There are many examples of deception throughout history. The attack on Pearl Harbor in Hawaii on December 7, 1941, is arguably one of the most famous deceptions ever conceived. Japanese Admiral Isoroku Yamamoto conceived the Pearl Harbor attack and Captain Minoru Genda planned it. Two things inspired Yamamoto’s Pearl Harbor idea: a prophetic book and a historic attack. The book was The Great Pacific War, written in 1925 by Hector Bywater, a British naval authority. It was a realistic account of a clash between the United States and Japan that begins with the Japanese destruction of the U.S. fleet and proceeds to a Japanese attack on Guam and the Philippines. When Britain’s Royal Air Force successfully attacked the Italian fleet at Taranto on November 11, 1940, Yamamoto was convinced that Bywater’s fiction could become reality.
I have conducted extensive research about the attack on Pearl Harbor including touring Pearl Harbor by land and air. In addition, I’ve corresponded with authors of best-selling books about WW ll. Although the attack was a success, it’s impact was short-lived. In my opinion, Japan made a catastrophic mistake regarding their strategy. Instead of attacking Pearl Harbor, I believe Japan should have conceived and planned a simultaneous attack on Washington, DC and New York City, and time the attack to take advantage the majority of Senators and Members of the House of Representatives, being in Washington, DC before departing for Christmas break. It’s conceivable that the majority of Congress and President Franklin Roosevelt would have been killed in such an attack. New York City would have been turned into a pile of rubble as a result of being shelled by one or two Japanese battleships.
Deception has also occurred throughout history in business. Deception is not illegal. In fact, when used correctly, deception is a brilliant strategy. For example, in 2007, Steve Jobs knew that the iPhone was riddled with bugs. Jobs understood that if he told the truth about the iPhone, he would effectively destroy any chance of the iPhone replacing the BlackBerry, the leader in phones. What did Jobs do? He intentionally used the the iPhone in such a way that hid all of the bugs – the rest is history.
I believe we are witnessing the beginning of what may turn out to be one of the largest deceptions ever in business – PepsiCo’s $175M purchase of convertible stock from Instacart. Many people in the grocery industry and in the press are scratching their heads wondering why PepsiCo would buy shares of Instacart in a private sale. After all, not one grocery retailer, not even grocery retailers that do business with Instacart, have announced their buying Instacart’s stock. I keep getting asked, “Isn’t that strange, Brittain?” No. I don’t think it’s strange that PepsiCo is buying Instacart’s stock. However, I do think it’s strange that the public knows about the pending sale. It’s possible that Instacart mistakenly shared information they were hoping to keep confidential.
In my professional opinion, PepsiCo is acquiring Instacart’s stock in exchange for Instacart elevating all things PepsiCo on the Instacart platform. In addition, Instacart is likely providing PepsiCo with consumer and sales data that PepsiCo will leverage for analysis. However, the term “leverage for analysis” can mean many things. What it means for PepsiCo is that they’re able to learn a lot about how Instacart operates as a company including what products are ordered and delivered the most to customers.
PepsiCo is one of the largest Consumer Packaged Goods (CPG) companies in the world. PepsiCo products are enjoyed by consumers more than one billion times a day in more than 200 countries and territories around the world. PepsiCo generated more than $86 billion in net revenue in 2022, driven by a complementary beverage and convenient foods portfolio that includes Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and SodaStream. PepsiCo’s product portfolio includes a wide range of enjoyable foods and beverages, including many iconic brands that generate more than $1 billion each in estimated annual retail sales.
CPG companies rely on grocery retailers to generate the majority of their sales. Grocery retailers sell CPG products (cereal, oatmeal, paper towels, frozen foods, cleaning supplies, salty snacks, potato chips, and so on) in what is referred to as the Center Store. The Center of the Store generates about 75% of all sales within a grocery store. Why do casinos put slot machines in the center of their casinos? Because the revenue earned from slots pays the bills for the casinos. CPG products are a grocery retailers slot machines.
Like all CPG companies who rely on grocery retailers to sell their products, PepsiCo would prefer to sell their products direct to customers. In fact, PepsiCo and other CPG companies wish they could avoid doing business with grocery retailers altogether. Why? Because historically, grocery retailers beat CPG companies up on price and they charge CPG companies fees for placing their products on store shelves. How did this happen? Pre UPC code, CPG companies had total power…and they abused it. This resulted in the grocery industry looking for a way to take power away from CPG companies. The advent of Category Management switched the power base back to retailers. CPG companies began to state, “We Are Listening” as a sign that they wanted to collaborate. Retailers had another idea – they found a way to collect shopper data and analyze it to the point where they gained massive control over CPG companies, and they forced CPG to bend to their will.
If only PepsiCo could do something different…I believe they will. Why? Because they have found a solution that takes power away from grocery retailers.
The unwritten rule between grocery retailers and Instacart is that Instacart must always be loyal to the grocery retailers they serve. Not anymore. Instacart has shown their cards. It appears that Instacart has chosen to be loyal to CPG companies over grocery retailers. The deal with PepsiCo minimizes the role of the retailer. Here’s how:
- Instacart will receive online orders but in the case of PepsiCo, Instacart can create a separate delivery strategy whereby PepsiCo products are shipped direct to customers.
- Leveraging data from Instacart, PepsiCo can identify exactly which CPG products are ordered online the most by each grocery retailer served by Instacart. Note: Instacart can easily become another 84.51 or dunnhumby. 84.51 is owned by Kroger. PepsiCo can easily create their own version of 84.51 with Instacart.
- PepsiCo can offer an alternative to other CPG companies – don’t send your CPG products to grocery retailers, send them direct to our facilities where we will distribute the products direct to customers using our partnership with Instacart. PepsiCo has massive logistics and distribution capabilities.
If what I outline in this article becomes a reality, grocery retailers will lose millions of dollars in revenue. Grocery retailers will also lose their leverage over CPG companies regarding pricing and fees. Think it won’t happen? The center store is already under siege by Amazon who is able to deliver CPG products direct to customers. PepsiCo has massive plans for e-commerce, and they understand that they can only achieve their goals by engineering a new strategy – like using Instacart to go direct.
Let’s not forget that Instacart planned to sign a deal with the company Fabric in 2022 to open automated micro-fulfillment centers that would allow Instacart to pull their pickers out of stores, and force grocery retailers to accept Instacart’s automated fulfillment solution. It didn’t happen because Instacart and Fabric couldn’t agree on a deal. Instacart has options. For example, Instacart can leverage a relationship with PepsiCo to accelerate becoming a grocery retailer that sells and fulfills online grocery orders direct to their own customers. Instacart can easily do this. Ending their relationship with grocery retailers will triple Instacart’s valuation.
The grocery industry is operating using business models that were designed for another era. The grocery industry is going to experience massive changes and disruption throughout the rest of the 2020s. Instacart and PepsiCo have an opportunity launch their version of a ‘Pearl Harbor moment’ on grocery retailers.