business news in context, analysis with attitude

Published on: April 4, 2018

This week: Reporting In from Shoptalk 2018

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.

However…because I was unable to attend the recent Shoptalk "next gen commerce" conference in Las Vegas, I’m turning the whole thing over to Tom this week for a two-part Innovation Conversation. Part One follows. Enjoy.

Tom Furphy: My business partner, Justin Leigh and I had the pleasure to attend Shoptalk again this year. In only its third year, the conference has ballooned to 8500 attendees, with demand exceeding capacity. Most of the largest retailers and manufacturers attended and/or presented. And hundreds of established tech companies and startups were on hand for presentations and exhibition. We thank Shoptalk for granting us press access via MNB and are thrilled to be able to share our observations on the conference.

Justin and I felt that that Shoptalk boiled down to a few major themes that MNB readers should be aware of – the grocery ecommerce inflection point is near, non-branded search is important to contend with across web and voice platforms, Amazon is driving the pace of change more than ever and true innovation comes only from Amazon and startups.

Justin Leigh: Cooper Smith, an analyst with Gartner’s L2, shared analysis that showed grocery is clearly moving online in a big way and at a faster rate than previously expected. Cooper shared a number of graphs showing when different categories hit a 20% inflection point of volume via ecommerce and then what happened to the major retailers in those categories in the few years following. Almost always, the largest incumbents crumbled or became a shell of their former selves.

TF: It was quite sobering. L2 predicts that the Grocery business will hit the 20% inflection point by 2025 and acknowledged it could be sooner. This aligns with research we’ve seen from Nielsen who just updated their 40% of center store inflection point to 2022 and from Goldman Sachs who says Amazon’s packaged good business will total $160B in 2027.

We’ve done the math – as this volume leaves traditional stores, many incumbents won’t be able to handle the inevitable loss in profitable volume. Because of the high costs structure and thin profit margins of grocery stores, absent fundamental business model changes, bankruptcies will be inevitable and the carnage will actually be worse in grocery than it was in other categories.

JL: I don’t understand why more grocers aren’t acting with more sense of urgency to re-engineer their business models. You would think these projections would scare them into action.

TF: It’s only impacted them for a couple points on volume so far, so they’re not feeling it yet.

JL: In a couple of the sessions, we saw research on how product search is performing across Amazon, the various search engines, voice, retailers, and recipe platforms. As a search junkie – having run the traffic function for consumables at Amazon and working with dozens of manufacturers today – I spend a lot of time on this subject. I’m not surprised to see how important unbranded search is on Amazon. It drives a massive amount of current results, often support the “Amazon Choice” badge at top of search and is fueling voice search there. As the Alexa platform expands and embeds itself across many devices and platforms, it will become even more important.

TF: I agree. Although it was slightly encouraging to see that branded and retailer-specific search is not dead. It seems like brands and retailers that invest in core content and search capabilities now, and partner with the right platforms, have a good chance to stand up to the behemoth.

JL: They do. But they need to activate. Now.

TF: KC always says that its’s one thing to have actionable data, but it’s another thing to actually take action on it.

JL: Amen. We heard from countless retailers how great their data is. But we heard very little about anything compelling that they were doing with it, even when pressed. One retail leader said, “I wish the digital transformation would happen faster because as shopping goes digital, brick and mortar assets will be more important than ever.” Not sure what that means without a real tangible strategy underneath. It is possible that many of the presenters were holding their best strategies close to the vest. But the time for flowery language is past. Direct tactics and swift action will win the day in the digital revolution.

TF: The difference in approaches to innovation between Amazon and other retailers was striking. I know that Kevin and I sometimes get razzed by readers on being overly pro Amazon. So, I’ll ask you, what did you think?

JL: Amazon is playing on a different level than any other traditional retailer we saw present there – Macy’s, Target, Kroger. Even Jet/WMT, although at least they are trying to make bold moves. All of these companies are clearly doing things to try to compete in today’s age. They said a lot about listening to their shoppers, being more relevant, allowing for easy ordering, pickup and delivery. But I never heard how they are going to make life better for me.

TF: I totally agree. Tell me more.

JL: My needs are not complex. I just want my life to be easier. I see two kinds of retailers succeeding in the future – experiential and transactional. Experiential retailers will educate and inspire me. Transactional retailers will handle the mundane shopping tasks in my life. Heck, I’d rather they sneak into my house and replenish my products without me even knowing they were there.

TF: Therein lies a serious challenge. Can a retailer be both? Experiential retail requires people, product and facilities. To support these costs, good retailers will have to deliver compelling experiences that customers reward with purchase dollars.

JL: And transactional retailers will be able to drive significant volume, at lowering costs structures, and increased profit. That’s why you see Amazon really focus on driving transactional experiences. Make it easy. Get me what I want, when I want it, at a great price. Done.

TF: It will be interesting to see if retailers can balance being both. I think they can, but I come from a unique background where customer-centricity is all I know. I worked at Wegmans, the ultimate experiential food retailer. I worked at Amazon, the ultimate transactional retailer, but one that does make life easier, which is arguably an experience unto itself. And I sold a company to Nordstrom, that is clearly trying to blend both. All are customer-centric. I think that customer centricity will win the day.

JL: That is one thing that has really stuck with me post my Amazon days. Focus on the customer and work backward. It seems so easy, but it is clearly difficult for many retailers to embrace.

Content Guy’s Note: Part Two of this Innovation Conversation will be posted tomorrow on MNB.

Published on: April 4, 2018

by Kevin Coupe

From the file of unintended consequences…

The Washington Post reports about worries that if fuel-efficient electric cars catch on, it will have a negative impact on beverage sales.

The reason? “If drivers of electric cars aren’t stopping at gas stations to fill their tanks, the opportunities for impulse purchases inside at the convenience store could dry up,” the Post writes.

The story quotes an analysis from Morgan Stanley, which says that “not only would convenience stores that sell beverages take a hit, but so would beverage companies — the most vulnerable of which could be Monster Beverages, which boasts 63 percent of U.S. sales from gas and convenience stores, the analysts wrote.”

“Beverages drive sales, and beverages drive profits at convenience stores, so any competition that could reduce those sales and those profits is a concern,” Jeff Lenard, of the National Association of Convenience Stores (NACS), tells the Post. “However, I think that stores will do what they always do: They’ll find a better way to compete.” (Lenard also tells the paper that “fuel accounts for only 40 percent of profit for gas stations, meaning most money is made inside the store. Drinks make up a bulk of those sales: A survey by the National Association of Convenience Stores showed that nearly half of all convenience store customers mainly went into a convenience store to buy a beverage.)

If there’s good news in the Morgan Stanley analysis, it is that electric cars still are a tiny part of the market. It is possible, though, to imagine that changing down the road.

Lenard, I think, is right not just about this issue, but also in a more global sense when he says that stores will just “find a better way to compete.”

That’s what retailers have to do when consumers change, technologies change, and circumstances change. They have to change with them. That’s the Eye-Opener … or should be.

By the way … I do a lot of driving, especially during the summer when I go cross-country to Oregon and back, and I can assure convenience stores that I won’t contribute to the problem. Inevitably, I get thirsty before my Mustang does.

Published on: April 4, 2018

The National Retail Federation (NRF) yesterday issued a warning against the tariff war between the US and China that is being ramped up.

NRF president/CEO Matthew Shay said, “As we’ve said all along, tariffs are taxes on consumers and a drag on the nation’s economy. While we are pleased that many everyday products such as clothing and shoes are not on the list, we remain concerned that other goods such as consumer electronics and home appliances are targets. And we believe that tariffs on certain machinery will make American-made products more expensive. 

“This entire process creates uncertainty and makes it difficult for retail companies that must rely on complicated global supply chains. Tariffs threaten to hurt consumers, jeopardize job creation and increase the cost of doing business here in the United States. Once again, we urge the administration to work with our trading partners to hold China accountable, advance targeted solutions and recognize the unintended consequences of protectionist trade policies.”

Meanwhile, the BBC reports that China, responding to the US announcement that it would impose 25 percent tariffs on some 1,300 products imported from China, said “it would place 25% trade tariffs on 106 US goods, including soybeans, cars and orange juice.”

According to the story, “The products targeted by the Chinese tariffs were worth $50 billion in 2017, according to the Chinese commerce ministry.

“US chemicals, some types of aircraft and corn products are among the goods facing the taxes, the finance ministry said. Extra tariffs will also be placed on whiskey, cigars and tobacco, some types of beef, lubricants, and propane and other plastic products. US orange juice, certain sorghum products, cotton and some types of wheat, as well as trucks, some SUVs and certain electric vehicles, will also be subject to the new duties, the ministry added.”

The NRF is not alone in warning about the tariff war.

Thomas Donohue, president of the US Chamber of Commerce, has said that while he supports the Trump administration’s desire to deal with China’s unfair trade practices, tariffs are the wrong way to go.

“Tariffs of $30 billion a year would wipe out over a third of the savings American families received from the doubling of the standard deduction in tax reform,” Donohue said. “If the tariffs reach $60 billion, which has been rumored, the impact would be even more devastating … Tariffs could lead to a destructive trade war with serious consequences for U.S. economic growth and job creation,” hurting consumers, businesses, farmers and ranchers.”

Published on: April 4, 2018

Walmart said this week that it is expanding its Walmart2Walmart domestic money transfer service, which offers lower fees that it said in the past four years has saved customers almost $700 million, to a global model, dubbed Walmart2World.

Scheduled to launch in all of Walmart’s 4,700 U.S. stores this month, the service is described as boasting lower fees, better currency exchange rates, and faster service, delivering funds in 10 minutes or less.

Walmart2World is being powered by MoneyGram International, with transferred funds available at any of MoneyGram’s locations in 200 countries, or at international bank or in mobile wallet account.

Published on: April 4, 2018

Glossy has a story about about how Generation Z - post-Millennials generally defined as those born after 2000 - seems curiously resistant to the charms of Amazon.

“According to a report by Yes Lifecycle Marketing,” the story says, “Gen Z consumers, more than any other generation, choose to shop at other retailers besides Amazon, with 31 percent citing that they prefer the in-store shopping experience. Additionally, in a survey of whether individuals made a purchase on the platform in the last month, 79 percent of millennials reported they had, while just 62 percent of Gen Z said the same.”

Published on: April 4, 2018

Panera Bread reportedly has been dealing with a data breach that exposed on its website millions of its customers’ names, birthdays, addresses, email addresses, phone numbers and last four digits of their credit cards, for more than eight months - without telling anyone.

According to the Daily Meal, “The finding was allegedly reported to Panera's director of information security, Mike Gustavison, by security researcher Dylan Houlihan in August of 2017. A screenshot of an email conversation indicates that Gustavison acknowledged Houlihan's message on August 9, but eight months went by before the records were wiped from the bakery chain's site on April 2 - several hours after KrebsOnSecurity reached out to Panera about the breach.

While John Meister, the company’s chief information officer, put the number of customers affected by the breach at 10,000, the Daily Meal writes that “web technology company Hold Security claims that over 41 million customer records were listed on the site - 34 million more than KrebsOnSecurity had originally speculated.”

Published on: April 4, 2018

Reuters reports that Neil Bradley, executive vice president and chief policy officer for the US Chamber of Commerce, yesterday released a statement criticizing attacks by President Donald Trump on Amazon:

“It’s inappropriate for government officials to use their position to attack an American company … The U.S. economy is the world’s most powerful because it embraces the free enterprise system and the rule of law, whereby policy matters are handled through recognized policymaking processes. The record is clear: Deviating from those processes undermines economic growth and job creation.”

Trump’s attacks on Amazon have gained force in recent days, as he has charged that the US Postal Service is being used as a messenger boy by Amazon, with the retailer paying below-cost rates that result in US taxpayers underwriting its shipments; Trump has said that he may take action to rectify the situation.

However, it has been pointed out by numerous media outlets that these charges are inaccurate. The Wall Street Journal - not exactly a bastion of liberal thought - notes this morning that “under law, the U.S. Postal Service must pay its own way. It doesn’t receive an annual taxpayer subsidy, but it is reimbursed by Congress for some services such as delivering mail to the blind and overseas voters.

“While the U.S. Postal Service does lose billions of dollars annually, much of that is attributable to an unusual requirement to prefund some retiree liabilities, mandated by Congress before the financial crisis. To stay afloat, the agency has defaulted on billions of this prefunding.”

The USPS says it makes money from shipping Amazon products, and experts say that the package shipping business actually compensates for the fast-declining first class mail side of the business.

Published on: April 4, 2018

The Cincinnati Business Courier reports that the Rev. Jesse Jackson is “calling for a boycott of Cincinnati-based Kroger Co.’s stores” as a way of protesting the company’s “closure in February of two Memphis stores in predominantly black neighborhoods and another store not far away in Mississippi. He’s calling for people to boycott Kroger because of the closures.”

Saying that the closures create food deserts, Jackson said, “If Kroger gonna leave us, we’re gonna leave Kroger. It’s boycott time.”

Kroger has not commented on the boycott threat, but has said that the closures were done because the stores no longer were performing.

The boycott comes as the nation observes the 50th anniversary of Martin Luther King Jr.’s last speech and assassination in Memphis.

Published on: April 4, 2018

• Bloomberg reports this morning that Amazon has been having talks with Bangalore-based Flipkart Online Services, with the possibility that it could make a bid for the Indian company.

If it did so, it would likely be a competing bid to one place by Walmart, which also has been negotiating with Flipkart for buying a majority share of the company.

According to Bloomberg, “India is seen as the next big potential prize after the U.S. and China with Kotak Institutional Equities estimating the online market may reach $28 billion by 2020. The e-commerce battle in India has intensified as the burgeoning market lures global giants.


• Business Insider reports on a new study from One Click Retail suggesting that “Amazon's next private label launches will likely involve pet carriers, diapers, and patio heaters.”

According to the story, “The retail data company has studied Amazon's strategy for its private label expansions, and has identified three key steps the e-tailer takes before launch:

“Amazon slowly releases sample products within various categories under one brand umbrella. When launching its baby care brand, for example, it launched diaper genie refills first, and then debuted its own branded categories of diapers and baby food in succession over the next few months. This period is also marked by promotions to help the product categories pick up momentum.

“The e-commerce giant then monitors the product categories for a period of six to 18 months. It monitors growth in sales, and compares each category's performance to that of its competitors. From there, Amazon decides whether it should discontinue a category, keep producing the category as-is and continue to monitor it, or increase the selection of products in the category.

“Then it has a mass release of new products in the categories that perform well.”

Business Insider says that the new study concludes that “three categories — pet carriers, diapers, and patio heaters — have had successful trial periods, making it likely that they will be Amazon's next private label launches.”

Published on: April 4, 2018

• Albertsons announced yesterday that it is “expanding its exclusive Open Nature brand into non-food categories and expects to release more than 240 new Open Nature products in 2018.” The company said it “plans to introduce Open Nature home care products this year, which follows the recent releases of Open Nature goods in both the baby and pet food categories. Open Nature’s pet food offers both grain and grain-free options.”

The Open Nature brand launched in 2011 with approximately 100 products, described as “free from 110 ingredients that consumers of natural products want to avoid, such as antibiotics, MSG-type ingredients, nitrates, and preservatives like sulfites and benzoates. Open Nature meats are free from preservatives and added hormones.”


• Fox News reports on a new study from Technomic projecting that “Chick-fil-A is poised to become the third-largest fast-food chain in the nation by 2020 in terms of sales, trailing behind only McDonald’s and Starbucks.” That prediction assumes a lot of growth - Chick-fil-A was ranked 8th last year, with Subway, Wendy’s, Burger King, Taco Bell and Dunkin’ Donuts also larger than it.


• Ahold Delhaize-owned Giant Food of Landover, Maryland, said this week that it is adopting the nutrition navigation program, Guiding Stars, in all of its 166 stores.

Guiding Stars uses one, two, and three stores to identify good, better and best products from a nutritional perspective, using an algorithm to analyze various components of a product’s makeup.


• The Ferrero Group said this week that it has completed its acquisition of Nestle USA's confectionery business, giving it brands that include Butterfinger, BabyRuth, and Nerds.

The deal has been valued at $2.8 billion.


• Advertising Age reports that Jim Beam and Budweiser are teaming up “to release a limited-edition brew called Reserve Copper Lager that is aged on Jim Beam bourbon barrel staves. (Staves are wood pieces that makeup bourbon barrels.) Before then, the two brands will begin appearing together at bars. The ‘beer and a bourbon shot’ promotion kicks off this month.”

The move is seen as a way for Budweiser to gain some street cred in a marketplace in which it has been losing market share and craft beers are seen as the more fashionable choice.

Published on: April 4, 2018

Got the following email from an MNB reader:

I will use a foreign policy comparison coined a few years back. The Grocery industry is playing checkers and Amazon is playing chess. Since early 2017 the Grocery industry has been on defense, reactive and distracted. And all the while they have abandoned their own people, their core business, their suppliers and their loyal supporters. In the article, Grocery Wars Turn Small Chains Into Battlefield Casualties is mentioned, I profess that the power chains Kroger, Safeway, Publix, Meijer should all be included. They are all spending and adjusting their businesses while hanging on to every announcement and article related to Amazon. I would agree totally that Amazon should be observed and in many cases followed, but not at the expense of the core business and values.
 
What is the difference between a Leader with great management staff and a Grocery business with great employees, great suppliers and great support businesses? In both examples all are needed to be successful!
 
Last word, how long will a business last of any size when doing business with them is not profitable, not worth it and not a collaboration, and let me add not fun for anyone?




Speaking of competition, MNB reader Steve Ritchey wrote:

I still think the best thing food markets can do is hire knowledge.  It  used to be all stores cut their own meat, now in the interests of efficiency, now,  much is cut and packaged before arriving at the store, meat market personnel are glorified stockers.  Have people working the meat depart, the deli, produce, really all over the store that know the products they sell, who can help consumers make decisions of what to buy, how to use them, how to prepare them.  Teach employees how to merchandise, I see so many schematics in stores that make no sense, so many store layouts that make no sense, and far too many displays that have no cross merchandising on them.  This is all grocery 101 in my world, it's basics.  It's also one of the things we tend to lose when we chase efficiency over effectiveness.  There is no magic formula, you have to think and you have to be willing to work, and you have to look at your store through your customers eyes.




On an other subject, from MNB reader Craig Bolton:

I have to tell you about my recent experience with my very first In-N-Out.

I was in Vegas last month and was going to find a way to make it happen. What a great experience. The place was packed, the menu was easy to understand.

Got to the counter, ordered the #1 Combo, the very nice young man taking my order says is this your first time? I thought I had rattled off my order so it wasn’t that obvious. He asks where you from, I say Chicago, he says, I hear Portillo’s is not the same anymore since they sold. I said that’s what I hear too. He says were making your sandwich now, call you soon. The sandwich was perfect, everything was fresh and tasty. Next time I get the triple.

Animal-style, I hope.