Turning Disruption Into Opportunity
Andrew Appel is a former McKinsey consultant with an economics MBA who helped drive growth at several Chicago area companies before becoming CEO at IRI. He joined the provider of big data, analytics and insights five years ago to accelerate growth and position the company as a market leader just as turbulence in the retail and consumer goods industry was intensifying. Appel enjoys a unique vantage point on the industry and spoke with Retail Leader about today’s most pressing issues, food retailing innovations and his formula for leading in uncertain times.
Retail Leader: What is your outlook for retail and consumer goods in 2018? What are you hearing from customers?
Andrew Appel: The market for retailers and CPGs will continue to be difficult because the level of change is unprecedented. Consumers are shifting their buying behaviors and brand preference more than ever before. You have a battle going on between Amazon and the rest of the industry as they take their disruptive business model to the CPG and grocery retail sector and that creates a challenging environment. You also have certain investor groups focused on short term profits, although that is starting to diminish somewhat.
RL: Are the growth challenges we are seeing more demand driven or related to new types of competition and new market dynamics. You hear a lot about people buying less stuff?
AA: The growth rate in CPG and consumer health has been pretty stable and moderately low for the past three years. If there is a generational shift in buying in terms of dollars spent per year as a percentage of personal incomes, that’s something I don’t hear a lot. I also haven’t seen a lot of facts that would suggest Millennials or Generation Z consumers are spending materially less money on consumer goods products that they were 20 years ago.
RL: What trends are you seeing then as it relates to growth.
AA: There is a shift in the size of companies succeeding and it has been a trend for three or four years. The top 50 CPGs, those with revenues of $5 billion or more, have seen flat to 1% growth, midsize companies in the $1 billion to $5 billion range have seen 2% to 3% growth and those with sales less than $1 billion are growing at 5%. There has been a different phenomenon with retailers’ growth because Amazon and e-commerce have been absorbing most of the growth.
RL: What’s your outlook for 2018?
AA: It is going to continue to be a very disrupted market and those who can move quickly and add value will win. I sometimes remind my team that Apple cannibalizes its entire product line every two years.
RL: IRI helps companies realize the full value of their data. Speak to the proliferation of data that results from all the new inputs and how you account for that in your model.
AA: It starts with a foundation of 50 to 60 partners in our ecosystem whose data we integrate into our data cloud. We have partners that allow our customers to see thousands of characteristics of consumers. We want to be able to understand every exposure or demand creating event that happens in someone’s life whether it was a minute, an hour, a week, a month or a year ago. We try to do it as granularly as possible and where we don’t have every single piece of information we have all sorts of projection algorithms. Our platform is highly open so we also have the ability to ingest other data sources and we connect to 100 other platforms.
RL: The scenario you just described regarding the abundance of information, do retailers have the executional capabilities to match up with what the data tells them they need to do. Is there more data than can be put to practical use?
AA: The explosion of data has vastly outpaced the ability to interpret, analyze and take action, so yes, that is one of the challenges. Retailers are trying to catch up at a rapid pace and put the information in the hands of the right decision makers sooner. One of the areas that is easier is personalization, even though people have a long way to go, because there are mechanisms to directly communicate to the consumer.
RL: The conventional wisdom these days is that there will be this big shift of center store categories online. What is your take on the shift and the pace at which it will or could happen?
AA: It depends on the definition of online and in general when you see those type of statistics it is really hard to predict. I do believe the click and collect model is going to play a very important role in the next five to seven years of grocery retail and it has a very good shot at becoming the predominant model. If you look at the top 100 metro areas and whether the delivery model or the click and collect model will prevail, Amazon obviously saw the need to do something differently when it bought Whole Foods. People have shown a willingness to go pick up their groceries at a store. The battle for the consumer is whether the delivery models can reduce their costs enough and overcome challenges with fresh because it has traditionally been difficult to deliver a high quality fresh experience remotely.
RL: Come back to partner ecosystem. How do you work with CPG companies in the product development phase, to leverage insights to develop items people want to buy before they know they want to buy it. How early in the process do you get involved?
AA: We are involved in it pretty early. We have our Hendry group inside IRI that looks at market structure and product portfolio gaps. More recently, we invested in the AI and machine learning company Machine Vantage which helps us figure out the next trends in human behavior. We do a lot of work on new product launches as we’ve now built of data pool of more than 350 million loyalty cards that gives us a much greater granularity than we used to get with panels. There is nothing like having granular buying data on tens of millions of people and billions of trips to provide rapid insight on the effectiveness of anything you are doing with a new product launch, an ad campaign, a promotion or shift in price. That kind of access gives us a huge amount of information about what shoppers our doing and is very useful in our new product identification and launch service.
RL: You touch on it earlier, the amount of change going on in the market, and helping your customers prosper in a disrupted landscape. What is your approach to imagining the future so you can position IRI for success in an unknowable future.
AA: A lot of things come to mind, but five stand out. We focus on a couple simple things in everything we do. Are we helping companies better serve consumers? That requires us to understand better than anyone in the world, I hope, consumer behavior and is what we are doing helping our clients grow their business. We come back to those two base principles time and again and that brings us to the third point. You have to find a balance between the future and the present. We are always trying to figure out where the world could be 10 years from now and then bring it forward. The fourth thing would be to never settle in terms of your intellectual curiosity. You always have to be challenging your own assumptions, disrupting your own business models and whenever you think you got it right take the alternative view with a healthy degree of skepticism. There is also a cultural dimension of risk-taking, which is why I’m a believer in building a culture that accepts a lot of different character types. It takes a village of very diverse, heterogeneous people to accomplish great things. RL