‘All Bets Are Off’: Culligan CIO Tony Bender On Top 3 Consumer Goods Growth Levers
The consumer goods industry’s urgency for growth and innovation wasn’t created by the pandemic, but it was certainly exposed — and accelerated. Dig into today’s top three growth opportunities for CG companies with Tony Bender, president and CIO of Culligan International, the global manufacturer of water treatment and dispensing products. As part of this, Bender, a “serial CIO” who also previously led tech at Edgewell Personal Care, Energizer Holdings and Alberto Culver, will share insight into why Culligan is leveraging analytics to think beyond shopping cart experiences to capture and retain customers and expand its base.
Read on to learn more about:
- Growth potential for brands surrounding private label
- Predictions for M&A activity
- How CGs can be more proactive in meeting consumers’ needs
Albert Guffanti: Hello, everyone, and welcome to today’s webinar. My name is Albert Guffanti. I’m the publisher of Consumer Goods Technology (CGT). We’ve been producing this webinar series along with SAP. Our conversation is going to be with three industry executives who have been around for a long time and are still very focused on top-line growth and have a lot of perspective to share.
The pandemic and COVID-19 didn't suddenly create a need for growth. The need for growth and innovation has been brewing for quite a while. Now the scales have been tipped and it's that much more urgent. We're going to dive into the three types of growth, or I should say the three levers of growth, that consumer goods organizations should consider: M&A, new product innovation and, of course, organic growth, as well.
I’d like to introduce our esteemed panelists. First, Paul Larson is a senior principal and industry executive advisor of consumer products at SAP. Next, Harris Fogel, global vice president of consumer products at SAP. Finally, Tony Bender, senior vice president and chief information officer at Culligan.
Welcome, everyone. Great to have you all. You guys have years of experience, both on the solution provider side and also on the consumer goods side of the business. Paul, why don't you start, give us a little intro about yourself and what you're up to, and we’ll go around.
Paul Larson: Hi, everyone, my name is Paul Larson. I'm an industry executive advisor for SAP and have been in this industry for 35 years. I live in Austin, Texas and started selling Pepsi up and down the street here, way back when. A lot has changed, but a lot hasn't. I spent about 25 years in business leadership roles with consumer products companies before I joined SAP, so I've got a business background. I’ve been with SAP for 10 years, working with customers on their most compelling business needs and then helping them be successful. We're going to share some of that today. Growth is my favorite topic and has been for 35 years.
Harris Fogel: Growth is my favorite topic, too. I’m Harris Fogel, I run SAP’s consumer products business unit, which is a global role. I'm based out of Atlanta. My team focuses on where the industry is going and what key solutions customers are looking for to help improve their businesses. We spend a lot of time talking to our customers.
Having been in the industry for 35 years, I had started with Procter & Gamble, was one of the early adopters of category management and space management systems back in the dark ages when we used floppy disks. I’ve loved everything about how technology can help CPG companies since then. Many of you know I ran a couple of startups after I left P&G, before I joined SAP. I’ve been here close to 10 years as well, focused on the industry. Sales and marketing is my passion, so I look forward to the discussion as well.
Guffanti: Thank you, Harris. It's funny because I started about 15 years ago, so I know you guys from the midpoint of where you were before you went to SAP. Tony, similar to you, I met you when you were still at Alberto-Culver and then Energizer and Edgewell, and now Culligan. Can you give us an intro on your background experience, which is quite considerable? We might need the entire webinar for that.
Tony Bender: We don't have enough time to get into all the details, which really dates me. I'm currently the senior vice president and CIO at Culligan International. For those of you that have been around a while, I'm not the Culligan Man, but I am the head of IT for Culligan. I've been working with Culligan for the last couple years, the last year and a half or so as interim CIO and then CIO.
This is the sixth CIO role that I've been in, over 25 years of being a CIO. I've been around the block and have seen a lot in the industry relating to technology and things driving growth, M&A, and other digital transformation work, which will be part of our conversation today.
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Guffanti: I'm going to start with you, Tony, because we've been talking about growth for some time now. I remember a casual comment you had made to me — I think it was during a cocktail reception at one of our events, Orlando back in 2015 — and it stuck with me because you were one of the first to say it. You said, "This is an interesting time for our industry because all bets are off." Naturally, I said, "Well, what do you mean by that?" and you said, "Well, retailers are acting like brands, brands are acting like retailers, the chips are all in the air and it's going to be interesting to see where things land." That always stayed with me because it was such a prediction. It's almost like you can say to yourself, "If I really knew then, what we know now, what would we have done differently?"
So, on that note, I want to start with you and ask: What does growth mean to you and what did you mean back then when you said that? If you knew then, what you know now, what would you have focused on and what should other executives focus on when they're thinking about growth, from a broad level?
Bender: What's been interesting for me, especially in the last three years, is that when we had that discussion I didn't know. The industry has made a lot of changes over the last few years, but a lot of the themes are very consistent in terms of M&A, you have organic versus inorganic growth with M&A; digital transformation work in terms of how do you get into the digital world and omnichannel in-store and online work; pricing and the role of pricing even in terms of growth.
A lot of people in CPG think you can't take price, but especially in inflationary times that we're in now, it's something that I'm seeing more and more of. Especially in the last three years, a lot of the work has been in private equity and a lot of things in the public sector could benefit from what private equity is doing in terms of thinking about value creation plans and driving the growth, or what the levers are for driving that growth.
I know a lot more now than even I did back five, six years ago when we had that discussion about the importance of this growth and the importance of how the enterprises increase the value of their businesses by growth. We've all tried to save our way into profitability and realize that you can only squeeze so much juice out of that. Everyone is now focusing heavily on growth, so this is a great topic for us to be discussing.
Guffanti: For sure. I'm going to throw it back to Harris and Paul. You work with multiple consumer goods brands in your day-to-day work. What are the types of growth that brand executives, board members are challenging you to help them tackle?
Fogel: Well, there are different ways for growth. I'll pick up on M&A as a topic that Tony just mentioned. As we think about M&A, we see companies looking at new categories. Look at Hershey: Snacking's not a new category for them, but pretzels are and they just went off and bought Dot's Pretzels for $1.2 billion. That's a significant acquisition to help with growth, to get them into a new category. I was a fan of Dot's Pretzels, I had no idea they were that large, and it was the hottest growing segment of that particular category.
The one that we're seeing over and over and over again, is in the area of sustainability. If you think about growth, sustainability is at the top of every CEO's agenda. We're just coming off COP26. I'm happy to say that SAP made some major announcements of new solutions that we are now offering for responsible design and production, in the sustainability area to help companies make intelligent decisions on what products and ingredients, as well as how to deal with the plastic taxes and fines that are coming in the different industries.
Sustainability is where companies are looking for growth. To have the right products and meet consumer demands, you can see the type of acquisitions companies are making. Unilever bought Seventh Generation just a few years ago, SC Johnson bought Babyganics. There are different types of acquisitions that are being made in the sustainability area.
It's a lot organic but from an M&A perspective, you're going to see it continue to expand as consumers demand it, quite frankly. Then, the new channels and routes to market, as Tony mentioned — think about major consumer packages companies like P&G buying Walker & Company, wanting to get into D2C, or Unilever and Dollar Shave Club, Edgewell's attempt to acquire Harry's and now buying Billie's. These are digital natives that companies are using to get into new routes to markets and grow that business for their other brands as well.
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Guffanti: Tony, do you want to comment briefly on that? Harris teed you up a little bit.
Bender: It was an interesting time at Edgewell in terms of playing out what was happening with Dollar Shave, with Unilever and Harry's play, and what's going on in the shaving category. There are many challenges in that category, as we all know, and especially in the COVID world, it's not made it easier for the category. It's a very challenging category in that regard.
But yes, you have to test and learn, be agile, and have to make some bold decisions. In that case, making a decision like going after a Harry's was a big, audacious objective in a category that, while there are new entrants in it, it's still quite competitive.
Guffanti: For sure. Paul, I completely agree with you, I love the topic of growth. It taps into the creative part of us all, the optimistic, forward-looking part that is a positive way to be. Why don't we talk about the second type of growth? We talked a bit about M&A, what about new product innovation? Innovation is another great word. What are you seeing in terms of how consumer brands are growing through new product innovation?
Larson: I was hoping you had asked me that because that's where it gets crazy. Thirty-five years ago we had a lot of new product innovation, but it was to one or two channels. You knew what you were going to do — you need to get an end cap, get the ad, get the right distribution. It was fairly simple back then, but when you start looking at new product innovation today, it's complex. When you start looking at packaging, all these different channels, trade classes, you get direct-to-consumer and marketplace just going through the roof — but, oh, guess what, to introduce a new item in those other trade channels, it's going to be packaged differently, the consumer's going to consume it differently, maybe on a smaller scale in each of these instead of a set of five or 10 in a package.
When you start innovating with new products, you have to think if you have your top 10 customers that you want to get these new items out to, or do you have millions and millions of direct-to-consumer customers to innovate with and drive that new product out to them.
Either way, you need to do that profitably because you can call and work with those 10 big customers and automate that easily, but if there are 10 million customers trying to do the same thing, not only is that complex, but you need to make money doing it, too. There has to be margins. If there isn’t a way to automate this process, go back to the drawing board when thinking about new product innovation.
Harris mentioned a little bit about that word, sustainability. There's a lot of teeth in that today because to introduce a new product, it needs to be approved through any type of O2 emissions standpoint, especially if it has plastics in it. If I'm selling a food product, if it's organic or whatever, the consumer needs are for that particular type of product. I have to dig down into that recipe, without technology, automation, or a lot of analytics, which makes the product innovation process interesting and that’s not including marketing.
The whole digital side of marketing is a lot different than the way we used to market on-premise or at the point-of-sale. I could go on and on about new product innovation, but it's not going away. If you're not growing with new products, you're going away. You're not going to be resilient. It’s more important than ever, maybe a little bit more technically challenging, but it's here to stay.
Guffanti: Harris, we mentioned sustainability a couple of times and I agree with you, it’s the most important topic of our day right now in our industry. It's important to stay relevant to existing consumers and future consumers by standing for something more than just the product that you manage. This is one of those things that we talked about, that's accelerated in the last couple years. Sustainability clearly plays a big role in growth. Some might say that's more long-term growth, but sustainability has so many layers to it that it actually provides short-term growth. It resonates with a set of consumers that may not have purchased your product before, but because you align with their beliefs and moral compass, they are now working with you or buying from you.
Would that be considered organic growth because that's the third pillar that we didn't really touch on yet? What do brands think about organic growth? Are brands using sustainability as a way to achieve organic growth?
Fogel: You hit the nail on the head when you said consumers, what does a consumer want? What's the consumer sentiment? The brands we're working with want to understand consumer sentiment quicker, in the moment of need. It goes back to new product innovation. Paul mentioned being able to innovate on new products quickly is important. To understand the consumer sentiments helps them innovate on products quicker.
What we're seeing is — there's a study out of NYU Stern School of Business on sustainability from organic growth — consumers are willing to pay more for products that align with their values. That may not be the case in every situation, but the report did bear that out: they're willing to pay more and buy more. It helps a manufacturer or brand to attract consumers to your needs and to what they want.
Understanding consumer sentiment quickly — and there are various mechanisms to do that, which could be its own webinar into itself on best ways to understand consumer sentiment — is really important. Thinking about organic growth, it also focuses on having complete visibility into the supply chain. If you understand what your consumers are, you understand what promotions you're offering. You want to make sure you're on-time, full, and does it fall under that umbrella of organic growth? Yes, it does because if you can't get your product to the shelf or to the consumer, you can't grow. Then you're also going to disappoint consumers, customers, etc. and you don't want to disappoint them.
The other thing we're seeing is in the area of smart promotion, smart pricing, smart product — this all falls under the umbrella of revenue growth management. The question is, am I promoting smarter? We've seen major CPG companies that have been optimizing promotions for years, taking a new, fresh look at using artificial intelligence and machine learning to promote better, getting significant gains, taking those same trade dollars that they would've spent anyway. They’re getting growth because they're being accurate on consumers and channels associated with it.
I’ll talk about using D2C again — it's going to come up over and over — getting that product, which may have gone through a traditional brick-and-mortar channel to the consumers, a direct-to-consumer model, whether doing it directly through the fulfillment center, working with a partner like Amazon, or a marketplace to get it to the consumer. Organic growth takes many forms.
You started with sustainability, which I love, and it's going to grow quicker and quicker. Sustainability though, if you do it right, is also going to allow you to make intelligent decisions on what products are going to help avoid paying plastic tax and other types of fines that are going to come down the pipe.
Guffanti: The interesting thing about taking a sustainable-first approach is that it allows you to find your purpose as a consumer goods manufacturer, instead of trying to check off all the boxes. You're right — D2C, AI, machine learning, all these things — if there's something as a consumer brand that you stand for and you have a purpose, for instance to be the first truly no carbon footprint manufacturer or no waste manufacturer on the planet, that aligns you in with all the other things that you were trying to figure out haphazardly.
Tony, we're all technologists here. You describe yourself as a serial CIO, but you were always, when we were working together in your different roles, always very business-first in your approach. Rewind to 2015, you had to make some bets, play some bets on technology, whether it be D2C, personalization, AI, whatever it is, what would you have spent more time and effort on back then to be in a better position today?
Bender: That's a great question. The things that have resonated with me are, when we talk about digital, not just the e-commerce piece, but having a digital presence as far as driving digital marketing activities, how that goes into pipeline management from a sales standpoint, and how to actually work that. There's so many tremendous opportunities with that, looking at the lifetime value of the customer, understanding churn and that gets into the analytics space and looking at analytics principally on the front-end of the funnel. How are leads coming in? How are you driving lead generation? How are you converting leads into actual orders and installations?
One thing I like about Culligan, and one of the reasons I joined Culligan, is that the company is speaking as a poster child for sustainability because a lot of the household products that you install in your home are products that prevent you from buying bottled water — the bottles, the plastics that are involved in it.
It's a product-related thing where you touch the customer and the technologies are, in terms of providing customer-facing portal technologies, mobile technologies, and understanding analytics. But understanding analytics principally on the basis of how to drive more leads, how to create greater lifetime value, how to reduce churn? That allows you to create beachheads about your revenue and then how you grow from there. In that digital journey, it's not all about shopping cart experiences. A lot of it is about how to be a better marketer on the digital marketing side, how to have better analytics about what that pipeline management is, and how to hold those customers and expand land and your customer base.
Guffanti: Harris, what do you wish you were telling people back in 2015? If you had to suggest how they could take advantage of the incredible amount of innovation that has happened since?
Fogel: That's a loaded question. If I had to go back six years ago and focus in, from a brand perspective, continue to focus on the consumer. What does the consumer want? What new products? Align your organization to deliver on that promise whether it's new product introduction, routes to market it, focusing on sustainability. Those are the key things. I'm not smart enough to be able to see into the future, but those are things that I would've liked to have been talking about, 15 years or even five or six years ago, in 2015.
Guffanti: Tony, there's another conversation we had where you talked about your time at Energizer. A significant part of your business was supporting or helping private label retailers manufacture and distribute their own brands, their own batteries, things like that. How much of a growth potential is that for other brands who might want to support retailers in that same way? I know there are other brands who assist in distribution of products and sending products to different locations for retailers, and things like that. How much growth is there for brands to play a more active role in supporting retail partners?
Bender: All retailers, particularly from a brick-and-mortar standpoint, want their own private label brands. If you're on-shelf with a retailer and have a brand presence — sometimes in order to expand the partnership with a retailer, if you have excess capacity that you can provide private label products that will allow them to, they're going to go somewhere to get their private label product produced.
If you can increase overhead absorption by running their product for them and providing branded products in conjunction with it, it's a win-win situation. You're providing a product that you know they're going to source somewhere. If they source it from you and you can get overhead absorption, then you can gain benefit and translate it into more profit. It isn't something that most companies are going to chase, but it's something that you can opportunistically use as a lever to gain favor with your retailer.
Guffanti: Paul, Harris mentioned that is the focus on the consumer. What can you talk about in terms of growth? How can consumer goods organizations be much more proactive in meeting consumers needs and take into consideration the shifting channels? Again, we touched on D2C, but how much should brands start thinking about shifting channels and things like that? There's been talk about D2C works for some, others may or may not be a huge growth area because there's a lot of costs involved and things like that. Can you provide some perspective on that?
Larson: That's a deep topic. When you look at the shifting channels, you've got to continue to keep your pulse on the consumer because the consumer’s needs continue to change and it depends on what's going on in their life, where they live, what demographic they're a part of, their spending patterns. You've got to have the analytics to understand all of that because at the end of the day, the consumers are the ones buying products and each and every one of us, including distributors, manufacturers, retailers, we're all focused on that consumer.
We want to make sure that we have the analytics and the visibility first, and then we want to be able to automate that visibility into different trade channels, where we can deliver that product to the consumer and understand that moment of need. It all depends on the type of product you're selling and the time of the year, is it seasonal?
There's many different components to meeting that consumer through different trade channels. It's going to continue to change, it's going to speed up, and you've got to be able to fluctuate. Consumers may buy a certain product during a holiday time of the year through one channel, and then they may be traveling and buying that product somewhere else.
Make sure you understand your demographics, your consumer, their lifestyle because every brand's a lifestyle brand, it depends on where it's being consumed and what consumer is purchasing that product. Be connected to that central order. When you start looking at that central order coming from the consumer and where to channel that, what trade class am I going to be shipping that to? How am I going to meet those needs and how am I automated? If that’s not automated and doesn't have those analytics available to my teams, it's going to be difficult for me to grow.
Guffanti: A lot of these points that you're making could potentially open up to much deeper discussions. We're nearing the end of our time here. I’d like to do a wrap-up round-robin on what you personally see as the most important drivers of growth and innovation as we move forward and we start — I don't want to say the word new normal because I know that's cringey — but as we come out of the pandemic. I hope that is certainly something that will happen. How are you looking at growth and innovation as you move forward?
Bender: In the private equity world, and especially what I'm seeing in consumer products and consumer services, there is a tremendous focus on growth and focus in a couple areas. First, around M&A, which is in organic growth. On the organic side, it focuses on pricing and digital marketing and how digital marketers drive the funnel of what the leads are and how to convert those. On the M&A front, every business' objective is to make money for their shareholders.
One of the things I've learned in the last few years with private equity is that M&A is important, and having a mechanism for identifying those M&A targets and deal flow around M&A, and how to then have a machinery doing integrations of M&A in order to drive enterprise value.
At Culligan, we've done about 120 acquisitions in the last four years; we do about 30 a year. We have a machinery around that process that includes an integration management office and fundamentally, we have drivers relating to the business specifically for organic growth. Then, there's that inorganic piece. When you look at the combination of those, that's very powerful. Digital marketing, and understanding that and analytics are critical to that success.
It’s having expertise in and creating centers of excellence, or centers of expertise, around those topics of M&A, digital marketing and analytics — specifically understanding the consumer, how to get leads, and how to convert them, and how to increase the lifetime value of customers.
Guffanti: Interesting how within Culligan you have a machine that is designed to identify, acquire, and integrate M&A activity within your organization. It's not a living, breathing part of what you already do. Interesting to hear you articulate it like that.
Bender: We have what we call the IMO (integration management office). It's staffed with resources that are dedicated to M&A integration and standards around M&A integration because we're so acquisitive that we have to, if you get 30 acquisitions a year, you have a couple acquisitions per month and you have to integrate them. This is the most acquisitive company I've ever worked with, but there are lessons from this company that could be taken to other companies in the consumer goods space.
There are other companies that I'm working with through Advent International, their portfolio companies, that are in the food, cosmetic, or beauty space that are also leaning into this idea of how to grow through M&A and drive value in terms of what synergies you can get through combinations or adjacent category tuck-ins that make sense? A lot of companies are realizing they can't get where they need to get because of expectations of growing EBITDA and enterprise value.
They're having to think differently about how to put some machinery in place to do that, whether it's through M&A, or having digital expertise that can drive that customer experience to increase the value to your consumers.
Guffanti: Harris, I know you also focused on M&A at the start of the webinar. Are you of the mind that M&A activity will increase significantly as a growth driver in the coming months?
Fogel: Definitely. You're going to see major brands continuing to acquire to get into new categories, extend existing categories, get into sustainability, get at that digital, native muscle built within their companies. It absolutely is going to happen.
Pivoting a little, what we're also seeing from the major brands is for them to start thinking and acting like a startup. Think about how these high-growth companies are operating, the barriers to entry are so low for them now. They come up with an idea, they get a good product formulation based on consumer feedback and sentiment, and they go off and leverage a business network to co-manufacturer their product. They don't have to build a manufacturing plant because there are many co-manufacturers out there. They'll co-pack the product, you don't have to build packaging lines. They'll get a 3PL, a third-party logistics company, to deliver the product.
That gets that agility into small and large companies alike to be able to co-pack, co-manufacturer and deliver. You can bring these new products to market quicker based on consumer sentiment; you don't have to wait six months to a year to go through the whole cycle. Do it in three months, start to finish, and get it on the shelf. Either it goes bigger or you fail fast. We're going to see more and more. So, leverage these networks to make that happen.
I have to give it a plug. I love NPRs podcast, “How I Built This.” If you want to get inspired about what these digital natives are, go look at how Walker & Company built their company and then sold it to P&G. Listen to Method and how they built their company and then sold it. Listen to how Glossier built their company. Listen to the RXBAR and how they sold it to Kellogg. These are inspiring. That this is going to continue to happen.
Guffanti: Great information there, Harris. You mentioned a keyword that I'm surprised was the first time it came up in this discussion, and that's agility. In order for organizations to be able to take advantage of the growth potential happening right now, they have to have that agile mindset. Paul, why don't you kind of bring us home and add your perspective on growth and innovation and what brands should be focusing on?
Larson: I echo Tony and Harris. Everyone out there, we're going to look back at this time in 10 years, and say, "Those were the good old days. Those were the days when we could do whatever we wanted to, everyone was open to new channels and new markets." I encourage all of you to strengthen your ecosystem because you can't do it by yourself.
Harris and Tony both touched on this, but leveraging the ecosystem. If you need to go to a 3PL do it, they do it every day. You don't have to build all this vertically in your company, but you have to have the technology to be able to build those interfaces, to have those seamless type interactions, whether it's your supply chain, manufacturer, a distributor, a customer, or a consumer, it's got to be seamless.
The consumer should have the same experience, no matter how, when, or where they shop. The ecosystems are important. Make sure to build that up and be open, have the right platform that can be able to consume that. I predict we're living in the good old days. Let's enjoy it. Let's be optimistic. Let's go out there and have some fun. We're in the best industry on the planet, consumer products, and this is the time to make your move.
Guffanti: We did a little bit of a rewind to 2015 as part of our discussions. However, one of the things we have today, that we didn't have then, is the permission to test, learn, even fail and then try new things. That'll ultimately spur a new era of innovation for our industry, for sure.
This discussion is part of a larger discussion that we're having on Re-Imagining Consumer Products. Growth is just one piece of it. CGT and SAP have worked together to create this immersive destination and roadmap for how to reimagine consumer products. We talked about sustainability, supply chain, growth, transformation, and of course, the consumer. Each one of these pillars allows you to engage with rich content ranging from infographics to videos, to other types of webinars like this. We scratched the surface on profitable top-line growth today.
Once again, thanks to our panelists, Tony, Paul, Harris, it was an honor to be with you tapping into your collective expertise and insight on the industry. Thank you gentlemen for participating. Everyone in the audience, thank you so much for making the time to join our discussion, I hope you found it to be highly productive. Have a great rest of the day and hope you have a happy holiday season.