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    Published on: January 20, 2014

    by Kevin Coupe

    I'd like to use this space this morning to do something a little different. Rather than highlight one specific story that I think offers some sort of lesson or metaphor about how business is - or ought to be - conducted, I'd like to simply draw your attention to a theme that seems to be running through this morning's MNB stories.

    There's a piece about how Amazon is developing software that will be able to figure out what you want to buy even before you buy it, and then position that product so it can get the item to you faster. There's a story about how online realities (low and dynamic pricing and burgeoning shipping wars) are going to change the competitive landscape. There's a report on how Peapod is working to carve out its position on that landscape so that it can effectively fight off Amazon and Walmart. And there's a link to a contrarian think piece about how technology actually is not making us less intimately connected with each other.

    There also is a lot of other stuff this morning. (It is a particularly robust news Monday.) But it strikes me that all of these stories point to a fast-changing retail dynamic in which competitors must constantly be considering the big idea, looking for the big opportunity, and being far more targeted and precise in how they define themselves.

    To me, that's the Eye-Opener. It shouldn't surprise anyone, but it will.

    "Innovation," Steve Jobs once said, "distinguishes between a leader and a follower."

    Businesses that are not taking risks in pursuit of innovation are taking a different risk - that they will be left behind, irrelevant and impotent, watching from behind as new companies and new ideas capture people's imaginations and business.
    KC's View:

    Published on: January 20, 2014

    It was just a few weeks ago that the media spotlight was on Amazon's investment in drone technology that could, if deployed, allow the e-tailer to use unmanned octocopters to deliver packages of five pounds or less.

    Now, the focus is on a different kind of shipping innovation - "anticipatory shipping," which the company seems to believe it can use to figure out what people are going to buy even before they make their purchases.

    Amazon reportedly has filed for and received a patent for a process that would allow it to use a number of factors - ranging from what products a person is looking at online and how often, what products the person has searched for and purchased in the past - to figure out what needs to be positioned in locations that will enable it to get things to customers more efficiently and less expensively. This could mean getting appropriate products to the warehouses it is building all over the country, or even, in the most extreme and predictable cases, onto trucks with labels attached, just waiting for someone to click "buy."

    The Wall Street Journal reports that "the patent exemplifies a growing trend among technology and consumer firms to anticipate consumers’ needs, even before consumers do. Today, there are refrigerators that can tell when it’s time to buy more milk, smart televisions that predict which shows to record and Google's Now software, which aims to predict users’ daily scheduling needs … But the patent demonstrates one way Amazon hopes to leverage its vast trove of customer data to edge out rivals."
    KC's View:
    Go figure. All that technology, and it ends up that one of Amazon's most interesting pieces of equipment could be a crystal ball.

    What this points to is the degree to which Amazon is an algorithm-driven company, using advanced formulas and technology to target and predict customer behavior. I suppose there are ways in which this could cause problems, but in the long run, one has to believe that this creates an enormous competitive advantage for any company that can develop such programs.

    It also is inevitable, I think, that Amazon is not operating in a vacuum. I'm sure that Walmart is getting into the crystal ball business, as are FedEx and UPS … all of which have a stake in making the shipping process more efficient and effective, especially fate the problems encountered during the 2013 holiday season.

    That rumbling you feel is the retail landscape shifting under your feet.

    Published on: January 20, 2014 has a recap of a presentation by analyst Sucharita Mulpuru of Forrester Research that was made at the recent National Retail Federation (NRF) show in New York City, in which she projected that total online sales will come very close to $300 billion this year, and that $1.4 trillion in additional retail sales "will be influenced b the web in some way in 2014.

    In addition, the story says, Mulpuru said that Forrester research suggests that there are three key factors on which competing retailers need to focus…

    • "The last-mile wars are just beginning," she said, noting that shipping logistics will continue to be both a challenge (as they were for many companies during the recent holiday shopping season) and a differential advantage to businesses that can solve the riddle; shipping companies ranging from UPS to the USPS are overhauling their operations to increase efficiency and effectiveness as well as reduce losses.

    • "Mobile madness" will continue to be an enormous opportunity, with companies seeking ways to create “mobile unique” experiences that meet customer needs and desires.

    • And, EDLP (everyday low pricing) will become an obsolete retail strategy because the e-commerce companies will always be able to have lower prices … but that may not matter, since "half of consumers would be willing to pay a premium of 1 percent to 5 percent in order to get the product on the spot in the store versus having to wait for an online order."
    KC's View:
    I agree with all three of these conclusion, but especially the last one … that many or most bricks-and-mortar companies are going to have to find ways to compete that go beyond price. There will be exceptions, of course, but the whole low-price approach to traditional retailing just is not going to have the cachet that it used to have. So you'd better be good - really, really good - at something else. You'd better have some sort of profound differential advantage.

    Because if you don't, it may be time to turn out the lights, the party's over.

    Published on: January 20, 2014

    Crain's Chicago Business has a piece about Ahold-owned Peapod and its co-founder/chief technology officer, Thomas Parkinson, focusing on what the company is doing to prepare for what is likely to be ramped-up competition in the e-grocery sector from the likes of Amazon and Walmart.

    The story says that Peapod "is branching out into office food deliveries, opening a downtown Chicago office to lure tech talent, expanding its warehouses here and on the East Coast and turning former bank branch offices and Starbucks into free pickup sites for customers who can't commit to a two-hour delivery window.

    "Peapod … also is starting to deliver office supplies and other bulk orders to businesses. (Parkinson) says the Skokie-based service ultimately wants business-to-business deliveries to account for as much as 30 percent of overall revenue."

    Parkinson says that office orders "are much bigger and more consistent—usually weekly—so we get a lot of revenue out of the business. The sweet spot for us is small to mid-sized companies that provide food for employees, like trading companies that don't want traders to leave their desks in the middle of the day."

    He also says that Peapod's "biggest fear is (Amazon's) not caring about not making money. They've proven time and time again that they're willing to spend a lot to gain customers. It's going to be a good fight. The highlight for me is how fast we're growing and the investment by Ahold. They know we have to build out now to get ahead."
    KC's View:
    Very smart. The competitive road is only going to get more crowded, and so companies like Peapod have to find ways to get out ahead of the pack.

    Published on: January 20, 2014 reports that Amazon appears to be giving away food in San Francisco, where it is in the process of rolling out its Amazon Fresh service.

    The story says that existing Amazon Prime customers in San Francisco are coming home to find "a bag of non-perishable food, including Cream of Mushroom soup, pasta, a can of Coke and fish taco seasoning." Amazon is not commenting on the reports, but Twitter is said to be "lit up" with reports of the free food deliveries.
    KC's View:
    Again, an example of how Amazon is able to use existing data to target current and potential customers to generate new business. Companies unable to do this put themselves at a significant competitive disadvantage.

    Published on: January 20, 2014

    Reuters reports that the cybersecurity firm IntelCrawler "says it has uncovered at least six ongoing attacks at U.S. merchants whose credit card processing systems are infected with the same type of malicious software used to steal data from Target Corp."

    According to the story, the company "has alerted law enforcement, Visa Inc and intelligence teams at several large banks about the findings." CEO Andrew Komarov says that "payment card data was stolen in the attacks, though he didn't know how much.

    "IntelCrawler's findings are the latest sign that the cyberattacks disclosed by Target Inc and upscale department store Neiman Marcus are part of a wider assault on U.S. retailer customer data security."
    KC's View:
    This story only is going to get bigger and more disturbing. And people may start thinking twice before swiping their cards at retail, which could have an impact on a lot of retailers.

    Published on: January 20, 2014

    The New York Times reports that Target, "which has long focused on large stores in suburban markets, completed a lease last week on its smallest store yet, a 20,000-square-foot location in Minneapolis, a test store for a new format called TargetExpress.

    "The store will be about a fifth the size of Target’s smallest format stores to date, and would allow the company to open more locations in dense urban markets, like New York, where 100,000 square feet is hard to come by."

    The new format, the Times writes, "will be in the most urban of spaces, at the base of an apartment building called the Marshall, which is under construction near the University of Minnesota campus. The test store is scheduled to open July 27, in time to greet students arriving for the fall semester. This location not was only chosen for the built-in market of students, ready to buy dorm decorations and school supplies every year, but because it is less than 10 minutes from Target’s sprawling headquarters in downtown Minneapolis."
    KC's View:

    Published on: January 20, 2014

    USA Today quotes a study from marketing firm iStrategyLabs that suggests Facebook is getting older at an almost precipitous rate. Teenaged Facebook membership has dropped 25.3 percent in the past three years, the study says, while the membership of people 55 and older has gone up 80.4 percent just in the past year.

    The story goes on to say that "the next largest growth segment for Facebook came from those 35 to 54 years old, according to iStrategyLabs, a 41.4% jump from 2011, followed by those 25 to 34 years old, up 32.6%."
    KC's View:
    No faster way to get a kid off Facebook than seeing that Mom and Dad signed up.

    Published on: January 20, 2014

    Post Foods announced late last week that its Grape Nuts cereal now is being marketed with a certified non-GMO label, and the company reportedly is considering adding other of its products to the no-GMOs list.

    The move comes less than a month after General Mills made a similar decision about its original Cheerios cereal, making - and marketing - it as being free of GMOs.
    KC's View:
    These are small but important moves, and I expect we are going to see more companies doing these sorts of things … and eventually, the small moves may add up to something big.

    Published on: January 20, 2014

    The New York Times Magazine this weekend had a fascinating story worth perusing, taking the somewhat contrarian position that all the various technologies that some people think are isolating us are, in fact, making us more connected in meaningful and fundamental ways.

    One example: "Not only were people not opting out of bowling leagues — Robert Putnam’s famous metric for community engagement — for more screen time; they were also using their computers to opt in."

    In fact, as technology has become more pervasive in our lives, there has been another change - the growth of public spaces where people like to hang out and interact, facilitating personal relationships at a time when many people worry about technology hobbling them.

    It is a thought-provoking story … and worth reading here.
    KC's View:

    Published on: January 20, 2014

    The Associated Press reports that the union representing US Postal Service (USPS) employees is threatening protests and boycotts of Staples stores around the country because of moves by the USPS to open outlets inside Staples units that would be staffed by the retailer's employees, not unionized USPS workers.

    The move - at this point only a test in 84 out of more than 1,500 Staples units - is seen by organized labor as a way of replacing good-paying union jobs with lower wage, non-union jobs.

    USPS management, however, says that the test is just a way of driving up both availability and demand for its services, which is necessary if it is to dig the Post Office out of the enormous fiscal hole in which it finds itself. The USPS, the story says, "continues to form partnerships with private companies, and looks to cut costs and boost revenues."
    KC's View:
    I can understand the concerns, but the unions better take in account the fact that if the USPS continues to do business as usual, it could run itself out of business. Then there won't be any jobs.

    Published on: January 20, 2014

    • In the UK, the Inquirer reports that Amazon is rolling out Sunday deliveries there, offering it in London, where it tested the program late last year, and in Birmingham, Milton Keynes, Oxford, Nottingham, Manchester and Leeds. As in the US, the service is free to Amazon Prime members.
    KC's View:

    Published on: January 20, 2014

    • Wakefern Food Corp. announced that "in its ongoing effort to achieve seafood sustainability, it has partnered with the Marine Stewardship Council (MSC) and Global Aquaculture Alliance (GAA) and will increasingly source wild-caught and farm-raised seafood for processing in its facility that meets one of these certification standards."

    The announcement notes that "the MSC’s fishery certification program and seafood ecolabel recognize and reward sustainable fishing.  This global organization works with fisheries, seafood companies, scientists, conservation groups and the public to promote the best environmental choice in wild-caught seafood … The GAA is the leading international organization dedicated to advancing environmentally and socially responsible aquaculture and providing a safe supply of seafood to meet growing world food needs."

    • In Texas, the Star Telegram reports that "over the next few years, consumers can expect to see specialty grocery stores anchor most of the planned retail developments" in the Fort Worth area, and as that happens, "H-E-B, which operates Central Markets in Fort Worth and Southlake, will likely become a market leader, according to one long-time Fort Worth real estate professional."

    According to the story, HEB is acquiring a site a month, has 12 sites in the bank that have not begun construction, and could be positioned by the end of the year to add more than two million square feet of new supermarket square footage to the market.

    • Also in Texas, the Lufkin News reports that Brookshire Brothers has acquired David’s Supermarkets, a 25-store family-owned grocery store chain in north central Texas. Terms of the deal were not disclosed.

    • The Chicago Tribune reports that "Mariano’s will reopen the former Dominick’s supermarket in Park Ridge under its own banner on Feb. 18, the first of 11 stores to be converted … Dominick's parent, California-based Safeway Inc., shuttered the 72-store grocery chain Dec. 28, affecting more than 6,000 workers.  Jewel, which bought four of the locations, closed  the stores Sunday and reopened them Thursday under its own banner after a 'quick-fix' renovation."

    Mariano's is taking more time with the conversions. "The Dominick's acquisition will give Mariano's 29 stores by the end of this year, with 10 city and 19 suburban locations," the story says.

    • The Charlotte Observer reports that Kroger expects "to close its $2.5 billion acquisition of Matthews-based Harris Teeter by the end of January. The $2.5 billion purchase will create a "supermarket company with sales of more than $100 billion and ending local control of one of the region’s best-known companies."

    • The Wall Street Journal reports that the new $1.012 trillion budget passed by both Houses of Congress and signed into law by President Obama last week, effectively bans the processing of horse meat for human consumption.

    According to the story, the budget "prohibits the Agriculture Department from funding inspectors for horse-slaughtering plants, a requirement for them to operate … The move is a blow to companies in states such as Missouri and New Mexico that had hoped to begin processing horse meat—mainly to be sold in export markets—as soon as this month. The action also leaves unsettled a national debate over how to deal with neglected and abandoned horses living in the wild."
    KC's View:

    Published on: January 20, 2014

    • Brian Valentine, who as reports is the man who at Amazon "presided over an e-commerce tech infrastructure that now handles millions of orders from third-party merchants (responsible for 40% of Q3 paid units), in addition to Amazon itself," is leaving after eight years with the company.

    The story suggests that Valentine may be a candidate for the CEO job at Microsoft.
    KC's View:
    The third party merchants selling products on Amazon represent an enormous advantage for the company, one that puts it way ahead of Walmart in that particular competitive battle. I have no idea what this personnel shift means, but it is worth paying attention to just because this is a big business for Amazon.

    Published on: January 20, 2014

    Last week, MNB took note of a CNN report that Walmart has entered into a partnership with The Coalition of Immokalee Workers, a Florida workers rights group looking to improve pay and working conditions in the tomato-growing business. According to the story, Walmart promised "to strengthen and expand its Fair Food Program, which consists of a commitment from corporate buyers to pay an additional penny per pound of tomatoes that then gets passed on to workers. There is also a human rights code of conduct that deals with safety, dispute resolution and other issues … As part of the partnership, Wal-Mart says it will work to expand the Fair Food Program to other crops besides tomatoes."

    My comment:

    Forgive me, but isn't it a little early for April Fools stories?

    MNB user Bryan Nichols wrote:

    I certainly am no apologist for Wal-Mart, but your comments in regards to Wal-Mart’s participation in the Fair Food Program was unnecessarily snarky and certainly not insightful.  I am used to a more even-handed approach from you—except with Wal-Mart.

    Yeah, it was a little snarky.

    But I don't think I am wrong to point out that Walmart is not exactly known for being willing to charge more for products so that workers can be paid more money. Which essentially is what it is agreeing to with this partnership. I agree with the decision, but it seems a little uncharacteristic.

    Maybe I could have been more erudite in how I phrased it.

    On another subject, from another reader:

    I definitely detect you’re not a fan of Target, well before the credit card.    It just seems to really ooze out in your commentary regardless of what they do.   Just an observation, but I’m sure you have many briefs giving them kudos over the years.

    To be honest, I don't keep score.

    I'm not a fan of Target's stores for the most part, but I also recognize that just because I'm unlikely to shop in them doesn't mean they are not effective and appropriately positioned for the markets they serve.

    Responding to my piece last week about Whole Foods employees not knowing what gluten is, one MNB user wrote:

    I agree that Whole Foods dropped the ball with respect to the definition of Gluten. Though to be certain I am sure that if you directed the question to someone working in their health and supplements section, you'd get a 85% success rate across the US.

    But I'm going to press you on this one because as important as you believe information to be, I would suggest that it is not--and will never be--as important as the store experience and product offerings. Firstly, I doubt that any of the competitors in your area like Giant Eagle, Stew Leonard's or whomever would be able to provide a definition for gluten. But even if they did, would you really quit going to Whole Foods? Imagine if Giant Eagle developed the most sophisticated information communications program ever deployed by a retailer. Do you really think Whole Foods shoppers would begin migrating there to experience "the great wall of value"?

    Yes information is important. And ironically, probably nobody (currently) does a better job than Whole Foods. But do you really think that the desire for information is going to become so important as to lure people away from more compelling retail experiences?

    I think that as time goes by, information actually will become a critical part of the store experience. And yes, I do think that a retailer that has superior information will have the ability to lure shoppers from retailers that occupy the same competitive position but have less information.
    KC's View:

    Published on: January 20, 2014

    In the AFC Championship game, the Denver Broncos defeated the New England Patriots 26-16.

    And, in the NFC Championship game, the Seattle Seahawks beat the San Francisco 49ers 23-17.

    The Seahawks will meet the Broncos on Sunday, February 2, in at Met Life Stadium in East Rutherford, NJ.
    KC's View:

    Published on: January 20, 2014

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    KC's View: