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    Published on: October 7, 2015

    "The Innovation Conversation" is sponsored by ProLogic Retail Services: Leading the Industry in Loyalty Marketing Services for Independent Grocers.

    Content Guy's Note: "The Innovation Conversation" is designed to be a new regular MNB feature, prompted by the positive reactions that Tom Furphy and I have gotten after having done live and customized versions at a number of industry and corporate events. Our goal in each edition 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 I'm thrilled to have Tom Furphy engaged in the effort.

    As I've told you about Tom, he brings unique credentials to everything he does. He is 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, who make CEP a regular stop during their Seattle visits. Prior to CEP, Tom was at as Vice President, Consumables and AmazonFresh, where he was responsible for building and running the company’s Grocery and Health & Beauty businesses on the platform, and was also responsible for launching and rolling out the AmazonFresh business. And before that, he held a variety of senior roles at Wegmans.

    And so, the conversation continues...

    KC: So, I was reading a new study from a company called Monetate, which describes itself as a provider of "multichannel personalization  to various brands. Now, keeping in mind that any company that invests in and releases such a report has a vested interest in making sure the results support its business model, I did think it made a couple of interesting points about the e-commerce business.  Point one was that while e-commerce traffic and overall sales obviously are up, "conversion and add-to-cart rates have been dropping steadily year over year," and bounce rates are up as well, except during the holiday season, when things change.  Is this a matter of just more options for the consumer, or is there something else going on here?

    Tom Furphy:
    Great questions. Despite the potential bias in the report, I am not too surprised by the points made. In the conversion formula, the numerator (sales) is rising, but the denominator (visitors) is rising faster as customers connect more often to e-commerce sites throughout their shopping journey. As retail verticals shift toward ecommerce and as online shopping options proliferate, customers are increasingly using the tools available on these sites for research, price checking and curation. They visit to learn about products, viewing hi-res images from multiple angles, read the product technical and/or nutrition information, read reviews and so forth. They check prices across retailers, many of which make the comparison for them. They put items on lists or save them in carts as a way to curate the products they are interested in. Sometimes these activities result in purchases in-session at an e-commerce site. Other times they result in a brick & mortar store purchase. But as these activities move online, as more customer traffic visits sites, it stands to reason that the resulting conversion rate would drop a bit.

    I would think that, as digital shopping tools get better, conversion rates should stabilize and even improve. We really are still at Day 1 in the evolution of e-commerce. The basic tools that were created to enable the shopping experience – detail pages, pricing algorithms, lists and even shopping carts – are still quite rudimentary overall and ripe for innovation. Especially innovation that appeals to the individuality of the shopper as they move across “channels” from site, to mobile to store. The next wave of technology will work seamlessly across all of these, with the website, mobile apps and store staff all recognizing the shopper as a unique individual with the capability to serve them as they uniquely require.

    KC: Now, because Monetate is in the business it is in, not surprisingly it also says that one of the ways to address these issues is for e-commerce sites to do a better job of personalization.  I imagine you'd agree with that, especially considering your Amazon experience.

    I cannot overstate the importance of personalization and what it means for Amazon and others. In its most raw form, Amazon is a platform that is designed to translate customer traffic into sales in as few clicks as possible. Amazon brings customers to the site via ads, search and email with precision. Once there, the site recognizes visitors and quickly presents them with products they likely want based upon search terms and clickstream, and it gets customers through the cart as quickly as possible, often in just a few clicks overall. With millions of items available, Amazon would be unwieldy without personalization. The company employs literally hundreds of mathematicians and developers dedicated to improving personalization. Personalization increases conversion by at least 2x, so it’s worth Amazon’s while to invest heavily in it. It is absolutely worth it for every retailer and manufacturer to invest in it.

    KC: That said, what prevents other retailers getting into the e-commerce space from achieving this level of personalization?  Is it cost?  Accessibility of technology?  Or is it something bigger ... by which I mean that most retailers are used to building a store designed to appeal to the largest possible swath of customers, and the kind of personalization that is possible just works against their DNA?

    While emerging technologies are fairly complex below the surface, they can be delivered quite inexpensively and without a steep a learning curve. Every retailer and manufacturer should be aggressively experimenting with new capabilities. What’s most important, however, is feeding these technologies with relevant data – past purchases, clickstream, and customer actions – that enables the technology to generate relevant recommendations. If the technology is good, it will iteratively teach itself to make better recommendations. This all happens below the surface. It just works.

    The bias to continue business as usual is a huge risk to the industry. It’s safe to keep running the same store formats that appeal widely, to keep investing in the weekly ad despite its declining circulation, to keep buying the same ad placements because the retailer or publisher are pushing it and the audience metrics look safe. It’s easy to keep doing what you’re doing. But I think retailers that are truly focused on serving their customers won’t rest and will be the first to adopt personalization on a large scale. Few retailers have better data than grocers. They know what shoppers have purchased, they know what shoppers did not purchase but should have, they know where they live and when and how they shop. The data is there to enable deep, powerful personalization. And it can be done without compromising customer privacy. We’re seeing some early movement here and I think it will really start to ramp in the next few years. We see forward-thinking retailers trying to figure it out. But even for them it is a big, uncomfortable leap.

    KC: It would seem to me that the broad argument here is one that a lot of people have been making for a long time - mass marketing is, for all intents and purposes, dead.  And for me, it always comes down to the example that I like to cite - that I don't much like cats, but do love dogs ... and that the marketer that sends me a cat food coupon immediately demonstrates that it knowns nothing about me, cares nothing about my preferences, and may in fact be irrelevant to my life.  That's a broad brush with which to paint, but I believe it.   Do you?

    I absolutely believe it. While there will be some room for mass marketing to create general awareness, I think that technology has enabled marketing to irreversibly become personalized.

    Our industry has undergone a systemic “depersonalization” over the last 75 years to enable it to scale. Mass marketing is enabled via broadcast media, untargeted print advertising and manufacturer coupons. Efficiency is gained through massive stores, super efficient distribution and rationalized assortment. Sameness is inexpensive. It is great for developing massive brands and offering low prices, but it has come at the cost of the connection with the individual shopper.

    But the best marketing has always been personal. A hundred years ago the local shopkeeper knew the store’s customers by name, knew all the customers’ family members and their likes and dislikes. He could solve customer needs with products in the store. That was the ultimate personalization.

    Technology is enabling that again. In Seattle we’ve done a lot of work around personalization and its potential impact on shopping. BevyUp, a team out of Microsoft and Amazon, is coalescing the shopping experience across online and instore by providing curation and customer service tools that shoppers, online experts and instore staff can access collaboratively. This introduces control and human interaction to a traditional structured and solitary online experience. Also, when shoppers enter a physical store they are recognized by the store staff, who are equipped with tablet and mobile tools to serve the customer on a very personalized basis. They can see what the customer has purchased in the past as well as products they have curated and can make recommendations based upon that. At IdeoClick, DemandDriver is a platform that uses customer clickstream data from brand sites and shares it with retailers to enable better personalization and significantly higher sales on their side. These are just two examples of step changes in experience and results that occur due to personalization. It’s pretty remarkable.

    KC: Can we talk for a minute about an unrelated subject?  Amazon made some news last week when it announced that it would no longer sell Apple TV or Google Chromecast hardware ... it said that the availability of these items on its website was confusing to customers.  A lot of people, me included, thought that it had less to do with customer confusion and more to do with the fact that Amazon Prime Video competes with those services ... and that by not selling them, the so-called "Everything Store" was showing a little bit of competitive insecurity and going against a core value.  Now, I've had a chance to think more about this, and I'd probably walk that back a bit - not that these points are not true, but that if you are going to create a so-called "ecosystem," it works against that strategy if you allow other ecosystems to intrude.  In other words, I think I see both sides of the argument.  You are a veteran of the Amazon wars ... when you see this story, what do you make of it?

    Boy, this is an interesting one. I can honestly say from being inside Amazon that the company truly does “Focus on the customer and work backward.” The customer obsession persisted throughout everything we did. One of the key areas that we focused on was customer feedback around item or service “defects”. If an item drove a high rate of customer service contacts or returns, the root cause of these defects was analyzed in detail to either fix the problem, improve communication to eliminate confusion or to discontinue carrying the product. These were reviewed each week in our leadership meetings, with the business leader on the hook to rectify the problem.

    So, there is a chance that Amazon is truly responding to customer confusion about the interoperability of these two platforms with Prime Video (which works well with Roku, Xbox and PlayStation). In that case, Amazon would likely try to work with Apple and Google to enable compatibility. If that failed, Amazon would view the stance and lack of cooperation as an anti-competitive practice that is bad for the customer, and would kick these products off the platform. But the reduction of choice, in my opinion, can make for an even worse customer experience. They might be better served to make the lack of compatibility clear on the product detail page, show products that are compatible with Prime Video, and let the customer make the choice.

    To me it seems that this move is about locking up their ecosystem, which could be a dangerous move and not congruent with their customer-first mantra. In their shoes, I would make sure to put the customer first, allowing them to make the choice based on transparency. But I would also focus incessantly and building a better ecosystem that attracts customers naturally. Don’t give them a reason to consider a competitor’s platform.

    "The Innovation Conversation" will return in a couple of weeks. If there are subjects you'd like us to chat about in the future, let us know.
    KC's View:

    Published on: October 7, 2015

    by Kevin Coupe

    Stephen Colbert began a comedy bit on "The Late Show" the other night by saying, "I love shopping at Whole Foods, because I love organic produce, and I cannot stand having money."

    And that was just the beginning of an extended bit in which Colbert - who, in my opinion, has quickly made his "Late Show" into the class of the field when it comes to network late night talk shows - riffed on the various scandals endured by Whole Foods in recent months ... and even offered some pre-apologies from Whole Foods for scandals yet to come.

    BTW ... I find Colbert's "Late Show" to be absolutely must viewing, featuring not just celebrities, but also politicians, classical musicians and even ballerinas as he looks to enlarge the canvas on which he's painting each night. My only criticism is that sometimes the rigidity of the format means the conversations are too short, but I suspect that as he and the audience become more comfortable and acclimated, even that could change.

    For the moment, though, just watch the Whole Foods segment ... it is very, very funny. And even an Eye-Opener.

    KC's View:

    Published on: October 7, 2015

    Bloomberg reports this morning that Tesco has taken its analytics unit Dunnhumby off the market, apparently because it could not get the sale price of $3 billion (US) that it hoped to generate for Dunnhumby, which, the story notes, "provides data on the buying habits of 700 million shoppers worldwide."

    The story also notes that "the decision not to sell Dunnhumby closes off another avenue for Tesco in its effort to cut its debt load. Tesco’s credit is still rated junk by the major rating agencies, and even after the 4 billion pound proceeds from the disposal of a South Korean business have been accounted for, any potential rating upgrade will be contingent on an improvement in U.K. trading."

    Earlier this year, Tesco sold its ownership Dunnhumby USA to Kroger, which had been its partner in the venture; Kroger then changed the name of the business to 84.51°, which refers to the longitude of the new entity's location.

    In other Tesco news, Reuters reports that Tesco "has held talks with the Serious Fraud Office (SFO) over a deal to settle a criminal investigation into its accounting errors." According to the story, "Tesco had been in discussions with the SFO about the possibility of signing a deferred prosecution agreement (DPA) - a court-approved deal under which the company admits wrongdoing but avoids any immediate criminal sanctions."

    Among's Tesco's various problems has been the revelation that it has systematically overstated profits and understated expenses as a way of making its books look better, to drive up its stock price.

    The Independent reports that Tesco CEO Dave Lewis has officially apologized for the behavior that led to the scandal, saying, "I want to make an apology for the way we behaved in the past. We are recovering from big, bad decisions."
    KC's View:
    Tesco continues to deal with all these issues while at the same time trying to figure how to compete effectively with discounters Aldi and Lidl, which have been effectively disrupting all the mainstream grocers in the UK. Acknowledging bad decisions is one thing ... figuring out which future decisions are good ones is a whole other matter.

    Published on: October 7, 2015

    The Washington Post this morning has a story saying that while national dietary guidelines have long recommended that people drink skim milk instead of whole milk, "research published in recent years indicates that the opposite might be true: millions might have been better off had they stuck with whole milk. Scientists who tallied diet and health records for several thousand patients over ten years found, for example, that contrary to the government advice, people who consumed more milk fat had lower incidence of heart disease."

    This year, the Post goes on, "as the 'Dietary Guidelines for Americans' undergoes one of its periodic updates, the federal bureaucrats writing them must confront what may be the most controversial and weighty question in all of nutrition: does the consumption of so-called saturated fats - the ones characteristic of meat and dairy products - contribute to heart disease?"

    It is an interesting and provocative piece, and worth reading here.
    KC's View:

    Published on: October 7, 2015

    Bloomberg reports that Walmart and Visa "are in talks aimed at settling the retailer's $5 billion lawsuit over processing fees."

    According to the story, "The negotiations were disclosed in a court filing Monday in Brooklyn federal court, where dozens of retailers are pursuing suits against credit card firms alleging they illegally fixed so-called swipe fees.

    "Wal-Mart and other merchants dropped out of a nationwide settlement with Visa and MasterCard Inc. over the fees after retail trade groups argued that the compensation was too low and the terms too generous in allowing the card firms to raise rates in the future."

    CNBC reports that Walmart has announced "a series of initiatives to beef up its health and wellness offerings, at a time when low-price competitor Target also has the segment in its crosshairs."

    This Saturday, the company said, it will "host what it's dubbed 'America's Biggest Health Fair,' at which it will provide free glucose, blood pressure and vision screenings at more than 4,400 of its U.S. stores. The retailer will also offer shoppers commonly needed seasonal immunizations, including the flu shot, for a fee."

    Walmart also said that it "will once again partner with, to help customers select and enroll in Medicare and public exchange programs from Oct. 15 through Jan. 31. In the past, Wal-Mart shoppers could only enroll in public exchange programs online and over the phone."

    "We will simplify for our customers making access to health care easy and affordable," says Michelle Gloeckler, executive vice president of health and wellness and consumables for Wal-Mart U.S.
    KC's View:

    Published on: October 7, 2015

    Peet's Coffee & Tea yesterday bought the iconic Stumptown Coffee Roasters, giving it 100 percent ownership of the iconic Portland, Oregon, brand.

    Terms of the deal were not disclosed.

    While Duane Sorenson, Stumptown’s founder, has sold all of his shares in Stumptown, the New York Times writes this morning that "the two companies were careful to say that Stumptown coffee would not be sold in Peet’s cafes or vice versa, and that consumers would most likely see very little sign of their alliance."

    “We both fit well under a family of coffee brands run independently and treated as separate businesses but with similar values,” Joth Ricci, president of Stumptown, tells the Times.

    Peet's CEO Dave Burwick described the strategy as “scaling with smallness.”
    KC's View:

    Probably not enough smallness for some of the folks in Portland that I know...

    Last July, I did a FaceTime commentary, which you can see here, in which I specifically talked about the fact that there is a common mentality in Portland that roots for its small, independent entrepreneurs to be successful, but not too successful. I cited Stumptown as an example, noting that some folks think of it as a big national company, and not as a small, locally owned business.

    Now, as I noted then, Stumptown has 10 shops - five in Portland, two each in Seattle and New York, and one in Los Angeles. Ten shops ... not exactly in Starbucks' league.

    Though, to be fair, Stumptown at the time was majority-owned by a private equity group that bought its 90 percent stake from the founder a few years ago...and now that it is owned by a national coffee chain, that local bias against it is likely to get even stronger.

    It could have been worse, of course. It could've been bought by Starbucks.

    Published on: October 7, 2015

    The New York Times reports that the British government this week "introduced a 5 pence charge for plastic bags for most groceries, clothes and other purchased items. And while it did not lead to a nationwide mutiny, as some had warned, it did create some tension in cashier lines.

    "The British government imposed the charge, which started on Monday, as a way to reduce pollution and waste. When bags are not flying in the breeze, entangled in trees or floating down waterways, they are taking up space in landfills — and it can take 1,000 years for a plastic bag to decompose, according to an estimate by Nick Clegg, who was deputy prime minister at the time the charge was announced."

    According to the story, "The new rules in England apply to retailers with more than 250 full-time employees. Retailers that fail to properly enforce the measure can be fined up to £5,000 (about $7,600)."
    KC's View:

    Published on: October 7, 2015

    In Toronto, the Globe and Mail reports that Loblaw has informed its 3,000 suppliers of its plans "to overhaul its pricing and cost practices with suppliers."

    The company's previous tactics, the story says, "such as applying retroactive discounts on orders from vendors under certain circumstances, have led to friction with suppliers and allegations that the retailer may be lessening competition with such heavy-handed terms. Loblaw's new strategy is to eliminate an array of pricing policies with suppliers, introduce a single cost calculation and simplify the buying process with vendors in a bid to gain 'cost certainty' and transparency."

    The story notes that Loblaw has been at the center of an investigation by Canada's Competition Bureau, which has been looking into whether heavy-handed tactics toward manufacturers have actually been anti-competitive.
    KC's View:
    In the broadest sense, the kinds of practices that Loblaw - and tons of other retailers - have engaged in are all about making money on the buy rather than on the sell. Which, as anyone who has been reading MNB for any length of time knows, is considered to be a kind of original sin around here.

    Published on: October 7, 2015

    • The New York Business Journal reports that the bankrupt Great Atlantic & Pacific Tea Co. (A&P) has gotten some winning bids for some of its stores, but other units have not yet seen any takers. Various sources tell the Journal that among the buyers of various stores in the New York metropolitan area are companies like Wakefern, Key Food, Gristedes, Morton Williams Supermarkets, Met Foods, and King Kullen.

    The story also notes that one of the stores not yet bid on is the company's flagship Food Emporium store on East 59th Street in Manhattan, a 35,000 square foot store that is nestled into an iconic position under the Ed Koch Queensboro Bridge.

    • The Financial Times reports that Anheuser-Busch InBev has bid $104 billion (S) to acquire rival SABMiller, its third attempt to buy the company, but "the board of SABMiller quickly issued a statement in response that indicated its reluctance to accept the new offer," which it termed as being "opportunistic and highly conditional," with elements "deliberately designed to be unattractive to many of our shareholders."

    The story notes that "the bid by the world’s top beermaker to buy its biggest rival is the most ambitious step yet for AB InBev, which has a long history of acquisitions. AB InBev is seeking to combine its stable of global brands, including Budweiser, Stella Artois and Corona, to SABMiller’s long list of popular emerging market beers."

    • The Association for Retail Environments (A.R.E.) and the Point of Purchase Advertising International (POPAI) announced their merger. The new, merged organization will get a new name, and, they said, will represent all the companies that provide products and services in the retail environment.

    • Sprouts Farmers Market announced its plans to open 12 new stores in early 2016, in California, Georgia, Colorado, Texas, Tennessee, and Missouri. The company currently operates more than 200 value-driven healthy grocery stores in 13 states.

    • The Grand Rapids Press reports that Meijer "plans to make the majority of a newly launched store brand products USDA organic to appeal to millennial moms.
    The Midwest retailer is merging its Meijer Naturals and Meijer Organics brands into True Goodness by Meijer. The retailer will continue its Meijer private-label as well ... Meijer is in the process of transitioning 225 of its Meijer Organics and Meijer Naturals food items to the True Goodness brand, and plans to add 100 new products by 2016, including granola chips, coconut oil, organic coffee pods, macaroni and cheese, juice boxes, organic popcorn, spices and frozen potatoes."
    KC's View:

    Published on: October 7, 2015

    • Western New York-based Tops Friendly Markets announced yesterday that John Persons, who has been with Tops for more than three decades, most recently as executive vice president of sales, marketing and merchandising, has been named the company's new president/COO.

    Frank Curci will remain with the company as CEO/chairman. Tops described the moves as part of a long-term leadership strategy.

    • The Wall Street Journal reports that Starbucks has hired its first chief technology officer - former Adobe Systems Inc. CIO Gerri Martin-Flickinger.

    The move is seen as reflective of Starbucks' increased emphasis on technology, which the Journal writes "is playing an increasingly important role in Starbucks’ growth strategy as it seeks new ways to boost sales. In the U.S. 20% of transactions now are made using mobile devices, up from 9% two years ago. "
    KC's View:

    Published on: October 7, 2015

    Yesterday, we reported that Meijer has named Rob Keyes, a long time company executive, to be the company's seventh president, succeeding J.K. Symancyk.

    I either had brain-lock or a senior moment ... because the new president of Meijer is named Rick Keyes.

    My apologies for the mistake. No excuses...I just goofed.
    KC's View:

    Published on: October 7, 2015

    ...will return.
    KC's View:

    Published on: October 7, 2015

    Last night, in the American League Wild Card game, the Houston Astros defeated the New York Yankees 3-0, ending the Yankees season and sending the Astros to the American League Division Series, where they will play a best-of-five game series against the Kansas City Royals.
    KC's View: