The Transition of CPG/FMCG into Online with Sri Rajagopalan

LS International

The transition of Fast Moving Packaged Goods into the Online Retailing space has been a rocky one. Swinging from Direct to Consumer to Partnership approaches, the scenario does look clearer now than 4 years ago. But, is this going to settle like this?

To look back into what’s happened and what is to come, we invited Sri Rajagopalan, Vice President and leader of eCommerce for J&J’s consumer business.

In this Podcast, you will learn about:

  • What’s happened in the last 4 years.
  • How will CPG approach online in the next 5-10 years?
  • Is going DTC still an option?
  • Which categories will be disrupted next.

Daniel: Hi I’m Daniel Torres Dwyer, and welcome to LS International’s Career Success Podcast. Today, we’re going to be speaking about the transition of CPG or FMCG into the Omni-channel space, which has changed radically in the last four years. To discuss this topic, we have the pleasure to have with us Sri Rajagopalan, who is currently leading the digital sales revolution as vice president and leader of e-commerce and digital sales for Johnson & Johnson consumer Inc.
Hi Sri. Thanks for being here with us today.

Sri:Thank you so much Daniel, thank you so much for having me on this podcast to speak to the audience today.

Daniel: Excellent. Well, I recall Sri, four years back before Amazon for example had gone into the grocery space, retailers were shy about online investment and CPG companies were very lost, or seemed very lostm in terms of their approach to e-commerce being there was not much clarity on that. What happened in this time frame, in the last four years?

Sri: Thanks for asking that question. That’s actually a very important one that I’m very sure the audience is looking forward to seeing what’s going on in the industry in general
What’s really changed in the last four years is, when Amazon came into the grocery space and has decided to get into it in a serious way, because Amazon has realized that their ambition of being the world’s largest retailer, which will take them on the road to ahead-to-head with Wal-Mart, there are two areas they need to focus on to get immense scale. One is grocery, because grocery drives everyday trips and mass scaling just by the multiplicity of trips and the second one is healthcare. You know, the ecosystem that exists in CPG today and retail today is a partnership that has developed over a hundred years and the blueprint is fairly straightforward. Large companies that have deeper pockets, solid halo media that they can run on TV and print partnered with large retailers across the world, doesn’t matter which country, to have platforms and to have brands that have been dominant on the shelf. And the shelf, of course, happens to be 80 feet, 60 feet 40 or 20 depending on the format. Is that a mass merchandiser? Is it a grocery store? Is it a convenience or a drugstore? And why this effective partnership? Many of the small brands could never compete because of the limited shelf space, because from a retailer’s P&L perspective; it never made sense to actually bring on a small brand as a test and learn, because the velocity and turns they would lose from a large brand; losing space to a small brand, could not be offset for profitability purposes. What’s changed is: Amazon walked in with the unlimited digital shelf, which means virtually any small brand with a desire to win and understanding the tactics can easily set up and win. What’s also helping the smaller brands win is this straightforward concept of the rules of the game or the rules of engagement and retail of change. What used to be straightforward is an FSI, coupons, a display, an end cap or focusing on the convenience and impulse isle… in a blueprint which is pretty solid and only last 10 years has focused on optimization has changed to brand new rules such as search, content, content that creates SEO, which is organic and unearned in the first place. Search Engine Management strategies; the whole notion of using the word conquest and search where you can take over someone else’s brand term, ratings and reviews where people are for the first time discussing their opinions on brands publicly and sharing them and going back and forth. None of these are skill sets… the large brands have really focused on and what’s changed in the four years is I would call this rude awakening for large brands that if we don’t learn the tricks and tips and the trade of the smaller brands, we will not be in business 10 years from today because the smaller brands have now got a true platform by means of which they can emerge and actually rule in this space and that has been the single biggest change I would tell you in the last four years and I will tell you I sum all that up as we’ve got the new rules of engagement driven by the anchor brighter brands.

Daniel: And do you think that there’s still a chance for CPG companies – because four years ago that was part of the conversation – Is there still time for CPG companies to set up their own platform or do you think they’ll definitely outsource those to retailers since they seem to have been taking the lead in the capability building?

Sri: What a great question, Daniel. So, I don’t see a world in this new retail environment where CPG companies have an opt-out to actually experiment with their own platform which we lovingly all called as direct to consumer and what I mean… what I mean by that is you know most people hesitate and say “why should we in the first place do this?” because of partnership with retailers existed over years. Handful of things that people should think about when it comes to DTC and answer those questions and really get into these DTC only if it’s meaningful for them. So, why don’t I go over what those things are? Number one: there needs to be acceptance that DTC is not going to go anytime soon. There are many famous brands world over. The one that everybody keeps talking about is obviously Dollar Shave Club but there are hundreds and hundreds if not thousands of small brands who collectively represent, I would say 90% of the growth in a majority of CPG categories. So, not recognizing that it is wrong in the first place, so that comes number one.
Number two is what we spoke about earlier: acknowledging that the rules of the game have changed and via DTC, you can play out the whole ecosystem of search, content, assortment, ratings and reviews, and things of that nature much easier than you can when the shop is not owned by you. Third, with the pace of digital change that’s taking place in the environment, nobody can be a one-trick pony anymore and DTC serves as an amazing platform for launching innovation for doing tests and lears, for doing sampling with limited to no risk. And, in fact, when an innovation is built even for a brick and mortar model retailer for the shelf, there’s no better way at very low risk to test whether the innovation will work etc., to gather the data via a CRM and when it’s launched to the retailer to make sure things are back together, to succeed with that data that comes from DTC; a handful of other things to think about, right? The blueprint itself for DTC, how would you deliver? How would you fulfil production to make sure time is invested in making sure how that’s done? What assortment is offered up that’s unique in the DTC space versus what’s on the shelf and what sort of retailer like an Amazon or sold as a 3dmodel on Alibaba? Next, what I would say is patience. Just like the break-in models ecosystem was built over 50 years, 100 years, DTC still I would say while the infancy stage is passed and now we’re in the mid-range of a maturity curve. It’s probably a P&L through P&L; and DTC to make it highly profitable take somewhere between 24 and 36 months to get done and these are the things to kind of consider. But reasons to do DTC. Number one: I would say relationship marketing one on one with the consumers it’s the best opportunity and a platform to build and sustain those relationships. Data collections via CRM; I think enough said about CRM. People are painfully familiar what that means. The whole notion of constant surprise and delight for the consumer by packaging, sampling, agile innovation, constant every single month and then she the shopper or mom is on a choice of where to shop. So to give her one more choice, do you have to go to the store? Do you have to order it and receive it from an Amazon or an Alibaba? Why not get it directly from the company where she might want to provide an opinion on the brand directly to the manufacturer and then can a company build the ecosystem and bring about a fair and equitable balance via where to price on their brand websites and using social media relevant for tests and learned purposes for launching innovation? Make sure they take advantage of DTC. I hope that helps, Daniel?

Daniel: Yeah, absolutely… absolutely. Along these lines actually, do you think that CPG companies are on the right track and have made most of the structural changes they had to furnish 20 years, like creating ecommerce or digital departments within or do you think that there’s still work to be done?

Sri: So, I tell you there’s a massive difference between the larger companies and the smaller companies. You know the iconic fortune 500 companies that we all love dearly and have a huge market cap or still I would say emerging from the… I need to understand, I need to play catch-up and I need to take action, a handful of large companies like Procter& Gamble, Unilever. You know, the usual suspects Johnson & Johnson, Pepsi Co, Coca-Cola have indeed made the move out from “let me watch and see what happens” to acting very quickly, and a lot of this information publicly comes out in Wall Street every single day. But I would tell you, if you measured capabilities, systems, the ability to do agile decision making, none of these companies are truly structured by their P&L models and their operating models to really do agile decision-making, so the area where all of them are focusing on in 2018 is not so much to search in the content, then the assortment and the ratings and reviews, which all of them now fully understand are must do at eight hundred miles an hour; it’s really on how do we do agile decision-making. How do we act on the trend within the next three months and not take two years to create an innovation? That’s where all the large companies are spending their time in 2018. So, to really answer your question, I think the moment and time has arrived and people have won’t up and said we need to get serious about this space organize and get going.

Daniel: And a lot of industries have been disrupted in the 21st century; like retail, for example, which we just mentioned with the example of Amazon coming in but when you go into a supermarket and you look at the shelf, the products don’t seem to have varied that much compared to 20 years ago. What categories in FMCG, do you believe are more prone to be disrupted in the next 10 years?

Sri: So, think about categories where the touch and feel of the actual product display on a shelf is less relevant, think about categories which have what I would call a need-it-now or an immediacy or an urgency of getting the product. So, one area where I see there’s going to be a massive transformation in the next five years, 10 years is going to be in the area of over-the-counter medications. Now, in many countries, of course, there are regulations owned over the kind of medication being dispensed by a pharmacist or not but I even anticipate legislation change then. So, imagine a mom with a baby at home who has a fever , would she rather drive to the store, carry a crying baby, walk through the shelf files and pick a fever medication or click a couple of buttons on her smartphone and have the product within one hour? So, I see massive disruption coming in OTC. Another area which has already been disrupted and things are moving 800 miles an hour is in the area of beauty, skincare, facial care, wrinkle removers, acne care, moisturizers… things of that nature where usually, when a person likes a certain product that they test and learn, they stick to it for life because it works with them on their skin. Imagine the value of a subscription model where once you like a brand and you choose to subscribe and it shows up every 30 days at your door at a price that you like and you have very little work to do in the process of going somewhere. All that time you save in the process and still get to interact with the brand and if you don’t like it or you have comments for the brand, a couple clicks you can actually share those comments. So, I see massive disruption has already taken place and beauty and skincare will continue and finally, I would say the single biggest area of disruption outside of these that’s upcoming in the next five years is day to day grocery non-perishables. I see a large portion of the category shifting from in stock purchases to subscription back home delivery services.
It could be an Amazon, could be a third-party fulfilment, could be an instacart, and even could be a retailer delivering to your house in the first place but I see a massive change coming directly led by two factors. One: convenience. Two: pricing transparency.

Daniel: Okay. Well, it seems like we’re off to some exciting years to come. Sri, thanks a lot for your input. I think it was really interesting.

Sri: Thank you so much Daniel. I want to thank you for giving me the opportunity to speak with you and your listeners.
Daniel: Excellent. Well thanks Sri again and thanks to our listeners as well and see you in a next edition of our LS International Career success podcast.