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Wednesday, November 02, 2016
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: Why retailers without an e-commerce strategy risk being left behind by consumers and competitors.
And now, the Conversation continues...
KC: There was one day last week where we had stories about how Google expanded Express service to 90 percent of the US, Kroger said it had ClickList at 330-plus stores, FreshDirect expanded its same-day service to Manhattan, Whole Foods tested a partnership that gets it into the meal kit business, and we even found out that Lidl is testing a click-and-collect service in Germany. Just coincidence, or are we hitting some sort of tipping point? Because it seems to me that we are increasingly getting to a point where if you don’t have an e-commerce strategy, you are going to be left behind. You seeing this in your businesses?
Tom Furphy: We are absolutely seeing this at CEP, Ideoclick and Replenium. Up until about a year ago it seemed that, for the most part, retailers had to be pulled along into e-commerce piloting. But over the last year, we seem to have switched to most retailers hitting an inflection point of moving from questioning “if” they should play in e-commerce to questioning “how” they can best test, learn and expand quickly.
It’s likely that Amazon’s volume and accelerating growth in the space have served as a rising tide to lift all boats. More shoppers are buying online, first thanks to Amazon and then thanks to whatever local options are available to them. It could be their local grocer picking from a store, or working with a service like MyWebGrocer. It could be a Google Express, Instacart or Curbside partnership. It could be FreshDirect or Peapod. It could be meals via Plated or Blue Apron. There is little doubt that more shoppers are trying one or more of these services and many are taking root. Overall the level of volume is moving from a rounding error to a significant amount of volume for some retailers.
There’s a bit of a flywheel of innovation developing. As Amazon and these new services expand, manufacturers and producers are developing more sophisticated capabilities to support e-commerce. This allows them to be better partners to the retailers, bringing innovation to them and even funding toward to the efforts. And, finally, as shopper hunger increases and manufacturer capabilities and support grows, retailers are now experimenting more than ever to figure out how to compete for the new shopper. It becomes self-perpetuating.
Formats and capabilities have always evolved in retail. This is nothing new. It’s just that technology and new models are developing at breakneck pace. Clearly, if a retailer is not experimenting with e-commerce, they are taking their first steps toward irrelevance. It may not become obvious to them for a year or two, but they are being left behind.
KC: I also thought it was interesting that the same day that those stories ran, there also was a story about how Amazon said that orders using its Dash buttons are up more than five times during the past year, and that there are now more than 200 brands represented in this program. When you combine this with everything that Amazon is doing with Subscribe and Save and the ability to order product using the Echo - technology that they’ve now expanded into their Fire TV systems - I cannot help but wonder if these are technologies with implications that most traditional chains don’t appreciate, and may not until it is too late. Thoughts?
TF: We should not think of Amazon merely as a retailer with which other retailers have to compete. We should recognize that Amazon is building itself into a shopping utility that strives to be at hand whenever a need arises. This is fundamentally changing how shopping works. Be it a regular purchase, a hard-to-find item, fresh foods or a last minute purchase. Amazon wants to be the go to place for anything a shopper wants, when they want it. And in the case of Subscribe & Save, even before they want it.
I refer to this as Amazon’s “lock in” strategy, where they started early and have a massive lead. Amazon conceives and develops these innovations well before they reach the marketplace. For consumable products, it started with Subscribe & Save in 2005. It then evolved to Dash Buttons, which were originally called Kindle Buttons in 2009. The voice and Echo strategy dates internally back to 2010 and the Dash Replenishment Service, which enables ordering from the Internet of Things, dates back to 2012. Now with ordering available across the Amazon ecosystem, such as through FireTV, ordering is always just a “click”, “press”, “signal” or “acknowledgement” away. And adding two-hour service, pickup points and walk-in stores, if they prove to work, will further cement the lead.
So, yes, it absolutely behooves retailers to develop their own “lock in” strategy. They need to offer their own set of shopping utilities. They should ask themselves what it is that they can offer their shoppers to make them the go-to destination for the products that they carry. They have no time to wait. It takes time to build the strategy, experiment with options, build out capabilities, test and integrate the solutions into systems and stores. As a retailer, anything you are exploring now will still take a year or two to have impact on your shoppers.
It’s time to get going.
The Conversation will continue...
by Kevin Coupe
There is an age-old question pondered by many retailers.
How do I treat my best customers better than everyone else, while not offending everybody else?
It is a question to which Amazon apparently has come up with an answer ... at least to the first part.
Because in its first Amazon Books store in Seattle, they're charging Prime members less for books than they're charging people who do not belong to Amazon Prime. Prime members - who spend $99 annually or $10.99 a month to belong - get a discount. Non-members pay list price. The books don't have price tags, but kiosks clearly delineate how much the discounts are - ranging from six percent to 40 percent.
This pricing structure, GeekWire suggests, "could signal a broader strategy for the company’s brick-and-mortar retail expansion."
The story also makes clear that the pricing differential applies only to books, not to electronics such as the Echo, FireTV and Kindle that also are sold in the store.
It is a fascinating and Eye-Opening approach. Amazon founder/CEO Jeff Bezos has said that his goal is to make belonging to Prime so irresistible and valuable that it would be irresponsible not to belong. And this would appear to be just one more piece of this overall strategy.
It is a risk. Will non-Prime members feel insulted when they find they have to pay higher prices? Maybe. But Amazon is counting on its powers of persuasion - and, I think, it is a pretty persuasive argument - to convince people that Amazon Prime can make their lives better and easier and less costly.
It is all a matter of luring them into the Amazon ecosystem. Because once they're there, Amazon believes, they'll never leave.
Which leaves it up to competitive retailers to figure out how to lure them away ... or prevent them from entering the ecosystem to begin with.
Starbucks - which got a lot of grief during the 2015 holiday season when it used paper coffee cups that did not specifically say "Merry Christmas," thus leading to rampant speculation in some quarters that it was secularizing the holiday - has released its 2016 holiday cup.
And it is also getting some criticisms for the design.
The new green cup, now available in stores, features a design that is a mosaic of more than a hundred people "drawn in one continuous stroke," the company says. The cup does not have Christmas-themed wording; Starbucks is not saying whether it will have other holiday cups available this year.
“The green cup and the design represent the connections Starbucks has as a community with its partners and customers,” says chairman/CEO Howard Schultz. “During a divisive time in our country, Starbucks wanted to create a symbol of unity as a reminder of our shared values, and the need to be good to each other.”
While some social media commentary approves of the message of inclusivity, other messages called it "ugly" and suggested it was part of a liberal agenda, with some calling for a possible Starbucks boycott.
The good news for Starbucks is that its brand is so deeply engrained into the culture that the design of its cup can create a backlash when some folks don't approve.
I have to be honest, though, and admit that I find this debate to be much ado about nothing. A cup is a cup is a cup. I want it to hold coffee and not leak. Beyond that, I could care less whether the holiday design is Christmas-specific or just generally festive.
But some people are just looking for a fight.
MarketWatch has a story about how German discounters Aldi and Lidl, as they devise expansion plans in the US, are "moving into wealthier areas as Americans of all stripes get more budget-conscious and their traditional low-to-middle-income niche gets crowded with competitors. Aldi is going even further in appealing to upscale tastes by stocking some fancier goods, such as organic foods."
While both retailers have in the past focused on cash-strapped communities for their growth, the story suggests that in order to achieve desired market share gains in the US, they'll need to have broader appeal. But this doesn't mean that, while offering new categories like refrigerated produce and organic ground beef, that either company will abandon their traditional savings-oriented approaches.
At Aldi, for example, customers still have to rent shopping carts for a quarter, can't call the stores because there are no phones (it reduces staff distractions), and find stores that "feature no-frills décor, skimpy in-store marketing and a limited assortment of foods, more than 90% of which are house-branded."
I've felt for a long time that companies like Aldi and Lidl, as they expand in the US, are likely to have an impact even on stores that are more upscale and more focused on fresh food. That seems to be part of what they are counting on for growth ... and we have the UK experience to look at as an example of how they can hurt traditional retailers.
Eater San Francisco reports on the resurrection of the La Boulange bakery brand, which was acquired by Starbucks several years ago as a way of improving its in-store food offerings. Last year, Starbucks shuttered all of the company's locations and dissolved the brand, upsetting longtime brand enthusiasts.
Now, founder Pascal Rigo has come "to the rescue, reopening five of the stores under the name La Boulangerie de San Francisco, and bringing back the same beloved almond croissants, cereal bowl-sized lattes, tartines, breads, and more ... now the brand has settled into its triumphant return, with two more SF locations on the way and national accounts like Trader Joe’s and Costco."
And here's an irony: "Pascal and co-owner Nicolas Bernadi are tapping into the infrastructure they developed with Starbucks to provide thousands upon thousands of items to accounts across the country."
I went to one of the La Boulangerie stores when I saw in San Francisco last summer, and it was terrific - the food was great, the lattes steamy in the foggy morning weather, and there was a real sense of the neighborhood among the families that were settling in. It was the kind of place that pretty much everyone would like to have in their neighborhood, and I hope they find success in their expansion.
The New York Times has a story detailing the extent to which Chobani, by "employing more than 300 refugees in his factories, starting a foundation to help migrants, and traveling to the Greek island of Lesbos to witness the crisis firsthand." has been "targeted with racist attacks on social media and conspiratorial articles on websites including Breitbart News."
Chobani and its founder Hamdi Ulukaya, a Turkish immigrant of Kurdish descent, have revitalized factories in both upstate New York and Idaho by building a Greek yogurt business that now employs some 2,000 people in total. But now, the Times writes, "there are calls to boycott Chobani. Mr. Ulukaya and the company have been taunted with racist epithets on Twitter and Facebook. Fringe websites have published false stories claiming Mr. Ulukaya wants 'to drown the United States in Muslims.' And the mayor of Twin Falls has received death threats, partly as a result of his support for Chobani."
The issue seems to be that Chobani's employment of "resettled refugees from Iraq, Afghanistan and Turkey, among other countries," and efforts to help them live the American dream, are being cast in some quarters as an effort to achieve the "Islamification" of America.
You can read the entire story here.
...with brief, occasional, italicized and sometimes gratuitous commentary…
• Fung Global Retail & Technology is out with a new study predicting that the online grocery market should grow from $17 billion this year to as much as $24 billion in 2017. The study says that this year, about one-third of US consumers have shopped for groceries online, up more than 60 percent from just two years ago. And the study also says that click-and-collect offerings, such as those developed by Kroger, are helping to drive the higher acceptance rates.
• The Dallas Morning News reports that "about 40 banks of big yellow Amazon Lockers have been installed since July at 7-Eleven and QuikTrip stores in the Dallas-Fort Worth area. And last week, Irving Mall became the first local mall to get the online shopping leader's self-service lockers, which handle both delivery and returns." The mall is "one of 50 malls across the U.S. owned by Washington Prime Group that's adding the lockers in time for holiday shopping."
The story notes that "Irving Mall general manager Jon Schweers said it's all about 'embracing innovation to drive shopper traffic and enhance the overall experience for our guests."
Of course, the lockers also represent a retailing experience that threatens to make malls less relevant. So this may be something of a deal with the devil...
• The Wall Street Journal reports that Meijer "is trying to reduce the stigma of being a plus-size shopper - and boost its apparel sales - by bringing larger sized clothing into the rest of the store. The story says that Meijer "will integrate its plus-size department into the women’s department, placing so-called straight sizes and extended sizes on the same racks. The concept, already in practice in 15 stores, will be rolled out to all 230 stores by early 2017. It means the majority of styles will be offered in everything from a size small to XXXL.."
“We really felt all customers should have the exact same experience at Meijer,” said Annette Repasch, vice president of softlines for the chain. “Not only by style, but by price and by location.”
• The Sacramento Business Journal reports that Raley's is building a new concept called Market 5-ONE-5 that will take inspiration from farmers' markets, focus on healthy eating, "stand on its own and operate independently of Raley's." It is slated to open next spring in Sacramento.
• The Lakeland Ledger writes that Publix has posted Q3 sales of $8 billion, 2.4 percent higher than the $7.8 billion posted during the same period a year earlier. Net earnings for the third quarter were $421.1 million, up 2.1 percent from last year’s $412.3 million. Same-store sales were up 0.9 percent.
However, the story also notes that despite the increases, the chain's "$40.15 per share stock price, effective Nov. 1, is down 4.2 percent from Publix’s $41.90 valuation in August. It is the third straight quarter the stock price has decreased."
• The Salem News reports that the conservative Center for Consumer Freedom has filed a complaint with the Massachusetts Attorney General claiming that Whole Foods and its CEO, John Mackey, "will benefit financially from a ballot question banning the sale of eggs and meat from cage-confined animals."
According to the story, the complaint says that Whole Foods "conspired to reduce the supply of eggs and pork in Massachusetts, which would violate both federal and state antitrust laws" and that "Mackey's supermarket will benefit if voters approve the ban."
Mackey, the story says, "is a co-founder of the Global Animal Partnership, a leader in the 'cage-free' movement, and a board member of the nonprofit Humane Society of the United States, the main supporter of Question 3 on next Tuesday's statewide ballot. Under IRS rules, nonprofit leaders are prohibited from using an organization’s funds for personal or business matters."
From MorningNewsBeat, September 15, 2016:
A US Department of Labor report recently revealed that there were 5.2 million jobs available in the United States ... which was said to be the highest level of job availability since these specific numbers started being tracked back in 2000. This despite the fact that there remains considerable debate, much of it cacophonous, about national unemployment and under-employment.. The problem, one expert said, is that what we have in this country is "one of the biggest mismatches between skills and lack of qualified help available in the nation's history."
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• The Wall Street Journal reports that in the wake of Walmart's $3.3 billion acquisition of Jet and installation of Jet founder Marc Lore as leader of all its digital operations, there is some churning of the ranks.
According to the story, " The departures include Fernando Madeira, head of Walmart.com, and Brent Beabout, senior vice president of e-commerce supply chain, a spokesman said. Mr. Beabout left in recent weeks and will be succeeded by Jet.com co-founder Nate Faust, who will lead fulfillment operations for Jet.com and Walmart.com. Mr. Fernando will leave after helping Wal-Mart with its Brazilian website and several other projects."
More changes are expected to follow as Lore evaluates the organization and seeks to remake it to his own liking.
The Chicago Cubs sent the 2016 World Series to a seventh and deciding game by delivering a convincing 9-3 defeat of the Cleveland Indians in game six, evening the best-of-seven series at three games apiece.
One columnist I read made the observation that for baseball fans, there are no two better words on the planet than "game seven."
I agree. Can't wait. Go, Cubs.
"GOOD IS NOT GOOD WHEN BETTER IS EXPECTED"
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