Consumer Weekly: AMZN, DEO, KO, and the Global Point of No Return

Getting things from one place to another — whether from idea to concept to product, or from lithium in Chile to your customer’s new electric car — has always called for creativity, innovation and, well, logistics. The pandemic gave new cachet to the words “supply chain expert.” Indeed, based on last week’s top consumer transcripts, those may be the three most attractive words to employers right now.

This year, supply chain woes are still pervasive amidst new geopolitical strife like Russia’s invasion of Ukraine or domestic spillover effects from China’s ongoing zero tolerance approach towards COVID-19. 

Our top consumer transcripts published Sep 1 – Sep 9 run the gamut, including online behemoth Amazon (AMZN), Walmart (WMT), carmaker Stellantis N.V. (STLA), Coca Cola (KO) and liquor giant Diageo (DEO). Be it stringent European regulation, the innovation pipeline or simply attempting to wrestle with a serpentine system of logistics, the experts we interviewed share creative and prosaic solutions to today’s supply chain challenges.

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Top 10 Expert Call Transcripts – Consumer Cyclical

  1. AMZN ( Inc) – Former Regional Manager believes Amazon is the best logistics player by far
  2. AMZN ( Inc) – Former Customer Is Bullish on ATSG Growth but Believes the Competitive Landscape Has Changed Since COVID-19
  3. CHWY (Chewy Inc) – Former Sr. Operations Manager Thinks AMZN Will be the Long Term Winner in Online Petcare
  4. STLA (Stellantis N.V.) – Former Competitor Believes STLA Has All the Right Pieces and People to Succeed but Faces Substantial Headwinds
  5. BKNG (Booking Holdings Inc) – Former Competitor Believes Positioning in Asia Pacific Is Key for Growth
  6. NKE (Nike Inc) – Former Converse Manager Believes It Is Hard for Most Brands to Build a Direct to Consumer Business
  7. ABNB (Airbnb Inc) – Former Competitor Thinks ABNB’s Biggest Advantage in the APAC Market Is a Lot of Unique Listings
  8. NKE (Nike Inc) – Former NKE Account Director Believes Hoka Has a Significant Runway for Growth
  9. DHER (Delivery Hero SE) – Former Regional Manager Thinks There Will Be Major Consolidation in the Food Delivery Industry Going Forward
  10. AMZN ( Inc) – Customer Sees Huge Advantages to Using AMZN’s DSP in Europe

AMZN has been removing FDX from their supply chain, and UPS is next: 

“The biggest growth, if you go and look at where they were spending their money on their annual shareholders calls the last couple of years, has really been on the last mile side. Going from $50 million back in 2018 just in the U.S., to $600 million three years later, the goal is to really integrate and almost overload a market so that you could remove the reliance on FedEx, which they did. The next piece was to really reduce the need for UPS… 

When you look at just how they have grown the last two years and increased their footprint across the U.S. Even in some of their more rural markets, they’ve set up almost a reverse logistics program to get out there, so they can hand something off to a specific post office versus having to go through a post office sort center, because speed is of the utmost.

Senior Regional Manager, AMZN (Prior) 

A former director for French carmaker RNO said that Stellantis (STLA), his biggest competitor, has focused on simplifying the car for a European audience:. 

“Nowadays, the problem is not only the scarcity of some elemental components or whatever, it’s mainly that you never know what will be the next item that will be touched. You know that there are some components that you won’t have for two years, but there are new shortages every day on different things. It’s a question of adaptability and dealing with logistics chains and dealing with the decision to invest or not in other countries. What is sure is that it will impact the product very much because of the diversity of components, it could be seen as something that would help. If one component is in shortage, then you could have another. It doesn’t work like that because there is only one component that can go in one car, you can’t change whatever you want.

There is a lot of work that is done now by engineering and product planning within the OEMs to actually try to reduce the diversity of features, equipment, and components to be able to make arbitrations for the production. That’s one thing. They’re working on sales and marketing for the waiting programs for adaptability of the systems, the adaptability of the discourse to customers. It’s also why they are trying to work very hard on subscription and leasing because if you don’t own the car, you don’t have the same attachment to it. If it’s not exactly the proper definition that you wanted and if it’s only for a short period of time because you can change back to what you wanted afterwards, it’s better. There is a lot of work on a lot of the react because of the shortage. I don’t know if I answered your question.”

Director, RNO (Prior)  

Top 10 Expert Call Transcripts – Consumer Staples

  1. KO (Coca-Cola Co) – Former Sr. Global Director Thinks the Current Environment is Especially Challenging
  2. PEP (PepsiCo Inc) – Former Director Believes That Gatorade Will Remain Dominant in the Sports Beverage Market Despite Ever Increasing Competition
  3. WMT (Walmart Inc) – Industry Expert Believes Inexpensive and Easily Accessible Diagnostic Tests Are the Key to Improving Health and Healthcare Equity
  4. WMT (Walmart Inc) – Former Director Believes WMT Is in a Good Position to Capture the Potential Upgrade Wave of Home Spending
  5. BG (Bunge Ltd) – Industry Expert Sees a Huge Problem if Grain Stops Exporting From Ukraine
  6. DEO (Diageo PLC) – Former Global Marketing Director Believes the Premium Mixer Category Has a Long Growth Runway in the US and Tequila Has a Lot of Growth in Europe
  7. BUD (Anheuser-Busch InBev SA/NV) – Former Associate Director Is Neutral on BUD and Thinks the Indian Market Has Many Hurdles to Clear Before Growth Can Resume
  8. KHC (The Kraft Heinz Company) – Former Sr. Sales Analyst Believes SKU Rationalization Is Key During Supply Chain Disruptions
  9. HSY (The Hershey Co) – Former Competitor Believes Shifts in Consumer Behavior Including Online Ordering and BOPIS Has Changed and There Will Be Headwinds With Respect to Promotions
  10. TAP (Molson Coors Beverage Co) – Competitor Thinks TAP Has Significant Advantages in Supply Chain Reach in the US and Europe

This former DEO director cover’s Diageo’s partnership with Fever-Tree extensively, but the bullish position on tequila caught my eye: 

“Tequila struggled a lot to grow outside the U.S. To be quite honest, the U.S. is so big and the limitations of production in tequila in the past was actually a huge barrier. One of the reasons why Diageo was not able to expand Don Julio, for instance, faster, was because of production limitations. Why? You can only produce tequila in Mexico. For you to be able to really become a global distributor in terms of production, it takes time for you to prepare the base of your supply chain, literally from ingredients’ perspective. 

Europe and Australia are the big engines in terms of growth for tequila for the future. Again, because of the base, it is still not that big. I believe tequila will keep on growing in the high double-digits. The tequila growth would be very dependent on the cocktail culture. The cocktail culture is quite advanced in Europe and I believe this is one of the opportunities to keep the engine behind tequila.

Director, DEO (Prior)  

Meanwhile, this former KO executive explains why KO doesn’t own their entire supply chain:

“It’s a huge supply chain. You cannot be good on all elements of the supply chain. There are big companies that are owning everything from ingredients or suppliers to finished products to the consumers. They are big and then it is difficult to be controlled and have all the relevant things. I think Coke is of the opinion that you need to let those companies which are good at do it in their own way because they can focus on manufacturing costs. They can focus on very good distribution and warehousing. They are local and they know their customers. 

Being Coke, it’s a huge company. There are 1,000+ manufacturing sites around the world and 300, 400+ bottlers around the world. If you want to replace them with your own people, you’ll build a massive, uncontrollable empire. While these guys are local, they know how to do it. Coke was in 200+ countries. It’s difficult to manage such a company. That’s why Coke was saying many years ago, “We don’t go and buy all the bottlers and play smarter than they are because it’s impossible.” It’s almost impossible. Nothing is impossible, but it is difficult.”

Senior Global Director, KO (Prior) 

On a much larger scale, and one with huge geopolitical impacts, is the Russian invasion of Ukraine, an essential breadbasket for the world. According to a former senior executive of the Canadian Grain Commission, the invasion combined with natural disasters could create a point of no return from a global crisis:

“If it goes on and you have the climate conditions that are going on in the world today, so China’s in a drought, Europe’s in a drought, those countries, Europe does export some but they also import a lot of grain and they import a lot from the Ukraine, China imports a lot of corn and sunflower seed oil from the Ukraine, so if this continues and you have all of these other natural disasters in exporting countries or countries that do import grain, and if they have a drought, then they have to import more. It’s going to have a huge impact on the economies of all countries in the world because the price of all these commodities in the agribusiness are just going to go through the roof, which we saw earlier this year.

China, if they can’t get access to that grain out of the Ukraine, then that could have some pretty big impacts on the global crisis. When’s the point of no return? I think the point of no return comes the day that this agreement for the ports to be open gets shut down and they cannot export the grain out of those ports.”

– [Senior Executive], Canadian Grain Commission (Prior) 

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Humberto J. Rocha

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