand, a challenger brand, you want to be in this room. All the big RMNs are going to be there. Everyone in this ecosystem is going to be. This is not a hands on keyboard kind of certification. This is a big picture strategy. How to invest, how to build, how to measure. This is a huge, huge event and if you're not in that room, you're going to kick yourself when you find out who's in that room. The seats are going quickly and you got to be there. New York, May 5th to the 8th it's a big deal.

[Shree Rajagopalan]

Peter, I'll kind of repeat. The same rule applies to RMNs as well. While we have the largest ones in the room and we can only accommodate so many, you probably want to get to know if you're an R1 provider what this is about because yes, Peter, you said the keyword. This is about investments, the value, the future and where we are in 2025. So this is episode two of a two part series. Episode one was released a few days ago. This is our New Year's special episode. You know I always enjoy talking to our guest because I always learn every time he comes on the show and he's just a walking, talking basket of knowledge in omnichannel consumerism. So on this episode for episode two we have a repeat guest from three years ago. I don't know why it's taken three years to get him back. I can't explain that one. That's about the only thing I can't really explain on this episode. And over the years I've followed closely waited for insights, analytics, thought leadership with expertise in digital commerce and E comm Immersive Commerce, Digital Transformation, New Retail Data Science China APAC Market Consumer E Commerce, Unified Commerce, New Retail Strategy, Global Business Expansion, a lot of which we covered in part one. This part two will focus largely on the Far East, TikTok and upcoming trends, including of course, no conversation with the leader in this space ends without AI.

[Sree Rajagopalan]

Sree, what I hear you saying is that when it comes to knowledge, our guest today, he's full of it, isn't he?

[Shree Rajagopalan]

On a TV show as well?

[Sree Rajagopalan]

I think you might, if you're tuning in to CNBC on the 27th of December, you might see our guest make an appearance talking about these topics.

[Shree Rajagopalan]

All you got to do is simply go to Google or simply come back here on the CPG guys, because you're going to find his.

[Sree Rajagopalan]

We're going to put a link to his appearance in the digital liner notes.

[Shree Rajagopalan]

Of this episode, so make sure to stay in touch. He's also author of Wiley Books, is Amazon number one bestseller China Super Consumers and the New Retail provided strategy, research, execution services for global brands, retailers, CPG and manufacturers. On retail evolution. He's of course the guest lecturer at Yale, UPenn, NYU, Kellogg, Columbia, PWG, E commerce advisors conferences and the China Institute and others we noted last time. We need to get him into Cornell. That's the only missing Ivy League we have. Mike Zakor, thank you for doing this. Few days before the New Year's and the holiday season. We are deeply thankful that you chose to come back. How you doing, man? Welcome back.

[Michael Zakor]

Hey guys, great to see you again. I'm. I'm doing wonderfully. And you know, I just say to you and everybody listening, I wish you all a happy holiday season full of health, happiness and prosperity and, and peace on earth. You know, Peter, when, when you said I'm my guest is full of knowledge, I wasn't sure if you meant full or, you know, full in quotes there. I got a little nervous so we can clear that up another time.

[Sree Rajagopalan]

Absolutely. Michael, you know, that's, you know, our, you know, I'm, he's Sri's a straight man. I'm the comedy. Right? I, I throw those in. But in all seriousness, we're really grateful to have you here. Your, your depth of knowledge is unrivaled, at least as far as Sri and I are concerned. And we're very excited to have you here talking to us about how retail is continually transforming and what's on the horizon. So thank you.

[Michael Zakor]

Yeah, no, no, no problem. Good, good. I wasn't sure if I was in on the joke or the butt of it. But I think we're good for now.

[Shree Rajagopalan]

I have no idea for the record what these two gentlemen are talking as a joke. But Mike, before we get into conversation here, give us a quick overview of what 5 new digital is.

[Michael Zakor]

Yeah, so I'll try and keep it short. I mean, basically I built a commercial ecosystem for myself. As you guys know, I'm a big advocate of ecosystems. Five New Digital sits at the top of the pyramid. We are sometimes it's hard for me to explain were a company that is more of a philosophy that turned into a business opportunity. And the philosophy revolves around the name of the company. 5 new digital meaning the basics of how people have done business. And companies in business for 100 years are still there, but they've been completely transformed by technology, IT data and digital applications across the enterprise. So, you know, the new consumption, the new retail, the new technology, the new supply chain and the new media. And we work with global brands, retailers, CPGs, manufacturers and tech companies to leverage and grow and enable them to thrive in that enterprise world that is largely based on those transformations. And as well, you know, I think we talked about a little bit in the first episode. I'm also a managing director at an M and a advisory firm called Sellside Group where I sit on the consumer products and services desk as well as the technology desk. I spent 30 years of my career at the intersection of technology, commerce, consumers and retail. And also recently I assume the position of head of North American and European investments for Tompkins Ventures Investment Group. And so I'm very lucky because inside of that triangle, I'm looking at every company, every opportunity, every news item, not through one lens, but through lenses. Three lenses. Excuse me. You know, what does that mean from how can this company grow and thrive? How does M A and PE and VC fit in? How does funding fit in? And you know, so I'm talking to, you know, probably 150 brands, retailers, CPGs, PE firms, investors, VCs every month, which I think gives me a little bit of a unique perspective.

[Shree Rajagopalan]

How awesome. Thank you for the overview in the digital liner notes of this episode. We'll of course include links to your profile. Of course five new digitals website as well as LinkedIn profile. While we go on with our conversation.

[Michael Zakor]

I also have to correct Peter. You know, Peter cleared up the fuller full thing. One other thing. I'll be on CNBC December 26th.

[Sree Rajagopalan]

The 26th. We will include the link to that appearance in the digital liner notes of this episode. Perfect.

[Michael Zakor]

Okay, Just wanted to clear that Up. Sorry.

[Sree Rajagopalan]

Absolutely.

[Shree Rajagopalan]

Awesome. So last episode, the episode one of two, we talked a lot about the year 2024 for omnichannel consumerism and you know, a little bit about retail media, you know, things that are plaguing our industry, things that have a lot of tailwind. I'd like to start this episode with something that's on the mind of Gen Z and a lot of those who actually are running a TikTok shop and have given away the plot here. TikTok, your TikTok. The clock is ticking. I know Peter likes me trying to be funny every now and then. How'd you like that one? The clock is ticking. What is the effect of TikTok being non accessible in the US? I know with a VPN this is not going to matter, but India tried this and everybody in India has a VPN and they use TikTok. And India, other than maybe China is solely responsible for the growth of TikTok, just as the US is. But what's your opinion? What's going on? Is it going to be a huge impact? Are we going to see businesses shut down? Is there a political implication? What's on your mind?

[Sree Rajagopalan]

Is this like one of the, you know, default on the debt situations where we come down to the last minute and someone's going to save it and everybody will still be scrolling their TikTok feed the next day? Like, what's going on?

[Michael Zakor]

Yeah. And so I just want to make sure we're using the word potential disappearance and shutdown because we're not there. And then let's deal with what are the potential implications of a shutdown. But by first putting in context what TikTok is doing now, what it means to consumption, consumers, creators. I'd have to start with what we've seen in which I've been advocating for a long time, is the evolution of e commerce into immersive commerce. And the bedrock of immersive commerce is video commerce.

[Unknown Speaker]

Right.

[Michael Zakor]

85% of everything that's consumed on the Internet is video. So all those banner ads, all those websites, all those static PDBs, all those articles, etc. Etc. Etc. Account for 15 of online consumption.

[Unknown Speaker]

Right.

[Michael Zakor]

So it took the US several years longer than China and other Asian countries to realize go to video because that's where people consume.

[Unknown Speaker]

Right.

[Michael Zakor]

And so this whole idea around video commerce is in what ways can you use video to create an integrated effect of traffic conversions, AOV and LTV with a lower cost of acquisition, a lower cost of supply chain and a lower rate of returns?

[Unknown Speaker]

Right.

[Michael Zakor]

It's a proven this is not theoretical anymore. I have the numbers, I have the documentation. It does all those things. So some combination of live streaming, commerce shoppable, video shoppable ads, all that.

[Unknown Speaker]

Right.

[Michael Zakor]

And so who emerged in the middle of this was the rise of Tick Tock and Tick Tock Shop. This should come as no surprise because the parent company ByteDance has turned, you know, Tick Tock Commerce in China into a 700 billion dollar industry and a significant chunk of the overall retail pie in China.

[Unknown Speaker]

Right.

[Michael Zakor]

And I can't tell you guys, you know, we've talked about this offline and maybe even three years ago, if I had a million dollars for every time I said this is coming to the west and people told me, no, it won't because it only works in Asia because we're different here, I'd be retired by now and probably not talking to you guys. I'd be in Tuscany in a villa, growing my grapes and making wine, right? So they told me QR codes would never work in the west and they told me the new retail model wouldn't work in the west and they told me Unified Commerce wouldn't work in the west and etc. Etc. And then they told us Live Commerce v Commerce wouldn't work in the West.

[Unknown Speaker]

Right?

[Michael Zakor]

On Black Friday alone, TikTok shops realized $100 million in 24 hours of sales. Okay, so we know Vcommerce works globally and it's picking up steam here. There's been a lot of back and forth about mostly the political implications of a China based company, except it's not. They're based in Singapore, operating in the US with the concerns about data.

[Shree Rajagopalan]

I want to make that very clear to our audience because a lot of rhetoric they see on TikTok of clips about where they're based out of. It's actually Singaporean, right?

[Michael Zakor]

And unfortunately we, we had to witness the sad spectacle. About five months ago, the CEO of Tick Tock went in front of a congressional hearing. I don't know if you guys have seen the clip or, or the audience has, but you can just Google, you know, Tick Tock CEO Congress. And he was continually asked where he was from and he kept saying Singapore. And where is the company headquartered? Singapore. And then continue asks, are you now or have you ever been a member of the Chinese Communist Party? And he said, congressman, I am a born citizen of Singapore. I am not a Chinese citizen or a member of the Chinese Communist Party.

[Shree Rajagopalan]

I want you to make fun of anybody, but there were portions where I watched all those clips including the hearing as much as was revealed publicly. And I gotta tell you, it made me feel. I'm not taking potshots. Not to be interpreted that way. Many of our lawmakers do not understand that Singapore and China are not the same country.

[Michael Zakor]

Yeah. Or that There are maybe 30 company countries in East Asia and South Asia to begin with.

[Unknown Speaker]

Right.

[Michael Zakor]

Anyway, so what does all this mean? There's a new administration coming in and the head of that administration has vacillated between. I will make sure they tick tock goes away and I will ensure that TikTok has a long and prosperous life in the US right. And so the most bipartisan subject in Washington today is China, China related companies. And that, that rivalry between the US and China, it's the only damn thing they can agree on and it's all negative.

[Unknown Speaker]

Right.

[Michael Zakor]

So we have to wait and see. All the indicators are right now that the demand for Bite Dance to div divest itself of TikTok to a US owned company, that's up in the air. The indicators are right now that that's not going to happen. Which was a very different answer from five months ago. Okay, so let's get the geopolitics out of the way and let's talk about, if you don't mind, the importance of TikTok in this video. Commerce, immersive commerce, economy. There's a misconception that the vast majority of creators and consumers of TikTok content are somewhere between 13 and 24 years old and it's just not true anymore.

[Unknown Speaker]

Right.

[Michael Zakor]

We have corporations creating content. Major corporations. We have major companies selling product. It is now ticked into the channel calendar, channel optimization. And a big part of most brands and retailers attempt to find that right product, channel demo fit. And it works. And the bigger issue here, guys, is it's further proof that that linear top to bottom, side to side consumer journey, quote, unquote funnel is relevant in some ways, but a lot less in other ways.

[Unknown Speaker]

Right.

[Michael Zakor]

When you can go from I've seen this product for the first time to hitting the buy button in three minutes, tell me what that consumer journey looks like from a funnel point of view.

[Shree Rajagopalan]

Mike, for the benefit of our audience, if you can take a second, for those of them not following but only catching the rhetoric, what is the gripe here? Why ban it in the first place?

[Michael Zakor]

Oh, I'm sorry, I'm remiss for not mentioning that. The gripe is that the Chinese government is collecting data and information on the 200 million people in the US who use TikTok. And will turn around and use it for nefarious purposes.

[Shree Rajagopalan]

To be transparent though, with the number of users we have of Sheen Tamil, Vishdo is based out of the UK, so I'll take it out. There's already probably 100 million users buying stuff.

[Sree Rajagopalan]

There are, but I would argue Sri that in those cases we're doing very transactional commerce and there is some information they're getting on what we're buying. But TikTok is, as Michael's been making reference to a very immersive experience and there's a lot of contextual content that's being consumed and that's why people are up in arms over this because of the number of hours that Americans are spending scrolling through the feed. They think that, you know, they get paranoid about this and they are concerned about the consumption and the influence.

[Shree Rajagopalan]

Why don't we build something in the US that's equally immersive? TikTok obviously was a cultural phenomenon that came up with these short form reels. I know the meta platform has it now. Instagram Reels, YouTube has reels. Everybody's got reels. TikTok came here first. Still immersive, still the best set of capabilities. Arguing that is silly. But Mike, I want to ask you a question about Gen Z. You talked about companies using TikTok, right? D2C brands using TikTok. But many gen Z have created their entire livelihood out of TikTok being influencers. They're not selling any.

[Sree Rajagopalan]

The influencer economy.

[Shree Rajagopalan]

Are we in a position to take away the livelihood of a few million people like that with a band like literally, wouldn't it collapse the next morning? Because I, I compare the followership on Instagram versus TikTok and they're night and day TikTok having a much larger audience base for influencers.

[Michael Zakor]

So I, I think we get some understanding of the directional implications by looking at Argentina. Miello, who was elected the, the new president of the country, had a famous online argument with Elon Musk and basically Argentina wanted to shut down Twitter in the country and they did. And thousands, maybe tens of thousands of people's lives were affected because they were using Twitter as, as a business engine, as a community building engine. And I think that's in the process of being worked out. But just if you now 10x or 20x that effect with a Twitter shutdown in the US and Sri, I go back to it. It's not just Gen Z there. There are tons of middle American moms and dads who are making a ton of money and so the other thing though, I would say as a business person, I wouldn't encourage any creator to be over leveraged in any one channel. So yes, they can make their main name maybe initially in TikTok, but they got to think like a business and say, now, how do I extend this to YouTube? How do I extend this Instagram, how to extend this to meta, you know, just to. Nobody likes to be over leveraging anything. But yes, it'll have a huge effect and, and it might produce, you know, a Occupy Wall street level of protests as if. If this actually went through.

[Shree Rajagopalan]

And so Mike, I know it's strategic importance though, because. Drumroll please. Peter. Last week, both my daughters, who of course are in the hundreds of thousands and million follower ranges, millions of downloads on Spotify for the work they do, they said to me, dad, I finally understand what Peter and you do. You guys are retail and brand influencers. And I said, oh my God. Retribution. It only took four years, 450 episodes, Peter. But hearing it.

[Sree Rajagopalan]

Do they finally respect us now? Sree? Is that what you're telling me?

[Shree Rajagopalan]

So let me turn it over to Peter for the next one because we got an interesting juicy.

[Sree Rajagopalan]

Yeah, so before I do, I'm gonna throw one stat out at us. In 2024, JD was, was displaced as the fifth largest global marketplace. And who are they displaced by? Wait for it, wait for it. ByteDance that talks to you about the importance of, of TikTok in terms of driving commerce. By the end of the decade, they expect that over 46% of TikTok users will conduct in at least one commerce transaction on TikTok during a calendar year. All right, so let's talk about just.

[Michael Zakor]

I want to add to that, by the way.

[Sree Rajagopalan]

Yeah.

[Michael Zakor]

You have to throw Pinduoduo into the mix. The parent company of Temu, they're in.

[Sree Rajagopalan]

They're in the top five.

[Shree Rajagopalan]

Most of our users may not know who Pindu Duo is unless you work in China. Odds are they don't know that they are the owners of the parent company, company of Debut. Can you take a second and just explain who they are?

[Michael Zakor]

So pinduoduo is a company that was founded roughly eight years ago. And why they were so revolutionary is they were the first company in the world to build a commerce social company, which is very different than a social commerce company. And so what they did was, was they said our focus is commerce and how do we leverage every tool in our box to use social to move commerce?

[Unknown Speaker]

Right.

[Michael Zakor]

The West's attempts at social commerce have largely amounted to trying to shove in against its will, commerce into social platforms that were not built for commerce. And they took the complete opposite view. And basically over the course of five years, they went from 0% market share of commerce in China to roughly 12 to 15%. And so what's happened is ByteDance and PD. PDD. Yeah, ByteDance and PDD knocked Alibaba and JD badly because as recently as six years ago, those two companies accounted for roughly 90% of all E commerce transactions in China. And fast forward, today, their combined share is about 60 to 65%. So these two companies took the two behemoths entry and they didn't need to file antitrust suits. They just did it better. And so PDD exported their model TEMU to the rest of the world and Bytedance exported their model TikTok to the rest of the world.

[Sree Rajagopalan]

All right, thank you for that. That history lesson, that was very useful, Michael. Our guests oftentimes don't understand the landscape outside of the United States. So it's always good to give them a refresher. I'll just let people know for the purpose of this, that the top five, because it's going to come to me anyhow. It's basically right now Alibaba, it's Pinduoduo, Amazon, and now ByteDance and Walmart is just off the. Off the list at 6 or 7 with JD right there. So let's talk about M and A, Michael, because I think there's a lot going on right now, obviously on the retail side, the dissolution of the planned Kroger and Albertsons merger. But in the wake of that, suddenly we see Mars announcement that they want to acquire the Hershey's company. And that to some degree is probably a reaction to, pardon me, Mondelez's acquisition of the Hershey company. And that is a reaction to Mars acquisition or imminent acquisition of Kellanova. So what's going on is. Is M and A the way that we're going to see growth going forward, or are these just kind of exceptions to what's going on? Is growth going to be driven more by new commerce channels and less by just acquisition? What are your thoughts?

[Michael Zakor]

I think, Peter, we have to separate that question into two. Two answer categories.

[Unknown Speaker]

Right?

[Michael Zakor]

There's what is the M and A landscape for cpg, fmcg, and what is the M and A landscape for consumer products services and related technologies?

[Unknown Speaker]

Right.

[Michael Zakor]

They're two different stories there. And they're both equally important. And obviously they both have an interplay. So when we look at, you know, the examples, you've just cited those are the examples of mega mergers, you know, multi billion, you know, 10, 20, 30, 40, 50, $100 billion acquisitions. And obviously they get the deserved column space in the Wall Street Journal and on CNBC and the New York Times, et cetera.

[Unknown Speaker]

Right.

[Michael Zakor]

Those are the type of deals that are potentially industry changing and certainly draw the attention of the SEC and regulators and Congress as well as, you know, potential activist investors.

[Unknown Speaker]

Right.

[Michael Zakor]

Those are much rarer and fewer and far between than what's really happening from the rest of the CPG FMCG world. What we're seeing in the Last half of 2024 and we're going to see into 2025 is to me the real headline is that CPG companies are going to do a massive shedding of non core, non strategic brands. And correspondingly they're going to do a massive wave of acquisitions of what they believe to be core and strategic brands.

[Shree Rajagopalan]

That's a pretty profound statement because what you said is massive shredding of non strategic brands. I'm assuming that's a response to the inflationary world we live in today.

[Michael Zakor]

I think sri, it's partially, you know, that's part of the answer. But I also think that, you know, and you guys know, full disclosure, I've worked for and on behalf of, you know, many of the, the top CPG FMCG companies and, and I think I have a little bit of a good perspective from their side was as they went from dipping a toe into putting a whole leg or half a body into digital transformation and reorganization for the world as it is, not as it was or they wished it to be, that changed the calculus of what brands were core and strategic?

[Sree Rajagopalan]

And Michael, do you see this as being brands that they're shedding will be brands that they probably built acquired through other M and A or is it innovation that really never scaled. Like what is the common element that you think is going to allow them to divest the, the, the, these portfolio companies that just don't match with everything else they're doing.

[Michael Zakor]

Okay, so I did this once in the previous episode. I promise I only do it once in this episode. I get one of these per episode. I would turn the question back around to you guys and say how do most major CPG FMCG companies grow? Is it organic or inorganic?

[Sree Rajagopalan]

They started with one big brand, but then they start, you know, it's like look at Coca Cola. They acquired, they acquired Glasso which gave them Vitamin Water and Smart Water. And then they acquired Body Armor and they acquired Honest Tea and that's how they, I mean they grew their core business. But most of the other brands were through acquisition or venture.

[Michael Zakor]

Right. They grew. You know, listen, the idea is once you, you know, buy a brand then to use your scale and your money and you know, your brilliant minds to scale what you've bought.

[Unknown Speaker]

Right.

[Michael Zakor]

But for the most part, most companies, you know, grow through that acquisition followed by the scaling process. Right. So it's more now, I think what look like a smart buy five, four, three, eight years ago doesn't quite jive with the way the integration of online and offline is developed with how D2C is developed within CPG. And so, you know, these companies are, to their credit, they're trying to quickly adjust to the world as it is, not as they wish it would be or was. And all of a sudden something that looked like a good acquisition four years ago turns out to be a dud.

[Unknown Speaker]

Right.

[Michael Zakor]

And that doesn't mean these are bad brands that don't have a lot of potential. It just means they're better operated by somebody else.

[Sree Rajagopalan]

What I hear you saying is companies like Edgewell and B and G Foods are going to find some really good fire sales on these brands that are going to be cast aside by the big players, which is how those companies have built their existence. They are essentially amalgams of, you know, I like to call them the island misfit toys. They get all these brands that have been cast aside and they get really great deals. Deals that are too good to walk away from.

[Michael Zakor]

Yeah. And there are a multitude of PE firms, family offices and smaller to mid sized CPG firms who want to jump at the chance to take those brands on. The only mild complication, and I don't know if it's a serious one yet, I need to do more analysis, is a lot of the CPG and FMCG companies are grappling with whether to sell these brands off on a one by one basis or to put them together in a package to the acquirers.

[Sree Rajagopalan]

That sounds like a credit default swap to me. What do you think, Michael?

[Michael Zakor]

Peter, I can be honest with you. I'm not sure it's of a good or bad analogy because I don't really understand it.

[Sree Rajagopalan]

Well, yeah. In any event, another, another shot at my attempted humor maybe missing the mark a little bit.

[Michael Zakor]

Okay, we'll just go back to, you know, Michael is full of knowledge. I got it. No, no problem. No, I mean, I think I know you know what you're trying to say, but it's, it's. They're trying to say what's the best valuation we can get?

[Unknown Speaker]

Right.

[Michael Zakor]

And what is the critical mass? Potential acquirers and.

[Unknown Speaker]

Right.

[Michael Zakor]

So when you're working in the M and A world, you know, across any, any category or vertical, your thesis, you know, depends on a few key pillars, which is from a sell, you know, from a buyer, sell side, buy side perspective, the first thing you have to determine is is there a critical mass of companies in your thesis, in your category who are in the business? And then there is a critical mass within that critical mass who are making money doing it. And then you go to the other side and you say, is there a critical mass of potential investors and buyers? And you amalgamate the opportunities with pe, family offices, strategics and individual sponsors.

[Unknown Speaker]

Right.

[Michael Zakor]

And if you answer those two questions, then you've got the basis for a thesis.

[Unknown Speaker]

Right.

[Michael Zakor]

And so I've run that model at least five times over the last six months. And that model tells me there is a critical mass of sellers, a critical mass of buyers, and a critical mass of companies who are in it and actually making some money but don't quite fit. Yes. Are there some misfit toys thrown in there? Yes. And that's where the how to package it comes together.

[Shree Rajagopalan]

All right, Mike, so here's what we're going to do. So I'd love to learn what trends we'll get to AI separately. So I'll ask you refrain from AI on this one. But we look into the Far east and commerce there. China, Korea, Japan, you know, leading countries from which digital savviness as well as digital maturity takes place. What trends are you learning and following in unifi. Is it unified commerce? What does that mean? And what are you picking up? Because every time my kids go to Japan and come back, they're like, Japan is living in the 2050s, we live in the 1900s.

[Michael Zakor]

Slight exaggeration, but I know what they're saying. I, I, I, I feel what they're saying there. The issue is you have to separate what you feel and experience on the surface and what's underneath and underlying it.

[Unknown Speaker]

Right.

[Michael Zakor]

So, you know, it's very easy to go to Shanghai anytime over the last 20 years or Singapore or Kuala Lumpur or Seoul. And yes, there, there are some very obvious ways in which they're living in the future and we're struggling with the present and the past. Now some of that, to be fair, has to do with we did it first.

[Unknown Speaker]

Right.

[Michael Zakor]

And so when you go back to the late 19th century. Hi, Nadia. When you go back to the late 19th century and the early 20th century and the Gilded Age, and then the post World War II. We're the ones who had the blank slate, right? So we were building the marvels of the world. The Brooklyn Bridge, the Golden Gate Bridge, the Lincoln Tunnel, the interstate highway system. Physics, nuclear, Right? We had the blank slate. Well, by the time you reach the late 20th century and early 20th, 21st century, we had the legacy, right? And if you think about it, here's the analogy. You build a tent, and for the first period, you're living in the tent. It keeps out the rain, it keeps out the wind, it keeps out the mud, and you're very comfortable, right? And then as that tent ages. Oh, now I'm starting to get some leaks from underneath, and oops, there's a couple holes, and the wind is blowing in, and the tent's not quite what it used to be. And then as you get closer and closer to the present day, the tent eventually collapses and has to be replaced, right? And in most of these Asian cities and countries, they started building their tent 20 years ago. We started putting our tents up 140 years ago, right? And so, you know, here's the perfect analogy of that. I've often been asked over the years, why was China so far and remains far ahead of us in the west in the development of commerce technologies, E Commerce. The new retail model, unified commerce. They're asking, what is it they had that we don't? Access to the greatest minds in the world. A magnet for the greatest minds in the world, the greatest universities in the world. How the hell did they pull that off? And the answer is simple. It's not what they had, it's what they didn't have. That was their advantage.

[Shree Rajagopalan]

You know, Mike, I've seen that in India myself. India did not have cell phones till maybe 18, 20 years ago. When they did, they skipped a whole bunch of bandwidth. And now you can literally pay for street food everywhere in India with a cell phone, right? With digital payments here, we still struggle to accept digital payments. For the most part, people actually ask you for cash if they don't want to take a credit card.

[Michael Zakor]

Okay, you stole my thunder. Damn it. But the Indian example is a perfect analogy to China 20, 21 years ago. They did not have a modern banking system. They did not have a modern telecommunication system, and most importantly, they did not have a modern retail infrastructure. So all of a sudden, the perfect storm came along, which was E Commerce, right? An entirely new way to have a modern. And by the way, that E Commerce is what forced the modernization of the physical retail infrastructure in China. And then came the cell phones, because there was no legacy PC or landline phone. And then people, I mean, when I first moved to China in 2002, people who could afford a new car, literally until 2010, would bring a duffel bag of cash to the dealership and drop it on the desk and drive off of the new car.

[Unknown Speaker]

Right?

[Michael Zakor]

And Fast forward to 2021. Alibaba is selling new cars online. You know, and by the way, Amazon Auto just got introduced. You guys heard that news? You know, is that the new front in the Walmart versus Amazon war? Alibaba did it seven years ago.

[Sree Rajagopalan]

It's old news. You know what it amazes me, the other example that always comes to mind, Michael, here in the United States, what's one of the primary methods of communicating medical records in the United States to this day? To this day? It's a fax machine. It's a fax machine. Can you believe that we are still tethered to that archaic methodology? Why? Because we have all this baggage that we're still attached to that our legal system is predicated upon that being the authorized method for communicating. It is abhorrent. And I think what you're telling me is, you know, we've got a lot of baggage and China, China doesn't. And they were able to. To leapfrog us in many ways.

[Michael Zakor]

Understood. And the counterpoint to that, you know, I don't want to just pick on China.

[Unknown Speaker]

Right.

[Michael Zakor]

You know, we could talk about India and some other developing economies. In a lot of ways, they were able to leak, leapfrog us because of what they didn't have. But also in a lot of ways, they're going to be continued to held back because of what they do have. You know, whether it's China or India, rules, regulations, red tape, corruption, you know, there's a counterbalance there, right? Peter?

[Sree Rajagopalan]

Michael, I want to. I know we've been sucking up a lot of your time, and I love this conversation. I could go on forever. But I do want to close this out with a very important topic and SRI kind of referenced it, and that's AI. What's next for our industry? What is going to drive CPG and retail to use AI in an effective manner versus a largely ineffective manner? And which types of AI are, are, are should brands and retailers be focused on to drive growth and success in the, in the, in the near to middle term?

[Michael Zakor]

I am surprised, not surprised by how much pushback I get from in conferences, events, conversations, with current clients, potential clients, and worst of all, with our peers, our expert peers in the industry pushing back against AI and a disbelief that it's real and has an impact or that it will have a major impact going forward. And I've spent the last year trying to unpack where that incredulity is coming from and where that pushback is coming from. And over the last couple months I landed on what I think is my good answer. They simply don't know what's actually happening behind the curtain already. They're not behind the scenes seeing how retailers, CPGs, brands, supply chain providers, logistics companies, and everything from product development to reverse logistics, how the companies along that value chain have already implemented rudimentary and yet to be matured AI solutions. That's the only answer I have for this disbelief and skepticism.

[Sree Rajagopalan]

So what I hear you saying is they're using AI to replace the dreary, repetitive operational kind of things that aren't really sexy, but they actually move the numbers. And most people are thinking generative AI as being the vision of what AI should be and they're kind of missing the mark. Is that, is that, am I paraphrasing that to some degree or.

[Michael Zakor]

Yeah, I think you're spot on in one way and not quite in another way. I think to one degree the way you phrase that is correct. I also think in another way it's overly reductive because it's not just about eliminating the dreary, time consuming stuff that humans would rather not do. Right. If that were the case, we would have already figured out how to use AI to pick cotton fields and clean toilets.

[Unknown Speaker]

Right.

[Michael Zakor]

And so, but on the other hand, you're right, a significant element is the reduction in repetitive tasks which, you know, you want to produce higher efficiency.

[Unknown Speaker]

Right.

[Michael Zakor]

We have a lot of great news in the US economy, but over the last five or six years, you know, per worker productivity has never been lower. Oops. You know, that's a problem to deal with everywhere. Where I think for our industry, the real narrative about AI is it's being implemented at scale on what I call the two great enablers of our industry. Perfecting your supply chain, logistics and fulfillment and operations, it's being implemented across the table there.

[Unknown Speaker]

Right.

[Michael Zakor]

So when you're looking at AI solutions that are producing better results for network planning and network optimization and you know where to put your inventory, how to more get more visibility inventory.

[Unknown Speaker]

Right.

[Michael Zakor]

And on the other side, perfecting your technology, IT and data, right. Those are the two great enablers of our industry. They're the two great enablers of the people who succeed in our industry, and they are being. They are utilizing AI, not in an experimental way, now at scale. I think part of the problem that you're referring to, Peter, is that people in the industry have one view of AI, which is the generative part of AI, right? AI has traditional uses, predictive, and that analytics, et cetera. But what they're seeing is, you know, sometimes the wonky ad images or the bad video, and they're all saying, this shit. Sorry. This stuff will never replace human creativity and ingenuity. And now I agree with that. Right? My relationship, and the relationship I advocate for everyone is that the human AI collaborative experience will produce the best results. But people who are judging the impact that AI will have on retail and CPG and brands based on some crappy images are totally missing the picture.

[Shree Rajagopalan]

All right, let me remind our audience, you can find all of our content by going to a web browser and typing cpguys.com in the URL. And of course, if you think you or your company has thought leadership to contribute to our community discussion, drop us an [e-mail] and maybe you could join us on the podcast like Mike just did. Don't forget to drop us a reading on cpguys.com on the navigation bar up top because it tells Peter and me how we're doing. Now we have no the right conversation to the right guest to our LinkedIn followers. Thank you, thank you, thank you. There's never enough thanks. We can say a happy holidays to all of you. Your clicks, likes, dms, direct messages, meeting us at conferences, doing podcasts with us. Thank you, thank you, thank you, Mike. Thank you for making time, coming back for episode two during the holiday season. We do appreciate it.

[Michael Zakor]

Honors all mine. Happy holidays to you guys and everyone listening.

[Shree Rajagopalan]

Peter, as we wrap it up, any big aha moment for you on this episode?

[Sree Rajagopalan]

Yeah, I mean, just talking about the importance that the creator economy is having around the world and that if we think we can just stifle it by cutting off one provider, we're probably overestimating the power of that M and A is going to be a really interesting time as brands kind of rationalize their portfolio. And I'll just tell you there are. I'm really excited about a bunch of things here. SRI and more tactically, I'll say one, you and I are going to head to ces. Can't wait to interact with so many people at that event. We're going to be talking about the Cornell program. We're going to be hosting our kickoff party. We've got the the breakfast with with CVS on Wednesday over at park mgm. And then you and I are going to meet up with Michael at NRF the following week in New York. And that's going to be a phenomenal event. I'm going to be emceeing a happy hour on Sunday evening with with some of my fellow omnicom companies and and then of course you and I are heading down to Florida for the FMI at the end of the month. So just a lot of action packed, as you would say. It's a power packed month, Sheree. It's a power packed month.

[Shree Rajagopalan]

Would you have it any other way?

[Sree Rajagopalan]

Peter Nope. This is the way we do it.

[Shree Rajagopalan]

Thank you Peter. That's a wrap of this episode of the CPG Guys.

[F]

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