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.
- KC's View: