CAGNY 2018: Day 2

Steve Cahillane, the new CEO and President of Kellogg, kicked off the second day of CAGNY, which also featured Philip Morris International, Coca-Cola European Partners, Campbell Soup, Altria, PepsiCo, Constellation Brands, Hershey and J.M. Smucker. Mr. Cahillane’s message was in line with the key theme of yesterday (which I predict will be the key theme of this entire conference): Return to Growth.

That there will be a number of consistent themes across companies was evident. @CosgroveAK and @jessicawohl were joking on Twitter about playing CAGNY bingo – with the old standbys being Millennials, Convenience and Snacking – and new additions including Agile, Purpose, Revenue Management and Sustainability. Snacking certainly was a popular topic today, with every single Food presenter having made significant acquisitions in the past several years to build this one area of Food which is still growing. This brings up a broader concept I would add to the list – that of reorienting the portfolio away from declining markets and seeking growth in new areas.

For example:

• Kellogg’s pivot to snacks with Pringles + RXBAR
• PMI’s shift to smoke-free
• Campbell’s significant buys in fresh and natural/ organic - and recently announced acquisition of Snyder's-Lance
• Constellation’s investment in Canopy (cannabis)

Indeed, M&A – and, occasionally, breakthrough product innovation – to reset the portfolio (while divesting non-core or underperfoming SKUs, brands or even entire categories) is a constant in the industry. A related theme has been the purchase of small fast-growth brands – and I have been interested to examine companies’ varied approaches to these acquisitions. Of late, the usual approach has been to buy and isolate – that is, ringfence the small brand and allow it sufficient independence and autonomy so as not to be killed by the corporate machine. It does seem a rather expensive means to buy growth if the core business doesn’t also learn from these nimble, innovative brands. I did hear a few presenters talk about the fact that they had acquired talent, not just brands – and that they sought to learn from the acquired entrepreneurs – Hershey and Amplify, for example. However, Hershey's President & CEO Michele Buck also talked about the need for different operating models for big vs. small brands, and that core Hershey and Amplify had entirely different organizations, talent and capabilities. Clearly there is tension between the desire to learn from innovators and the need to preserve what makes those innovators special in the first place.

The final bingo word I would add is “platform”. Smucker’s President and CEO talked about their new premium coffee platform, 1850, with an emphasis on this being a platform for other coffee experiences. This was in addition to their other platforms (Jif and Milk Bone) – and Smucker was not the only company with this approach. Pretty much every company continues to focus on innovation/ renovation/ expansion within the platform of their power brands. One of the analysts questioned using Folgers as the platform for 1850, and the (subtle) alliance of a new premium product within a brand that has been struggling. This is a broader question for CPGs, i.e., when does it make sense to tie new innovation with old brands, and when does it naturally limit the growth or targeted niche appeal of a new product/ category?

To wrap up, I will share two standouts…

First was Constellation Brands, whose President/ COO Bill Newlands, was clearly having a ton of fun on stage (as well he should, with comparatively jaw-dropping growth and margins). I enjoyed his presentation both for the spirit he brought to the conference, and also because of his interesting portfolio of growth initiatives which included a nice mix of product innovation (including cross-category), the must-have growth in niche/ craft areas and investments in completely new markets like cannabis.

The second was Philip Morris International. After many years of a message that boiled down to “We are a great investor pick because of our reliable earnings and shareholder returns”, the company launched its “smoke-free future” plan last year. Today, CEO André Calantzopoulos gave an extensive discourse on their smoke-free aspirations with admirable aspirations (~40% RRP by 2025) and a sincere and frank discussion that recognized the skepticism the company faces, as well as their utter commitment to transparency and working collaboratively with a broad ecosystem of governments, NGOs and the science and health communities. It was certainly the most dramatic turnabout I have seen in my decade of CAGNY conferences.

Tomorrow starts off with Unilever. I will see you, then...

If you missed my other CAGNY 2018 posts, read on:

• Day 1 recap
• Day 3 recap
• Day 4 recap and final thoughts