OPINIONTechnology/Services

Weathering Retail M&A: How CPGs Can Ride the Waves With AI

How technology can give brands more control when retailers go through an acquisition
artificial intelligence and retailing
Image: Shutterstock

It’s a turbulent time in the convenience-store industry. Over the past few years, c-stores have been wrestling with increased costs of labor, fuel energy and higher credit-card fees. Pair that with inflation causing increased product prices, a decrease in unit sales and a fragile supply chain, and the result is elevated operating costs and reduced profit margins. This is not an ideal equation for any store operator.

Throw into the mix an incredibly fragmented industry, and what gets brewed is a c-store space ripe for mergers and acquisitions. The chains that struggle the most become the sellers. The chains with built-up cash become the buyers.

In 2023, acquisitions are hot: The first half of the year has already seen a whirlwind of deals, and I expect we’ll see more unfold in the back half.

Such an active period can make an industry-watcher’s head spin. And often, that’s exactly how representatives of consumer brands feel. Every M&A deal disrupts a consumer packaged goods (CPG) company’s relationship with the merging retailers. So how does a brand brace for new processes, for new data, for brand guidelines, joint business plans and so on? No doubt, it can be tricky, but technology can help chart the best course forward.

Retailer Point of View

While I was at 7-Eleven Inc., serving as the senior vice president of merchandising, I worked closely with consumer brands, following a historic acquisition by the company. Leading the merchandising integration of two strong retailers, rich with heritage and equity, was one of the highlights of my career.

This was a very heavy lift by many teams across both organizations, but it was important to help guide and create a new future. As I look back at the process today—just three years later—I recognize that technology such as artificial intelligence (AI) would have been a game changer during the process.

For any retailer going through an acquisition, the effort to unify two distinct organizations is a monumental challenge. The companies need to combine data sources, cost tables, assortment catalogs, customer loyalty information and much more. All this can greatly affect how CPGs fit into the new structure.

The merging organizations, along with partnering brands, can spend months modeling and running scenarios to see what retail price strategies, assortments and merchandising plans will put everyone in the greatest position for growth, while honoring the customer experience. Doing this through legacy processes and spreadsheets is daunting, especially across organizations with embedded ways of working. In the end, even the hardest-working, smartest human teams are bound to make some errors.

AI and machine learning, however, can run these models at scale and fast, greatly accelerating a cumbersome process. They can also reveal the “why” or decomposition of the decisions.

CPG POV

Today, CPGs can take a proactive role in M&A. Brands can use AI to run planning scenarios and show the newly formed retailer a confident merchandising strategy that will grow categories—and maybe win space in new stores.

Of course, getting to that point is a challenge. First, CPGs dealing with the disruption brought on by M&A will need to evaluate their own organizational alignment. This is important for merchandising and operations teams, as they will want to know who the points of contact are, if there will be a change in culture, and how the CPG teams will fit into the new company.

These initial questions can cause a lot of disruption and anxiety. Secondly, CPG teams will then be expected to come to the next business planning cycle with a renewed focus on growth and a point of view on customers by banner. That joint business plan is critical after the M&A process, and there will be winners and losers.

For the retailers going through the transformation, it’s almost as if everything is up for grabs when it comes to space, assortment and promotions. The retailers are looking at hitting the reset button, and this level playing field gives CPGs a great opportunity to come to the table with agnostic, category-leading ideas to stand out as true thought-leaders.

The AI Angle

A beautiful thing about AI is that it has no point of view. During the M&A process, a natural tension can occur when two proud organizations try to harmonize into one. AI doesn’t bring any bias to the equation.

Instead, AI can be a governing tool for CPGs in between merging companies. The technology doesn’t factor in bias from any retailer or brand; it instead recommends assortments, and pricing and promotions decisions, for example, that provide the best results.

CPGs can use AI and bring thoughtful insights to the table that ease any tension in the process and give them more control at the same time. CPGs can look to AI to support difficult conversations and arm the newly formed retailer with accurate predictions around store space, total units, unique demand, loyalty and more.

With AI, CPGs can weather the storm and gain some control during the stressful M&A process.

Brooke Hodierne is executive vice president, strategy consulting at Bee Cave, Texas-based Insite AI and former senior vice president of merchandising at 7-Eleven Inc. Reach her at bhodierne@insite.ai.

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