Karmesh Vaswani on Reimagining Consumer Goods and Retail with AI

Jeff Kavanaugh:

I'm Jeff Kavanaugh with the Infosys Knowledge Institute, and we're here at Infosys Connect Conference in Los Angeles. I'm joined by Karmesh Vaswani, head of the Consumer Goods, Retail, and Logistics Unit. Karmesh, good to see you.

Karmesh Vaswani:

Pleasure meeting you, Jeff. Yeah. Thank you.

Jeff Kavanaugh:

I had a few questions on unlocking value in AI for your industries. First one is what is it in this whole consumer goods and retail area that you see is a real trend when people are being successful?

Karmesh Vaswani:

If you look at the evolution of consumer goods industry, the typical cost of goods sold for a consumer products company and the typical price paid by the consumer after it's sold through a retailer, there is approximately 70% of the value which is involved in shipment from the consumer goods company through the retailer to the consumer. And with AI, a lot of these linear consumer value chains can reimagine their business models both in the physical world and the digital world.

Jeff Kavanaugh:

Reduce that seventy percent.

Karmesh Vaswani:

And Reduce that seventy percent to lower, which will help them improve the value proposition to the consumer, improve the volumes, improve the pricing power, and generally create better value for every entity in the value chain, whether it's a consumer goods company, the retailer, the distributor and the consumer. And I think AI, both the digital form factors of AI and the physical form factors of AI, are helping approach each segment of the consumer goods value chain and the retail value chain to be reimagined, to be renovated, to be innovated.

Jeff Kavanaugh:

So that's helping out with the productivity part. What about on the innovation part, maybe more of a personalization?

Karmesh Vaswani:

That's a great point. I mean if you think about the kind of advertising and marketing spends that the consumer products companies have in any channel, whether it's a social media channel or an e-commerce channel like Amazon or a marketplace like a Walmart or a Target marketplace or their e-commerce businesses, the promotional offers tend to be mass marketed. You don't get a promotional offer that is personalized to your needs, your context, your demographics, your situational reality. And as AI is helping bring multimodal capabilities to process data, image, text, audio, video, consumer goods companies are able to reimagine now how to increase the volume of personalized offers while reducing the cost of delivering those offers.

Karmesh Vaswani:

So we recently worked for one of the leading global FMCG companies who has three billion consumers that touch their product.

Jeff Kavanaugh:

Three billion.

Karmesh Vaswani:

Three billion consumers globally who touch one of their brands at any point in time in any part of the globe. And to reach those three billion consumers they generate nineteen million digital assets. And those nineteen million digital assets are nowhere close to achieving hyper-personalization with the consumers because it all goes through a mass market format. Now with AI, we are helping them reduce the cost of those nineteen million assets by 95%. So their average spend was $100 per asset. It's coming down to less than $2. Which means now for the same spend, they can look at amplifying the personalization fifty times. And that'll mean greater consumer engagement, greater mindshare. Mindshare translates into market share and greater growth, better margins for their business.

Jeff Kavanaugh:

That sounds like reducing the cost but increasing that ability to reach them. On the human side is it similar? So you're increasing productivity but not firing a bunch of people or...

Karmesh Vaswani:

In this case they were relying on agency of record, having local agencies in Japan, in Tokyo, in China, in US, in Europe. Now we are having AI agencies that we have designed for them. There is a translation studio, there is an adaptation studio, there is an image factoring studio, which is improving. So they are not losing any of their headcount internally.

Jeff Kavanaugh:

Their headcount is getting more productive.

Karmesh Vaswani:

Their category managers and brand managers feel more empowered that earlier they would deal with an agency who takes six weeks to deliver something and it will go through five iterations. Now they are able to just talk through prompts, look at their past digital assets, reorient those assets for any form factor that will appeal to you as a customer.

Jeff Kavanaugh:

Bit of a play on words, but the workers have more agency by working less through the agencies.

Karmesh Vaswani:

Yeah, now the agencies might lose business.

Jeff Kavanaugh:

Yeah.

Karmesh Vaswani:

The agencies who are smart and who have seen our work, they are saying we should embrace this model and help our CPG clients to increase the quantum of consumer engagement.

Jeff Kavanaugh:

So their value add has to go up for them to stay relevant.

Karmesh Vaswani:

Absolutely.

Jeff Kavanaugh:

Yeah. Okay. What do you think is the biggest challenge senior executives have to face? Because what you're saying on an absolute basis is great, but if everyone's doing that in CPG or in retail, they have to compete. So who will the winners be? What will they be doing?

Karmesh Vaswani:

So it's a hugely fragmented industry. I mean, if you go into any hypermarket for every category you'll find that there are a plethora of brands, some from the big CPGs, some from the mid-size CPGs, some from new emerging players. I think this will lead to more consolidation because there'll be few companies who'll embrace this into their business model.

Jeff Kavanaugh:

So the number of brands might not go down, but the number of companies holding all those, they'll wave roll up?

Karmesh Vaswani:

Absolutely, absolutely. And as the consumer awareness goes up, because when consumers start having more personalized engagement, it'll also lead to an element of number of brands reducing. The opportunity for so many brands in a category to coexist is because the extent of personalization is not there. So every consumer goes and finds something that appeals to them. If I'm using a hair care product, I'm using a skincare product. Everyone has some unique need which is not being addressed by a certain brand, they switch to a brand and that creates a market opportunity.

Jeff Kavanaugh:

And the lag between the manufacturer happening and them being aware of it starts shrinking. And so they're able to, the innovation cycle's faster.

Karmesh Vaswani:

Innovation cycle is much faster because acquiring a consumer insight, converting that into a pattern, a cluster, comparing that with the product attributes, the product benefit proposition, the product formulation, the product positioning, those cycles are reducing. And insight to action is becoming much faster.

Jeff Kavanaugh:

And that is a massive headache for a human without that kind of tool set to address it.

Karmesh Vaswani:

Absolutely.

Jeff Kavanaugh:

Well, if all that happens, then it seems the bottleneck is now on logistics, supply chain, fulfilment. So what do you see the impact of AI in that area?

Karmesh Vaswani:

So I think in logistics also we will see there would be more intelligent form factors of logistics. Logistics is becoming multimodal. You earlier only had demand sensing data, talking to transport, talking to warehouse. Now you could be having real-time in-store video feeds of shelves talking directly to a warehouse which talks directly to a transporter, which automatically schedules the labor required to load the transport, which perhaps even talks to the robotics equipment inside the warehouse. And with very little human intervention, both inbound and outbound logistics is getting scheduled. So human is in the lead, but the effort that the humans had to take to plan, replan, look for variations, has surprises of a transporter not turning up or a truck having a breakdown, all of those now are data signals which are talking to each other.

Jeff Kavanaugh:

You used to think of logistics being so deterministic because there were so many formulaic, but now you're able to run so many scenarios and plan for it, which given whether it's geopolitics, whether it's the price of fuel, they're having to run thousands of simulations just to make their own choices.

Karmesh Vaswani:

Yeah, so the ability to deal with data volume, variety, velocity in logistics. Logistics is like a live heartbeat, living business, living breathing business with so many variables. And the ability to do deterministic planning was constrained on the ability of being able to take live data signals on different trade lanes, on different routes, on variations in pricing, on periodic surpluses, shortages in capacity. Now all of that becomes a set of data signals which can be going into these planning algorithms and help optimize the end-to-end logistics cost.

Jeff Kavanaugh:

Looking ahead the next nine to twelve months, what do you think executives should be either worried about or hopeful about given the next evolution of AI's impact on their business?

Karmesh Vaswani:

So I would take a macro view. If you look at enterprise productivity in S&P 500 companies, in the last 30 years there has been about 3.5 times productivity improvement. So in the 1990s, for a S&P 500 company, for every billion dollars of sale, you had approximately 7,000 human headcount. That figure has come down to about 2,500 by 2025. But in the next three to five years, 2,000 could come down to about 500. You could have a similar quantum of productivity improvement. And every enterprise has to look at how much human effort do I have, how much physical capital do I have, how much working capital do I have, and am I in a position to plan a three to five times productivity improvement in the next three to five years? Because if I'm not doing that to my business, my competitor might be doing that and I might lose my relevance in the industry.

Jeff Kavanaugh:

Yeah, because if you improve by this much, but if someone else improves by this much on a relative basis, you're still behind because you're fighting for the same consumer.

Karmesh Vaswani:

Absolutely.

Jeff Kavanaugh:

The same price point.

Jeff Kavanaugh:

What is the consumer of tomorrow, or what should executives be doing to reach them? You talked about the business, the outside in view, what is it that's going to be the consumer of tomorrow's winning hand for them?

Karmesh Vaswani:

The consumer of tomorrow would be someone who has a number of agents working for him or her. So you're not just selling to them, but their agents. You are relying on how their agents are interpreting the mind, the behavior, the mood of the consumer, and how those agents are coming and looking at your value proposition as a consumer goods company or a retail company. And how do you make sure that for different sentiments, different moods, different behavioral aspects, your proposition, both in terms of products, price, promotion, place, is aligned to the segmentation of those agents.

Jeff Kavanaugh:

Last question, are you fearful or are you optimistic about the impact that AI is going to have on your industry?

Karmesh Vaswani:

I'm quite optimistic because if we look at the historical evolution of humanity, and humans by their very nature are creative people, humanity will continue to find new ways and means to uplift the standards of living.

Jeff Kavanaugh:

For once, keep growing, right?

Karmesh Vaswani:

Yeah, so standards of living will keep increasing, and every evolution with technology of this nature would mean that the aspirations can be fulfilled with lower effort, lower cost, lower time. And that means that there will be more availability, more abundance. So this will help elevate access, affordability in good form factors, provided there is good governance and regulation. If there is responsible governance, responsible regulation, I think this AI wave can really help alleviate some of the perils of humanity around poverty, around malnourishment, around lack of opportunities for literacy and education. And at the same time, for the sections of the society who can afford all this, give them a better value proposition.

Jeff Kavanaugh:

Well on that positive note, I appreciate your time. Thank you very much.

Karmesh Vaswani:

Thank you, Jeff. Pleasure talking to you again.

Jeff Kavanaugh:

You bet.

Karmesh Vaswani:

Thank you.

Jeff Kavanaugh:

Until next time, I'm Jeff Kavanaugh. Keep learning and keep sharing.