Advantage Solutions. A name that, for most investors, probably doesn't trigger an immediate reaction. Maybe a vague recollection of supermarket product demonstrations or in-store advertising. But lurking beneath the surface of this seemingly mundane business is a story far more intriguing. A story of a bold gamble, a high-stakes bet on Artificial Intelligence that has the potential to transform not just Advantage Solutions, but the entire consumer goods landscape.

The recent Q1 2024 earnings call transcript, while seemingly a routine affair, hides a critical detail, easily missed amongst the discussion of divestitures and cost pressures. Advantage Solutions is not just dabbling in AI, it's diving headfirst into the deep end, with an aggressive three-year investment plan that could make it the unexpected leader in an AI-powered consumer revolution.

Let's start with the numbers. Advantage Solutions is committing $160 to $170 million in capital expenditures over the next three years, specifically for technology upgrades. This isn't just about replacing aging systems, it's a strategic commitment to build "technology platforms for data modernization, cloud-based capabilities, including AI, and other tools to improve operating efficiencies."

This investment is front-loaded, with over 40% of the total spend projected to occur in 2024. This is a significant deviation from the company's historical capital expenditure patterns. In 2023, Advantage spent a mere $46 million on CapEx. This year, that number is expected to more than double, reaching $90 to $110 million.

Capital Expenditures: A Shift in Strategy

This aggressive investment in AI is all the more remarkable considering the company's current financial situation. Advantage is actively working to reduce its debt burden, aiming to lower its net leverage ratio to below 3.5x. Yet, even with this priority, management is unwavering in its commitment to fund this ambitious AI transformation.

The sheer scale of this undertaking suggests a vision far grander than simply streamlining back-office functions. Advantage Solutions is clearly aiming to leverage AI to gain a decisive competitive edge, transforming itself from a traditional service provider into an insights-driven powerhouse.

The transcript provides intriguing hints of this ambition. Dave Peacock, the CEO, emphasizes the company's "differentiated understanding of the entire consumer ecosystem." He points to Advantage's unique position at the "intersection of brands and retailers, brick-and-mortar and e-commerce, and private label and CPG." This position, he argues, gives Advantage a "deep understanding" of its clients' challenges and opportunities.

But this understanding, by itself, is not enough. Advantage needs to translate its knowledge into actionable insights, into strategies that can drive sales and increase market share for its clients. This is where AI comes in.

Advantage Solutions is already working with Genpact, a global leader in AI and automation. Through this partnership, Advantage is "using generative AI to deliver new and innovative solutions with greater speed and accuracy within the order-to-cache and back-office administration functions."

But this is just the beginning. Advantage is also investing in establishing its own "AI core competency center," aiming to integrate AI across all aspects of its operations, from contract management and merchandiser routing to human resources workflow and data analysis.

Potential Applications of AI in Advantage Solutions' Business

These are not just futuristic fantasies, they are real possibilities, within reach thanks to Advantage Solutions' bold bet on AI.

This gamble is not without risks, of course. Implementing AI on this scale is a complex and costly undertaking. There is no guarantee of success, and competitors are also exploring the potential of AI.

But if Advantage Solutions can successfully execute its vision, the rewards could be immense. The company could transform itself into an indispensable partner for CPG brands and retailers, providing them with the insights and tools they need to thrive in an increasingly complex and competitive market.

In a world where data is the new oil, Advantage Solutions is positioning itself to become a data refinery, extracting valuable insights from its vast reservoir of consumer information. This could make Advantage Solutions not just a sleeping giant, but the unexpected leader of an AI-powered consumer revolution.

"Fun Fact: Did you know that Advantage Solutions is responsible for the placement and stocking of over 70% of the products you see in grocery stores! That's a LOT of data, and it's about to get even more valuable thanks to AI."