CONTENTS April 2018
VOLUME 26 NUMBER 2
This year’s crop of standout small to medium-sized businesses ranges from a 160-year-old nonprofit publisher to a five-month-old healthy snack startup. Despite their differences, these 10 companies collectively illustrate a few important facts: consumer understanding is more critical than ever, brick-andmortar retail is still vital, and organizational size no longer matters.
COVER STORY
2018
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05 Anatomie 05 American Printing House for the Blind 06 Black Rifle Coffee Company 06 Brandless 07 Dirty Lemon Beverages 08 Farm & Oven Snacks 08 Halo Top Creamery 09 Jel Sert Company 09 Nosh 10 Stitch Fix
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Departments
Special Report
03 E D I T O R ’ S N O T E Thinking Small
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If you think starting up a consumer goods company is easier than it used to be, you’re probably right.
27 C G T E C H T I P S Sales & Operations Planning In this month’s installment of CGT’s new sponsored series, Logilty’s Henry Canitz presents three practical tips for optimizing S&OP capabilities.
R E TA I L A N D C O N S U M E R G O O D S A N A LY T I C S S T U D Y 2 0 1 8
For the 3rd year, CGT and sister brand RIS join forces to examine how consumer goods companies and retailers are building up analytics capabilities to address a changing, consumer-driven world. Based on our annual survey of CG executives and retailers, this year’s report finds companies in an analytics arms race to effectively allocate their limited resources on technology applications that can deliver the biggest bang for the proverbial buck. CORREC TIONS In the Tech Solutions Guide in CGT’s February 2018 issue: UpClear’s “Key CG Customers” should have been listed as Danone, Ferrero and King’s Hawaiian; SYSPRO’s website is www.syspro.com. CGT regrets the errors.
CGT ADVISORY BOARDS EXECUTIVE COUNCIL
Julia Anderson Smithfield Foods Denny Belcastro Kimberly-Clark Tony Bender Edgewell Personal Care Pam Brown Del Monte Foods Michael Forhez Oracle Mike Gorshe Accenture Jon Harding Conair Corporation Justin Honaman Accenture
Constance Howlett Estée Lauder EJ Kenney SAP John Phillips PepsiCo Kevin Puppe Johnson & Johnson Doug Rammel BAI Suavecito John Rossi Steve Sigrist Newell Brands Swan Sit Revlon
EDITORIAL
Kevin Barnes Ferguson Enterprises Tony Bender Edgewell Personal Care Rick Brindle Mondelez International Ann Dozier Southern Wine & Spirits Michael Ferrara HairUWear Jon Harding Conair Corporation Peter Hatch Reynolds American Inc. Service Co. Chris Hobson VF Corp.
Constance Howlett The Estée Lauder Companies, Inc. Betsey Nohe Morton Salt, Inc. John Phillips PepsiCo Kevin Puppe Johnson & Johnson Doug Rammel BAI Suavecito Steve Sigrist Newell Brands Dan Woo Nestlé USA Filiz Yavuz Perry Ellis International
RESEARCH
Gene Alvarez Gartner Lora Cecere Supply Chain Insights Michael Forhez Oracle Nona Cusick Capgemini Simon Ellis IDC Don Lanham Hitachi Consulting
Meena Surti Patel Cognizant Cheryl Perkins Innovationedge LLC Werner Graf (chair) Mindtree Steve Rosenstock Clarkston Consulting
Consumer Goods Technology (USPS 0011-255, ISSN 1530-8421) is published 6 times per year: February, April, June, August, October and December, by Ensemble IQ, 1 Gateway Center, 11-43 Raymond Plaza, FL16, Newark, NJ 07102. Subscription rates: $89 for U.S. addresses; $99 for Canadian addresses; $109 for all other addresses. Single copies are $20; add $2 for postage to Canada, or $5 to other countries. For Air Mail, add $65. Copyright 2016 by Ensemble IQ. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or information storage and retrieval system without permission in writing from the publisher. Periodicals postage paid at Newark, NJ 07102 and additional mailing offices. Reprints, permissions and licensing, please contact Wright’s Media at ensembleiq@ wrightsmedia.com or (877) 652-5295. POSTMASTER: send address changes to: Consumer Goods Technology, PO Box 1842, Lowell, MA 01853-1842.
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MANAGING DIRECTOR AND PUBLISHER Albert Guffanti aguffanti@ensembleiq.com EDITORIAL Editor-in-Chief: Peter Breen pbreen@ensembleiq.com Senior Editor: Nicole Gillo ngillo@ensembleiq.com Contributing Editors: Tim Binder, Jamie Grill-Goodman, Patrycja Malinowska, Charlie Menchaca, Samantha Nelson SALES Associate Brand Director: Bill Little blittle@ensembleiq.com Senior Account Executive: Jolly Patel jpatel@ensembleiq.com Assistant to Brand Director: Jen Johnson jjohnson@ensembleiq.com EVENTS SVP, Events & Conferences: Maureen Macke mmacke@ensembleiq.com Director, Event Planning: Patricia Benkner pbenkner@ensembleiq.com Director, Event Content: John Hall jhall@ensembleiq.com MARKETING Marketing Manager: Susan Tomaski stomaski@ensembleiq.com CIRCULATION Director of Audience Development: Gail Reboletti greboletti@ensembleiq.com Audience Development Manager: Jeffrey Zabe jzabe@ensembleiq.com ONLINE MEDIA Director Product Development: Jason Ward jward@ensembleiq.com Web Development Manager: Scott Ernst sernst@ensembleiq.com Online Project Manager: Whitney Gregson wryerson@ensembleiq.com ART AND PRODUCTION Vice President, Production: Kathryn Homenick khomenick@ensembleiq.com Creative Director: Colette Magliaro cmagliaro@ensembleiq.com Production Manager: Patricia Wisser pwisser@ensembleiq.com Subscriptions: 978-671-0449 CORPORATE OFFICERS Alan Glass Executive Chairman David Shanker Chief Executive Officer Richard Rivera Chief Operating Officer & Chief Brand Officer Korry Stagnito Chief Business Development Officer Ned Bardic President of Enterprise Solutions/Chief Revenue Officer Mike McMahon President & Executive Director, P2Pi Joel Hughes Chief Digital Officer Jennifer Turner Chief Human Resources Officer
CORPORATE OFFICE 8550 W. Bryn Mawr Ave. Ste. 200 Chicago, IL 60631 Phone: +1 773-992-4450 Fax: +1 773-992-4455 www.consumergoods.com
Thinking Small Finding small to medium-sized businesses to recognize as our Standout SMBs is getting easier each year — because there seems to be a lot more small companies standing out these days. You can no longer open your inbox without finding at least a few examples of fledging ventures and startup companies that are breaking the industry mold and making an almost immediate splash with consumers (not to mention with the mainstream business media). We were almost writing tongue-in-cheek in February when we reported on Kloudes, a justlaunched maker of mattress toppers whose avowed mission was to “disrupt the disruptors” that had made online mattress buying (and shipping) possible through breakthrough product designs. But the point we wanted to make was simple: it’s a whole new world out there. Then we attended ShopTalk in March. There’s a very old, un-PC idiom about wielding a dead animal that fits the number of direct-to-consumer startups showcased at that event. My favorite was Function of Beauty, a company using proprietary algorithms to make “hyper-ultrapersonalized” shampoos and conditioners based on user preferences. The company claims it can produce 12 billion unique formulations; the buyer’s name is imprinted on the package. And here’s an almost surreal example from the NRF Show in January: Speaker Simon Rodrigue, former senior vice president of e-commerce for Walmart Canada, told the audience that, in addition to running his own digital consultancy, he had recently colaunched Instant Teas, a line of 100% natural, premium teas that can be brewed quickly in hot or cold water. This side business (if you will) proves “how easy it is in today’s age to build a brand,” he noted. (Rodrigue has since joined Staples Canada as chief digital officer, by the way.) Has building a consumer goods business become a hobby, then? Not quite. But the barriers to market entry have certainly declined in number — and any concern over potential barriers has apparently disappeared entirely. As one speaker said at the Path to Purchase Summit last month, future competitive threat is more likely to come from the proverbial “two guys in a garage” than from existing companies. And there’s lot to learn from these upstarts, which is why we’re even more excited than usual to present our Standout SMBs this month. Some of them are very young (two are less than a year in existence). A couple are very old. Most of them have a unique go-to-market strategy, but all of them are fully committed to satisfying consumer needs — which is a lot different than creating consumer demand, and might very well be the key to future success for consumer goods companies of all sizes. We feel so strongly about the benefits of learning from this new crop of SMBs that we’re devoting a good portion of the Consumer Goods Sales & Marketing Summit’s agenda in June to getting them up on stage. We’ve already lined up one of this year’s honorees — Farm & Oven Snacks’ Michael Senackerib — as well as last year’s SMB Market Award winners: Dan Klein and Patrick Tannous of Tiesta Tea. The rest of the agenda is designed to help CGs “Confront the Consumer-Driven World,” which will require them not only to rethink their sales and marketing strategies, but also to reimagine the rest of their business practices to better facilitate the changes needed along that “last mile” to product purchase. Visit consumergoods.com to find out more. Until then, try to think a little smaller. But keep dreaming big. Peter Breen, Editor-in-Chief
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STANDOUT SMBs 2018
SMALL BIG IS THE
NEW
THIS YEAR’S CROP OF STANDOUT BUSINESSES PROVES THAT, IN TODAY’S CONSUMER GOODS MARKETPLACE, SIZE NO LONGER MATTERS
When CGT began honoring small to medium-sized consumer goods companies back in 2007, the goal was to recognize noteworthy businesses that might otherwise fly under the radar of daily media coverage, or to identify emerging brands that might — someday in the future — make a significant impact on their product categories, their distribution channels, or maybe even the industry as a whole. The industry has changed dramatically since 2007, of course. So have the consumers that it serves. The age of digital communication has made flying under the radar pretty hard for any company to do (although it still happens occasionally). More significantly, it has allowed more than a few new businesses to make an almost immediate impact on the marketplace. These companies are no longer just stealing market share; they’re reinventing categories, creating new go-to4
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market strategies and disrupting the status quo in a variety of other ways. The word “small” no longer means “secondary” in any sense of the word. The digital age has also drastically accelerated the potential time line for success, which is why at least two companies in this year’s Standout SMB crop will almost assuredly not be SMBs by the end of 2018. “Small” doesn’t necessarily stay that way for very long anymore, and today’s “ankle biters” might well be tomorrow’s category leaders. That’s not to say that there isn’t room left to spotlight a few more-traditional SMBs, companies that have been operating for a long time yet are still growing and changing to meet the demands of the new world order. Old-school SMBs are still in fine shape, too. Without further ado, here are the Standout SMBs of 2018. We encourage you to read, learn, and prepare yourselves accordingly.
STANDOUT SMBs 2018
ANATOMIE
Location: Miami, Florida Years in Business: 12 Revenue (2017): $4.5 million Employees: 9 Kate Boyer was getting her MBA in International Trade in France when she began designing outfits for the girls’ gymnastics team she coached. The self-taught designer later began developing private label lines for exclusive resorts in St. Barthelemy. She met her future husband, Shawn, in Miami, where he was designing customized clothing for hard-to-fit athletic men.
fected the ultimate lightest weight and ‘stretchiest’ travel pant on the market, designed by body type,” she boasts. “The company’s extreme attention to quality and fit are maintained consistently by having feet on the ground where its apparel is produced,” praised CGT sister publication Apparel in 2016, when it named Anatomie as one of its “Innovator Award” winners. The goal for 2018 is to increase sales by 45% through organic growth and expansion, with an eye toward making e-commerce 40% of total revenue, Kate says. Taking the Neiman Marcus partnership national (including at the Bergdorf Goodman banner in New York) and strengthening ties with luxury travel companies and bloggers is also high on the priority list.
AMERICAN PRINTING HOUSE FOR THE BLIND
The two joined forces to design sportswear for brands such as Elite Models, Cigarette Boats and Nikki Beach before launching Anatomie in 2006, transitioning their active-wear backgrounds into a travel-specific (lightweight and wrinkle-free) luxury line of “athleisure” apparel. “We wanted to create a brand that was timeless, comfortable, and stylish, so you don’t feel like an American tourist in your white sneakers and your Lululemon leggings,” Kate recently told Racked.com. Since the launch, the Boyers have grown the company through exclusive distribution and marketing partnerships. Anatomie products are now sold through roughly 400 specialty stores, private clubs, resorts, golf shops, and spas across the U.S. “We identified a niche for stylish, comfortable and easy-care travel clothes and built a loyal following of 15,000 high-profile private clients and 200-plus specialty stores, together with marketing partnerships with top worldwide travel companies,” explains Kate, who serves as chief executive officer. (Shawn is creative director.) E-commerce sales nearly quadrupled in 2017, when Anatomie also added Neiman Marcus as a retail partner and struck a deal with a “dynamic” Canadian distributor, Kate explains. On the product front, the company “per-
HQ Location: Louisville, Kentucky Years in Business: 160 Revenue (2017): $40 million Employees: 305 The oldest institution of its kind in the U.S., American Printing House for the Blind is the world’s largest company devoted exclusively to researching, developing, and manufacturing products for people who are blind or visually impaired. The nonprofit company subsists on government grants and donations from corporations, foundations and individuals. The 1879 Federal Act to Promote the Education of the Blind made APH the official supplier of educational materials for visually impaired students below the college level throughout the U.S. APH manufactures more than 800 print and digital products that promote independence for its visually impaired consumers, improving opportunities in the class-
room for blind students and in the workplace for blind adults. During the last half-dozen years, the company has introduced an average of 45 to 50 new educational, workplace and lifestyle products annually. The output in
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STANDOUT SMBs 2018 2017 included revolutionary Braille translation software and an indoor way-finding feature for its Nearby Explorer app. “Over the years, our work has evolved beyond the embossed page and educational products,” explains president Craig Meador. “The expansion of our products and services in 2017 demonstrated our continued dedication to equity in the learning environment by removing educational, employment and social barriers. We’re at a point where an accessible world is achievable, and the dedicated staff at APH have put us in a position to reach more individuals with vision loss … than ever before.” Don’t think for a second that a 160-year-old nonprofit would be too stodgy to keep pace with technology trends. When Bill Beavin joined the company as chief financial officer in the mid-1990s, APH was still using mainframe-oriented computer software to run the operation. Beavin soon identified the need for a fully integrated, easy-to-use enterprise resource planning tool, and ultimately selected SYSPRO to provide the solution. SYSPRO’s software is now used for all areas of manufacturing, along with all customer and financial services. In 2018, APH plans to explore underserved markets like pre-school and college-level students, strengthen its brand presence in the U.S. and internationally, and build partnerships with other organizations serving visually impaired communities.
launch the company. “We believe the company’s success is directly attributed to the quality of our customers and the superiority of our products,” asserts Best. “Black Rifle represents the American dream: hard work and freedom.” The company’s patriotic, pro-2nd Amendment and unquestionably masculine positioning — presented most effectively (and with a good deal of humor) through a series of YouTube videos — stands in stark contrast to the more common coffee culture, which Hafer recently told CBS News is populated by baristas who “look like they should be chopping wood, but they don’t have the calluses to prove it.” It’s safe to say you won’t find many baristas in the secondary network of product dealers that Black Rifle is amassing: It currently boasts far more gun shops and shooting ranges than it does coffee shops. With its online emphasis and niche target audience, it’s no surprise that Black Coffee’s marketing relies on consumerfacing technology. In addition to the heavy social media activity, the company employs a mobile app from Shopgate to communicate directly with its consumers (via push notifications), offer fast, convenient purchase options (through Apple Pay) and provide round-the-clock customer service. Corporate goals for 2018 are just what you’d expect: “Expand our operations, hire more veterans, and better serve our customers while supporting the veteran and first responder communities,” says Best.
Black Rifle Coffee Co.
Location: San Antonio, Texas Years in Business: 3 Revenue (2017): $30+ million Employees: 110 A Google search for information about a new consumer packaged goods company doesn’t often produce top-of-page results from guns.com. But such is the case with Black Rifle Coffee Co., which proudly and unapologetically wears its heart on its camouflaged sleeve. Launched in 2015, Black Rifle Coffee is a small-batch, roast-to-order coffee manufacturer that uses beans imported from Colombia and Brazil to create a variety of blends primarily shipped directly to consumers, either as single orders or through a “BRCC Club” monthly subscription service. But in a consumer marketplace where the causes for which a brand stands are often as critical to success as the products that it makes, Black Rifle genuinely leads with the cause. “The whole purpose we exist is to hire veterans and give back to the veteran community,” says chief branding officer Mat Best, a former Army Ranger who helped company founder — Army Special Forces veteran and avowed coffee lover Evan Hafer —
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Brandless
Location: San Francisco Years in Business: <1 Revenue (2017): NA Employees: 57 “When you can be disruptive, there’s a reason,” says Brandless co-founder Tina Sharkey about her company’s waves-making entry into the consumer goods industry last year — which one executive at a recent industry conference termed “exciting, and terrifying.” Sharkey’s point is that Brandless wouldn’t have been able to
STANDOUT SMBs 2018
make such an immediate impact on the brand-driven packaged goods world if consumers weren’t in dire need of alternatives to standard industry practices. “Consumers would be rioting in the streets” if they fully understood the “series of inefficiencies” in the supply chain that typically drive up product prices, director of merchandising Jessica Glendenning said at the aforementioned conference, the Path to Purchase Summit in Chicago. Brandless launched on July 11, unintentionally coinciding with two national retail events: “7-Eleven Day” and “Amazon Prime Day.” Within 60 hours, the company had received orders from all 48 mainland U.S. states — a now-daily occurrence, Sharkey notes. (“We sell every single [available] item online every day,” she also points out.) “We reimagined the entire CPG industry, challenging the notion that better needs to cost more, by providing quality products at a fair price,” says Sharkey. All of the 270 health-conscious and environmentally friendly products that Brandless currently sells across seven categories are priced at $3. (The goal is 400 items by the end of 2018.) Every product is “simple, it’s clean and it’s $3,” Sharkey says. “Consumers shouldn’t have to work to figure things out.” “The challenge with traditional CPG is that their customers are stores and channels. We’re our own channel,” she explains. “Brandless has been successful because we develop a direct relationship with our community. We’re much more than an e-commerce company; we’re a community that assumes best intentions, celebrates tangible acts of kindness, and believes in giving back.” Every message from a consumer gets a personal response, she notes. Since launch, the monetary equivalent of 250,000 meals have been donated to Feeding America, triggered by purchases. Additional price points are possible as Brandless expands the product offering, but the company will always strive to selectively curate the offerings and deliver “oh my goodness value,” Sharkey promises. And don’t expect Brandless to follow many of the other online-only upstarts that ultimately seek retail distribution as part of their growth plans. “What makes our model work is that it’s all our own product,” eliminating the need to deal with retailer demands or a competitive shelf set, Glendenning said at the conference. “We don’t foresee selling anywhere else.”
Dirty Lemon Beverages
Location: New York Years in Business: <3 Revenue (2017): NA Employees: 21 The only way to buy Dirty Lemon’s health-boosting beverages is via text message. Founder Zak Normandin believes that simplicity provides a seamless transaction for consumers, who don’t even have to download an app or log onto a website. “Once you place your first order, it’s very frictionless,” says Normandin, who previously created the Little
Duck Organics baby snack line. In deciding on the uniquely narrow ordering strategy, Normandin also wanted to address what he considers “a very antiquated way that brands interact with consumers,” who now are “looking for new products outside the grocery store,” he told the audience at ShopTalk in March. “We don’t have to work with retailers, or distributors, or brokers. We’re using data to make better decisions and cutting a lot of the noise out of [the traditional distribution model] so we can make a better connection with consumers.” Similarly, the product strategy was designed to simplify the popular but often-complicated practice of “juice cleansing” by letting consumers add one ready-to-drink beverage to their standard lifestyle (rather than making drastic changes to their diets). The Dirty Lemon line currently comprises six “elixirs.” Each is made with lemon juice, ocean minerals and sea salt, and then differentiated through unique “flavor and function profiles” that deliver unique benefits (like charcoal for detoxifying). Shipping costs are built into the price: $45 per six-bottle case for “VIP” subscribers; $65 for one-off orders.
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Dirty Lemon has 100,000 customers buying regularly and a 60% retention rate month to month. Most of the ordering process is handled by a chatbot and natural language processing tool, with humans waiting in the wings as needed. Marketing has a non-traditional flair, too, and uses the fashion world (where the brand caught on immediately) as a focal point. The Drug Store pop-up shop in downtown Manhattan let visitors watch as their cocktails were made last summer. In early 2017, the company rented out the trendy Ludlow Hotel for the “Biggest It Girl Slumber Party of the Year” to launch a product named sleep that’s “designed to help you achieve a full night’s beauty sleep. A recent concoction was created — and co-marketed — with Vogue magazine (“presented in a limited-edition bottle fit for the runway.”)
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STANDOUT SMBs 2018 Normandin is so confident in the operating model and the proprietary technology behind it that Dirty Lemon is actively seeking other startup beverage brands to capitalize on “the power of the platform.” The company recently acquired the Juice Served Here brand, whose fruity beverages had been sold through Los Angeles-area stores (including Whole Foods). Dirty Lemon also will introduce a low-alcohol drink in Europe this spring and a sparkling water toward the end of 2018.
Farm & Oven Snacks
Location: Boulder, Colorado Years in Business: <1 Revenue (2017): NA Employees: 10 (including part-time) Old CPG dogs can most definitely learn new technology tricks, as the recent launch of Farm & Oven Snacks has proved. Farm & Oven Bakery Bites are moist, sweet snacks that contain 40% of the recommended daily intake for vegetables, loads of fiber, and more than one billion probiotics per serving. Formulated to help consumers “find the joy in healthy,” the snacks are currently available in four flavors: beet dark chocolate, zucchini lemon poppy seed, carrot cinnamon, and pumpkin maple pecan. The product line launched direct-toconsumer through the brand’s website last November and soon after on Amazon.com. Driving that decidedly modern product launch strategy were two CPG industry veterans: Michael Senackerib, whose lengthy career includes senior-level positions at food giants Kraft Foods and Campbell Soup Co., and Kay Allison, whose time as chief executive officer of consulting firm The Energy Infuser included work with Mondelēz International and PepsiCo. “Launching in e-commerce first has been key to delivering a personal, one-to-one experience,” says Senackerib. “We are thrilled to be able to test, learn and fine-tune all of our communications and consumer experiences. Having the right tools to quickly analyze marketing ROI by message, audience and channel is already paying dividends.” New technology also helped the fledgling company get ready for rollout on a much faster timetable. “We went from zero to launch in 2017. Today’s technology has made this
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possible,” explains Senackerib. “We use SaaS tools for accessible, sophisticated business management and to let us collaborate with experts around the country. Last year, we developed products, named the company, created packaging, and began self-manufacturing.” Among specific tools, “our website platform via Shopify has been key to the early success,” he says. “It provides a user-friendly storefront while giving us the ability to manage the customer experience, and it’s efficiently integrated with our e-commerce, fulfillment and financial systems. The analytics help us gauge what is and isn’t working.” Activity in 2018 “is all about scaling up,” says Senackerib. “Accelerating growth, expanding the customer base, selectively expanding channels and starting up our new manufacturing facility to meet customer demand. We also expect to help thousands of people get their five servings of vegetables per day.”
Halo Top Creamery
Location: Los Angeles Years in Business: 6 Revenue (2017): $400 million (media reports) Employees: 100 When the business media began publishing “David vs. Goliath” stories about Halo Top Creamery’s meteoric rise to the top of the ice cream market last summer, the “guilt-free dessert” was labeled the next Dollar Shave Club. When Unilever reportedly came close to buying the brand toward the end of the year, that comparison became even more valid. The accolades were all earned, however, after the brand that bills itself as “healthy ice cream that actually tastes like ice cream” busted out of its niche category to become the best-selling pint of any ice cream, besting giant rivals Unilever, Nestle and General Mills (among others). That’s an impressive feat for a healthy-alternative brand (it’s lowcalorie, low-sugar and high protein), regardless of category. “Our success starts and ends with our fans,” says chief executive officer Justin Wolverton, a former attorney who created the original recipe in his own kitchen while trying to concoct a sugarless dessert for himself. “We think that we have a great product, a great brand, and we even created a new “Halo Top” category of ice cream. But we wouldn’t be here today if not for our grassroots following and army of fans.” “It was a surreal year for us” in 2017, continues Wolverton. In addition to becoming the No. 1 ice cream brand in the U.S., the product was named one of Time magazine’s “25 Best Inventions.” “The fact that we were named one of the best ‘inventions’ in 2017 — when the company started in 2011 — is a true testament to the fans and
STANDOUT SMBs 2018 employees who helped to build this thing into what it is today,” Wolverton says. Not surprisingly, product distribution has become ubiquitous, with even Walgreens and CVS/pharmacy now stocking at least a few of Halo Top’s 39 SKUs. Although you can buy branded merchandise on the company website, you can’t order the ice cream directly. (So chalk one up for traditional retailing.) In 2018, Halo Top will expand internationally into the UK, Ireland, and Canada, extend the product line with dairy-free and vegan options, and even move into retail: The first Halo Top Scoop Shop opened in Canoga Park, California, in February.
The Jel Sert Company
Location: West Chicago, Illinois Years in Business: 92 Revenue (2017): $300 Million Employees: 1,000 Not all noteworthy SMBs are upstarts; some have a little history behind them. Candy maker Jel Sert Company is a fourth-generation, familyowned business that has manufactured household staples since 1926. The company makes products in the freezable novelty, drink mix, dessert mix and ready-to-drink categories under such brands as Wyler’s Light, Otter Pops, Fla-Vor-Ice, Mondo, and Royal Desserts. “Although the company and its employees are proud of our strong heritage and traditions, in no way are we ‘vintage’ in any sense of the word,” noted the employee who initially nominated Jel Sert as a Standout SMB. Despite its age, the company works hard to stay ahead of the competition from a production standpoint by developing state-of-the-art machinery: its stick pack production system has garnered interest from global pharmaceutical companies and government agencies. The company’s commitment to growth hasn’t waned, either. In 2017, Jel Sert officially became the No. 1 produc-
er of powder stick packs in North America across contract, licensed, and internally branded products. And it’s willing to test new waters — or new gelatins, at least: It currently has an agreement to provide Royal Gelatin flavors to Jevo, “the world’s first fully automated gelatin-making machine” (or, more colloquially, a Jell-O shot maker), which manufacturer Food & Beverage Innovations last year began selling to bars, casinos and cruise ships. “Jel Sert has remained committed to providing high-quality, high-value food and beverage products that help families and friends create lasting memories,” says president Ken Wegner. “Perpetually striving towards this evergreen mission wouldn’t be possible without the tireless efforts of our passionate employees.” Most important to those employees is Jel Sert’s commitment to charities. The company maintains strong partnerships with the American Childhood Cancer Organization and the National Ovarian Cancer Coalition. The “Take a Pop, Share a Smile” program it conducts with ACCO has donated freezers and unlimited ice pop supplies to more than 130 childhood cancer treatment centers and hospitals across the U.S. In 2018, the company plans to expand its stick pack capacity through new infrastructure and increase automation to support greater sales volume.
Nosh
Location: Santa Fe Springs, California Years in Business: <2 Revenue (2017): $1.5 million Employees: 8 The people behind Nosh promise that “our snacks taste way better than any orange crayon.” Therein lies the company’s underlying goal: to deliver healthy snacking options for babies and toddlers that also can help soothe teething issues, aid motor skill development, and maybe even give parents a little respite from their hectic routines. Nosh’s all-natural “Munchables” are made with certified organic ingredients, such as Japonica rice, and “fun, foodie flavors” like beet and strawberry. They’re designed to help in the development of motor skills by letting babies feed
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STANDOUT SMBs 2018 themselves more easily. The product lineup includes crackers, puffs, gummies and “Smoothie Snaps,” freeze-dried fruit puree snacks. “The success of our brand was initially driven by the formation of a strategic network with key contacts, allowing for a strong launching platform,” says Jennifer Becker, who founded the company with brother Jason Becker and a third partner, Jonathan Weiner. “The core focus of Nosh, as the baby and tot snack specialist, has allowed us to specialize within the market and diversify ourselves from the competition. The brand is fresh, the products are relatable yet innovative, and the packaging is memorable — all factors we feel have driven our success.” Among specific catalysts is RangeMe, the online platform that connects retail buyers with product suppliers to streamline the new-product sourcing process. The platform “has enabled us to get in touch with new buyers quickly and efficiently,” says Jennifer. Helping parents is a key part of the marketing plan, which includes lifestyle content such as “5 Minute Guides” that help moms balance baby care with “me time.” Social outreach invites parents to share their own parenting stories and advice. Nosh had a busy year in 2017. The company began distributing through 3,000 stores in the U.S. (the partner list now includes ShopRite, Meijer, HEB, Shaw’s and Buy Buy Baby) and at retailers in 12 countries. It also doubled the
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number of SKUs it produces. One primary goal for 2018 is to gain a stronger foothold in brick-and-mortar grocery stores; 2,000 more stores, including Target and Ahold, were added this month. Another is to execute a strategic plan for growth on the leading e-commerce platforms; the latter effort includes expanding into China.
Stitch Fix
Location: San Francisco Years in Business: 7 Revenue (2017): $977.1 million Employees: 5,800 (mostly part-time) To be honest, Stitch Fix doesn’t classify as an SMB anymore: The wildly popular apparel “curator” generated $295.9 million in revenue in the first quarter of fiscal 2018, which puts it well apace to surpass $1 billion this year. But it still technically qualified for the designation in fiscal 2017, when revenues were only $977.1 million (up from $73.2 million in 2014). That left the door open to recognize Stitch Fix’s tremendous impact on both the apparel industry and ecommerce while we still had the chance. Few new business models better illustrate the use of digital technology to address changing shopper needs better than Stitch Fix. More than 2.1 million shoppers (as of July 2017) have flocked to the company’s website to have its team of 3,500 (mostly part-time) stylists and 85-odd data scientists unite to take the decision out of their apparel purchases. Shoppers provide their sizes, needs, style tastes and price preferences on stitchfix.com, and pay a $20 fee that ultimately is credited toward a purchase. The data science/human stylist tag team then goes to work to create five unique apparel items that are shipped free of charge. Recipients buy what they want and send back the rest (also free of charge). “We are successful when we are able to help clients find what they love again and again, creating long-term, trusted relationships,” the company stated last fall in the prospectus it filed before going public. As of the filing, customer “repeat rate” was a very healthy 86%. “We believe that an intelligent combination of data science and human judgment is required to deliver the personalized retail experience that consumers seek … Our data science capabilities give us a significant competitive advantage, and as our data set grows, our algorithms become more powerful,” the prospectus stated. “We’re not worried that incumbents will adapt because this level of data collection isn’t inherent to their culture,” chief algorithms officer Eric Carlson told Forbes last month. “You have to be data-driven early on. Traditional retailers just don’t have the org structure or value system to support the change required.” CGT
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Hare Today, or Gone Tomorrow I recently spoke with an executive at a consumer goods startup who explained his company’s strategy for market expansion: Check Google Analytics to find heavy clusters of website visits. Meeting over. Decision made. Another victory for the digital economy. Whether so cavalier a decision will ever qualify as sound business strategy is certainly up for debate. A company making such relatively impulsive moves might not be around very long. Besides, it’s pretty easy to make such flip assessments when, aside from your products and your people, your company assets are virtually all, well, virtual. This company simply conducts some research into regional commerce regulations (uh, maybe), launches a local-language version of its website (if necessary) and hires a regional sales rep or two to work from their homes. Established companies need to build out a little more infrastructure, and therefore require a bit more due diligence. Nonetheless, I couldn’t help thinking about that company as I examined the results of this year’s Retail and Consumer Goods Analytics Study. Over the last three years, sister publications CGT and RIS have joined forces for this annual check on the analytics “maturity” level on both sides of the industry. Over those three years, the industry has certainly improved maturity-wise, with many CGs and retailers moving up the ladder to more sophisticated, more actionable and more accurate analytics capabilities. In fact, the measurement scale itself has improved, with the “no formal analytics” base we started with in 2016 falling off and the ultimate end-game moving up from “predictive” to “prescriptive.” Yet despite what now is universal agreement that enterprise-wide analytics excellence is critically important to future success, and despite the fact that many of the tools needed to deliver that level of business intelligence are now available, a lot of companies still seem to be moving a little too slowly up the ladder. In fact, as report author Lisa Terry notes, many companies still feel they have “a long way to go” before achieving internal data alignment. In this market, however, slow and steady is probably not going to win the race. Not when so many emerging companies are inherently farther along on the analytics journey than most traditional players. Not when a Stitch Fix can come along, identify a largely unmet consumer need (curated apparel shopping), and leverage a proprietary analytics platform to become a billion-dollar company in less than seven years. Not when Amazon — considered by many to be the analytics bellwether — keeps upping the ante every few months. Not when there are smaller competitors entering markets based on Google Analytics alone. That’s something to keep in mind as you read through this year’s report and benchmark your own progress against the industry as a whole. Are you one of the roughly one-fifth of respondents that have already gained internal data alignment? Are you among the minority of companies that have gotten to the prescriptive analytics level for some business functions? Pat yourselves on the back. You deserve it. But whether you deem yourself woefully behind the industry or even feel like you’re well ahead of the game, there’s a good chance your rate of progress is still a little too slow. Because in this race, even the most effective, efficient tortoise is going to spend way too much time in its shell. These days, the hares have the advantage. Peter Breen, Editor-in-Chief, CGT
CONSUMERGOODS.COM | APRIL 2018 | CGT
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OVERVIEW RETAIL AND CONSUMER GOODS
AS THE RETAIL INDUSTRY CONTINUES TO EVOLVE, COMPANIES SET EVER-HIGHER STANDARDS BY LISA TERRY
hallenged at one end by digital behemoths and at the other by nimble, born-in-the-cloud startups, retailers and consumer goods companies are under tremendous pressure to deliver exceptional, personalized customer experiences that drive revenue and repeat business. The emergence of an analytics arms race has forced companies to find ways to expend their limited resources on technologies and applications they believe will deliver the most bang for the buck. As retail and CG executives seek to build their analytics infrastructure, governance and talent pools, they must also rethink internal processes and shift their cultures toward an analytics mindset. And even as they gain capabilities, new market demands emerge that continually raise the bar ever higher. But the analytics marketplace is also evolving rapidly, offering new capabilities such as artificial intelligence and machine learning, supported by cloud architecture, that carry the potential to turbocharge analytics programs. These not only discern data patterns more quickly, but sometimes even generate their own algorithms to further fine-tune output. That makes them an ideal match for high-volume, rapid functions
FIGURE 1
Top Analytics Challenges 2018 RETAIL Limited analytics toolset Right staff not in place to lead analytics strategy Inability to integrate data from multiple sources Absence of a clearly articulated analytics strategy CONSUMER GOODS Absence of a clearly articulated analytics strategy Inability to integrate data from multiple sources Limited analytics toolset Right staff not in place to lead analytics strategy
RETAIL Inadequate talent or dedicated staff Limited software toolset Inability to integrate data from multiple sources CONSUMER GOODS Limited software toolset Inability to integrate data from multiple sources Culture of the company is more intuition-driven than data-driven
/3
CGT | APRIL 2018 | CONSUMERGOODS.COM
39% 38% 36% 36%
2017
1 14
63% 44% 44% 41%
56% 47% 47% 36% 36% 32%
of retailers and consumer goods companies are looking to outsource at least a portion of their analytics work.
such as personalization and replenishment. Signs indicate both retailers and CGs are enthusiastically exploring these next-gen solutions. The race is now on to leverage these new tools to best advantage.
Facing Down Big Challenges Retailers and CG companies are well aware of the accelerating tech landscape and the gap that continually widens between their current capabilities and what is possible. That’s likely why “limited analytics toolset” is consistently a top challenge for both (Figure 1). But retailers are really feeling the pain this year, with 63% citing this as a top challenge, up from 47% in 2017. The inability to integrate data from multiple sources is a related issue, making tools integration a potential choke point in the analytics infrastructure. With limited capabilities comes uncertainty about strategy: It’s the top pain point for CG companies (at 39%) that’s also shared by 41% of retailers. Both sides lack the right staff to lead their analytics strategy, and CGs also cite the absence of a single owner for the effort. It’s difficult to stake new ground in analytics without the tools, resources or governance required to execute. Executive leadership is struggling in part because they’re approaching the issue the wrong way, says Andrew Walter of AJW-Advisory, a former vice president of IT & shared services at Procter & Gamble. “Too many are not starting from the business problem down vs. the technology/ data up.” Strategy is essential to ensure that investments will support business goals.
Organizing for Analytics
More evidence of their shared challenges comes in how companies organize around analytics. Industry analysts often point to a Center of Excellence as the ideal, and many retailers (47%) and CGs (55%) agree. However, just 7% of retailers and 18% of CGs have actually established CoEs. Instead, CGs are most likely to be managing
FIGURE 2
Who is Responsible for Analytics? RETAIL Shared analytics department/center of excellence (central hub)
47%
7%
Managed by department (many spokes)
31% 38%
IT/technology department Strategy department
3% 12%
Other
9% 3%
19% 19%
CONSUMER GOODS Shared analytics department/center of excellence (central hub)
18%
55% 45%
Managed by department (many spokes) IT/technology department
14% 9%
Strategy department
9% 5%
Other
14% 10%
WHO IS RESPONSIBLE
21%
WHO SHOULD BE RESPONSIBLE
Companies are well aware of the accelerating tech landscape and the gap that continually widens between current capabilities and what is possible. FIGURE 3
Tech Initiatives Fostering Data Alignment Cloud infrastructure (data storage and management)
50%
Big data analytics Open source analytics (Hadoop, etc.) RETAIL
57%
52% 46%
13%14%
CONSUMER GOODS
CONSUMERGOODS.COM | APRIL 2018 | CGT
15
OVERVIEW RETAIL AND CONSUMER GOODS
analytics by department, while retailers most commonly make it the responsibility of IT (Figure 2). It’s important to remember that analytics is, at its core, a technology, says Greg Buzek, founder and president of IHL Group. “There still is a requirement of systems management, uptime and security. While the budget might come from marketing or operations, it is best if IT is involved. When they are not, security holes are created and that is bad news for any [company].”
Sizing Up the Staff
Although they share similar staffing challenges, retailers and CG companies are addressing their needs with very different resources. Despite the similar size of responding companies, retailers maintain on average 10 internal analytics resources, compared with 28 at CGs. This may reflect the tenure of their analytics experience: CG companies have been at this longer, while retailers started more recently and now may be choosing automation over building internal staff. “Within CG, over time, access to information was developed and optimized in separate silos by function, often with different systems and different data standards,” explains Vittorio Cretella, executive advisor with VCAdvisory and former chief information officer of Mars, Inc. Until those systems are overhauled, CGs will continue to need more personnel to manually “connect the dots” and drive insights. Despite the staffing disparity, both retailers and CG companies perceive a deficit in their analytics talent and tools. To address this, about one-third on each side are looking to outsource some work to vendors. Similar numbers are recorded for “hiring internal personnel” and for simply “haven’t made any move at all.” At this point, only a handful see artificial intelligence/machine learning tools as a replacement for these resources, although that may change as their use of these technologies matures.
Achieving Data Alignment
Another goal for both retailers and CG companies is a “single source of the truth” across the organization. Nearly half of retailers (42%) and one-third of CG companies (32%) feel they “still
16
CGT | APRIL 2018 | CONSUMERGOODS.COM
FIGURE 4
Top Areas of Analytics Focus Customer/consumer insights (profiling/analysis)
36%
41%
Personalization
31%
Demand forecasting
28%
Inventory planning
28%
Pricing
28%
8% 34% 23% 21%
Promotion effectiveness
25%
Assortment planning
25%
19%
Social media analytics
25%
13%
Trade Promotion RETAIL
6%
36%
27%
CONSUMER GOODS
have a long way to go” toward a single shared data source. But impressively, 23% of retailers and 16% of CGs believe they’ve achieved this goal. The journey to a single data source “will last as long as it takes for CG companies to embrace a more data-centric culture, renew their ways of doing business and adapt to the digital economy,” says Cretella. “The sharp contrast between their attention to product manufacturing quality vs. the poor quality of data is indicative of that cultural gap. It starts from the top, with CG leaders needing to make decisions based on data insights and not only on experience.” To address this gap, both retailers and CGs are embracing cloud infrastructure and big data analytics (Figure 3). Centralizing applications in the cloud facilitates speed of deployment, faster software updates, lower costs for software, hardware and maintenance, and a real-time, single version of the truth, says Ken Morris, principal at BRP Consulting. “A cloud approach to storing and analyzing product and customer data is essential to achieve access to one version of the truth in real-time.”
Customer Analytics Leads the Way
Another common challenge, the lack of clear strategy, is evident in the top areas of analytics focus reported by both retailers and CG companies. It’s not surprising that consumer insights, including profiling and analysis, ranks at the top for both, due to the widespread belief that the path to success lies in better understanding and serving the customer (Figure 4). However, for retailers,
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the customer is the consumer, so it’s natural that personalization is the second most popular response, since automation is critical to deal with such a large store of data. Retailers are the customers for CGs, so analytics to understand retail demand is closely rated to promotion effectiveness and demand forecasting — all critical functions for market success.
Collaboration
for Common Benefit Accessing a broader range of data streams is a best practice for gaining deeper insights into consumers and the business for both retailers and CG companies. Yet despite years of urging by industry analysts, retailers are still moving very slowly toward sharing more types of data or increasing the frequency of sharing. But there is some good news. Significant numbers of retailers have moved away from their “never share” stance in favor of regular or at least ad-hoc sharing. The biggest changes came in sharing of online consumer behavior data, where the ranks of non-sharers dropped from 70% to 50% and the number sharing
regularly jumped from 17% to 33% (Figure 5). Elsewhere, those who never share pricing data fell from 51% to 35%, and loyalty/CRM data stingies dropped from 53% to 40%. Other reports echo this trend toward increased data sharing. However, in Shopper Marketing magazine’s latest trends report, 59% of consumer goods respondents said that, while retailers are opening up, they’re using data sharing as a revenue stream rather than sharing freely in the spirit of collaboration. “The days of retailers ‘piecemealing’ data or sharing it as a carrot or stick for other commercial negotiations will be reserved for tactical leaders playing not to lose vs. the accelerating e-commerce players,” says Walter. “Leading retailers need to elevate data access and analytics to a strategic discussion with their CG partners and create new, sustained business models.”
The Great Analytics Challenge
Innovation in advanced analytics promises great things for retail and CG companies overwhelmed by too much data and not enough insights. But while intent is high, many companies still lag in key capabilities and struggle to put together the right resources, governance, organization and cultural commitment to remake themselves into fully analytics-driven businesses. As the leaders accelerate their superior capabilities and extend into new channels and categories, everyone else is under significant pressure to put the pieces in place to understand and serve their own customers like no one else can. CGT/RIS
FIGURE 5
The Data Retailers Share with CG Partners Share Regularly
Ad Hoc
Never Share
2017
2018
2017
2018
2017
2018
POS transaction data
51%
53%
7%
16%
42%
31%
Loyalty/CRM data
35%
40%
12%
19%
53%
40%
Online sales data
37%
47%
12%
6%
51%
47%
Online customer behavior data
17%
33%
12%
9%
70%
50%
Pricing data
39%
44%
9%
22%
51%
35%
Promotion performance
47%
40%
16%
31%
37%
28%
18
CGT | APRIL 2018 | CONSUMERGOODS.COM
R E TA I L
Wielding Analytics in the Battle for Customers RETAILERS RETALIATE AGAINST AN EXPANDING COMPETITIVE SET
nalytics success will be one of the greatest determinants of future success,” says Robert Hetu, research vice president and agenda manager for retail at Gartner. But analytics success is proving an elusive target for retailers, who face challenges not only from online and omnichannel competitors, but also from retailers in adjacent markets expanding their assortments and supplier partners directly targeting consumers. The race is on to see who can adopt the latest tools to best understand their target customers and deliver personalized experiences that flow seamlessly across channels — matched with fast, flexible fulfillment — to gain an analyticsfueled advantage. If analytics is an arms race, then retailers feel they are prepared for battle — at least compared with competitors. They have made strides over the past year in developing analytics skills/people: nearly half say they’re better or significantly better than competitors in this area, up from just 26% last year (Figure 6). They’ve also beefed up their analytics tools, with 36% now besting competitors, compared with 26% in 2017. Those are gains of which to be proud. But comparisons to market leaders paint a different story. Only a handful of respondents feel they’re doing better than leaders in any aspect of analytics. The biggest differential comes in data management, where 27% feel they lag competitors but 67% say they trail the leaders. “You always want to more closely emulate the leaders, but that might not be realistic,” says Greg Buzek, president of IHL Group. “Peers are a mix of both. The issue is level of resources and limitations on the analytics tools. Most retailers under $1 billion in size don’t have the size or ability to hire an army of
20
CGT | APRIL 2018 | CONSUMERGOODS.COM
FIGURE 6
How Retailers Compare to Competitors Analytics strategy
34%
9%
Data management
27% 5% 27%
Data quality
30% 9% 30%
Analytics tools Analytics skills/people
36% 46%
BETTER THAN COMPETITORS BETTER THAN LEADERS
63%
41%
9%
67% 63%
36% 14%
65% 61%
30%
LAGGING OUR COMPETITORS LAGGING LEADERS
FIGURE 7
Maturity of Retail Supply Chain Analytics Replenishment Demand forecasting
18% 15%
Transportation logistics
21%
Inventory management
21%
18%
33% 48% 51% 45%
BASIC REPORTING
PREDICTIVE ANALYTICS
BASIC ANALYTICS INVESTIGATIVE ANALYTICS
PRESCRIPTIVE ANALYTICS
21% 18%
10% 18%
12% 12% 3% 18%
12% 3%
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R E TA I L
data architects and data scientists.” But there is another path. As the fusion of AI with analytics systems improves, solutions will not only provide analytics, but also make expert recommendations that simply still must be confirmed by people, Buzek says. “Leaders are doing this with people right now. Tiers two and three simply cannot do that.”
Advancing
Analytics Maturity Despite limited resources and a preponderance of basic reporting and analytics capabilities, retailers have made progress in some aspects in the past year. In supply chain analytics, retailers last year said they were prioritizing inventory management. But it was in replenishment analytics where they’ve been most successful, with the ranks of those using predictive analytics rising from 14% in 2017 to 21% this year. Another 10% are even more advanced, applying prescriptive analytics to replenishment (Figure 7). Among customer-centric capabilities, retailers made the greatest maturity gains with in-store analytics, moving from just 2% using predictive analytics last year to 21% (Figure 8). They also increased the use of predictive and prescriptive analytics by at least 16 percentage points in several other marketing areas: marketing spend, pricing and promotions, and promotion effectiveness. These gains, together with past investments, mean retailers now have the most advanced analytics capabilities in replenishment and in-store analytics, followed by pricing/promotions, demand forecasting, marketing spend and promotion effectiveness (all tied). Are these the areas that will best position them to compete? “While advanced analytics are valuable for almost all areas of retail, they are most critical for replenishment and customer personalization,” says Ken Morris, principal at BRP Consulting. “Advanced analytics are necessary to predict inventory levels across channels that are complicated by omnichannel fulfillment.” Unfortunately, many retailers have considerable ground to make up when it comes to personalization, with 75% still capable of only basic reporting or analytics.
22
CGT | APRIL 2018 | CONSUMERGOODS.COM
FIGURE 8
Maturity of Retail Customer-Centric Analytics In-store analytics Pricing & promotions Promotional effectiveness
27% 24% 15%
Marketing spend
18%
Assortment planning
18%
Personalization
21% 3%
BASIC REPORTING BASIC ANALYTICS INVESTIGATIVE ANALYTICS
12% 24%
33%
39% 42%
21% 18%
21%
45%
30%
Customer insights
Space planning
39%
18%
12% 12% 6% 24%
12% 3%
54%
18% 6% 3%
52%
15% 12%
72%
12% 6% 6%
PREDICTIVE ANALYTICS PRESCRIPTIVE ANALYTICS
Where the Dollars Are Going
Aware of these deficits, retailers are turning their attention squarely toward the customer. Three of the top six areas of analytics focus are related to measuring and analyzing customer behavior: social media, web/online and data warehouse/storage. (Figure 9). Although analytics is important to every aspect of retailing, “You can’t over-emphasize the customer aspect of analytics, as it is imperative,” says Morris. “Understanding what loyal customers like and what makes former loyal customers leave will tell you where you need to focus.”
Moving to Next-Gen
As retailers work to move up the maturity curve with existing analytics technologies, they’re also eyeing next-gen advancement. Some of these offer the potential to help retailers overcome constraints such as limited analytics skill sets, while others promise to deliver new capabilities and, in turn, deeper insights. Consistent with today’s laser focus on tailoring the brand experience, retailers are putting personalization at the top of the list, just before three key enabling technologies that can deliver it: cloud infrastructure, big data
FIGURE 9
69 %
56 %
SOCIAL MEDIA
IN-STORE
Top Analytics Software Investment Plans
60 %
DATA VISUALIZATION/ DASHBOARDS
analytics and artificial intelligence (Figure 10). “Retailers are recognizing the value of centralizing applications in the cloud: speed of deployment, faster software updates, lower software, hardware and maintenance costs, and a realtime, single version of the truth,” says Morris. “Real-time visibility and access to product and customer information is critical to effectively executing cross-channel fulfillment services. Without real-time data, information provided internally and externally is out-of-date and, therefore, risks being inaccurate and out of context.” Retailers see particular promise in AI and machine learning to help them tackle the big data problems that have long challenged existing systems and skill sets. Gartner has predicted that AI solutions employed by retail companies may come to autonomously manage as much as 85% of all customer interactions. The potential that retailers see in AI and machine learning is clear in the wide array of application areas where they’re testing the technologies. But three rise to the top: customer relationship management, merchandise planning and execution, and assortment planning/ category management (Figure 11). “These are the exact areas that Gartner recommends,” says Hetu. “They’re a gold mine of opportunity to automate inefficient, Excel-based tasks, freeing resources for higher-value activities. With large numbers of relatively high-paid associates who are responsible for making bigdollar decisions that affect every aspect of the business, headquarters are also prime targets for reduction and elimination through intelligent automation services.” Retailers know that bolstering analytics capabilities is essential to making the most of their data. But even as they move the needle, the rapidly evolving marketplace and everchanging landscape of competitors continuously ups the pressure. Many are pinning their hopes on emerging technologies like AI and machine learning to turbocharge their ability to gain fresh, timely insights that can set their brands apart. The race is on to leverage these new capabilities. CGT/RIS
63 %
63 % DATA SECURITY
WEB/ ONLINE
FIGURE 10
Next-Gen Analytics Priorities
53%
Personalization
41%
34%
Cloud infrastructure
34%
Artificial intelligence/ machine learning
16%
Blockchain
Big data analytics
13%
Internet of Things
FIGURE 11
Where Retailers Are Testing Artificial Intelligence/Machine Learning Customer/Consumer relationship management
39%
Merchandise planning and execution
39%
Not using these tools
35%
Assortment planning/category management
32%
Inventory planning
29%
Demand planning & forecasting
29%
Marketing/promotional campaign planning and execution
26%
Pricing
26%
Personalized marketing
23%
Customer-facing service/interaction
23%
Allocation
23%
Logistics optimization
19%
Supply chain planning and execution
16%
Trade promotion
16%
New product development
10%
CONSUMERGOODS.COM | APRIL 2018 | CGT
23
CONSUMER GOODS RETAIL AND CONSUMER GOODS
ANALYTICS STUDY 2018
Sharpening the Analytics Toolset FUTURE SUCCESS DEMANDS BUILDING CAPABILITIES ACROSS THE ENTERPRISE
onsumer goods companies have been leveraging analytics for a long time. But only recently has data become plentiful enough and tools powerful and accessible enough to truly transform the way they run their businesses. Making that technical and cultural transformation is key to competing in an increasingly complex, demanding marketplace where sales channels, marketing strategies and consumer expectations are in constant flux. Most analysts agree that the ability to exploit advanced analytics will be the key to future success — even the key to survival. And CG executives are racing to focus their often limited resources in the right places to gain that critical competitive advantage. Many have made admirable gains in the past year — but will it be enough to set them apart?
Benchmarking
Analytics Progress Competitors are a valuable benchmark for measuring progress. When consumer goods companies compare themselves to peers, they report a significant jump in their analytics skills and people, with 44% saying they’re better or significantly better than competitors, versus just 11% in 2016. They also made advancements in analytics tools, with the ranks of companies believing they’re beating competitors moving from 11% to 30%. Strategy is another area where significant numbers of CG companies (42%) feel they do well against the competition (Figure 12). But those numbers drop considerably when CG companies compare themselves to industry leaders. Just 17% believe their analytics skills/people are better or significantly better, for example, and only 5% feel that way about their tools.
24
CGT | APRIL 2018 | CONSUMERGOODS.COM
FIGURE 12
How CGs Compare to Competitors Analytics strategy
41% 9% 12%41%26%
Data management
28% 9% 24%
Data quality
33%
Analytics tools
30%
Analytics skills/people
44%
BETTER THAN COMPETITORS BETTER THAN LEADERS
53% 64%
12% 27%
51%
5% 28%
60%
17% 19%
51%
LAGGING OUR COMPETITORS LAGGING LEADERS
FIGURE 13
Maturity of CG Supply Chain Analytics Demand forecasting
23%
33%
23%
19%
2%
Inventory management
23%
33%
23%
19%
2%
Replenishment
27%
37%
Transportation logistics
26%
42%
19%
Category management
26%
41%
24%
BASIC REPORTING
PREDICTIVE ANALYTICS
BASIC ANALYTICS INVESTIGATIVE ANALYTICS
PRESCRIPTIVE ANALYTICS
23%
10% 3% 11% 2% 8% 2%
FIGURE 14
Maturity of CG Customer-Centric Analytics
Unfortunately, even comparing against leaders may not be enough to fully measure the gap between where businesses are and where they need to be. “Comparing your analytics savviness to your traditional industry competitors is no longer sufficient,” says Andrew Walter of AJW-Advisory LLC, a retired vice president of IT & shared services at Procter & Gamble. “Consumer goods companies and retailers need to benchmark versus the best across industries. Digital and analytics disruption is blurring traditional competitive threats and business opportunities, so competing with analytics is more critical than ever.”
In-store analytics
16%
Pricing & promotions
15%
With margins thinning and limited resources at their disposal, CG companies must be strategic when allocating investment dollars to improve analytics capabilities. Self-assessment of maturity in supply chain analytics indicates that companies have gained the most value in demand forecasting (with 21% using predictive or prescriptive analytics) and inventory management (16%), two functions that have a huge impact on the bottom line. Both results represent improvement from last year, with inventory management gaining 16 percentage points. Space planning, customer insights and assortment planning — all of which require analyzing patterns in high volumes of data — are the consumer-centric areas where CG companies are the most advanced (Figure 13).
45%
15% 5%
24%
15% 2%
27%
37%
19% 10% 7%
Marketing spend
27%
38%
18%
15%
45%
Space planning
27%
Personalization
26%
BASIC REPORTING BASIC ANALYTICS INVESTIGATIVE ANALYTICS
FIGURE 15
48% 46% 44%
15%
2%
7% 13% 18% 5% 5% 21%
8% 2%
PREDICTIVE ANALYTICS PRESCRIPTIVE ANALYTICS
48 % ENTERPRISE BI/ REPORTING TOOLS
49 %
MASTER DATA MANAGEMENT
Top Analytics Software Investment % DATA Plans VISUALIZATION/
68
DASHBOARDS
13% 3%
24%
32%
Assortment planning
Maturity Needle
13%
Promotional effectiveness
Customer insights
Advancing the
52%
49 %
DATA WAREHOUSE/ STORAGE
42 %
WEB/ ONLINE ANALYTICS
FIGURE 16
Next-Gen Analytics Priorities
49%
Cloud infrastructure
42% Big data analytics
35%
Personalization
26%
Artificial intelligence/ machine learning
19% Internet of Things
12%
Open source analytics
CONSUMERGOODS.COM | APRIL 2018 | CGT
25
CONSUMER GOODS RETAIL AND CONSUMER GOODS
ANALYTICS STUDY 2018
Analytics maturity in any one area, however, is less important than how companies are supporting the bigger picture, says Vittorio Cretella, founder of VCAdvisory and former chief information officer of Mars, Inc. “True competitive advantage comes from the capability to connect insights from those areas into a timely, end-to-end view of business activities. “Understanding correlations — how a promotion is affected by social sentiment and the related impact on its profitability in nearly real-time, for example — will give a CG the decision-making agility required in an increasingly dynamic market environment.”
Top Analytics
Software Plans The ability to put newfound insights to good use is clearly on the minds of CG executives. Many planned investments are aimed at creating the essential infrastructure to ensure that data is collected, cleansed, analyzed and delivered to those who can best act quickly to apply it. Data visualization/ dashboards (68%) are a clear priority, reflecting a widespread effort within CG companies to move data outside individual business units and put it in front of more decision-makers across the business (Figure 15). At the same time they’re building out core infrastructure, CGs are eyeing next-gen approaches that could help them accelerate efforts to move forward. Because so much rides on gleaning meaningful insights out of massive and growing streams of data, they’re prioritizing cloud infrastructure, big data analytics and personalization initiatives (Figure 16). These areas rank even higher than efforts involving artificial intelligence/machine learning and the Internet of Things. Clearly, early reservations about the cloud model have fallen away. In fact, CGT’s “Tech Trends Report 2017” found that 61% of companies already have moved to the cloud, the most commonly adopted step toward digital transformation. That doesn’t mean AI and machine learning are not important, however. Both technologies are new to the industry, and CGs are testing them across a wide range of areas led by demand planning & forecasting and trade promotions (Figure 17).
26
CGT | APRIL 2018 | CONSUMERGOODS.COM
Other early deployments span marketing and supply chain functions. “Most retailers and CG companies are just starting to realize the potential of AI as far as analytics goes,” says Sahir Anand, managing vice president, research & strategy for EnsembleIQ Research Solutions. “CG companies must apply AI and machine learning to read patterns within functional areas so that they can provide predictive trends and insights across the organization — to category managers, planners, pricing managers and supply chain executives.” Anand recommends that CGs invest in machine learning, natural language processing (NLP) and robotics. “Within machine learning, the best areas of investment are demand forecasting, replenishment, pricing and trade promotion, since [the technology] can help read patterns of information in a self-learning manner as well as provide predictive data and scenario-based modeling of outcomes,” he says. “NLP can solve many problems within the supply chain, such as voice-assisted routing or picking. Robotics can help in production line automation and warehouse automation, like pallet movement and pick-pack-ship.”
Plenty of Road Ahead
CG companies can feel good about the progress they’ve made in obtaining the more advanced technologies and skills needed to compete in an insights-driven marketplace. They’ve made important progress in several key areas, including demand forecasting and inventory management. But as the competitive universe expands, they’ll need to move aggressively to implement more transformative tools such as cloud infrastructure and AI. Companies that find a way to infuse advanced analytics capabilities into decision-making processes across the organization stand to gain significant ground against the competition and a deeper understanding of today’s everevolving consumers. CGT/RIS
FIGURE 17
Areas of AI/Machine Learning Exploration Demand planning & forecasting
27%
Trade promotion
23%
Inventory planning
20%
Marketing/promotion campaign planning and execution
20%
New product development
20%
Personalized marketing
18%
Customer/consumer relationship management
16%
Assortment planning/category management
16%
CGTechTips
S P O N S O R E D
CO N T E N T
Sales & Operations Planning
Optimizing Your S&OP Capabilities HENRY CANITZ Director of Product Marketing & Business Development Logility
Thousands of companies of all sizes and types have reduced costs, improved service and gained a competitive advantage through sales and operations planning (S&OP). However, when attempting to move to higher levels of process maturity, it can be useful to take a step back and review best practices. Below are three practical tips that have proven to be helpful when optimizing S&OP capabilities. Focus on the Future While historical data does play a role in establishing projections, S&OP should provide a “window into the future” so that companies can … a. see potential problems with enough lead-time to … b. take corrective action and … c. prevent potential issues from becoming problems that spiral out of control. A forward-thinking view gives executives the ability to profitably manage the multi-dimensional aspects of their business. Improve Efficiencies Through System Automation and Collaboration Some companies spend so much time on gathering, correcting and manipulating data that they run out of time in their S&OP cycle to accomplish much more than creating historical graphs. Spreadsheets provide little assistance and emails quickly become cumbersome. A dedicated S&OP solution can automate data activities and provide collaborative workflow and messaging to streamline process facilitation.
info@logility.com | www.logility.com
Embrace Integrated Business Planning (IBP) Most successful companies have some form of strategic and tactical planning. However, these critical planning processes often tend to be completely separate, managed by different people, based on different assumptions, using different data and running on different systems. It’s not surprising that tactical and strategic plans are often misaligned. IBP is an integrated business management process through which all functional areas achieve focus, alignment and synchronization. By removing organizational and technology barriers and aligning and synchronizing plans, IBP ensures that business plans are rooted in feasible capabilities and resources, and that investments are deployed where needed to achieve business goals. How is your company optimizing S&OP today? Are you taking the necessary steps to focus on the future, improve efficiencies through system automation and embrace IBP?