The CPG Guys Podcast: February 2025 Industry Rank Punditry

Hosts: Peter V.S. Bond & Sri Rajagopalan
Release Date: March 9, 2025

1. Introduction

In this episode of The CPG Guys, hosts Peter V.S. Bond and Sri Rajagopalan delve into the current challenges and transformations within the Consumer Packaged Goods (CPG) and Fast-Moving Consumer Goods (FMCG) eCommerce industries. They explore topics ranging from retail media strategies and volume declines in major brands to the burgeoning role of private labels and the impact of artificial intelligence (AI) in content creation.

2. Volume Decline in the CPG Industry

a. Insights from the Cagney Report

Sri Raj begins by addressing the alarming trend of volume decline in the CPG sector, referencing the recent Cagney Report. Peter notes that companies like Campbell's have lowered their forecasts by three percentage points, signaling a broader issue across the industry.

Sri Rajagopalan (06:55):
"We've had volume challenges in this industry for a long time, masked by price inflation-related growth. Now, with no pricing growth left, these underlying volume issues are surfacing, drawing significant attention from Wall Street and analysts."

b. Large Market Cap vs. Private Brands

The discussion shifts to the distinct advantages of large privately owned companies over publicly traded giants. Sri outlines three key strengths of private brands:

1. Investment Flexibility:
   Private brands can invest without the immediate pressure of quarterly earnings reports.

2. Digital Shopper Engagement:
   They excel in following the shopper's digital journey, leveraging data to engage consumers effectively.

3. Direct Consumer Engagement:
   Unlike large brands that rely heavily on retailers, private brands engage directly with consumers, utilizing robust data assets.

Peter V.S. Bond (08:50):
"It's an interesting time to be a privately owned CPG manufacturer. Large brands are more focused on hitting quarterly EBITDA targets, often at the expense of long-term growth."

3. Corporate Restructuring and Cost-Cutting

a. Necessity of Restructuring

Peter raises concerns about the impending wave of corporate restructurings as brands strive to meet EBITDA targets amid declining volumes and persistent raw material inflation.

Peter V.S. Bond (12:42):
"The big blue-chip consulting companies will likely see a brisk business this year, helping CPGs reduce costs, primarily through headcount reductions."

b. Sri’s Perspective on Restructuring

Sri offers a cyclical viewpoint, suggesting that cost-cutting measures, including layoffs, are a recurring necessity in large ecosystems every few years to maintain financial health.

Sri Rajagopalan (12:42):
"When you can't expand your top line organically, you have to focus on reducing costs to deliver the quarterly EPS. Cutting media, travel, and especially employee costs become the low-hanging fruits."

4. The Rise of Private Labels

a. Growth Drivers

Sri identifies two primary phenomena fueling the growth of private labels:

1. Competitive Pricing:
   Private labels offer attractive opening price points, making them appealing in economically challenging times.

2. Commodity Sourcing:
   Enhanced access to commodities allows private labels to maintain favorable pricing structures.

Sri Rajagopalan (19:09):
"Private labels have created a skew in many subcategories with very friendly opening price points compared to large brands, especially post-COVID where government assistance has changed consumer behaviors."

b. Impact on Retail Media

Peter discusses the tension between brands investing in retail media while retailers favor their private labels in search algorithms.

Peter V.S. Bond (19:09):
"Brands are hesitant to invest in retail media platforms where they feel they are paying protection fees to fend off the retailer's own brands. This creates a conflict of interest and challenges in brand growth."

5. AI and Content Creation: The Future of Marketing

a. Predictions for Cannes Lions

Peter predicts a significant presence of AI in content creation at the upcoming Cannes Lions festival, suggesting that AI-generated content may win creative awards.

Peter V.S. Bond (38:53):
"I predict that within the next five years, we will see creative works entirely generated by AI winning awards at Cannes Lions."

b. Enhancing Managed Services

Sri agrees on the transformative power of AI, emphasizing its role in producing personalized content at scale, which can enhance managed services for brands.

Sri Rajagopalan (38:53):
"AI allows for personalized content at scale, enabling brands to dynamically engage with shoppers. Those who embrace AI will emerge as industry leaders."

6. Leadership and Talent in the Digital Age

a. Gap in Digital Understanding

Peter expresses concern over the lack of digital proficiency among senior leaders in CPG and retail, which hampers informed decision-making.

Peter V.S. Bond (43:05):
"Senior leaders often lack a fundamental understanding of the digital components necessary to drive growth, focusing instead on traditional P&L management."

b. Sri’s Call for Reverse Mentoring

Sri advocates for senior leaders to engage in reverse mentoring, learning from junior team members to bridge the digital knowledge gap.

Sri Rajagopalan (45:49):
"Leaders need to engage with platforms like TikTok, Instagram, and YouTube to understand the 360-degree shopper journey. Reverse mentoring can facilitate this learning process."

7. Current Industry Events and Leadership Changes

a. Kroger and Albertsons CEO Resignations

The hosts briefly touch upon recent CEO resignations at Kroger and Albertsons. While details are scarce, they discuss the potential implications for the industry.

Peter V.S. Bond (46:14):
"The resignations of CEOs at Kroger and Albertsons could have significant ramifications, possibly linked to the challenges of the failed merger or other internal issues."

Sri Rajagopalan (46:34):
"The attempted merger between Kroger and Albertsons was poised to offer brands better promotional depth and frequency. Its collapse may hinder dynamic assortment changes and overall industry growth."

8. Global Food Production and Tariffs

a. Impact on Commodities

Sri highlights the reliance of the U.S. food and beauty industries on overseas commodities like garlic from China. Tariffs imposed on these imports disrupt supply chains and inflate costs.

Sri Rajagopalan (49:48):
"Tariffs on commodities like garlic, primarily sourced from China, will significantly alter P&L dynamics, forcing brands to cut costs in media and talent to offset increased expenses."

b. Sector-Specific Challenges

While the beauty industry may offset some tariff impacts with top-line growth, the food sector faces more pronounced challenges due to its dependency on imported ingredients.

9. Strategic Mergers and Acquisitions (M&A) in CPG

a. Inorganic Growth Strategies

Sri critiques the current trend of brands leveraging M&A for growth, especially in acquiring smaller, nimble brands to address volume challenges.

Sri Rajagopalan (55:17):
"Acquiring multiple smaller brands to reach a $100 million threshold introduces complexity and operational havoc, making organic growth a more viable strategy."

b. Challenges in Scaling

Peter concurs, emphasizing the difficulties in integrating multiple acquisitions without disrupting existing P&L structures and talent arrangements.

Peter V.S. Bond (55:17):
"Inorganic growth through M&A can lead to significant P&L and operational challenges, suggesting a reevaluation of this approach may be necessary."

10. Upcoming Events and Networking Opportunities

a. Commerce Media Brand Summit

Sri previews his attendance at the Commerce Media Brand Summit in Atlanta, anticipating valuable discussions with industry leaders and experts.

b. Shop Talk Conference in Las Vegas

Peter shares plans to attend the Shop Talk conference, focusing on networking and exploring advancements in AI and digital shelf category management.

Peter V.S. Bond (56:50):
"We're excited about Shop Talk, where we'll reconnect with friends, explore new technologies, and engage in knowledge sharing to drive growth."

c. Exclusive Networking Parties

Both hosts invite listeners to join their exclusive parties at these events, fostering deeper industry connections.

Conclusion

In this insightful episode, Peter V.S. Bond and Sri Rajagopalan provide a comprehensive analysis of the current state and future directions of the CPG and FMCG industries. From confronting volume declines and embracing AI-driven content to navigating the complexities of private labels and strategic M&As, the hosts offer valuable perspectives for industry professionals aiming to thrive in an evolving marketplace.

Notable Quotes:

• Sri Rajagopalan (06:55):
  "The reality is caught up on now and it's being seen and a lot of attention is coming from Wall Street and from analysts and research folks because there is no pricing related growth left in the ecosystem."

• Peter V.S. Bond (19:09):
  "Brands are hesitant to invest in retail media platforms where they feel they are paying protection fees to fend off the retailer's own brands."

• Sri Rajagopalan (38:53):
  "AI allows for personalized content at scale, enabling brands to dynamically engage with shoppers. Those who embrace AI will emerge as industry leaders."

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