• by Michael Bollinger , Columnist, March 8, 2017

That's how Fortune recently described 3G's business model. The magazine goes on to say, "A central feature of this model is that it can't work forever. It builds value only by buying more companies."

If you're working in CPG, it's hard to take your eyes off what 3G is doing, because every CPG manufacturer has certainly been affected by 3G's model. 3G demonstrated to investors — through its acquisition and combination of Kraft Heinz — that value could be quickly created through the ruthless reduction of overhead. Not surprisingly, the C-suites of every CPG, in the wake of the value thrown off by Kraft Heinz, had to rapidly demonstrate to their own shareholders that they could deliver extra value through some significant belt tightening. And doing so successfully delivered two beneficial outcomes: 1) satisfying your own shareholders desire for better performance and, 2) making your company less desirable as a 3G acquisition because you have less core overhead from which they can squeeze value.

Fortune ran its cover story on 3G/Kraft Heinz on Feb. 1 of this year. Since then, 3G made its audacious and ultimately unsuccessful $143 billion bid for Unilever, jumping way past the market caps of the prospective targets Fortune referenced — Mondelez ($69.6 billion), General Mills ($35.7 billion), Campbell Soup ($18.6 billion), and Kellogg ($35.7 billion). There's a lot of overhead value 3G could squeeze from a behemoth like Unilever. But, with that deal dead, certainly the shark is swimming after new prey.

The CPG sector has widely adopted 3G pillars like zero-based budgeting. But most CPG companies acknowledge they aren't willing to wield the cost-cutting sword as ruthlessly as 3G.

What's a CPG marketer to do in the age of 3G? We're trained to be growth generators. That doesn't fit the 3G model. They are cost-cutters extraordinaire. And with CPG companies under pressure from investors to look more like 3G, it's tough sledding for many CPG marketers. In a zero-based budgeting world, brand managers don't tweak last fiscal year's marketing budget for greater return. They build a case for investing any money in the brand at all in the coming year. And if CPG management is roughly following 3G's battle plan, there's more immediate value to be created by cost cutting than investing in growth.

This makes it a particularly tough environment for the mature brands that produce the bulk of the volume for big CPGs. Having reached critical mass years ago, it's hard to extract big growth from these behemoths. It's easier to create value by closing some lower-performing plants. And remember, sliding sales in the 3G model are par for the course. To create value, one just has to reduce costs faster than sales are falling. Any place for a marketer's skills in this picture?

Perhaps there is one. Even in a 3G world, there is still demand for innovation. Because innovation holds at least the promise of big value creation. There is no place for investing in slow and steady growth. Thus far, Kraft Heinz' few investments in innovation are the opposite of where the industry is placing its bets. Kraft Heinz has placed its innovation bets on some of its oldest, declining brands, like rolling out a better-tasting Heinz mustard and bringing us Jello without artificial flavors and colors. To most of us, those seem to be very strange bets on innovation, bucking just about every trend in food. But then, in an America where Donald J. Trump is President, don't we find ourselves often thinking, "that's just batshit crazy!" and then wondering if it just might work? If a Billy Bush tape can be bucked two weeks before the election, what can't be bucked these days?

At Expo West this week, we'll get a taste for the real innovation in CPG — peering deeply into the fault line between processed and whole food. I'm still placing my bet on the investments General Mills is making in 301 INC, Group Danone's acquisition of White Wave, Pinnacle's purchase of Boulder Brands and the next Krave Jerky or Epic Bar. There are fertile fields for CPG brand growers out there. More risk is required. More reward dangled. Smells like fun.

Feels like out-swimming a shark.