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    Published on: October 21, 2015



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

    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.

    And now, the conversation continues...


    KC: Tom, let's talk about Walmart's announcement last week that it plans to invest $2 billion in e-commerce over the next two years.  First, I have a possibly stupid question … but I honestly don't know the answer.  In this context, is $2 billion over two years a lot of money?

    Tom Furphy:
    It sure sounds like a lot of money. But when you break it down, an average of $1b per year is not all that impressive. To put it in context, by reinvesting its profits, Amazon is spending $5b-$10b per year on e-commerce innovation. That represents smart money being deployed by a smart team into a proven model, on things like faster shipping, better technology, new businesses and programs, and more capabilities for their customers. Amazon’s investment level will only expand their lead over the market. Walmart’s investment will struggle to put a dent into Amazon. It certainly will not disrupt them.

    I would hope that the $2b represents incremental spend on top of their current investments in e-commerce. They should also be re-appropriating significant budget from traditional programs to build out e-commerce and also to improve their stores to enable a better, more compelling shopping experience for the changing consumer. They need major changes in their business model, their technology, their physical infrastructure and their team to thrive into the future. $2b represents only about 1% of their market cap being invested. That’s hardly a bold bet.

    Another way to think about it – Wal-Mart has about 11,000 stores globally. Let’s consider each of them a local “market”. $2b works out to less than $200k per “market” over two years to support infrastructure, technology, training, etc. That doesn’t seem like much to me. Especially given the transformation that they need to make to compete into the future.

    This is a prime example (pun intended) of old company thinking. Making incremental bets that won’t rock the boat, nor will drive truly transformational change. Why are they investing so little when the overall market shift to e-commerce is so obvious?

    KC: I had an MNB reader wrote in to make the following observation:  that the successful retailers of the future are the ones who are best able to figure out a strategy to morph from being grocery companies to technology companies that happen to sell groceries.  Would you agree with that?

    TF:
    To some extent I do. It comes down to knowing your customer and serving them in a way that meets their needs, solves their problems and delights them. That’s always been critical to being a good retailer. Given where the shopper is today, serving them requires extensive use of technology. Shoppers are glued to technology, and they are using technology throughout many aspects of their daily lives. This means that technology must become a key enabler of the retail experience.

    The demand for retailers to deploy innovative technology to the website, mobile, in-store experience and back end processes is significant. To meet that demand, retailers need to develop a deep technical proficiency. They need to do this to some level internally, but they also need to develop a robust partnering strategy. For so long retailers, especially in the grocery business, have built their own technology to suit their unique needs. Technology changes so fast today that is difficult for retailers to develop and implement technologies well on their own. They should own the technology roadmap, but should be open to partnering with outside firms to get the work done.

    KC: Is format a factor in whether one makes this decision?  By this I mean, is it more critical for companies like Walmart to make this transition than for companies like, say, Wegmans … which from all reports to this point does not seem to be identifying Amazon as the competition and isn;t making moves in that direction?

    TF:
    Any retailer, regardless of format, should be extremely careful to not identify Amazon as the competition. I do feel that Amazon will have a hard time taking meaningful share from the store perimeter. But they can absolutely decimate the center store. And they plan to. Dash buttons are just the beginning. Prime Pantry will continue to grow as Amazon opens more fulfillment centers and the customer experience improves. If you look at where Echo is going and where Dash Replenishment Service is looking to transform the way the orders are passively triggered, the center store as we know it will change forever. Amazon’s goal is to keep people out of stores. Retailers need to fight hard against that.

    This is particularly troubling because center store is where retailers generate most or all of their profit. A 10% or 20% share loss there can kill a company.

    We’re doing a lot of work around replenishment here in Seattle. It’s very exciting. Our team would be happy to host a call or visit for any retailer or manufacturers out there who want to learn more about where the space is going. Companies shouldn’t be in denial and they don’t need to roll over. But they do need to actively address this.

    KC: It has been my contention that Walmart needs to go big or go home when it comes to e-commerce … that at some point it will (or should) drop clock-and-collect stations into the parking lots of 2,000 of its stores just to make a statement, cram all the pain into a short period of time, and disrupt the way middle America thinks about e-commerce.   Am I nuts?

    TF:
    Either they shape the way middle America thinks about e-commerce, or Amazon will do it for them. They should absolutely do this. But it’s not that simple for them. They need to nail the basics of e-commerce, optimize their store and click-and-collect processes and enable a good customer experience. Even offering a barebones experience would be a great start.

    KC: At the risk of offering Walmart a little free consulting, if they gave you $2 billion to create a national and functional e-grocery business over the next two years, what three things would you do first?

    TF:
    Since it’s not a ton of money, I would be laser focused in how I invest it. I would direct the investment into three main areas – personalization, replenishment and fulfillment.

    First, I would make sure that across my digital experience I am able to connect with shoppers as individuals. Good personalization places relevant products and compelling offers in front of customers, prompting them to buy and engendering their loyalty. I would make sure that my personalization systems are self-learning so that they improve as they are used more. It will be difficult to be as good as Amazon here, but I’d want to see them working at it to have a chance.

    Second, I would make sure that I have a strategy to provide for effective replenishment of household consumables. Center store is too vulnerable to new models and Amazon’s efforts, to leave it exposed. I would develop a platform that allows me to lock a good portion of my customers’ regular purchases in. Provide them a level of service that blows their mind. We know which products they use, how and when they use them, and when it is time for replenishment. The potential here is significant.

    Third, I would also invest in fulfillment infrastructure and experience. I would optimize my store pick processes so that I can put together orders economically. I would also invest in lower cost local fulfillment facilities (be it dark store or dedicated centers, using manual picking). I would make sure my pickup experience was smooth and value-added for shoppers and I would aggressively partner with last mile delivery providers on delivery for customers that want products delivered to their door. The fulfillment experience can make or break an e-commerce effort. I would make sure it is a great experience, while doing my best to optimize the economics.

    KC: Finally, I think that all the current pain that Walmart is going through only means that when they come out the other side, they could be more dangerous … and that traditional retailers should not take any solace from last week's headlines.  Agreed?

    TF:
    I agree as long as they are able to execute. I’m not sure that is bad news for Amazon as their e-commerce lead will likely continue to grow. But if Walmart is able to build effective e-commerce capabilities and leverage their store base into a new, stronger model, it could be bad news for other less progressive store-based retailers. They became the current market leader by offering mass merchandise at lowest pricing. That differentiation is basically gone now. However, e-commerce will enable them to become more personally relevant to more shoppers, while still offering great prices, with a pickup or store location just down the street. That would be a powerful combination if they can pull it off.




    "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 21, 2015

    by Kevin Coupe

    You knew this was coming.

    The new trailer for Star Wars: The Force Awakens debuted on Monday Night Football this week ... and I think it is fair to say that it took the world by storm. Or, at least, that part of the world that is breathlessly awaiting the new Star Wars film, which promises to have lots of new characters as well as the return of Han Solo (Harrison Ford), Princess Leia (Carrie Fisher) and, of course, Luke Skywalker (Mark Hamill).

    In addition to offering a preview of scenes from the movie, the trailer also announced that tickets were going on sale for the movie ... which debuts on December 18.

    Here's how the New York Times described the reaction:

    "No domestic sales tally was available early on Tuesday, though sites like Fandango and the AMC Theaters ticketing portal were, for a time, overwhelmed by demand, indicating a powerful response.

    "In a statement, AMC acknowledged an online slowdown caused by what it called 'unprecedented volume.' But the chain said it had beaten its previous single-day advance sales record by a factor of 10, and had sold out more than 1,000 shows nationwide. (It also said opening night seats were still available, including some at theaters that will stay open for 24 hours to accommodate demand.)

    "Fandango said in a statement that its sales traffic surged to seven times the typical peak level, driving first-day sales to a record level eight times as high as those for its previous record-holder, The Hunger Games, in 2012. The site did not disclose the number of tickets sold for either film."

    In other words, Star Wars: The Force Awakens is going to be an enormous hit.

    An Eye-Opener.

    KC's View:

    Published on: October 21, 2015

    The Federal Trade Commission (FTC) said yesterday that it is closing an investigation into Walmart's alleged use of "Made in the USA" labels on products that were not actually made in the USA. The reason: Walmart agreed to eliminate all "Made in the USA" logos from products on its website.

    CNBC writes that "the problem arose as Wal-Mart sought to fulfill a pledge made in 2013 to buy an extra $250 billion in U.S.-made goods over a decade to support U.S. manufacturing jobs. The world's largest retailer by revenue has faced criticism by unions and others that its low-cost business model was a big factor in pushing manufacturing jobs offshore.

    "The watchdog group Truth in Advertising found 100 instances of mislabeled products in June and raised them with the company. They found another 100 in July and took the information to the FTC, said legal director Laura Smith."

    Fortune reports that Walmart's "Made in the USA" strategy made good business sense: "a Consumer Reports survey this year found 80% of Americans prefer to buy Made-in-the-USA products when possible."

    And Walmart tells Fortune, "We’re committed to reviewing and strengthening our processes to help ensure customers have a great experience on our website and can find the products and information they are looking for."
    KC's View:
    This should serve as a warning to every retailer and manufacturer planning to make an investment in the "Made in the USA" category ... you better be able to back up your words.

    To me, there's no excuse for this stuff. If you make a claim, you better be able to substantiate it. Or don't make the claim. It is that simple.

    Especially in this case, where Walmart was hinging a much larger strategic imperative on a very specific claim.

    No excuse.

    Published on: October 21, 2015

    Yesterday we took note of a study from OpenTable saying that "reservations for parties of one have grown nationally by 62 percent, making them the fastest growing table party size" - which suggests a demographic shift to which retailers in many venues need to pay attention.

    Well, here comes some more data that should rock your world.

    Something called the Cassandra Report is out with a new study saying that "more than half of Millennials don’t need children in order to 'have it all' ... as adults, Millennials now prioritize personal, professional and financial growth over becoming parents."

    The study goes on to say that "in keeping with their non-traditional views about family ... 75% of Millennials surveyed agree that it is acceptable to have kids before getting married and 69% agree there is no longer any societal stigma associated with not wanting to have children. More so, nearly one-third do not want to have kids at all, either because they do not want to give up their flexibility (34%) or they don’t want to take on the responsibility (32%)."
    KC's View:
    This is gonna kill the minivan business, not to mention the approach taken by retailers depending on those big once-a-week family shopping carts.

    This is the kind of trend that businesses need to take into account as they plan their futures.

    Published on: October 21, 2015

    The New York Times reports that "Tommy Hilfiger became the first major retailer to make virtual reality a fixture in its stores this week, offering its shoppers a virtual trip, via a Samsung GearVR headset, to the label’s fall fashion show in New York this year ... Daniel Grieder, Tommy Hilfiger’s chief executive, said the virtual reality headsets would allow shoppers who might never attend a fashion show to view and shop the season’s runway styles."

    Grieder also said that "the headsets, which will be installed in the brand’s biggest flagship stores in the United States and Europe, would inject Tommy Hilfiger locations with an element of entertainment. That is vital to brick-and-mortar stores as they fight to stay relevant in an increasingly digital world, he said."

    The story goes on to say that Tommy Hilfiger isn't the only retailer taking this step: "Next month, Samsung is set to release the consumer version of its GearVR, which uses a smartphone as its processor and display. Facebook’s Oculus VR is expected to begin widely selling a VR headset next year. Sony will ship its own virtual reality headset for its PlayStation 4 console, known as Project Morpheus, during the first half of next year."
    KC's View:
    Hard to say whether this particular innovation is a trend or a gimmick, but I do think it points to something that is very important for retailers - to find ways to create a compelling narrative that goes beyond just the products on the shelves. That narrative is how the smart and savvy retailer defines itself ... if you tell the consumer a story, if you take the shopper for a ride, it allows you to create a sense of context for the products you sell.

    This creates connections, loyalty, and sales. Nothing "virtual" about that.

    Published on: October 21, 2015

    MarketWatch reports that The Fresh Market has confirmed that it is conducting a "strategic review" of the business that could lead to a sale of the company.

    In its statement, Fresh Market said that it had been looking for ways to achieve sales growth since hiring former Food Lion CEO Rick Anicetti as its new CEO in September, and "has determined, consistent with its obligations to the Company and its stockholders and together with the work being done by management, that it is also prudent to conduct a strategic and financial review of the business focusing on the Company's and its stockholders' best interests."
    KC's View:
    They gotta do what they gotta do. But it is sort of a shame ... I was looking forward to seeing what Rick Anicetti was going to do with the place.

    Published on: October 21, 2015

    The Milwaukee Journal Sentinel reports that a federal judge in Wisconsin "has signed off on a preliminary resolution of several class-action lawsuits" over whether Subway’s footlong and six-inch sandwiches are actually six and twelve inches long, respectively.

    According to the story, "The final approved class may be one of the largest in any kind of lawsuit — everyone who has bought a Subway sandwich in the U.S. since 2003. No court records even try to put a number to that besides tens of millions; there are 27,000 Subway shops in the U.S.

    "But all that most of the class members will get from the deal is the assurance that Subway now pays more attention to the dimensions of its subs. Nine named plaintiffs, as representatives of the class, could get up to $1,000 each ... After one Subway customer’s lament that his footlong was not in fact 12 inches long took off on social media in 2012, several lawsuits followed in various state and federal courts."
    KC's View:
    On the one hand, this does seem sort of silly ... and it is a shame that it takes up time and energy in the legal system, where people ought to have better things to do. (The plaintiffs may not make much money, but you can bet the lawyers did okay on the deal.)

    On the other hand ... it is a lesson to every marketer that you have to pay attention to the little things. They matter. And if you get them wrong, people are going to call you on it.

    Published on: October 21, 2015

    • Ahold-owned Stop & Shop New England Division yesterday announced its "latest price reduction on thousands of items across stores as part of its new 'My Stop & Shop' commitment to make grocery shopping more affordable and convenient for customers, and to help customers lead healthier lifestyles." The cuts, according to the company, "are in addition to the price reductions Stop & Shop implemented last fall."
    KC's View:

    Published on: October 21, 2015

    Robert F. Weis, the son of the founder of Weis Markets who worked for the chain for moe than 50 years, including 20 as the company's chairman, has passed away. He was 96.
    KC's View:

    Published on: October 21, 2015

    We've been reporting here about how Walmart is said to be applying pressure to its suppliers, hoping to lower costs to make up for at least some of the spending it is going to be doing on e-commerce initiatives and higher wages. One MNB user, who asked not to be identified, confirms the trend:

    Are you aware that Walmart sent out a shake-down letter to most suppliers on 10/15/15, reminding suppliers that as part of its re-emphasis on EDLC/EDLP strategy that it has recessed its current supplier agreements (unilaterally, naturally).   Even though my company negotiated a program for 2016 within the last few months with WM, WM has decided it needs more and demanded changes in terms that amount to a 5-6% reduction ... for us the supplier.  We have until 10/28 to respond.  Talk about negotiating in bad faith.
    We are going to not respond or respond NO ...  WM really may not make it well in the future if it treats business partners this way.





    Had a story the other day about Domino's Pizza going to Italy, which prompted MNB user Bill Nace to write:

    Kevin, this reminds me of when I lived in Maine years ago and there was a Red Lobster in South Portland. I don't know if it was ever busy, but there were so many local places to get lobster it seemed out of place. Being Mainers we would get lobster at the waterfront and take it home for cookouts anyway, it wasn't something we'd order in a restaurant except in lobster rolls (ahh). The South Portland store closed sometime in the 90s, and as far as I know Maine remains the only state without a Red Lobster. But at our local Red Lobster in Pennsylvania, they have lovely pictures of Maine on the wall, including Portland Head Light in Cape Elizabeth, five minutes from where we used to live.




    On another subject, one MMNB user wrote:

    Had the opportunity to be in a New Seasons store last week during a visit with my son. Of note; while purchasing some apples we came upon a variety that we had not seen before. Although it was nearly 9:00 p..m. , there was a produce person on hand and when asked about the apple, not only knew the information but cut one up for us to try without bing asked and talked intelligently about many other varieties. We did not like the apple in question but purchased and was happy with another suggested variety based upon our tastes. I was impressed and if New Seasons comes to Boise, they have a customer.  I can see why you are impressed with them.




    Regarding the growing dining-alone trend, MNB user Donna Evans wrote:

    Since dining with some people means looking at the top of their head while they focus on their phone you may as well dine alone.  The phone does provide you with entertainment while dining alone, so that is another possible reason that people are heading out to dine.  I used to meet a lot of interesting people while traveling, all of us eating dinner in the bar room at a fine dining restaurant and were willing to strike up a conversation.  You get to enjoy the same meal you would have had if you’d made a reservation in advance for a table, and get the bonus of maybe learning something new, making a new business contact or new friend.




    And MNB user Terry Pyles had some thoughts about Amazon suing people for fraudulent customer postings on it site:

    I couldn't agree more with you that Amazon's creation of online customer reviews was a game changer.  I have based countless buying decisions on the experiences of others.  I also post many reviews based on my purchase of, and experience with, the many products I have purchased.  This is a tremendous resource whose integrity must be upheld.

    Which brings me to my point: the integrity of the system must be a two way street.  I used to do a lot of business with a company called Heartland America via their website.  I read reviews by others and posted my own reviews.  After a while I noticed something strange; any time I posted a less than glowing review it didn't get published.  Good reviews, yes.  Bad reviews, no.

    I contacted the customer service department to ask why this was so.  The customer service rep very politely informed me that company policy is to let the marketing department decide which reviews to post.

    Needless to say, that ended my relationship with this integrity challenged vendor.  Better to have no feedback forum at all than to use it as a dishonest marketing ploy.  I was a loyal customer who subscribed to their Prime-like membership program.  Now I'm a former customer and no way do they get another dime from me.

    KC's View:

    Published on: October 21, 2015

    In the third game of the National League Championship Series, the New York Mets beat the Chicago Cubs 5-2 to take a commending 3-0 lead in the best-of-seven series.

    And, in the fourth game of the American League Championship Series, the Kansas City Royals defeated the Toronto Blue Jays 14-2, taking a 3-1 lead in their best-of-seven series.
    KC's View:
    Let's go, Mets!