Could IoT wreck the CPG & Retail marriage?
Bharat Kapoor
Partner @ Kearney | Global Managing Director PERLabs | Product Strategist | Technology Investor
CPG and Retail are like peanut butter and jelly or pen and paper. But that marriage may be in trouble! And the home wrecker is no one but the talk of town - IoT! You ask - why!
IoT is creating a world where information will be available in real or near real time - as Prof. Sanjay Sarma of MIT says - "you will have the ability to have ESP into your business". This is something we never had before - in the book Outliers, author Malcolm Gladwell says that it takes roughly ten thousand hours of practice to achieve mastery in a field. And this mastery was needed for one key skill - decision making!!! With practice comes knowledge, which is built on experiences and patterns. IoT allows us (at least to some extent) to short circuit this challenge and make better decisions not based on judgement and experience but data and information.
Prof. James Schrager of Chicago Booth, tells a story of a fire fighter. A group of firefighters enter a building, supposedly on fire. The most experienced fireman enters first, he sees its hot, but no flame and no smoke - he yells "get out" to everyone. Within minutes the floor collapses and huge flames erupt. His experience per Malcom Gladwell told him the fire was in the basement. But IoT can make that decision very easy - with sensors around the building, you would have this information on your tips without even entering the building.
IoT has the potential to enable CPG companies to know their customers well – something that they have never been able to do before. Really know their customers - not voice of customer, not focus group or whatever "buzz word of the day is" that exists. Amazon Dash button (technology) has already given us a glimpse of what IoT could do - and that is just scratching the surface.
Let's see how the adoption of a CPG's IoT will start to put strain on the Retailers.
A connected device will require the consumer to connect / register - and the registration will get done with the CPG. Traditionally for consumer durable goods only 10% consumers register their products - ask yourself when was the last time you mailed in the registration card? On the other hand, when was the last time you registered Tide or Surf? Amazon changed that with the Button. For the first time manufacturers or brands will have insights into their consumer without the middle man - the retailer.
Among several implications, below are two of the most profound that could impact both the CPG and Retailer industries:
1. Call Mother Ship:
The very first feature of all IoT device or packages will be to call mother ship i.e. register and then again call the mothership when the product is about to run out or break, this creates a situation, Greg Portel likes to call "Limiting Consumer Choice" - you ask how?
The CPG can create a business models around replenishing their products before they run out and never give the consumer the choice of shopping for alternate brand. Stock out issues get resolved, which by empirical accounts lead to about 30% loss in sales. With captive customers - as subscription model or as I like to call BLAHaaS (Blah as a Service), CPG can create a predictable revenue stream (what Microsoft did with Office365). Lastly, BLAHaaS will diminish the importance of coupons to continuously encourage consumers to spend. Now that the CPG have captive customers - can retailers command the margins they demand today for providing a platform for CPGs to sell their goods? IoT or Time will tell!
2. ESP into Inventory / Sales:
Even with all the technologies available, CPGs have hard time getting sense of how their product is doing in the real time. A marketing execs at a global CPG remarked, "it takes us about 4 weeks to understand how products are doing the market". In come NeWave's Smart Shelves, and by smart we don’t mean digital menu cards that can be dynamically programmed but the ability to track inventory in shelves and when that inventory is pulled out of the shelf among others. In less than 5 seconds the CPG has access to this information (vs. 4 weeks).
Now let's explore the possibilities - CPGs can track how inventory is stacked at various retailers and can move inventory as desired to high demand locations without having to generate a plan months or weeks before – but react to demand and meet it in real time with material impact. They could even offer VMI (may just become the norm), which CFO will pass on an opportunity to reduce capital stuck in inventory. How / Why can CPG can do it efficiently – because now CPGs only produces what is desired in the market - not by guessing but by tracking or having ESP into their business and customers consumption. Imagine a world where the entire SNOP function may get disrupted or eliminated - for the first time JIT (Just In Time) may happen not by shifting the risk to suppliers or others but really producing what is being consumed but based on real demand not forecasted demand.
With this I leave you to wonder what could IoT do for you - if you are a retailer, how do you keep yourself relevant and if you are a CPG - the sky is the limit!
Other relevant publications:
- Lessons for IoT from Trump's Presidential Run
- Industrial Internet’s Impact – Drunk driving, Vanishing regional airlines & Shared cars
- A $5 Raspberry Pi Zero - A leap towards IIoT's Smart Dust horizon
- Could Garden Lamps show light to the Industrial Internet of Things?
Be a part of the discussions on IIoT—join the LinkedIn group“Industrial Internet / Internet of Things - A Lens to Predicting the Future.”
Great article, Bharat. I remember Prof. Schrager's story about the firefighters. IoT would have certainly helped save the day in that scenario.
Private Equity Operating Partner | Portfolio Operations | Board Member
8 年Great perspective! IoT is bound to disrupt many industries and retail is yet another example of that. It would be interesting to see how retailers would sell shelf space to CPG companies with the rise of IoT and as there is greater visibility into product sales and consumer behavior
Senior Managing Director Communications & Media Europe | Ph.D. in Economics
8 年Bharat, like the reasonning, but you are cutting short on the complexities of IoE Business models and stack in the future. There are three control point for IoE - physical access, API, and User Experience - See my article on that. And it is by no means clear, who will own them.
ID, UX, AR, VR and IP Expert
8 年Great article. I also agree that the smarter retailers will get a lot more advantage from Iot than just inventory management. A lot of current market data revolves around the shelf -how many, how often, etc. But we need to evolve our think towards what happens at home. IoT can give us that insight, which can point towards what emotional connections the retailer can use to sell it. Great point about the interactive workshop too, this is exactly where we can reap the benefits from knowing about the users' emotional relationships to the products.
Director - Retail Partnerships at Instacart | Ex-Kearney | Ex-TE
8 年Great article Bharat. I this is already happening to a lesser extent where manufacturers are depending less and less on retailers inputs for product innovations. Rather is an increases CPG focus on better understanding and monitoring consumer behavior/ consumption patterns to create products and then push them out to retailers. What would be interesting is to see how retailers can also use some of these futuristic technologies like smart shelves and instant replenishment to manage inventory and lock consumers into private label offerings?