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Wednesday, February 22, 2017

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The Innovation Conversation: The Agility Mandate



Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

This week's topic: Interconnectivity, Collaboration, & Ecosystems, and why these are critical to any retailer's success in the new world order.

And now, the Conversation continues...


KC: This year marks a decade since the introduction of the iPhone, which, when first sold, had something like 500 apps.  Now, there are 2 million available apps for the iPhone, and 2.2 million apps for Android smartphones.  And the thing about that is, there never would’ve been so many apps had companies like Apple tried to do them all in-house.  This is a long way to get around the subject I wanted to talk about this week - the importance of collaboration with third parties as a way of making any single product or service more robust simply because there is interconnectivity. Having just spent time at a couple of retail conferences, that’s something I think that retailers (and manufacturers) need to start thinking about - making their organizations nimble enough to work with other organizations, which ends up making them both more relevant to shoppers.

Tom Furphy:
This is a subject that I started to appreciate at Wegmans, really began to understand at Amazon and then built a passion and conviction about since. I think it’s really relevant to our industry, especially today. Whether you’re talking about store experiences or the underlying technology required to serve the shopper, it’s very difficult for a retailer to single-handedly offer best-in-class capabilities on their own. I think it is critical to collaborate with a network of specialized third party services in order to be nimble and to meet the ever-changing needs of the shopper. And I think shoppers are starting to expect this and will ultimately expect these services to interconnect wherever it makes sense.

Traditional retail merchandising, operations and store management teams are deeply skilled in running their own stores and being the primary interface of the customer experience. These core service elements may want to be kept in house. Also, traditional retail IT teams are charged to operate the core technologies that run the business and protect the assets of the company. Most have built years of proficiency in running these effectively. So, in some cases, it may be considered too risky to partner in these areas.

However, the innovation that is happening in consumer-facing capabilities and technologies is significant. There is no way that a single retailer can keep up with it all. Therefore it behooves a retailer to develop the agility to work with a network of partners to help them deliver their customer experience.

KC: The interesting thing about the Apple example, by the way, is that, if I recall correctly, Steve Jobs originally did not want to create an app store that was open to third party developers.  Which I guess shows that even the most enlightened, progressive, forward-thinking and legendary businesspeople can be myopic.  That’s an important lesson for retailers, I think - it isn't a crime to be myopic, but it is a kind of business malpractice not to try to get beyond that mindset.

TF:
This is so true. I think being myopic in focusing on the customer is a good thing. But being myopic in precisely how to serve them can be dangerous.

Jeff Bezos says to be stubborn on vision, but flexible on details. That allows you to keep proper focus on the customer, but gives you room to test and make small mistakes along the way. Without that long term conviction and short term risk-taking and flexibility, I don’t know how you can succeed today.

When I work with retailers I challenge them to have a point of view about their shopper. Who are they? Where are they? What are their needs today? How will those needs change in the future? Then, based on the answers, the retailer should determine how they can serve that shopper in a compelling way - ideally in a way that is unique and differentiated, and that makes their customers’ lives better.

Companies that follow the old school mindset of “this is how we do things around here” or “we build everything in house” will struggle in the coming years. It will be difficult for them to be agile and impossible to serve customers in ways that they will demand in this rapidly changing environment.

KC: We use the word ecosystem a lot to describe Amazon’s approach to marketing, but I think that what businesses have to do is create a different kind of ecosystem - one that builds a network of flexible and complementary products and services that adds value not just for the eventual consumer, but also for the various entities that make up that ecosystem.

TF:
I agree. There are three concepts here that are important to understand. Platform, services and ecosystem. First you need a place for everything to come together. That’s the platform. Then, you add an expanding and flexible set of services to sit on that platform. As these services connect with each other the result is an ecosystem.

Amazon is a platform with a broad and interconnected set of services that serve customers in very powerful ways. In Amazon’s case, they use both external and internal services, which they bring together to serve their customers are their own. They control the ecosystem. And the sum of these services is proprietary and differentiating to Amazon.

As retailers and manufacturers think about taking this approach, they need to think about they themselves becoming platforms and building ecosystems to serve their customers. The best retailers will have a laser focus on the shopper, will be a platform that innovates on their behalf and will assemble an ecosystem of capabilities and partners to support the business.

This encompasses both technology and services, developed in-house and with third parties. Services such as e-commerce, replenishment, chef stations, meal solutions, nutritionists, everything, can be viewed as services that exist on the retailer’s platform. As these services are developed in house and with partners, they can interconnect and in turn improve each other. New services can be easily added. As shoppers use the services, volume and synergies increase. The ecosystem becomes more powerful than the sum of its parts.

KC: And in doing so, maybe that’s what companies have to do internally, as well …. create ecosystems in which the pieces are flexible and fluid and sort of fill in the gaps and add strength to the overall business, rather than serving as fixed pieces of a puzzle being assembled by leadership;  after all, with every passing day, what the business may need the completed puzzle to look like may change based on fast-changing realities.  (They used to call this breaking down silos, but I’m not sure that’s a nuanced enough word these days.)

TF:
Absolutely. As the customer changes, the retailer will want to be able to interchange the parts as they go. They will want to have a set of standard protocols that they can have their partners plug into. Stores need to become more configurable, but with good controls and standard procedures. Technology connections must ensure that the company’s assets and customer information are kept secured and that data flows in and out efficiently. The onus should be placed on the ecosystem partner to be able to work within industry-standard or retailer specifications.

Retailers should also use ecosystem partners to speed up their innovation cycle times. We often go through months of working with a retailer, showing them where we think the space is going and demonstrating a great technological capability to help them get there. They become convinced that it is the right thing for their customers. Then they start a process to determine if they should build it themselves vs. work with a third party.

This “build vs. buy” decision process invariably adds three to six months to a process that has already taken six to nine months. And during that time Amazon has kept running circles around them. Sometimes the “build” decision pencils out for the retailer. But that is a very short term view. By the time the retailer has it developed, the service provider is two versions further down the road because they innovate on this single capability 24x7.

KC: Here’s a possibly radical thought for you.  Do you think that perhaps senior leadership in organizations ought to be evaluated and compensated based on their ability to create and nurture these external and internal ecosystems?

TF:
It’s not a bad idea. But it would need to be carefully implemented. The risk is that leaders could over-focus on building ecosystems and lose focus on the customer. You wouldn’t want them to create ecosystems just to create ecosystems.

Perhaps leaders should be required, every year, to one-up their customer focus. They could be measured on developing new shopper capabilities that elevate their customer experience. That would prompt them to regularly examine all aspects of their business and to propose ways to make them better. Many retailers do this today, but they often don’t think big enough.

If the bar is set high enough and leaders are challenged to hit these marks on an appropriately brisk pace, I think it will force them to build an ecosystem of internal and external partner capabilities to meet the goals. From there the goals could focus on the partnership ecosystem and how it is being expanded and nurtured.

Frankly, they have to be doing this today.

The Conversation will continue...

Report: Whole Foods Holds Line On Prices

Barron's reports on a new JP Morgan analysis saying that only two food chains out of 10 that it studied that have not lowered prices over the past two years - Whole Foods and The Fresh Market.

This compares, the story says, "with a price decline of 4% at Kroger versus two years ago, a 5% decline at Sprouts, and a 1% decline at Publix ... The average 'on-shelf price' at Whole Foods in January, was 34% higher than at Kroger, according to J.P. Morgan’s research.

The story says that "Whole Foods recently told investors that it had no interest in getting in a pricing war with rivals. That may prove to be the right decision but it’s also causing Whole Foods to look even more expensive than it already did."

Just during the past year, Barron's writes, "the producer price index for 'finished consumer foods' fell 2.6%, according to the U.S. Bureau of Labor Statistics."

KC's View: It seems to me that Whole Foods' problem is less about high prices (though this certainly is an issue), and more about having an offering that is less and less differentiated from competitors that are getting better and better.

Editorial continues after a word from our sponsor...

Corporate Drumbeat

From ProLogic Retail Services...



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Earth Fare Bans GMOs From Private Brand Foods

Earth Fare, which has 39 natural and organic food stores in nine Southeastern, mid-Atlantic and Midwestern states, said yesterday that it has reformulated all of its 500-plus private label products so that they are free of genetically modified organisms (GMOs).

"Our Earth Fare brand products allow us the unique opportunity to control our food products from raw ingredient sourcing to the store shelf,” said Justin Jackson, Earth Fare’s CMO, in a prepared statement. “Customers want to be educated and informed, and this meticulous tracking of what is in our food and how it is sourced not only provides a confidence level in our products, but also leads to cost savings that we pass on directly to our customers.”

The company noted that this move is part of a new campaign built around the message, "Live Longer with Earth Fare," which makes the case "that better food choices lead to a longer and healthier life, and challenges other supermarkets to come clean."

KC's View: Interesting to me that even as there is a public policy debate about GMO labeling, some companies are just moving forward on their own. As more companies do this, it seems entirely possible that this will influence the policy debate, making things like GMO labeling less onerous and more like something that seems entirely feasible and reasonable. And it could end up making the companies and trade associations that resist it look like they are intransigent and not particularly interested in the consumer.

Editorial continues after a word from our sponsor...

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From MyWebGrocer...


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Tyson Shifts Emphasis To Antibiotic-Free Poultry

The Wall Street Journal reports that Tyson Foods is moving ahead with its plans "to eliminate antibiotics used on poultry in its flagship chicken products."

According to the story, "Executives expect the move, which will end use of antibiotics on the chickens used to make Tyson-branded breasts, wings and nuggets, will vault the company to the top of the rapidly expanding 'no antibiotics ever' market. Those products can sell for 20% more than conventional versions, though they tend to cost more to make."

The Journal frames the decision this way:

"Tyson’s move is a victory for consumer-health groups and others who have pressured meat companies, animal drugmakers and lawmakers for years to reduce the use of antibiotics on farms. For decades the drugs have been fed to cattle, hogs and chickens via medicated feed and water to treat illnesses, prevent outbreaks and help them gain weight more quickly.

"The U.S. Food and Drug Administration called on the industry to cease using antibiotics for weight-gain purposes by the end of 2016, but consumer campaigns have called on food companies to go further, prompting chains like McDonald’s Corp. , Chick-fil-A Inc. and Subway to announce plans to reduce antibiotic use in their meat supplies."

Editorial continues after a word from our sponsor...

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From ReposiTrak...


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Toys R Us Lays Off More Than 10 Percent Of HQ Staff

The Wall Street Journal reports that Toys R Us has laid off between 10 and 15 percent of its corporate employees, describing the company as just "the latest retailer to cut jobs as shopping rapidly shifts from physical stores to online ones."

The story goes on: "The reorganization is the latest effort by Toys R Us’s chief executive, David Brandon, to adjust the privately held company to a fast-changing market. Like other primarily brick-and-mortar retailers, Toys R Us had trouble attracting enough shoppers to stores during the critical holiday season as e-commerce sales continued to pick up speed."

Amy von Walter, a spokesperson for the company, said that "the recent changes are not just about cost-containment - our growth plans require us to have the right structure, talent and determination to transform our business and achieve the financial objectives we’ve set for the company."

KC's View: One of the great advantages of being at the point in life where your kids are adults but there are no grandchildren in the picture is that you never, ever have to go into a Toys R Us store, which I always thought was one of the most soul-sucking experiences during my child-rearing years. So it is not surprising to me that the company is suffering, and that layoffs are the result.

I suspect this is not the end of the cuts.

Study: Digital Marketing Spending Has Almost Tripled

Cadent Consulting Group is out with its 2017 Marketing Spending Industry Study, concluding that "digital spending has almost tripled over the past five years while Shopper Marketing has more than doubled. Digital spending is now greater than traditional Advertising."

However, "despite the increase in Shopper Marketing and Digital spending, neither retailers nor shoppers are feeling the impact. Digital received the lowest effectiveness rating from retailers, as well as the lowest awareness and impact scores from shoppers."

The study said that "marketing spending represents a tremendous investment – nearly $225 billion annually in consumer packaged goods." However, while "dramatic changes have taken place in spending allocation ... retailer and shopper impact has lagged."

Editorial continues after a word from our sponsor...

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From MorningNewsBeat, September 15, 2016:

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Now back to regularly scheduled editorial...

Worth Reading: How Technology Affects Shopping

The Wall Street Journal has a story about all the "choices in how, when and where to shop" for food that consumers now have. And it uses as a prime example the case of Kroger, where CIO Chris Hjelm says the goal is "to bring technology to life in the store."

Good piece ... and you can read it here.

Editorial continues after a word from our sponsor...

Industry Drumbeat

From WAFC...


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E-conomy Beat

• Amazon said yesterday that it has extended its Prime restaurant delivery service to Las Vegas, offering "super-fast delivery from more than 100 restaurants and have it delivered to neighborhoods including the Las Vegas Strip, the Arts District, Winchester, Spring Valley, Paradise, and Summerlin, just to name a few."

According to Amazon, "Prime members in Las Vegas can order from participating restaurants, browse menus, track the status of their delivery, and watch as their delivery driver travels from the restaurant to the delivery address in real time. For Prime members placing orders for delivery to the Las Vegas Strip, Amazon Restaurants offers curb-side pick-up for fast service. Once an order is placed, the food will be delivered in one hour or less. Amazon Restaurants offers customers transparent pricing--there are no menu markups."

FastNewsBeat

...with brief, occasional, italicized and sometimes gratuitous commentary…

• The Associated Press reports that climate change is having an impact on maple syrup production in New Hampshire, "as winters become warmer and frigid nights so critical to their business become fewer ... Some producers talked of seeing a steep drop in the amounts of sap they are getting, while others are dealing with another trend attributed to warmer temperatures in which the sap goes up to the top of the trees rather than down to taps. Others complained about a drop in the sugar content of their sap."

The story says that "the ideal temperatures for sap production are in the 20s at night and 30s and 40s during the day. When the climate is in the 50s and 60s during the day and the nights stay warm, sap runs not to the taps, but to the tops of the trees, causing the tree to bloom. That can lead to a cloudy and off-tasting product."

US Sen. Maggie Hassan (D-New Hampshire) says that climate change is having a dramatic impact on natural resources that ‘‘define us as a state and are critical to our economy, our environment, and our way of life in New Hampshire ... Unfortunately, we are already seeing the real impacts of climate change on our economy — including on our maple syrup and ski industries."


• The Associated Press reports on how "lovers of Italian olive oil are in for some sticker shock this year, with prices due to jump by as much as 20 percent," owing to a combination of bad weather and pests that "hit the harvest in Southern Europe, most of all in Italy, where production is halved from last fall. That’s pushing up Italian wholesale prices by 64 percent as of mid-February compared with a year earlier, which translates to shelf price increases of 15 to 20 percent in Italy."

Experts say that "Italian olive oil is more vulnerable than that of other major producers to climate shifts and pests due to its varied topography, from hills in the north to larger groves in the south. This also lends great variety to Italian olive oil, where unique flavors are derived from a combination of the terrain, topography and the more than 400 olive varieties."

The irony is that even as the Italian harvest has been negatively affected by a variety of factors, the global market for olive oil is up - beyond continental Europe, where it is a staple, sales have doubled in the US, are up seven times in the UK and are up 14 times in Japan.


Reuters reports that Restaurant Brands International, owner of Burger King and Tim Hortons, plans to acquire Popeyes Louisiana Kitchen for $1.8 billion in cash. The story says that "the deal is a bet by Oakville, Ontario-based Restaurant Brands that it can use its international reach to introduce Popeyes' Louisiana-style fried chicken and buttermilk biscuits to more diners globally."

In the early days of our relationship, Mrs. Content Guy's idea of Cajun food was Popeye's. Remarkably, our marriage has survived ... not least because she learned to enjoy actual red beans and rice.

Editorial continues after a word from our sponsor...

Industry Drumbeat

Energize your Digital Circular

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Executive Suite

• The Lakeland Ledger reports that Carol Jenkins Barnett, daughter of Publix founder George W. Jenkins and the president since 1991 of the company's philanthropic arm, Publix Super Markets Charities, has been "honored for her work supporting education and literacy. The Barbara Bush Foundation for Family Literacy presented Barnett with its 'Champion for Literacy' award at its 17th annual Florida Celebration of Reading.

"The award recognizes individuals for a lifetime of service supporting literacy for all."

From The MNB Politics Desk

Business Insider reports that Walmart CFO Brett Biggs told reporters yesterday that the retailer is concerned about one potential part of any tax plan that could be passed by the US Congress and signed into law by President Donald Trump.

"The border adjustment tax, for us, is a concern," he said. "Clearly anything that would potentially raise prices for our customers in the US is a concern for us."

According to the story, "Walmart had previously joined a coalition of retailers against a border adjustment tax but this is the first time executives have spoken out against the possibility. Biggs said Walmart was generally in favor of tax reform but not when it involved taxing imports.

"An estimated 97% of all clothing and shoes sold in the US are imported, which is why such a change in US tax policy would most likely have a dramatic effect on Walmart, the world's largest clothing retailer. If such a tax were introduced, Walmart would most likely need to either eat those costs and take a hit to profitability or pass the costs on to customers."

Your Views: Discriminating Opinions

We continue to get email about the New York Times report that the Washington State Supreme Court has ruled that "a florist who refused to sell flowers for a same-sex wedding cannot claim religious belief as a defense under the state’s anti-discrimination laws." Washington Attorney General Bob Ferguson said the ruling made the point that “sexual orientation is a protected class — just like race, just like religion.”

One MNB reader wrote:

I agree 100 percent with the ruling that if you are open to the general public you should not be allowed to pick and choose who you sell to. If you want to do that then become a membership only retailer and discriminate through the joining process.

I'm no lawyer, so I'm not sure about this ... but I have a feeling that discriminating about membership may also create legal issues.

But MNB reader Daisy Ford wrote:

The ‘oh so tolerant’ left… as long as you think and act the same. Where is the protection for the florist (or baker or any other business owner)? Why do they not also have protection of their belief system? Regardless of what I personally believe about either group – you can’t protect one whilst not protecting the other.

The gay couple’s rights were not infringed upon – they can still get married, they can get flowers elsewhere, they can celebrate. However, now the florist is not her allowed her rights to her belief system and has court costs to prove it.

Regardless of how anyone thinks about any one group -  it all boils down to tolerance. Tolerance must to be a 2 way street.

Thanks for always have something interesting to spark thought and conversation.


My pleasure.

The argument against your position, of course, is that any discriminated-against class - think African-Americans - had the ability to go to another lunch counter if the one they wanted to eat at refused to serve them.

The other part of the argument is that if one is against same-sex marriage, one should not marry someone of the same sex. But providing flowers or baking cakes is not the same thing as endorsing.




We've continually talked here about the risks for companies and business leaders that may be associated with taking political positions. Which led one MNB reader to write:

Depending on the geographic reach of a business’ customer base, aligning with the current administration’s policies could be quite popular.  The current president won the popular vote in 31 states to the losing candidates 19 states.  He lost the national popular vote by over 2 million votes and lost California by over 4 million votes, but won more counties in California that his opponent, so outside of California, he won the popular vote.  A map of voting results shows the current president is very popular except on the two coasts and Illinois.  If you are a business that has a significant customer base outside metropolitan California, the Northeast or the Northwest, your customers are happy to see the current administration setting policies for our country.

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