1/ Common knowledge that big-CPG is being displaced by small brands in almost every category. I’ve said some of the things I would do differently if I were in charge. Let’s go deeper. Now I’ll lay out why they can’t just innovate themselves.
2/ Reason 1: Scale has resulted in reverse network effects for brands today. For most of the 1900s, as a CPG brand got larger, it got stronger (typically network effects). Today the network effects begin to reverse after ubiquity - the bigger it is, the less trust there is. 
3/ Reason 2: Massive scale is counterproductive to today’s trends. To achieve scale, big companies created products that the average consumer will buy, that the average retailer will carry, and that their average manufacturing facility can mass produce.
4/ When you’ve got a manufacturing plant, line time needs to be filled up- or you're burning fuel. Hard to fill up that monolithic plant (built to mass produce) with fragmented products that are evolving each year. And just think if the thing has to be completely gluten-free.
5/ What to do when the “average consumer” becomes a little less average? We are seeing a demand for personalization from the consumer. Uh oh.
businessinsider.com/shoppers-expec…
businessinsider.com/shoppers-expec…
6/ Reason 3: The CEO has no clout publicly, privately or with Wall Street. Zero. Don’t believe me? Let’s play a game. First match the CEO to the company (and I bet you know first and last name)
7/ Now let’s play that game again with 6 of the largest CPG companies in the world. How many CEOs can you get right? (The limited diversity in both sets of images is another area of concern that I won’t take on here. But that storm’s a-brewin….)
8/ Point is the CEOs in CPG are never the founders and never have the clout that tech CEOs do. Maybe it is because we worship at the altar of innovation and growth, and thus praise tech CEOs. I’m not sure. Having met some on both sides, I don’t think it is talent
9/ Here is why that is important. When you have no clout, it’s much harder to invest into things other people don’t immediately understand. Innovation, almost by definition, is made up of things people don’t immediately understand.
10/ Reason 4: Structure. A small brand is a rounding error in revenue, but even if there are attempts, they suffocated within matrix structure - no sales team is incentivized to push a weird new product with a tiny consumer base. High risk, low commission.
11/ New and innovative products, by definition, won’t appeal to the masses. They’ll appeal to early adopters. So big-CPG just doesn’t bother. The opportunity is just “too small.”
12/ Activist Investor Nelson Peltz says "P&G because of its suffocating bureaucracy, because of its matrix organization … it is structured improperly." And he’s on the board now btw. Imagine that first meeting? Buckle up.
cnbc.com/2017/07/17/bil…
cnbc.com/2017/07/17/bil…
13/ Reason 5: So instead of R&D and new products that might cannibalize the core, it’s a marketing game. As I’ve said before, these companies PUMP money into marketing the same products for years and years. I wonder how much that crazy new Pampers logo cost
14/ How about something bold like a cloth diaper subscription + cleaning service? Nope… not happening. Wrong business model and it would cannibalize the core. Instead they make micro adjustments like putting “natural” on the packaging and changing the materials slightly.
15/ Hey @Pampers, if you are going to be displaced anyways, wouldn’t you rather cannibalize yourself?
16/ And I’ve had friends at big-Food tell me that the portfolio protection is next level. “The frustration is daily… cannibalizing the core is the only way modern CPG will thrive but instead we are up against this bs portfolio protection. It’s absurd.”
17/ Finding examples of this is so easy I get sad. Check out snippet from Pepsi’s Q1 2018 earnings. The solution to massive backwards sales slides for North America Beverages? More $$$$ pumped into the core. You have to be kidding. @IndraNooy we can do better.
18/ Reason 6: Lack of agility. Just think of # of approvals within Gillette to get a subscription model going. @harrys and @DollarShaveClub (now @Unilever) have had winning distribution models since ‘12. Congrats to @Gillette for launching a mediocre competitor just 5 YRS later
19/ Some would say that lack of top talent is another reason. I deeply disagree. The people I know in big-CPG are some of the most talented people you could imagine - they are just stuck in a system incapable of rapid iteration.
20/ That said, Reason 7: lack of internal accountability. Reporting structures are cockamamie and middle management is fearful of no longer being fat nor happy so they conform. Nobody rabble rauses. Nobody questions. Nobody wants to deal with accountability.
21/ Reason 8: Can’t identify innovation. Today it is gut (listen here- @IndraNooyi talk about her own gut freakonomics.com/podcast/indra-…). That won’t always work. They need data. The problem is that no one covers the long-tail of CPG companies or retailers effectively.
23/ The data isn’t differentiated and only describe the past, not predict the future. That is Reason #8…...they can’t identify innovation, even if reasons 1-7 were resolved. If you spot a brand after it is >$50M in sales or a trend after it has hit, you are too late. Period.
24/ Reason #9: Now put yourself in the shoes of these CEOs. It is damn hard thanks to Wall Street. They are asked to solve long-term problems every single quarter. LTV does not quarterly earnings make.
25/ The answer? I’m not sure- but here are my suggestions: techcrunch.com/2018/04/23/inn…
Compare that to big-CPG’s total disconnect from end consumer. Recently learned of an SVP leading a “Brooklyn discovery,” in which team drove around Williamsburg to learn. In black Suburbans. With windows rolled up. I guess that is the latest and greatest in market research….
And by the way “same old, same old” isn’t working - snapshot directly from @ProcterGamble annual report shows company sales steadily declining (despite all that marketing). Constant change is now table stakes…..gulp, but we can’t innovate….
A PhD in food science should not be working on the next line extension of Coke Zero. Why is R&D quarantined off in separate buildings with little interaction with the “business people”? Have CEO sit with R&D. A terrible waste of intellectual capacity and collaboration opp.
