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    Published on: December 10, 2013

    by Michael Sansolo

    Sid Caesar, a pioneer of television comedy, once said, “Comedy has to be based on a truth. You take the truth and you put a little curlicue at the end.”

    So let’s reflect on a piece of comedy and the truth and wisdom it may have revealed about the seemingly unavoidable attack of shopping by click. Because in that joke is the seed of a discussion that all the brick and mortar retailers need to have when wondering exactly what the future holds.

    Last Wednesday, MNB’s Eye-Opener featured a wonderfully satiric take on Amazon’s push for ever-faster deliveries to consumers. Faux news commentator Stephen Colbert bemoaned the idea of waiting even 30 minutes for a shipment from Amazon, even if it comes in a sky-borne drone.

    Colbert offered up an alternative idea: a place where consumer would visit, find the goods they want and place them in carts. Colbert said his idea could be called, “Spending Habit Opportunity Places, “ or SHOPs.

    Hmmm…that might sound familiar.

    The thing is, I understand the world is changing and that the future of retailing no doubt has a big place for, delivery drones and who knows what else. Anyone ignoring the potential impact of click retail need only think back a few decades to remember the time when many scoffed at the idea of Walmart successfully mastering the sales of food products.

    But it would pay for many companies to take four minutes to watch Colbert’s video and use it to start a conversation.

    Through satire, Colbert manages to lay out a powerful argument for why shoppers might still really like going to stores in five, 10 or 20 years. There is nothing like touching, seeing, smelling and possibly even tasting the products.

    If retailers focus on creating the best in-store experience possible they might have many ways of keeping shoppers coming back. Let’s remember, the Main Streets of America are filled with retailers who found a way to weather the storms of supercenters and warehouse clubs, and are still doing quite well today.

    It wasn’t easy, but it was done. It could be done again. But it will require a compelling shopping experience, a clearly stated value proposition and much more to overcome the simplicity and ease of shopping by clicks. We can’t possibly imagine how much simpler or more compelling on-line shopping will be in five or 10 years, but that’s the mark we have to exceed.

    Remember, this wouldn’t be the first time.

    A number of years ago, when category killers were on the march, there was considerable discussion that some products would be lost by supermarkets forever. In fact, some are far less important today thanks to the amazing success of some category killers such as PetSmart and Petco.

    At the time one very sharp retail executive told me he could imagine a time when there would be category killers for everything—groceries, fresh products, health and beauty…well, you name it. Then, he predicted, someone would have the great idea to gather them all into a single store and call it something special like a super-market.

    His point was that change and the re-invention of retail are both constant. Sharp merchants, he said, would find a way to make even the old ideas new, current and compelling.

    Stephen Colbert predicted his SHOPs could be ready to open by 2025. I’m betting it can be done even faster. It just takes some curlicues.

    Michael Sansolo can be reached via email at . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available by clicking here .
    KC's View:
    A couple of follow-up points, if I may…

    For one thing, I used to find few things as annoying as retailers who would whine about category killers. After all, I reasoned, weren't supermarkets originally designed to be category killers in the area of food? And if they lost that edge, whose fault was it, exactly? Not the competition's…

    Second…I would refer you back to yesterday's piece about AMC Entertainment, which is selling shares at a preferred rate not just to employees, but also to members of its loyalty program. The reasoning is that if customers actually have a stake in the business, it will encourage them to bypass the competition to go to an AMC movie theater. The company is doing it at the same time as it invests in an improved moviegoing experience - digital projection systems, more comfortable seats, better food, even bars. The company is seeking out and developing every possible way of establishing sustainable relationships with customers.

    In other words, it isn't impossible to compete with Amazon and its online brethren, but to do so, companies have to do the same kinds of things. They may not have to reinvent the wheel … but they almost certainly will have to point the wheel in new directions, and drive it in a way that is both faster and surer.

    Baseball, Crash Davis (Kevin Costner) says in Bull Durham, needs to be played "with fear and arrogance." The same goes for retailing.

    Published on: December 10, 2013

    by Kevin Coupe

    Eataly Chicago, the 63,000 square foot combination gourmet store/restaurant that opened last week to considerable business - a reported 120,000 visitors, 30,000 transactions and 80,000 diners - after months of public relations hype, closed its doors yesterday.

    But just for the day. The company posted a note on its website saying, in part, that Chicago residents had proven that they "understood and grasped our 'experiential' concept and our love for all things Italian and local, along with our priority for high quality food, and passion for education.

    "Because of this deep understanding of our manifesto and what we believe in, we have decided to close the store on Monday, December 9th, in order to preserve our standards of quality and service. We want to pay back your love and passion for Eataly Chicago by providing you the best food and the best service."

    To be fair, not everybody was buying the Eataly explanation.

    Some suggested that the company did not have its delivery and replenishment systems up to standards yet, and needed a day off to restock the shelves.

    Others believed that lousy Chicago weather had prevented it from getting needed shipments, and that it made more sense to close for a day than open with empty shelves.

    And still others pointed out that the company has been excellent at self-promotion, and that closing for a day would generate yet another round of stories that would prompt even more people to visit and shop there.

    It may not matter. (Unless, of course, Eataly does have infrastructure issues that have not yet been resolved.)

    Eataly Chicago was scheduled to reopen this morning, and it was expected that the shelves would be full.
    KC's View:

    Published on: December 10, 2013

    Sysco Corp. announced yesterday that it has reached an agreement to acquire US Foods for $3.5 billion, including $3 billion in stock and $500 million in cash to private equity owners that include KKR & Co. and Clayton, Dubilier & Rice LLC, which bought US Foods from Ahold in 2007.

    The total deal, including the assumption of US Foods debt, is valued at $8.2 billion.

    Bloomberg Businessweek writes that "the deal bolsters Sysco’s position as North America’s largest distributor of food to restaurants, expanding its geographical reach and creating supply chain cost savings. The combined business, with about $65 billion in annual sales, will be led by Sysco Chief Executive Officer Bill DeLaney … The acquisition is expected to be completed late next year, Sysco executives said on a conference call today. Sysco currently has about 18 percent of the U.S. market and the new combined business would have about a quarter of it, the executives said."
    KC's View:
    A couple of MNB readers wrote in yesterday after this story broke, suggesting that it was an unexpected deal, especially because it appears that the number one company in the category is acquiring the number two company, creating a behemoth with $66 billion in annual sales, with barely a hint of antitrust controversy.

    I don't know much about the two companies, but I gather they have very different histories and cultures … so it'll be interesting to see if there are actual economies of scale that create a more responsive company, or whether, as in so many corporate combos, the result is a series of discordancies that doesn't add value to anyone or anything, except in the short term to the money guys.

    Published on: December 10, 2013

    The Wall Street Journal reports that while Amazon has gotten an enormous amount of coverage of its investment in drone aircraft technology that it hopes eventually could be used to deliver packages to people's homes, of far greater consequence is its acquisition of a company called Kiva Systems, which makes robots that it can use in its warehouses to save more than $900 million a year.

    According to the story, "Amazon has been working to drive down order costs and speed delivery, in part by constructing more warehouses closer to urban centers. And while many of its latest efforts focus on the delivery itself, Kiva robots could help improve efficiency within its warehouses where humans, and human error, still rule the day.

    "The company bought Kiva in March 2012 for $775 million but only recently announced any incorporation of the technology in its warehouses. Amazon disclosed in its third quarter earnings report it now has 1,400 Kiva robots in three of its warehouses."
    KC's View:
    Analysts say that the biggest problem Amazon may have in integrating the robotic technology is that its warehouses are designed for human pickers. Which certainly makes me think about the impact that a broad rollout of such technology - not just in Amazon's warehouses, but elsewhere - could have a big impact on employment numbers. Which means, of course, that the economy has to find other places for employees who used to work as pickers.

    BTW … I do think that it is notable that on the recent 60 Minutes piece, Amazon founder/CEO Jeff Bezos made a big deal of the drones, but didn't really get into the robots. Which makes me think that he believes that the robots are likely to be much bigger game changers.

    Published on: December 10, 2013

    USA today has a story about how US beer sales have "declined in four of the past five years. Between 2007 and 2012, beer sales fell by 2.3%, or more than 4.8 million barrels." And what is interesting is that there are nine brands "with at least 600,000 barrels in sales in either 2007 or 2012," that have seen dramatic "sales declines of 30% or more over the same period."

    The nine brands identified in the story, in inverse order, are Labatt Blue, Budweiser, Heineken Premium Light, Milwaukee's Best Light, Old Milwaukee, Miller Genuine Draft, Milwaukee's Best Premium, Budweiser Select, and, in the most precarious position, Michelob Light.
    KC's View:
    Forget the quality of some of these beers. (Some of them are so light as to really even be beer, at least IMHO.) The real lesson here is the fragility of even the greatest brands … that the world move son, and business leaders have to find ways to continue to make brands relevant to customers.

    There's no danger that Budweiser is going to go away … but almost as soon as I write that sentence, I wonder to myself if it is true. There is a danger to any brand that they can go away … and companies that do not recognize it and deal with it may find themselves guilty of actually hastening the process.

    Published on: December 10, 2013

    • The Associated Press reports that Tesco "will be launching interactive window displays in 11 Tesco Metro stores across the UK, where customers will be able to use QR codes and Augmented Reality to browse the shop."

    The selection available via the interactive window displays will include food and nonfood, and "every item is available online at where customers can click and buy products to be picked up from that Metro store the following day."
    KC's View:
    Makes sense to me … and not just during the holidays. You'd think that more such installations would be featured in the windows of more retailers looking to capture customer traffic and create sales opportunities.

    Published on: December 10, 2013

    • The Associated Press reports that Chobani, which virtually created a Greek yogurt segment, inventing category that now accounts of more than one-third opt all US yogurt sales (up from one percent six years ago), is paying for a place on the big stage. The company has announced that it will be advertising on this year's Super Bowl, with an ad that will be "more than 30 seconds and mark the start of a more aggressive marketing strategy."

    The cost of the ad placement is expected to be in excess of $3.5 million.

    Not that you care, but I have to chime in here that I find Chobani's Orange Vanilla and Key Lime varieties to be utterly delicious …they've quickly become my favorites.

    • The food supply and prices could be in for a rough time, the writes, as "unseasonably cold weather continues to blanket western states" and "farmers are bracing for potentially painful damage to crops and livestock that could drive up consumer prices.

    "The true effect won't be known for weeks, but growers such as California's citrus farmers are working through the nights trying to protect $2 billion worth of fruit … The fear is a repeat of catastrophic winters in 1990 and 1998 that cost the citrus industry hundreds of millions of dollars and left thousands of farmhands out of work. Early indications suggest the weather won't be as bad this time, with warming expected in the following days."

    • Safeway Inc. announced that it has donated 2,000 netbooks to Oakland Unified School District’s  (OUSD), via a cash grant that was used to buy the equipment.

    “Safeway’s generous donation is a critical component of our focus on helping all of Oakland’s high school students prepare for real life,” says OUSD Acting Superintendent Gary Yee. “ While the netbooks serve as an instructional tool across the curriculum, students will be gaining crucial technological skills and experience on a daily basis. These netbooks will enable our students to use the Internet for research and to track their grades, practice for the SAT, ACT and CAHSEE and actively monitor their high school trajectory to ensure that they are on track to graduate.”

    I love it when companies do this, and when school districts embrace the future. Though I have to admit that I am girding for the eventual story about how students used the equipment to hack into school records, play video games, and even gain access to the US military supercomputer called WOPR. We all know how that goes…

    Reuters reports that "dairy products producer WhiteWave Foods Co. said it would buy organic food brand Earthbound Farm from investors including private equity firm Kainos Capital for about $600 million to expand its offerings of organic products.

    "Earthbound Farm produces packaged salads and organic fresh and frozen fruits and vegetables, as well as dried fruits and snacks. Its sales are expected to top $500 million in 2013, WhiteWave said on Monday."
    KC's View:

    Published on: December 10, 2013

    • The Los Angeles Times reports that Abercrombie & Fitch's board of directors has decided to extend by one year the contract of its much-criticized CEO, Mike Jeffries.

    Jeffries has come under attack not just for seven straight quarters of same-store sales declines, but for making comments that essentially made the case that he did not want heavy and/or unattractive people wearing his clothes because it diminishes a brand that he wants to be only for "cool" people, and that the A&F brand is designed to be exclusionary. He was also criticized, the Times notes, "for insisting that the company's private jet be staffed by clean-shaven men who had to wear Abercrombie polo shirts, boxer briefs, flip flops and the brand's cologne."

    The Times writes that "under a new agreement, Jeffries will get a compensation package that will pay a base salary of $1.5 million a year, along with long-term incentive awards that could be worth as much as $6 million and annual bonuses of as much as $4.5 million. And the Abercrombie corporate jet is still at Jeffries' disposal for as much as $200,000 in personal travel."

    But, he also seems to be on something of a short leash … since the company also said that "it will pump up its succession plan by starting to groom internal candidates and that it plans to recruit individual presidents for its Abercrombie & Fitch, Abercrombie kids and Hollister brands."

    Meanwhile, another senior executive who generated a spate of bad publicity recently - Chip Wilson, the founder and chairman of Lululemon Athletic - has stepped down from his post.

    Wilson recently told Bloomberg, when discussing a "pilling" problem - fabric that wore to the point of being sheer - with some yoga pants, that "it's really about the rubbing through the thighs, how much pressure is there over a period of time and how much they use it." And, he added, "Quite frankly, some women's bodies just actually don't work for it (his clothing). They don't work for some women's bodies." Which wasn't what Lululemon salespeople were saying to customers. The usual sales pitch was that Lululemon's pants are flattering to women with a wide variety of body shapes.

    Wilson will be succeeded by Michael Casey, lead director of the board. In addition, Laurent Potdevin, most recently the president of TOMS Shoes, will become CEO at Lululemon, replacing Christine Day, who had previously announce dyer intention to leave.
    KC's View:
    Is it insensitive of me to say, "one down and one to go"?

    I just hate CEOs like Jeffries, who seem to believe that the brand and the business is all about them, and are so consumed with their own gratification that they don't see the bigger picture.

    And I have to wonder about a board that, even if you ignore his insensitivities and proclivities, is willing to extend the contract of someone with seven straight declining quarters.

    Published on: December 10, 2013

    While MNB was posted on time yesterday, an emailing glitch meant that a number of subscribers did not receive their usual emailed "Wake Up Call." The problem was rectified by last evening, and everybody got a new email … but I apologize for the problem.

    In case you missed it, you can access yesterday's MNB here.
    KC's View:

    Published on: December 10, 2013

    …will return.
    KC's View:

    Published on: December 10, 2013

    In Monday Night Football, the Chicago Bears defeated the Dallas Cowboys 45-28.

    And, the Baseball Hall of Fame's expansion era committee elected three retired managers to the Hall - Tony La Russa, Bobby Cox and Joe Torre, who rank third, fourth and fifth on the list of managers with career victories with more than 2,000 apiece, and a total of 7,558 among them.
    KC's View: