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    Published on: April 5, 2018

    This week: Reporting In from Shoptalk 2018, Part Two.

    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.

    Yesterday, we posted Part One of a conversation between Tom and his business partner, Justin Leigh, about the recent Shoptalk "next gen commerce" conference in Las Vegas, (I wasn’t able to go.) Part Two follows. Enjoy.

    Tom Furphy: I want to talk about the interview that Jeffrey Dastin from Thompson Reuters hosted with Gianna Puerini and Dilip Kumar from Amazon Go. We both go back with them to our Amazon days. With Dilip when he was running forecasting, pricing and promotion tech and Gianna in the early days of the Consumable businesses and the development of the Subscribe and Save program. It’s great to see them both shining with the Go initiative. (Kevin interviewed Gianna when he did his piece about Amazon Go opening to the public.)

    Justin Leigh:
    Gianna interviewed me when I was hired at Amazon. I will forever be in her debt for a temporary lack of judgement and letting me slip under the high “hiring bar” there.

    TF: Good point. But I’m glad she did or I never would have met you. But enough about us. What did you think of the interview?

    Amazon is simply on a different level than other retailers. What was striking in the conversation was how differently Amazon thinks and operates. Jeffrey asked what the hardest thing about the Amazon Go store was. Their responses were simple and profound. They said that the hardest thing was building a system where someone can pick up any product in any environment and be accurately charged without the need for a check out.

    TF: Straightforward. Gianna also talked about writing the press release prior to starting work on the project. That provided the group clarity on the task at hand.

    When pressed for tangible feats they had to perform Dilip said, “We had to build many, many algorithms that are far beyond what exist today. We had to take machine learning way past where it was.” At the time when Giana wrote the press release and gained approval to start the project, the science didn’t exist to accomplish their goal. Which is to say, it literally could not be done when they began.

    That’s what Amazon does – they don’t ask why can’t something be done. Instead, they seek the biggest challenge out there and figure out how to do it.

    TF: I was struck by the confidence of their body language and conviction of advocating for the customer from both of them. It was very different than I saw from any other retailer at the show. I think it speaks volumes of the benefit of true customer centricity. It’s not arrogant. It is confidence in knowing that you’re relentlessly advocating for your customers by building things that they want, even before they know they want them.

    As a powerful illustration of the new table stakes, Dilip was asked how many data scientists were at Amazon. He seemed a bit surprised by the question and simply stated, “Thousands I suppose. It’s not like they are all in a room somewhere, they are embedded in all the teams.”

    TF: It goes to show that retailers need to get moving in data science, machine learning and artificial intelligence to bring new capabilities to their customers. They are going to have to get beyond their product roadmap / internal IT quagmire. This will require that they partner with outside firms, outside of their comfort zones.

    In what I actually found to be the most intriguing part of the session, Jeffrey asked why Amazon didn’t use RFID tags to track the items as that would be simpler than the employed camera learning solution. Dilip’s answer was simple – if RFID tags were used it would have increased operational cost (attaching the tags), would only work on items with RFID tags, the tags could be covered by the customer and all the traditional limitations of RFID tags would persist.

    At that moment it dawned on me that they didn’t just build a retail store, it was so much more. It was a system that will be able to understand every object in any space, understand what that object is doing and take appropriate action. The applications of that kind of technology are endless – security, transportation, inventory management, etc.

    TF: Imagine the ways that can help their customers. The lead expands, and the ecosystem becomes further daunting to compete with.

    Another big session of note was Jason Del Ray of Recode interviewing Marc Lore of Jet / Walmart and Andy Dunn of Bonobos. We’ve spoken highly of Wal-Mart’s “big swing” taken with the Jet acquisition, but we’ve also cautioned that Marc has provided great returns to early investors with company take-outs, but is yet to build anything of enduring value. Not that he can’t. Just that he hasn’t that we’re aware of. And we’ve always respected Jason’s work. What did you think of the interview?

    Jason was ruthless! He hammered Marc repeatedly on two key themes – the drop in Walmart ecommerce growth to 20% in Q4 2017 and whether Marc will stick around much longer in his current role. Marc was cool as a cucumber in answering the questions, saying that the drop in growth was planned, that it will increase again this year to 40% and that he has no plans to leave anytime soon.

    TF: He did say that it was still the early days there and feels like a startup. They plan to operate the Jet and Walmart platforms separately for the foreseeable future, to serve different customer segments. Marc also said that they will continue their ecommerce brand acquisition strategy, such as Bonobos, and are meeting with more potential acquisition companies as ever.

    I do appreciate the bold moves they are making. But 20% growth rate in any quarter isn’t going to help them in their quest to keep pace with Amazon. Amazon is still gaining share in e-commerce. And with the new initiatives in place, it should keep a good pace going forward. I know we come off as overly pro-Amazon. I’m just not seeing the kind innovation anywhere else that is required to win the customer and compete with them. Amazon just continues to build the bond ever deeper.

    TF: Speaking of deep bonds. I really enjoyed meeting many MNB readers at the show. I was proud to sport my MNB press badge and very much enjoyed meeting and chatting with many MNB readers there. I know Kevin gets this all the time, but it was a thrill to be recognized by so many passionate readers from all walks of the industry.

    And the clout of the MorningNewsBeat brand is impressive! Our Shoptalk hosts welcomed us with open arms into the press area, which was a well-stocked with refreshments and a comfy reprieve from the show. We had scheduled a meeting with a reporter from Thompson Reuters in the press area. However, the bouncers wouldn’t allow him entrance as he wasn’t on their list. Apparently, this area is reserved for serious members of the press only. When he mentioned that he was here to meet with Tom and Justin from MorningNewsBeat, they quickly escorted him back to us. It was a powerful.

    TF: It sure was. I get choked up thinking about it. But seriously, Shoptalk is probably one show that should be on everyone’s list to attend each year. Not all of the content will appeal to everyone. But it encapsulates where retail is going. There were over 200 company announcements made at the event. For networking, education on the latest in retail and access to thousands of startups in one place, it can’t be beat.

    The Conversation will continue…with a new Innovation Conversation podcast that will drop on April 18. Stay tuned!

    KC's View:

    Published on: April 5, 2018


    This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

    Hi, Kevin Coupe here, and this is FaceTime with the Content Guy.

    I’m recording this FaceTime video in the lobby of the Marquis Theatre on Broadway, during the intermission of the new musical, “Escape To Margaritaville.” This is what is called a “jukebox musical” - it folds the songs from a particular artist, in this case Jimmy Buffett, into a narrative and they hope will appeal to longtime fans and newbies alike.

    Now, Michael Sansolo and I both have written and talked here on MNB about Jimmy Buffett as a master brander. He’s not the most talented singer in the world, and while his songs are catchy, even he would agree that he’s no Paul Simon or Bob Dylan. Buffett is, however, a terrific showman - he’s an entertainer who believes in giving his audiences a great show, and he’s built his brand into an empire that includes hotels and restaurants and bars, all built around the lure of hanging out ob the beach, sipping a cold adult beverage, and avoiding responsibility, even if only for a few hours or days.

    In fact, one of the few venues he hadn’t conquered was the theater - and so for a year, he’s been working on “Escape to Margaritaville,” aided by talented folks onstage and off, playing in La Jolla and New Orleans and Chicago before opening in New York.

    This is a good lesson for every business - not to be satisfied with a legacy business, and the importance of trying new things and testing new approaches and trying to find new customers.

    To be honest, I think “Escape To Margaritaville” is only partially successful. If you aren’t a Buffett fan, I’m not sure what you’d make of the show. We are huge fans, so we found it to be lots of fun. It isn’t a great musical, but it is a good time, and on a cold March night, that was plenty.

    “Escape To Margaritaville” may run a couple of years, or as couple of months, but I’d be willing to bet that I know what its future is. In addition to the inevitable touring company, at some point, it is going to get mounted on a stage in Las Vegas, where Buffett already has a successful Margaritaville restaurant. They’ll cut about 30 minutes out of it, do it without an intermission, and it’ll work just fine … which will end up being another lesson, because sometimes to make something work, you just have to change your latitude and change your attitude.

    That’s what’s on my mind, and, as always, I want to hear what is on your mind. Fins Up!
    KC's View:

    Published on: April 5, 2018

    by Kevin Coupe

    The Associated Press reports that CVS Health is getting into the kidney care business as it yet again expands beyond its traditional drugstore business and into other areas of healthcare.

    According to the story, CVS “will offer home dialysis for patients through its Coram business, and it is working with another unspecified company to develop a new device for that … CVS Health will begin its expansion into kidney care with a program that helps identify chronic kidney disease early. It will then connect those patients with nurses for training and nutritional counseling to help delay the need for dialysis, a process that filters and cleans blood.”

    The AP story points out that CVS’s healthcare ambitions have propelled it to open more than a thousand clinics in its stores, as well as run a pharmacy benefit management business; it also is spending $69 billion to buy insurance company Aetna.

    Everything you need to know about CVS is contained in this passage from the AP story…

    Company leaders have said they aren’t planning to replace doctors. Instead, they want to use their national reach to supplement the care patients already receive from a physician.

    I’m not sure it has been a flawless, philosophically pure initiative, but what CVS has done in terms of redefining and then implementing its narrative has been impressive, focused and, it seems to me, worth emulation in other industries where retailers find themselves with ill-defined images and missions.

    That’s an Eye-Opener.
    KC's View:

    Published on: April 5, 2018

    The New York Times reports this morning that Facebook is saying that “the data of up to 87 million users may have been improperly shared with a political consulting firm connected to President Trump during the 2016 election — a figure far higher than the estimate of 50 million that had been widely cited since the leak was reported last month … Facebook had not previously disclosed how many accounts had been harvested by Cambridge Analytica, the firm connected to the Trump campaign. It has also been reluctant to disclose how it was used by Russian-backed actors to influence the 2016 presidential election.”

    Other noteworthy passages from the Times story:

    “Among Facebook’s acknowledgments on Wednesday was the disclosure of a vulnerability in its search and account recovery functions that it said could have exposed ‘most’ of its 2 billion users to having their public profile information harvested.”

    “Mark Zuckerberg, the company’s chief executive, also announced that Facebook would offer all of its users the same tools and controls required under European privacy rules. The European rules, which go into effect next month, give people more control over how companies use their digital data.”

    “The company said that on Monday it would start telling users whether their information may have been shared with Cambridge Analytica.”

    Facebook “said it would limit the types of data that can be harvested by software used by outside businesses. The changes mean that users will have to give permission before an app can collect information beyond their names and addresses. The company also said it would no longer allow outsiders to use apps to gather information about the religious or political views of its users.”

    “It’s clear now that we didn’t focus enough on preventing abuse,” Mr. Zuckerberg said. “We didn’t take a broad enough view of what our responsibility is. That was a huge mistake, and it was my mistake.”
    KC's View:

    Actually, that is a huge admission for Zuckerberg … that would’ve been a lot more timely if he hadn’t waited so long to make it.

    Zuckerberg is scheduled to testify before the Senate’s Commerce and Judiciary committees on Tuesday and the House Energy and Commerce Committee on Wednesday.

    Expect wall-to-wall coverage on cable TV. I, for one, can’t wait. I may even have it catered.

    One other thing. My suspicion is that next Monday, when people start hearing from Facebook that their information may have been shared with Cambridge Analytica, the outrage is going to get a lot more personal and lot more amplified.

    Published on: April 5, 2018

    CNBC reports that Sears and Delta said yesterday that “some of their customer payment information may have been exposed in a cybersecurity breach.”

    The breach occurred at a software service provider, [ 24], that is used by both companies, and reportedly “led to unauthorized access to the credit card information of under 100,000 of its customers.”

    According to the story, “the incident happened on or after Sept. 26, 2017 last year and was found and resolved on Oct. 12,” but Sears said it was not informed of the problem until last month.

    While the information was exposed, the story says, there is no evidence that it actually was “accessed and compromised.”

    This new breach comes in the same week as reports emerged that Panera Bread has been dealing with a data breach that exposed on its website information about millions of its customers.
    KC's View:
    Not sure which piece of this story I find more amazing - that it apparently took months for a retailer to be informed of a security breach, or that Sears actually has 100,000 customers.

    Published on: April 5, 2018

    The Wall Street Journal reports on new research that “raises the tantalizing possibility of creating personalized diets. The study, published by the journal Genetics, suggests genes play a strong role in influencing how our bodies respond to diets. Based on the results, the authors hope that someday people will be able to take a blood test to determine if a given diet is likely to work for them.”

    Scientists, the story says, know that “not everyone responds to a given diet the same way,” and believe that down the road - such a development likely is several years away - they will be able to define and track “biomarkers that could enable doctors to use a blood test to predict a diet’s effectiveness.”
    KC's View:
    In some ways, the most surprising thing about this story is that it has taken so long. I can remember years ago, when interviewing Tres Lund, he told me about home DNA testing kits that were coming on the market. (This was long before 23 & Me.) Tres said that such kits would lead to a future in which people would know so much about their genetic makeups and predispositions that smart retailers would be able to help them customize eating plans that would address disease states that hadn’t even happened yet.

    I think he was, and is, absolutely right. That’s exactly what smart retailers - like Lunds & Byerlys - will be able to do.

    Published on: April 5, 2018

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

    • E-commerce analytics firm Profitero is out with a new pricing study concluding that price competition among Amazon, Walmart, Jet and Target continues to tighten. Amazon continues to lead in a number of categories, with prices about 10 percent lower than the other three, on average. Walmart reportedly is matching Amazon’s prices on about 53 percent of all products, compared with Target, which matches prices on 37 percent of items, and Jet, which matches 35 percent.

    CPG items are where many of the pricing battles are being fought, Profitero says.

    This tells me that the best way for retailers not named Amazon, Walmart, Target and Jet to compete is not on price, at least in most cases, but rather on products and services that they can define as being unique and proprietary, offered in retailing environments that are differentiated and compelling. Retailers that don’t think this way will end up thinking about themselves as collateral damage.
    KC's View:

    Published on: April 5, 2018

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

    • The Cincinnati Business Courier reports that Kroger “is expanding its standalone restaurant concept to a second location,” and “plans to open its second Kitchen 1883 in Anderson Township (Ohio) this fall. It opened the first Kitchen 1883 – its first full-service restaurant – next to its supermarket in Union, Ky., in November.”

    The story notes that “Kitchen 1883 – it’s named after the year Barney Kroger founded his namesake grocery company in downtown Cincinnati – features a made-from-scratch menu and hand-crafted cocktails. The Union location has wraps, a burger, craft beer-battered cod using locally made Braxton Brewing beer, pork tenderloin, crab remoulade salad and an appetizer called roasted cauli-sprouts on the menu, among others.”

    • Raley’s announced that it is launching what it calls “a new multidimensional advertising campaign to support the company’s vision to infuse life with health and happiness. The campaign, entitled ‘However You Eat,’ invites customers to shop with Raley’s for their nutrition and wellness needs regardless of the way they eat and where they are on their individual health journey.”

    The company says that the campaign “was developed to inspire a real conversation about how we eat. The advertising assets tell a story about the different reasons customers buy groceries. The campaign places an emphasis on being inclusive whether you are shopping for a family, as a vegan, for a book club meeting or as a pescatarian.”

    I haven’t even seen this, and I already like it … because Raley’s seems to understand that creating enduring connections with customers means being able to tell compelling and relevant stories. That’s always been a core tenet around here. (I even co-wrote a book about it … have I ever mentioned it?)

    CNBC reports that J. M. Smucker will “acquire pet food and pet snacks maker Ainsworth Pet Nutrition in an all-cash transaction for about $1.7 billion to strengthen its pet food portfolio in an fast-growing pet food market.” Smucker also said that “it plans to explore options for its U.S. baking business, including a sale.”

    CNBC reports that Bed Bath & Beyond is telling consumers holding a Toys R Us gift card - of limited use now that the toy retailer is going out of business - can redeem it for partial value at its stores. The offer ends at midnight tonight.

    According to the story, “A shopper will receive a Bed Bath & Beyond e-gift card instantly, but the exchange value won't be exact. The retailer notes that prices can vary. Shoppers can check how much they will receive on the website before agreeing to a swap. A Toys R Us card worth $100, for example, would be worth $64.20 in store credit at Bed Bath & Beyond.”
    KC's View:

    Published on: April 5, 2018

    Reuters this morning reports that Ahold Delhaize has named Frans Muller as its new CEO, succeeding Dick Boer, who will retire on July 1. The story notes that “Muller had been CEO of Belgium’s Delhaize until Ahold acquired it in 2015 for 9.3 billion euros ($11.4 billion), after which he oversaw the integration of the companies’ U.S. businesses, which include the Stop & Shop, Giant, Hannaford and Food Lion supermarket chains.”
    KC's View:

    Published on: April 5, 2018

    We had a story yesterday about how there are concerns in some quarters that when electric vehicles become more popular, it will have a negative impact on the beverage industry - largely because if people don’t have to stop and get gas at filling stations/c-stores, they wont stop to buy a beverage.

    MNB reader Carl Jorgensen responded:

    What about convenience stores taking over the electric car charging business? The longer charge times present an opportunity for C-stores to sell more to waiting customers, and maybe even provides some entertainment while they wait. Just sayin’.

    MNB reader Eric Carlson wrote:

    I don’t stop at any gas stations with my all electric Chevy Bolt. So I can see where the gas stations could lose the sales of food and beverage items as electric cars become more commonplace.

    My suggestion to the station owners is to put in the fast charging stations (that take an hour to top off your car) and give me something to spend some money on! Put in a real restaurant/lounge and sell me something better (with more margin). Charge me $2 for wi-fi access (no more that please) so I can work. Take advantage of a temporarily captive customer. They have them in the MassPike  rest areas already.

    From another reader:

    Just thinking about unintended consequences here, hybrids and electric vehicles have also been steadily reducing gasoline tax revenue states collect, especially in CA.  States need this revenue to keep infrastructure updated so since state governments never cut costs and are rarely fiscally responsible, they will have to find other ways to raise the lost tax revenue.  I continue to hear the mileage tax being proposed and in some states that might work but in a car born society like ours, I think it’s a third rail for politicians who eventually vote it into law.  So, that being said it will be really interesting to watch all this play out over the next 10-20 years but I do believe there will be additional unintended consequences for sure!

    MNB reader Lisa Malmarowski wrote:

    What an opportunity. Imagine if convenience stores started revamping their model into modern waysides that would include green spaces, dog walk areas, lovely outdoor seating, beautiful restrooms with showers, quick healthy meals and more, and included shaded electric car charging areas. A place where people would want to stop to stretch their legs, take a break and actually enjoy their road trips more. Right now, they are places to get the hell in and out of - they’re greasy, smell of gas and are designed strictly for convenience. But they could be become a destination.

    And from another reader:

    As an electric vehicle early adopter, I think there are plenty of opportunities to exploit. A long distance trip in a Tesla Model S or Model 3 will necessitate stops at charging stations, either third-party or Tesla-owned Superchargers. Even with the highest amperage charging available, EV drivers are a captive audience for at least 20 minutes as they wait to charge their 60 to 100kWh battery packs.

    Sheetz is one retailer that is embracing the future. They partnered with Tesla beginning last year to build Supercharger spots at convenience stores. I don’t expect that Sheetz will have EV customers outnumber their gas customers any time soon, but ignoring a fast-growing segment brings to mind buggy whips. Retailers that want to stay relevant through the 21st century will find ways to cater to electric vehicle charging…and whatever else comes down the (turn)pike.

    Easy lesson to take from this story and the various responses.

    Stay relevant. Or die. Your choice.

    MNB reader Bob Wheatley had some thoughts about yesterday’s Innovation Conversation:

    The exchange here on retail strategy was telling as Amazon makes remarkable investments and improvements in what is essentially a transactional business model, leaving experiential as the opportunity for relevance among progressive food retailers. From the Shoptalk conference outcomes, this comment stood out: “But I never heard how they’re going to make life better for me.”

    If it is incumbent upon retailers to advance the idea of experiential store environment, one that both “educates and inspires” then the business strategy plan needs to “focus on the customer and work backwards from there.” Yet this business paradigm is largely absent. When transactional thinking generates ideas to streamline shopping tasks, that’s certainly helpful and recognizes the omni-channel shopping world we now live it. But it is not in my opinion truly a reflection of putting the customer at the center of strategy. Rather it is an effort to improve transactions.

    There’s a difference.

    I believe the future of food retail depends greatly on customer first thinking and how that will manifest in better experiences, inspiration, guidance and enablement at a time when the vast majority of consumers, millennials in particular, would prefer a home cooked meal to anything else. This is an enormous opportunity for retailers who understand the value of food experience — the consumer’s interest in it, and work backwards from there.

    KC's View: