Often when dealmakers and corporate chieftains offer their insights at major conferences, all one hears is jargon and slogans. That was not the case when billionaire Jorge Paulo Lemann, co-founder of 3G Capital, joined Wells Fargo’s Tim Sloan, Accenture’s Julie Sweet and Principal Global Investors CEO Jim McCaughan at the 2018 Milken Institute Global Conference to confront “an age of disruption.”
Take it from Lemann, among the most powerful and private investors on the planet, who heads 3G Capital and is a board member of its principal large-capitalization consumer investments like brewer
“I’ve been living in this cozy world of old brands and big volumes," said Lemann. “We bought brands that we thought could last forever,” and borrowed cheap money to do so, he added: “You could just focus on being very efficient... All of a sudden we are being disrupted.”
3G Capital, founded in 2004 as Lemann and four partners were consolidating the Latin American and European beer industry, became a mainstay in the U.S. when its portfolio company InBev acquired
Once soaring on public markets, 3G and Buffett’s partnerships, Restaurant Brands and Kraft Heinz, have sold off recently amid pressure from newer food concepts and the rise of small, often healthier brands. Kraft Heinz trades at $56, down 40% from year-ago highs above $90, Restaurant Brands trades below year-ago levels. Even mega-success AB InBev, likely among the most profitable “private equity” deals in history, is not immune to change.
The rise of craft beer and a preference among younger drinkers for wine and spirits means Bud is warding off falling volumes. “Craft took us by surprise,” said Lemann. But he sees upside from challenges in the U.S., which is now informing 3G’s strategies in regions like Africa and Asia where shifts in consumer tastes haven't yet been so pronounced. Of this change, Lemann noted, “Now we have to adjust.” He said companies like
3G and its companies are investing heavily to respond. At AB InBev, Lemann’s team has created Zx Ventures to invest in innovations like craft beer, ecommerce and home brewing, a venture he described as “self disruption," focused on younger consumers. “We hope this will be a model which we can build on,” he said, "I’m not going to lie down and go away.”
It wasn’t just Lemann who spoke of an age of disruption. For instance, Julie Sweet, CEO of Accenture’s North American business, said artificial intelligence could increase revenues across S&P 2000 companies by nearly 40% by 2022, however, her consulting firm has found only a quarter of companies are presently capitalizing on the opportunity. “Eventually A.I. will not be something that you put away like a proof of concept,” said Sweet. “It will be a tool just like computing,” she added, pointing out A.I related insights could eventually be considered a shared service, just like human resources.
In finance, Principal Global’s McCaughan pointed to technology and A.I. as a disruptive force for traditional business models in asset management. Managers in large, liquid markets are being undercut by lower cost passive flows, so Principal is growing its business in less liquid and efficient markets, where manager skills aren’t commoditized. “Those are where you have the ability to add value for clients and to get paid for it,” said McCaughan.
At Wells Fargo, CEO Tim Sloan admitted the bank had been slow to adapt to a changing financial landscape but is now innovating in mobile banking, the digitization of mortgage lending, and offering robo-advisor solutions in its wealth division. “Five years ago we were the most valuable financial institution in the world,” said Sloan, before pointing out that the bank suffered some complacency. “That will never again happen at Wells Fargo... You can’t rest on your laurels as much as we did.” About Wells’ myriad of scandals, Sloan said the bank was far along in remediation efforts.
The panel concluded with discussion on the influence of A.I. on employment and the overall economy. Principal Global’s McCaughan said “business has an obligation” to re-train workers and invest in new skills, instead of hoping governments or universities can do all of the heavy lifting. It’s a practice Sweet said is a mainstay at Accenture; some jobs get automated but workers are put in new divisions. Even 3G, known on Wall Street for its ruthless efficiency, is planning to invest heavily in retraining workers as A.I. and automation play a role at businesses like Budweiser, Kraft and Burger King.
“People are the most important asset that you have in a company,” said Lemann. “The expense of people is not something we are cutting."
