business news in context, analysis with attitude

Published on: May 1, 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. 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, we talk about how and why complacency can lead to certain death.

And now, the Conversation continues…

KC: I was intrigued over the last couple of weeks when there was a story in USA Today about how Kroger, while seeing some hit to its profits because of investments it is making in both digital and store-centric initiatives, seems to be making progress in terms of market share in specific regions.  And then, just days later, there was a story in the Wall Street Journalsuggesting that Kroger is having trouble keeping up with the likes of Amazon and Walmart.  Is it possible that both things are true - and I don't just mean for Kroger, but for any retailer trying to compete these days?  That you can be making progress, but, alas, it never is enough progress?

Tom Furphy: It's a little hard for me to wrap my head around. I agree that Kroger has been busy with their store-centric initiatives and have been working on many new e-commerce efforts. At least as far as e-commerce, Amazon and Walmart are making faster progress and on a larger scale. It could be that Kroger is gaining share in some markets on a gross rate basis but losing overall on a dollar and share basis to Amazon and Walmart.

If Kroger is gaining share, and we know that Amazon and Walmart are also gaining share, that means there are others in the market who are losing share. My guess is that retailers that aren’t solving customer needs using great stores and digital experiences are losing share. This could span large traditional, smaller chains and independents and other formats. I don’t follow markets like analysts or media, so I’m not sure exactly where the slippage is.

It is hard to keep up these days. Kroger is seeing large percentage gains in their e-commerce business but is likely getting out-gained on an absolute basis as Amazon and Walmart gobble up more of the market. The Amazon and Walmart innovation engines are revved high. They are making many big bets, on large stages, that drive a level of scale that is hard to keep up with. Fighting against massive customer bases, Amazon Prime and these aggressive innovation engines is a tall order.

KC: If this can be - and often is - true, then I guess my next question is how one should gauge the appropriateness and effectiveness of investments that one is making, because it almost sounds as if most retailers are likely to end up being in the position where they are like the ball club playing .550 baseball, which ought to be good enough, except that they’re almost always looking up at the juggernaut that is playing .600 baseball.  What the hell do you do?

TF: Being complacent will lead to death. And being a little good or moving slowly will not ensure long term viability. Small or few investments will cause your win percentage to go from .550 to .500, then to .450 over time. The only way to improve your average is to innovate enough to enable more opportunities for wins. To do that you must take more chances, test, measure, expand or kill programs, learn and apply the learnings quickly. Complacency will only serve to alienate your customer over time as you become less capable of serving their needs versus your competition. The innovation cycle is accelerating. If you’re not accelerating as quickly you are falling behind.

It’s not easy. You need to make bets now that recognize the customer two or three years from now. If you’re only investing in today’s customer, that’s not good enough. Today’s customer will already be tomorrow’s customer by the time your investment reaches the market. Serving today’s customer well is important to keep them from straying. You still need to invest in basic technology to be relevant today. And you have to hit on all the traditional elements such as in-stocks, great products, friendly service, good prices and clean stores. You have to keep nailing the basics, while impressing your customers with helpful and relevant innovations to keep them with you.

I cannot over-stress the importance of truly focusing on your customer. It sounds so clichéd and obvious, yet so many retailers are poor at it. This focus helps you understand your customers’ needs and can provide insights to help you build solutions to help them in meaningful ways. From here, what to invest in and the appropriateness of investment can be determined by working closely with tech companies and other innovators. Draw off their R&D and experiences. Map their solutions to the needs of your customers.

You should constantly seek to test and measure capabilities to determine their appeal to your customers. Be willing to iterate based on what the measurements are telling you. As the measurements hit your targets, and effectiveness is determined, scale the programs. Then keep measuring them to determine how they need to evolve. It’s hard work. But this strategy can enable you to become a .600 club over time.

KC: I also think that it is important to think about these questions in the context of the report that came out the other day saying that more stores have closed or been announced to be closing in 2019 - almost 6,000 - than closed in all of last year.  It just suggests an almost dystopian scenario for the US mall and shopping industry…

TF: We talked about stores losing share above. These stats are the evidence. As Amazon and other new online retailers thrive, and as certain traditional retailers become stronger in e-commerce and develop compelling omnichannel experiences, customers convert to those retailers. The retailers and formats that don’t keep up are left behind. This will not change.

Stores aren’t dead. But bad stores are dead or dying. Bad stores have always been replaced by better stores. The better stores of today are often part of an omnichannel experience that integrates digital and ecommerce. Or, they’re just so darned good at being stores, solving problems and immersing their customers in experiences they can’t get otherwise, that they will continue to thrive as the weaker stores shutter.

The Conversation will continue…

Published on: May 1, 2019

by Kevin Coupe

“We’re entering a new world. Things change, so we have to be open to that.”

Words to live by, and words to do business by.

They come in a fascinating New York Times story about a project using drones to deliver organs to doctors planning to use them in transplants. Here’s how the Times frames the story:

“A custom-made drone delivered a kidney this month to a Maryland woman who had waited eight years for a lifesaving transplant.

“While it was only a short test flight — less than three miles in total — the team that created the drone at the University of Maryland says it was a worldwide first and a crucial step in its quest to speed up the delicate and time-sensitive task of delivering donated organs.

“The team’s leader, Dr. Joseph R. Scalea, an assistant professor of surgery at the University of Maryland School of Medicine, said he pursued the project after constant frustration over organs taking too long to reach his patients. After organs are removed from a donor, they become less healthy with each passing second. He recalled one case when a kidney from Alabama took 29 hours to reach his hospital. ‘Had I put that in at nine hours, the patient would probably have another several years of life,’ Dr. Scalea said Tuesday. ‘Why can’t we get that right?’”

The story notes that “the drone used in this month’s test had backup propellers and motors, dual batteries and a parachute recovery system, to guard against catastrophe if one component encountered a problem 400 feet in the air. Two pilots on the ground monitored it using a wireless network, and were prepared to override the automated flight plan in case of emergency. The drone also had built-in devices to measure temperature, barometric pressure and vibrations, among other indicators.”

Which leads me to ask the following question:

If we are going to entrust organs to be used in transplants to drones, don’t groceries seem like a much easier lift?

And the follow-up question:

Doesn’t this really tell us that the use of drones for delivery - in both extraordinary and mundane circumstances - is hardly the stuff of futuristic fantasy, and in fact, is here? Now?

The Times quotes Dr. Christopher Marsh, the director of the transplant program at Scripps Green Hospital in La Jolla, Calif., and a member of the American Society of Transplantation, as saying that while it is “too early to pass judgment on the reliability of delivering organs by drone,” early evidence certainly suggests that it could “helpful.”

And that’s when he utters the sentences are should be Eye-Opening:

“We’re entering a new world. Things change, so we have to be open to that.”

Published on: May 1, 2019

Reuters reports that Fiord is partnering with Amazon “to allow members of the ecommerce company’s loyalty club Prime to deliver packages to their cars when they are not at home … The 'Key by Amazon In-Car delivery' offering will be available for owners of select Ford 2017 and later model vehicles equipped with connectivity service, as well as for owners of Lincoln 2018 and later model cars, Ford said.”

The program is an outgrowth of one that was tested in Europe several years ago, and that Amazon had committed to bringing to the US.

Published on: May 1, 2019

In Minnesota, the Star Tribune reports that UNFI-owned Cub plans to open a new store in Minnehaha this week, which at 46,000 square feet is the smallest of the stores carrying that name.

“"Our new Minnehaha Cub store expands our store portfolio and speaks to the benefits of urban living by providing a convenient shopping experience," says Cub CEO Mike Stigers. ”We continue to evolve our look and feel to have a better shopping experience in each department.”

The story notes that the store “will have a dozen grab-and-go concepts, including a popcorn shop, burrito bar, juicery, sushi bar and Refresh, which serves ice cream and Caribou coffee to customers both in the store and at a walk-up window outside … The store will be the first Cub to have a kombucha tap and the first with a panini bar … The smaller-sized store will have fewer ‘center store’ items, typically room-temperature packaged and canned food. Sales of those items have declined as consumers reach for more fresh products and grab-and-go items and meals.”

The store is on the ground floor of an apartment building.

Published on: May 1, 2019

In the UK, the Sun reports that Tesco is urging the government to impose a two percent sales tax on online purchases, which it said would raise the equivalent of close to $2 billion (US), which would then allow for a tax cut for bricks-and-mortar, or “High Street,” businesses.

The story notes that “Tesco would pay the new sales duty – but chief exec Dave Lewis argues the tax would ‘level the playing field’ by also asking pure online rivals such as Amazon to cough up.”

Published on: May 1, 2019

The Atlantic has a piece about how “replacing checkout lanes with sensors and cash registers with swiveling iPads (frictionless shopping is the term of art here) makes for a novel shopping experience,” but it suggests that it remains to be seen what the impact will be on the culture, especially those with fewer resources and could end up being denied access to certain options.

The title of the piece: “Who Wins When Cash Is No Longer King?” and you can read the story here.

Published on: May 1, 2019

The Wall Street Journal this morning reports that Amazon “has opened an online freight brokerage platform to connect shippers with available trucks, offering service in five Eastern states. That makes Amazon the latest business to bring significant new financial backing to industrial shipping with plans to digitize the inefficient, sometimes cumbersome business of booking freight transport.”

The move represents a deeper commitment to logistics “as it tries to tamp down transportation costs ahead of a pricey push into one-day shipping, raising potential concerns for freight operators that may end up competing for business with the e-commerce giant that many count as a significant customer.”

Amazon Logistics, the story says, “is offering beta service for truckload shipments in Connecticut, Maryland, New Jersey, New York and Pennsylvania” and also is providing “instant rate quotes through an online portal, freight.amazon.com, saying users can ‘tap into the scale of Amazon as we extend our carrier network to give you best-in-class service at great rates’.”

One transportation analyst tells the Times that “Amazon’s published rates appeared to be 4% to 5% below those on the trucking spot market, where companies book last-minute transportation.”

Published on: May 1, 2019

• Amazon this morning announced that it has “launched delivery of natural and organic products from Whole Foods Market through Prime Now in Chattanooga and Knoxville, Tenn., Destin and Tallahassee, Fla., Greensboro and Wilmington, N.C., Allentown, Pa., Fort Collins, Colo., Huntsville and Montgomery, Ala., Jackson, Miss., Palm Desert, Calif., and Portland, Maine. Starting today, Prime members in those cities can shop through Prime Now for thousands of bestselling items including fresh produce, high-quality meat and seafood, everyday staples and other locally sourced items from Whole Foods Market and enjoy delivery in as little as an hour. The service is now available in 88 U.S. metros and will continue to expand throughout 2019.”


• CNBC reports that “Amazon launched a new Middle East marketplace on Tuesday, two years after buying the Dubai-based e-commerce company Souq.com for $580 million.

“With the launch, Amazon said Souq.com will be rebranded to Amazon.ae. The Souq.com URL now automatically takes you to Amazon.ae. But Souq remains available in Saudi Arabia and Egypt.”

According to the story, the launch “comes at a time of slowing international sales for Amazon. In its most recent quarter, Amazon’s international sales only grew 9% from a year ago to $16.2 billion … The change gives Amazon’s Middle East service a more unified look and brand in the region. Until now, Amazon’s only presence in the region was through Souq, which it acquired in 2017.”

Published on: May 1, 2019

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

• CNBC writes about how Starbucks CEO Kevin Johnson said “that the company’s rivals are focusing on short-term gains, while Starbucks is pursuing a more sustainable plan for growth.”

The example cited by Johnson: “Luckin Coffee, the Seattle-based company’s primary challenger in China, is competing for customers by focusing on convenient pick-up and discounted drinks. The company recently filed for an initial public offering on the Nasdaq. In its filing to go public, Luckin said that it expects to continue to invest heavily in discounts and deals.”

Luckin’s strategy in China seems to be to open more stores there, deliver faster, and be cheaper.

But Johnson says that Starbucks is “not only driving the transaction growth and engaging new customers, but we are also generating the return on invested capital that we believe is sustainable to continue to build new stores at this rate for many, many years to come.”

It sounds like Luckin is in a race to generate enough sales and profits from enough units before the economic house of cards falls apart. Not the first company to do so, and won’t be the last. But it sounds like a race.

Published on: May 1, 2019

• The Cincinnati Business Courier reports that Kroger has named Dana Zurcher, president of the company’s Dallas division, to be the new president of its Columbus division. She succeeds Dan De La Rosa, who was recently named president of the King Soopers division.

At the same time, Tom Schwilke has been hired to be president of Kroger's Dallas division; he most recently was president and general manager of the NorCal division of Safeway.

Published on: May 1, 2019

…will return.

Published on: May 1, 2019

In this new edition of the Retail Tomorrow Podcast, we discuss the unique partnership between Kroger and Microsoft, developing cutting edge innovations that will take each of them to the next level when it comes to things like digital shelving, video analytics, sensor networks, temperature tags … and beyond. And here’s the thing - the innovations that emerge are not proprietary, but will be available to any retailer looking to leap into the future.

This podcast was recorded at GMDC’s recent Retail Tomorrow Immersion conference in Los Angeles.

Our guests:

• Kevin Fessenden, Senior Product Manager at Sunrise Technology, which is a Kroger company.

• Chris Dieringer, Senior Director of Industry Solutions for the Retail and CPG Industry at Microsoft.

The host: Kevin Coupe, MorningNewsBeat’s “Content Guy.”

You can listen to the podcast here, or on iTunes and Google Play.

Pictured, from left to right:

Kevin Coupe, Chris Dieringer, Kevin Fessenden.