Possibilities Podcast Episode: 5
Retail, CPG, digital transformation -- how do these all mix?
The term “digital transformation” is frequently tossed around. While this term is difficult enough to define on its own, it becomes increasingly complicated when you add in consumers, brands, and retail.
So, we brought in a known expert on Consumer Product Goods, as well as digital transformation - Werner Graf. Currently, Werner is the Global Head of CPG here at Mindtree. Previously, he worked for IBM, Procter and Gamble, and Tata Consulting Services, the largest company in India, among others.
Werner joined us on our latest Possibilities Podcast episode to share his thoughts on digital transformation within the retail and CPG space.
Digitization in Every Industry
Nearly every industry has been impacted by digital transformation. But traditionally, Werner says that CPG and retail often tend to be at the forefront of technology changes
Werner shared with us three shifts he sees digital transformation is bringing in retail and CPG space:
#1: Wallet Share Has Taken Precedence Over Market Share
Customer touchpoints have often become more important than the profit margins of the products themselves.
Take Amazon, for instance. Jeff Bezos is famous for using the mantra, “Your margin is my opportunity.” People mistake that as a cost statement, believing Amazon is saying they are going to take an opportunity from another company because Amazon will sell something lower than a competitor. That’s not what Jeff is saying.
His point about margin is a manifestation of his “wallet share” philosophy. To Amazon, touchpoints are more important than profit margins -- Amazon wants to own as much of the consumer experience and traffic as possible.
#2: Omni Channel
Companies like Walmart are growing their ecommerce visibility, while Amazon is moving to purchasing brick and mortar outlets. Both of these movements, while in the opposite direction, are examples of how companies across the retail industry are increasingly becoming omni channels.
Retailers actually have an advantage here -- because of their distribution network, they have access to the last mile of the consumer at a very low cost. Consider the cost it takes to ship a one-off purchase to a consumer. This will simply never have the cost efficiency a retail outlet can achieve when when they order a pallet of goods to one central location and then have customers pick their item up.
#3: The Competition for Consumer Product Companies
We’ve discussed a considerable amount about the effect of digital on retailers. But there’s also a real threat to to Consumer Product Companies. The competition between traditional brick and mortar retailers and ecommerce, drives symbiotic trends within brands themselves; and all the trends point to one thing -- brands themselves are under assault in an unprecedented way.
Food: Take a family strolling down the cookie aisle. One of their children has a nut allergy, while another child is currently on a health kick. Dad wants to try something new; mom only wants to support a company that matches their own values. So the family does research for a product that meets all these demands, and is also affordable and accessible.
The family can quite easily perform this research while they are walking down the cookie aisle; they may pass up their usual purchase of Oreos because of something they researched within the last 45 seconds.
Clothing and apparel: Brands are under threat from “gazelle” brands -- small niche companies that gain national distribution relatively easily with their online presence.
Private Label: People will go to Costco for the purpose of buying Costco’s Kirkland brand trail mix. Wal-mart Ceo is doing their best to business to their stores by pushing their private label at a discount.
How Can Consumer Product Companies and Retailers Compete in an Age of Digitization?
There are four primary ways that CPG companies and retailers can compete in today’s world:
1. Being nimble while still being large
Companies are continually learning how to drive their costs down. Take technology, for instance. Companies are extremely careful about which technologies they purchase, and why.
Companies (like Mindtree), use automation, machine learning, chat box, to reduce IT costs of CPG companies. As IT costs come down, the companies on the forefront of leveraging these technologies to lower costs for consumers are going to find themselves in good partnerships with consumer product companies.
2. Brick and mortar is not dead
From the headlines, some believe retail is dead. But retail is simply one piece of the overall picture of an omnichannel player. Even Amazon s becoming increasingly focused on brick and mortar. Brick and mortar companies will continue to leverage their already established retail spaces to fulfill the modern demands of consumers.
3. Consumer intimacy
Previously, brands had to reach out to consumers via an intermediary, such as a retail space. Now, with increased technology and online visibility, they are leveraging direct customer intimacy to increase brand loyalty
4. Mergers and acquisitions
If a gazelle brand has taken some part of the market share, vulcanized the consumer base and is now eroding your overall presence in the market, then simply acquire the gazelle brand. Why go through an entire product life cycle in an attempt to outrun a niche brand?
To listen to this episode, click here.