Julie Bowerman of Kellogg at GroceryShop 2019 – Photo: GroceryShop
Are legacy CPG brands just naturally digitally-challenged?
Through a special arrangement, presented here for discussion is a summary of a current article from the bi-monthly e-zine, CPGmatters.
Why is it so hard for a CPG company to become a digitally enabled organization?
“If you have a 100-year-old company with process and culture, it’s really hard to change,” said Julie Bowerman, Kellogg’s chief global digital consumer & customer experience officer, recently at GroceryShop. “There are a lot of short-term pressures on the organization. You also have the Street constantly asking the CEO about digital native brands. When you are in a low-growth category, it’s hard to find that scale to justify an investment. Also, companies just don’t hire digitally capable talent.”
She said smaller digitally native brands have the right talent. They move quickly and innovate. They operate at a different end of the spectrum than large CPG organizations.
Joining Kellogg to build and lead the transformation of its online e-commerce business and brand digital experiences, Ms. Bowerman assembled a digital team “to reflect what is happening in the marketplace.” Staffed with blended talent, the team has a three-pronged focus: consumer, shopper marketing and customer. Everything is integrated.
“The other thing that we’re getting right at Kellogg,” she said, “is that we don’t think about this as just sales and marketing. We tell the organization that the beauty of e-commerce is that it’s a platform to build brands. Most importantly, we’ve established metrics for our business.” They include:
- Are we driving growth in the category?
- Are our brands healthy online?
- Are we growing the channel in a particular market?
“P&L and measurement routines are integrated into the company,” she said. “Culturally, this is how we build our ecommerce team.”
Ms. Bowerman listed several other ways Kellogg is getting it right:
- Scrappy leaders: “I want people who are going to break down walls and barriers.”
- Cross-functional partnerships: “They feel a partnership and they build credibility and trust with the rest of the organization.”
- Stewardship at all levels: “We’re constantly telling people the why and the benefit. Every part of the organization has to understand it.”
- Passionate about our agenda: “We’re super passionate. We came here to make a difference. That passion is what drives you. It’s part of our team culture.”
Discussion Questions
DISCUSSION QUESTIONS: What are the biggest lessons to take from Kellogg’s progress with its digital transformation? What are the biggest hurdles for a large CPG company seeking to become a digitally-enabled organization?
Poll
BrainTrust
To be frank, I think many legacy CPG brands struggle with innovation period. Heinz-Kraft is a great example: a portfolio of increasingly old-fashioned products with badly designed packaging whose primary appeal is to consumer groups which are shrinking in size and influence.
A lot of this does come down to corporate culture. Some also comes down to playing on the same turf and wanting to defend legacy brands. However, CPG firms need to adopt new thinking and play where the growth is. In my view, this means creating innovation hubs and divisions which have some degree of separation from the main business.
Overcoming the inertia inherent in most behemoth brands is a monumental challenge. So many factors are stacked against creating the agility required to adapt to the new consumer paradigm: organizational structures (and hierarchies!) must be changed; attitudes toward risk – and failure – must change; heck, even KPIs must change. Congratulations to Kellogg’s for their recent successes – I wish them well!
I just finished reading a book called Predictable Success. I recommend it. Many smaller digitally enabled organizations are in the “fun” stage and have not yet grappled with the “treadmill” stage where many of them will be before they can make it into a “predictable success” model. Many large CPG companies are trying to get out of the treadmill stage and back into predictable success which is very challenging as it takes a cultural transformation which takes time.
There are definitely headwinds; not all digital commerce is incremental, and leading CPG companies early in their journey perceive they have more to lose on a quarterly basis than to gain. Unit economics can be challenging. Retraining or hiring en masse is a headache.
None of these challenges make it optional. New, digital native brands are on offense — they have nothing to lose and everything to gain. They build brands and routes to market that are purpose-built for the next decade. They’re meeting shoppers where they are.
It’s encouraging to see leading brands continuing to adapt and evolve. If they become more responsive to demand, infuse digital in their R&D and supply chains, and go on offense, I think large CPGs can move beyond outsourcing innovation to start-ups, too.
Two best practices that Kellogg’s has established which can help transform other legacy brands are 1.) stewardship at all levels and 2.) securing digital native talent. Today’s digital native workforce composed of Millennials and Gen Z want to work for companies where they believe their work contributes to the overarching goals of the company. Securing digital native talent can feel risky for legacy brands but companies can follow the success of Estée Lauder where reverse mentoring was a tremendous win.
It is a complex question to answer. If a traditional CPG has been selling successfully through the retail channels, and every consumer knows the brands (they’ve been around for 100 years), is it imperative that they try to fend off newcomers to the market? Do CPG companies have to sell online and thus compete with their retailer customers? I think not.
I applaud Kellogg’s efforts to break down the traditional monolithic culture of a Top 100 CPG. Large, traditional CPGs are taking it on the chin from many angles including culture, innovation and not keeping up with the changing consumer. One of the biggest hurdles for a large CPG to becoming more nimble, more digital, etc. is they need fresh talent from outside of the “brand management” and “sales management” world to better reposition their traditional brands. Introducing diverse talent, as with the changes at Kellogg’s, can create real change and drive future success.
The concept of innovation does not have to be solely tied to being digital-first, or technologically savvy. Rather, for legacy CPG firms, the challenge has been to evolve, adapt, and take a more agile strategy to approach the changing consumer preferences and trends in the age of health, wellness, and overall focus on nutrition.
Traditional CPG firms just simply are not hitting the mark, and consumers are seeking options from smaller, local, far more agile and innovative CPG firms. While the larger CPG firms have achieved significant economies of scale, and their reach is impressive, it’s high time for traditional larger firms to redefine who they are and what they stand for, and evolve their strategies to reflect changing consumer preferences.
Retail marketing has changed. That’s why Ms. Bowerman is wise to examine market factors amid today’s new retail reality, and smash silos to serve consumers as a holistic, cohesive team. Today’s most successful CPG brands are consumer-centric, agile and teachable, adapting their products, technologies and marketing communications to consumers’ desires.
The biggest challenge that big CPGs face in becoming digitally enabled is that of internal incentives for leaders: For an ambitious person that hopes to push the envelope in a big CPG company, there is too much risk for leading an effort that fails and too little upside for one that succeeds.
Any business that has been around 100 years largely unchanged is going to struggle with digital business models. We see this in retail and CPG but many other businesses too. Infrastructure, culture, processes and IT are quite literally “hard coded” into the business. We have seen companies attempt to become digital through acquisition (Unilever buying Dollar Shave Club and Walmart buying Bonobos, for example) but few organizations have managed to take the overall “package of intellectual property and cultural approach” and successfully apply it to other elements of their business. This remains a challenge for companies going forward. There are no silver bullets.
This issue goes beyond digital transformation. It’s about embracing change and innovation. It’s one thing to be innovative with products, as some of the big CPG brands have been. It’s another to adapt to a changing retail environment, as some big CPG brands have not done. Even with bigger budgets for marketing, product development and more, they still seem to lag behind the nimbler, smaller companies. As most big brands are publicly traded, the risk of failing sometimes outweighs the less risky choice of doing nothing. As these larger brands are finding out, that doesn’t work. They are now forced to play catch up and along the way are losing customers.
The challenge is company culture. I work for a 100-year-old company that’s leading the world in AI, Quantum and other innovations. We ain’t perfect, however, I do think there are some GREAT [old] CPG companies that haven’t let their legacies stop them from innovating. It’s all about leadership.
There are several challenges legacy CPG brands are faced with in terms of attracting and retaining talent, but when you narrow that focus to digital the challenges become even more apparent. The attributes most often associated with digital talent are not often the same words used to describe any large organization. When was the last time you heard a large company described as nimble, agile, or flexible? Additionally, the organizations themselves are not in the most desirable locations and can be tough to get the talent to commit to moving to a town that lacks the vitality of cities like Seattle, Los Angeles, or New York.
There are ways to overcome some of these challenges. By instituting a separation from their traditional siloed approach to business and creating a COE team that isn’t bound to the same regimented processes, you give your team the ability to thrive. It’s supposed to be a test and learn environment, so cultivate it. Another option is to provide more flexibility and allow team members to work remotely.
Smaller companies are not only disrupting the categories that the large CPG companies play in, but also changing the expectations of a thriving digital culture that can’t be ignored.
Innovate, adapt or perish is what most CPG brands should be realizing as they try to become more digitally diverse. Their reach must include sales, marketing, customer service and operations at all digital levels. Measurement of each of these metrics with numbers to define success, as well as clearly targeted goals and objectives should be part of the organization’s mantra each day. Anything less will allow the old branding to stay fixed within a non-digital, insulated, position which leads to eventual failure of the brand and often the organization.