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    Published on: March 6, 2019

    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.

    This week’s Innovation Conversation is a little different. Last week, Tom and I found ourselves in the same place at the same time - the National Grocers Association (NGA) Show in San Diego - which doesn’t happen all that often. So, we decided to have a “real” conversation, on camera, instead of the email conversations that we we usually have for this column.

    The subject: Are reports of Amazon’s decline, especially as competitors make strides with their e-commerce offerings, exaggerated? Do they need to be put in context?

    You can see that video at left.

    But after we recorded it, something happened. The Wall Street Journal broke the story that Amazon “is planning to open dozens of grocery stores in several major U.S. cities … as the retail giant looks to broaden its reach in the food business and touch more aspects of consumers’ lives.” These stores could be ground-up, could be stores closed by traditional bricks-and-mortar chains, or could be acquisitions. We don’t really know … and Amazon, at least to this point, isn’t talking.

    So, Tom and I engaged in a brief email conversation to follow up on this development…

    KC: So, what do you make of these reports? Do they seem accurate to you, or like some analyst is making things up to get column inches in the Journal?

    Tom Furphy:
    I don't think anyone should be surprised to hear that Amazon is opening new store formats. We have always said that Amazon will experiment with a variety of formats as they work to solve the totality of their customer's needs. This likely means developing physical experiences that don't conform to traditional paradigms. Formats evolve. They have forever and the will continue to do so forever.

    We say that Amazon is setting the innovation agenda for the industry in five key areas: Shopping as a Utility (replenishment), Routes to Market (delivery), New Formats (Go and others), Health Care (on the platform and their alliance with Berkshire Hathaway and Chase) and Advertising (now number three digital platform after Google and Facebook). We should expect continual innovation along these themes for years to come.

    KC: The way that the news stories characterized this new Amazon “chain” made it sound like it would be opening stores (or buying stores) that are fairly traditional - like Whole Foods, but more mainstream, with lower prices.

    But I tend to think that the only way this makes a ton of sense is if Amazon uses these stores to offer some sort of game changing insight, whether it be about data (with selection highly targeted based on local shopper online activity?), loyalty (maybe the stores only are open to Prime members?), checkout-free technology, manufacturer needs (maybe holding product on consignment and not actually buying anything, which sharpens the economics), or some sort of play based on its growing proprietary delivery systems.

    Would you agree?

    I can't imagine that Amazon would open plain vanilla grocery stores just for the sake of being in the business. They are all about innovating and redefining shopping experiences. I would think the any new format would be designed to provide what Amazon feels is a unique and important value to the shopper. It wouldn't surprise me if that included a combination of any or all of the elements you outline.

    The Conversation will continue…

    Tom Furphy is a former Amazon executive, the originator of Amazon Fresh, and currently the 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 to develop a range of initiatives and businesses that can compete in 2019 and beyond.
    KC's View:

    Published on: March 6, 2019

    by Kevin Coupe

    Bloomberg reports that when the Atlanta Falcons return to their home Mercedes-Benz Stadium this fall, there will be a change in operations that has nothing to do with the coaching staff, quarterback, or defensive line.

    It’ll be at the stadium’s concession stands, which no longer will take cash.

    The story notes that Mercedes-Benz Stadium has had “the lowest food-and-drink prices in the league,” as a way “to coax fans into buying more. Now it’s going cashless to help keep those prices low.”

    The lower prices, the story says, seem to have worked: “Average spending per fan in 2017 increased 16 percent from a year earlier, and spending levels last year were in line with 2017, the company said. Along with going cashless, the stadium is also cutting prices on five of its top-selling items. Hot dogs will drop 50 cents to $1.50, and chips and salsa will drop from $3 to $2.50.”

    However, there is some expectation that “the latest move may not sit well with fans who rely on cash. In 2017, almost 11 percent of Georgia households didn’t have bank accounts while 24 percent were considered ‘underbanked,’ that is they may have a savings or checking account but prefer cash transactions, according to the FDIC.”

    The Falcons say that “to accommodate those patrons, the stadium will have about 10 machines where people can insert cash between $10 and $1,000 and get a prepaid Visa debit card, executives said.”

    This is an interesting move. It seems to be part of a greater continuum of companies not taking cash - still legal tender, last I checked - but the way it is being positioned as a way to keep costs down is sort of fascinating. (Is processing cash really more expensive than transaction fees charged by credit card companies?)

    I also have to wonder how many unbanked people can afford NFL tickets.

    Still, as I say, it is an interesting move … and the reaction to it may be an Eye-Opener, informing decisions made by other businesses down the road.
    KC's View:

    Published on: March 6, 2019

    Scott Gottlieb, characterized in many reports as a surprisingly activist commissioner of the US Food and Drug Administration (FDA), said yesterday that he will resign at the end of the month.

    Gottlieb said that the reason for his resignation was that he was tired of commuting to Washington, DC, from his family’s home in Westport, Connecticut, where his wife and children remained after his appointment, and he resisted any suggestion that he had been forced out.

    However, the New York Times writes that the resignation came as a surprise, and “raised questions about whether his push to reduce teenage vaping and lower nicotine levels and ban menthol in cigarettes will continue in an administration that generally has a hands-off approach to business … Gottlieb has been subject to increasing pressure from some Republicans in Congress and his former associates in the conservative movement for his tough stance against youth vaping and traditional cigarettes. A coalition of influential conservative groups recently asked the White House to block some key parts of the F.D.A.’s strategy to prevent youths from vaping.”

    According to the Times, “Gottlieb said he planned to advance the F.D.A.’s pending tobacco regulations before he leaves. And he was confident, he said, that the agency’s guidance on restricting flavored e-cigarettes would be issued before he left. He acknowledged, however, that he could not predict the fate of his proposals to ban menthol in cigarettes and reduce nicotine to nonaddictive levels in cigarettes.

    “Industry analysts expressed optimism that those initiatives would, in fact, now end.”

    The Times notes that when he first stepped up to run FDA, “Gottlieb seemed a figure right out of central casting for the Trump administration. As a venture capitalist who served as both a consultant and board member for drug companies, he had made a fortune from the industry he would regulate, written impassioned anti-regulatory columns in conservative journals, and held stock in industry players large and small, which he divested. But he was also a physician, and as he settled into the job, his libertarian views were often balanced by his zeal to protect public health.”

    The Wall Street Journal provides some additional context, writing that Gottlieb “arrived at the agency having written and spoken skeptically about FDA regulation, in particular saying it was being too aggressive in its handling of medical-device approvals. Over the past two years, he has won over many skeptics, according to multiple people within the agency.

    “Dr. Gottlieb’s FDA sped up the approval of generic drugs in an effort to slow the growing cost of prescription drugs. The FDA chief also took major steps to combat the opioid crisis.

    “He also has made decisions less popular among consumer advocates, such as an eased approval process for electronic devices with medical uses. And he drew criticism for the agency’s alleged failure to do enough to assure the safety of medical devices. Another point of contention has been the discovery of carcinogenic chemicals in blood-pressure drugs imported from plants in China and India. The FDA said the actual risk to patients is quite small, but it is investigating how the impurities occurred.”
    KC's View:
    It probably is a mark of success that Gottlieb hasn’t pleased anybody all the time. I just hope that whoever takes his place is equally tough on the tobacco and vaping industry, which has done nothing to inspire any sort of confidence or sympathy; if the next FDA commissioner steps back from the path that Gottlieb has taken, it will represent a backward step in looking out for public health and establishing the right kind of public policies.

    Published on: March 6, 2019

    The Washington Post reports that over the past two years, Target has managed to remake itself “as a retail success. The brand is on track to remodel 1,000 stores by the end of 2020. It has launched more than 20 private-label brands. And customers are hooked on Target’s roster of shipping options, including same-day delivery and curbside pickup … The proof was in Tuesday’s earnings results: Target celebrated its best year since 2005. Comparable sales in 2018, a measure of sales online and at stores open more than a year, grew by 5 percent. Comparable digital sales alone climbed 36 percent -- marking the fifth consecutive year in which that figure grew more than 25 percent.”

    According to the story, “Target has focused on giving customers options for how they shop. Its physical stores work in tandem with online shopping and delivery options. A customer can put in order through an app and then opt for curb-side pickup, for example, or peruse at a physical store and have the shopping bags delivered later on. In the fourth quarter, stores fulfilled nearly three of every four of Target’s digital sales.

    “Target’s delivery service, Shipt, has expanded to 1,500 stores. Drive-up is now an option in more than 1,000 stores. And those options are actually driving down Target’s fulfillment costs. Physical stores are treated like small hubs, often in place of massive distribution centers far away from shoppers’ homes. Order pickup and drive-up costs the company 90 percent less on average than fulfilling an order from a warehouse, Target said on Tuesday.”
    KC's View:
    Still a long way to go, with plenty of stores needing lots of attention. (Example: the awful store in Stamford, Connecticut.) But there’s no question that Target seems to have found an omnichannel path that is taking it in the right direction.

    Published on: March 6, 2019

    In the UK, the Guardian has a piece about German discounter Aldi - and to a lesser extent, Lidl - has upended the British supermarket industry, changing how customers shop and how its competitors come to market.

    An excerpt:

    “Aldi is still relatively low-tech: without a loyalty programme, it knows little about individual customer preferences and you can’t buy its groceries online. What it has done is disrupt a mindset: the settled wisdom about how we think of ourselves as shoppers, and the basis by which we identify with a particular supermarket.

    “Aldi’s victory was to show that there was no shame – and in fact there was satisfaction – in shopping at a discount supermarket. British mums once worried about their children being embarrassed to find Aldi food in their lunchboxes; now they happily swaddle their babies in Aldi’s disposable nappies, which are now the second-most popular brand in the country, behind only Pampers.”

    Good piece, with lots of detail and context, serving as a kind of warning shot to anyone who may find themselves competing with Aldi.

    You can read it here.
    KC's View:

    Published on: March 6, 2019

    There was a story yesterday that ordinarily might not have made MNB, except that the company involved was written up here for other reasons just a few weeks ago.

    The company is UnitedHealth Group, which yesterday was slammed by a federal judge in Northern California who ruled that one of its units “had created internal policies aimed at effectively discriminating against patients with mental health and substance abuse disorders to save money,” policies that “violated its fiduciary duty under federal law.”

    U.S. Chief Magistrate Judge Joseph C. Spero wrote that UnitedHealth’s guidelines were “unreasonable and an abuse of discretion” and had been “‘infected’ by financial incentives meant to restrict access to care.” The policies, he wrote, put an “excessive emphasis on addressing acute symptoms and stabilizing crises while ignoring the effective treatment of members’ underlying conditions.”

    This was interesting because it was little more than a week ago that UnitedHealth lost another case - its attempt to stop one of its former executives from going to work for the new health care venture that has been launched by Amazon, Berkshire Hathaway and JPMorgan Chase.

    The New York Times wrote at the time that “the case against the nascent venture has highlighted the anxiety of established insurance companies and pharmacy benefit managers over newcomers to their territory. From start-ups to giant technology firms, the new rivals threaten to unseat companies, like UnitedHealth, that have traditionally dominated these markets. Amazon, which has made tentative forays into the pharmacy business, has emerged as a particularly worrisome competitor.”
    KC's View:
    I’m sure that these are different units of United Health, but I did find this to be a fascinating coincidence … on the one hand, it doesn’t want one of its former executives sharing trade secrets with a potentially disruptive competitor, and then it ends up that one of those trade secrets was putting financial concerns ahead of patient/customer care.


    Now, I’m sure that there are a lot of companies out there that sacrifice patients because of financial concerns. But I also would hope that whatever Amazon, Berkshire Hathaway and JPMorgan Chase, they figure out a way never to accused of such an attitude.

    Published on: March 6, 2019

    Food & Wine reports that three years after Starbucks “totally overhauled its rewards program when it ditched its one-star-per-transaction model and switched to a revenue-based approach,” it appears that it is about to make some more changes.

    The changes in 2016 meant that the more customers spent, the more stars they could earn and put toward free items; every dollar spent earns two stars.

    According to the story, the new rules will mean that “25 stars will get you extra modifications to your drink, like an espresso shot, up to $1” …  “50 stars will get you any size cup of hot coffee, hot tea, or a bakery item” … “150 stars will get you any handcrafted beverage or breakfast sandwich (previously, you only needed 125 stars) … “200 stars will get you a lunch sandwich, salad, or protein box” and “400 stars will get you packaged coffee or a single merchandise item, up to $20”.
    KC's View:

    Published on: March 6, 2019

    • Pure-play e-grocery retailer FreshDirect has announced the launch of same-day delivery services in Manhattan starting next week, with customers in nearby Brooklyn and Westchester County expected to soon have access to same-day service.

    At the same time, FreshDirect said it was expanding its broader geographic service area to more parts of Connecticut and the Washington, DC, suburbs. Additional geographic expansion is expected over the coming year, the company said.

    FreshDirect noted that this is its first expansion since moving to a new Bronx, New York, headquarters and facility last year.
    KC's View:

    Published on: March 6, 2019

    TechCrunch reports that Walmart-owned Sam’s Club is about to begin testing a new Scan & Go system in a Dallas store that is designed to trial new technology.

    According to the story, “The current Scan & Go system, launched two years ago, requires Sam’s Club shoppers to locate the barcode on the item they’re buying and scan it using the Sam’s Club mobile app. The app allows shoppers to account for items they’re buying as they place them in their shopping cart, then pay in the app instead of standing in line at checkout … The new scanning technology will instead use computer vision and ML (machine learning) to recognize products without scanning the barcode, cutting the time it takes for the app to identify the product in question.”
    KC's View:

    Published on: March 6, 2019

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

    • The Puget Sound Business Journal reports that Amazon appears to be continuing to pay the rent on the site of a “365 by Whole Foods” store in Bellevue Square, in Bellevue, Washington, that it closed in 2017 after it significantly underperformed.

    That closure was contested by the landlord, who said that Whole Foods had a 10-year lease on the location and that closure of the store hurt the image of the mall to which it was attached. A judge ruled that Amazon was within its rights to close the store, and that it was up to the landlord to decide whether to rent it out to someone else or keep collecting rent from Amazon.

    If Amazon still is paying for the location, the Business Journal suggests, this could be significant in view of stories suggesting that it now is planning to open supermarkets in various markets that will not be branded as Whole Foods; this location could be an easy place to begin the experiment.

    Except for the fact that it isn’t a great location for a supermarket. I never liked it for the 365 store, and cannot imagine it would be a place where Amazon could get an accurate reading about the viability of any new concept. I suggested at the time of the closure that if Amazon still had to pay rent on the location, it ought to turn the space into a showcase for all its technologies, including smart home appliances, which might actually get people to go out of their way to visit.

    • The Associated Press reports that “the French government unveiled plans Wednesday to slap a 3 percent tax on the French revenues of internet giants like Google, Amazon and Facebook, saying that the tax could raise more than $500 million (US) a year. The story says that “about 30 companies, mostly based from the U.S, but also from China and Europe, will be affected.”

    Finance Minister Bruno Le Maire said at a press conference that “this is about justice. These digital giants use our personal data, make huge profits out of these data … then transfer the money somewhere else without paying their fair amount of taxes.”
    KC's View:

    Published on: March 6, 2019

    • Overland Park, Kan.-based Price Chopper Enterprises has named Brian Haaraoja toi be its new president/CEO, succeeding the retiring Peter Ciacco.

    Haaraoja most recently was vice president of marketing and merchandising for the parent company to Oklahoma-based Homeland Foods.

    • NACS announced that it has hired Kim Stewart, a former Wall Street Journal editor and correspondent who most recently was senior editor at the Insurance Institute for Highway Safety, to be its new editorial director/editor in chief of the NACS Media Group. In this position, Stewart will oversee the editorial and content leadership of NACS Magazine, the NACS Daily e-newsletter and the association’s social and digital platforms.
    KC's View:

    Published on: March 6, 2019

    Regarding the FedEx robotics commercial we posted yesterday, one MNB reader wrote:

    I thought the commercial was an interesting peek into our future but did anyone else notice that the Mom didn't acknowledge the robot at any point...?
    (Maybe she was distracted by her sick kid to give her the benefit of the doubt.)

    The first thing I thought was that she should watch the original Terminator movie and always be kind to machinery.

    Agreed. I always try to say please and thank you to my Alexa. Just in case.

    From another reader:

    I'm a retired Electronic Technician from the Federal Bureau of Prisons, one of the things I that annoyed when I worked there was when we added more cameras, upgraded our security systems upper management wanted to eliminate employee positions. Well if the inmates are fighting or one of them is climbing or cutting through the fence, we can watch it on the monitor or have the security system alarm but you need staff to stop it.  Technology enhance security but the staff is your security. The same if for the stores, self check out isn't customer service your staff is customer service. They are the ones who are going to clean up a spill in aisle four and tell you where they have the Lefse. (I'm from Minnesota look it up and if you get a chance, try it, it's good.)

    Lefse sound wonderful. Thanks for the recommendation.

    From another MNB reader:

    OK, so I thought this was pretty cool and effective, especially if this is a real device operating autonomously.  But how many of these slow moving things navigating the streets and sidewalks will it take to replace one guy in a van containing dozens (hundreds?) of packages at once?  For that matter the same goes for drones.  How many packages are delivered in one day in any one particular place anywhere?  How many drones would there be buzzing about avoiding other people, things and each other?  I'm not so sure the future is as close as you seem to think it is.

    Or, it could be closer…
    KC's View: