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The Death of CPG and the Future of Digital Ads


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I'm not the most educated on these things, but there are two narratives out there in the market which seem somewhat contradictory: 1) CPG companies, and really more broadly, all branded products, have a tough future in a digital world; and 2) there are some very large digital ad businesses (namely FB, GOOG, and increasinly AMZN) which will increasingly depend on large ad buyers such as large CPG companies to advertise on their platform to grow.


What is everyone's take on this issue? Will CPG and other branded products simply give a larger portion of their profits away to the larger digital ad players, and by virtue of that dynamic increasingly earn lower ROICs? Or is the first and second positions in digital advertising going to eventually be equivalent to having prime shelf space in grocery stores?


(Separately, with Amazon's move into physical stores, and seemingly admitting a physical store presence will likely persist in the future, does the idea that CPGs' evaporating distribution advantage will dissipate in a digital world hold less water?)


In a world that is completely devoid of brands that can charge premium prices, does that spell bad news for the large digital ad players? Stratechery has made the argument that companies that abandon bricks and mortar have more dollars available to advertise, and that actually increases the advertising TAM, but if these companies can no longer charge premium prices, what does that do to their advertising budgets?


As for my own views, some CPG companies have begun to sport multiples that assume they are in run-off. I understand this dynamic for 2nd tier and 3rd tier brands with poor market share in their niches, but if a brand has a #1 position, particularly in a small niche, that almost seems better protected to me than the large categories such as shaving, soaps, shampoos, beauty, etc. There does seem like some opportunity in this space, and I've made a few purchases such as PBH, SPB, and POST, which reflect this view (POST is a little more complicated as a hybrid branded/private label player).

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