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    Published on: December 2, 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 - is uniquely positioned to address.

    And now, the conversation continues...

    KC: So here we are, just coming out of the Black Friday-Cyber Monday hullaballoo, and it is my sense that at this point, these are just marketing constructs that retailers are imposing on consumers that no longer reflect the reality that e-commerce essentially has made such "events" meaningless … you don't have to go out on Thanksgiving night or early Friday morning to get deals, and you certainly don't have to sit at your computer on Monday morning to do so.  To me, it is all about a) communicating value, and b) understanding that the consumer is in the driver's seat, not the marketer.  Am I right about this?  And what are the implications for the future?

    Tom Furphy:
    I agree with you that it’s about communicating real value and embracing that the consumer is in the driver’s seat. Especially when it comes to price and choice. Retailers can no longer dictate behavior to the shopper. The retailers that serve real needs and deliver real value will win.

    But I do think these “events” that are constructed by the industry will continue to be a factor. Whether it be Black Friday, Cyber Monday, Alibaba’s Singles Day or Amazon’s Prime Day, they are all events that are designed to trigger emotion and prompt action. And they work.

    The “value” of the recent hullaballoo can certainly be debated. I suppose the value is in prompting people to buy the gifts that they need to buy for the holidays. These events prompt people into gifting mode and effect the transition into the holiday season. Super deep discounts are expected and may prompt someone to buy at a certain store over others during these events. If a retailer is silent, it will likely be overlooked by shoppers and miss out on selling opportunities. Also, smart retailers will obtain important information about shoppers during these peak selling events. They can use that information to be more relevant to shoppers in the future, which could make the discount a good investment. However I’m not sure that most retailers are actually being that strategic about it. Going forward they will need to be.

    Is the frequency and sharpness of these events hastening the race to the bottom? Probably. They certainly highlight price transparency and encourage comparison shopping. You could say they exacerbate what e-commerce enables all year long. However, I think the notion of value is going to continue to evolve beyond price as e-commerce further grows. While deep discounts in late November are a good value for the gift-buying shopper, what about the rest of the year, and particularly in regard to non-gifting occasions? Perhaps help with meal solutions that turn into shopping lists that turn into orders would be valuable to a busy mom in March. Or perhaps a back-to-school solutions or product bundles would be valuable late August. How about a skin care regimen for Mom or a shaving regimen for Dad? There are a range of personal and household needs that can be solved when merchandising is not constrained by shelves. That’s where value will go with e-commerce. Retailers that figure out how to deliver this in a compelling, easy to manage way for shoppers stand to win big.

    KC:  Something that we've never really talked about here is drones.  It seems like it in the space of a couple of years, they've gone from being a far-fetched parenthetical thought at the end of a "60 Minutes" piece about Amazon and Jeff Bezos, to a delivery concept that seems like it will happen sooner rather than later, and that will be embraced by a lot of companies looking for alternatives.  Is that a fair assessment?  And what do you think the rapid way in which drones seem to have become a factor in how we think about fulfillment tells us about e-commerce in a broader sense?

    Yes, I think that is a fair assessment. Amazon is dead serious about drones and has been aggressively investing in the strategy for several years now. From what I’ve heard, Amazon is convinced that the regulating authorities are going to come to terms with acceptable regulations to govern their operation relatively soon. I think the moves the FAA has made over the past year in allowing testing support that. And there are an increasing number of colleges and universities offering coursework and doing research in this area. It’s on its way.

    I admit that, initially, I thought the "60 Minutes" segment was about PR. But when you think about how advanced the technology has become, it is completely realistic that Amazon will make this successful. Frankly, it’s much safer to bystanders and other traveling vehicles than the self-driving cars that Google is developing (although you can be sure they will also become part of the last mile delivery infrastructure in the future). Through his Blue Origin initiative, Amazon’s CEO is working on manned space flight and safely returning rockets back to earth for re-use. Drone package delivery is child’s play compared to that. Other companies will follow Amazon’s lead in this space. In a few years, drone delivery will be available to many retailers for certain purchase occasions and package deliveries.

    To answer your second question, I’d say that this tells us that e-commerce is being boldly defined by the leaders in the space, and is moving at warp speed, with no regard for traditional boundaries. It’s about shortening the route to the shopper and removing friction of every type. When you think of today as Day 1 and you are not saddled with traditional paradigms, when you believe anything is possible, drones become quite logical. Many inventions become quite logical.

    When our team was at Amazon, we learned about the power of invention. We were encouraged to take risks in improving the customer experience. We were encouraged to invent. This allows us to think about serving customers in completely unconstrained ways. The user interface - web, apps, smart appliances and smart products - can be reimagined constantly. Delivery paths - plane, truck, van, bicycle or drone - can be configured to deliver an experience that meets the needs of the shopper, on economic terms that work. When you truly obsess over shoppers and their problems and needs, when you think in terms of “invention”, many innovations become quite logical. The cost of trying things becomes easier to budget. It requires lots of small, responsible bets. But it will also require a few big bets. If you make these bets with your customers’ needs in mind, they will appreciate you for it and reward you with their loyalty.

    "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: December 2, 2015

    by Kevin Coupe

    The Detroit Free Press has an interesting story about accuracy in labeling and brand authenticity ... and it all goes back to Shinola watches.

    Here's what you need to know about Shinola. According to the Free Press, the company "was started in Detroit in 2011 and has closely aligned itself in marketing materials with a nostalgic, Americana image of the city. Even so, some critics have pointed out that crucial timepiece movements in all Shinola watches are manufactured in Switzerland and that the watches' dials, hands and crystals are made in China ... Shinola employees assemble pieces for all Shinola watches (which typically retail from $475 to $1,125) and bikes (which retail from $1,000 to $2,950) at its Detroit factory on Milwaukee Street and at its flagship retail store on Canfield. The company has grown to about 525 employees — 357 of them in Detroit."

    And every Shinola product carries the following legend: "Built in Detroit."

    The problem is that the Federal Trade Commission (FTC), which regulates the use of "made in the USA" claims, says that products using that pitch have to be "all or virtually all" made in the USA ... and it recently challenged a Kansas City watchmaker that claimed this, even though its watch movements were made in Switzerland. That company, Niall Luxury Goods, now has agreed to describe its watches as "USA made with Swiss movements."

    The "Built in Detroit" claim, the story says, is seen as tantamount to saying Shinola's watches are made in the USA, which according to FTC standards, would be inaccurate. But Shinola says that while it is aware of the FTC-Niall case, it believes that "its slogans accurately reflect how Shinola makes its watches."

    A prepared statement from Shinola says, in part: "We believe that 'Built in Detroit' accurately reflects what we are doing here and believe wholeheartedly that anybody who would come to our factory and witness our process, would think so too ... Shinola’s mission has been, and will continue to be a job creation vehicle as opposed to a company whose mission is about the technical fine points that are necessary in describing our products as 'Made in America'."

    I don't think this is just about semantics, and whether "built" is the same as "made." I think it really is all about credibility and authenticity.

    To be totally transparent about this, I have a Shinola watch. It was a present from my wife and kids, and I love it ... and I love the fact that it was built in Detroit and represents a manufacturing resurgence in that great American city. I also have Mustang ... and I'm glad that I'm driving an American car, though I have no illusions that every component was made here. Still, I'm trying to be supportive of American industry.

    However, as I've said here many times, I do think that the "made in the USA" claim needs to be reserved for companies that are actually living up to the claim, and can prove it. By this standard, I think that Shinola may fall a little short ... it doesn't matter in terms of my appreciation of the brand, but it may matter in terms of being able to make certain claims. Shinola, by the way, is transparent about sourcing on its website ... but that probably isn't enough.

    My solution would be for Shinola to change its slogan just a little bit, to "Rebuilding Detroit."

    There are different ways to slice this loaf, by the way. New Balance is a great example of a company that has maintained its "made in the USA" credibility while being totally upfront about the fact that it does as much as it can in the US while making some products and getting some materials in other countries. That might be a good model for Shinola.

    In the end, this is an Eye-Opening argument about authenticity and credibility ... and I hope that Shinola doesn't get into a fight it cannot and should not win, because that might distract from the good work it is doing in Detroit.

    You have to get it right.
    KC's View:

    Published on: December 2, 2015

    Business Insider has a story about the efficacy of Amazon Prime, and why it makes sense for the retailer to offer a steadily expanding suite of benefits to customers for just $99 a year.

    RBC Capital is out with a study noting that Prime membership continues to grow: "40% of Amazon customers in the US are Prime members versus 25% in 2013. Globally, Prime members are estimated to number 60 million to 80 million."

    Beyond that, the story says, "Seventy-four percent of Prime members said they used Amazon more today than when they first joined Prime. Also, 73% of Prime customers said they shopped at Amazon at least two to three times a month, while only 22% of non-Prime customers said they did." In addition, "Forty-nine percent of Prime members spend over $800 annually, while only 16% of non-Prime users do so." And, "Forty-one percent of those in the first year of a Prime membership spend over $800 a year, versus 68% of Prime members of more than four years who do."
    KC's View:
    In other words, Prime members pay for the privilege of buying on Amazon more often, and spending more money there.

    That's a pretty good business model. And it is all about creating that ecosystem that we talk about here so much, forging a path of least resistance between the consumer and Amazon, making it the first and often best option for pretty much anything and everything.

    If you are not playing this game at some level, be afraid. Be very afraid.

    Published on: December 2, 2015

    The Wall Street Journal has a story about how, at General Mills, "researchers are responding to Americans increasingly rejecting artificial flavorings, dyes, and preservatives and demanding food with ingredients that they can find in their own pantries."

    In this case, it means getting rid of certain colors that used to be used in Trix cereals. But the same kinds of decisions, the story says, are being made at companies that include Kraft, Hershey, and Kellogg.

    Full disclosure: Kellogg is a valued MNB sponsor.

    "The phenomenon has roiled the food industry in recent years as reconstructing recipes, especially of packaged-food items, isn't a piece of cake. It requires consumer food companies to find acceptable alternatives and to manage any side effects, from higher costs to unintended changes to taste or texture that could risk alienating loyal consumers.

    "The new environment is frustrating for some in the food industry after decades of technological advances to make packaged food cheaper, longer lasting and more flavorful."
    KC's View:
    One consultant tells the Journal that one of the reasons manufacturers have to do this is that they have failed to "push back" against consumer perceptions that artificial is always bad. I would argue that "pushing back" is the wrong approach, largely because it comes too late.

    Companies that educate customers, are transparent with customers, and that respect customers, are the ones that don't need to push back because they've created a relationship all along. "Pushing back" implies an adversarial, or at least skeptical, relationship ... and that's never a good place to be.

    Published on: December 2, 2015

    Daymon Worldwide is out with its annual "Global Retail Trends Predictions," in which it identifies seven trends that it believes will emerge from "tectonic shifts caused by competitive pressures from both high and low-end retailers, and a new wave of business models."

    They are:

    Retailers Leapfrog Foodservice. "As the fast food industry struggles to reinvent itself and respond to changing consumer preferences, traditional food retailers from grocery and convenience stores to specialty outfits will leapfrog Foodservice, upping the proposition in health, convenience and experience with competitive offerings, such as hyper-personalized meal and snack solutions (and) customized nutrition programs..."

    Retailers Use Balance As A Strategy. "It’s becoming increasingly popular to focus on extremes, such as spending a Saturday watching a 12-hour TV marathon and then running an actual marathon on Sunday. Retailers have recognized this shift and are delivering on balance, such as the rise of indulgent mini-desserts or bite-sized comfort foods, and creating programs and promotions tailored to consumers’ extreme lifestyles.

    The Digitally Enabled Kitchen In Almost Here. "Digital’s role will become elevated in cooking, automating much of what’s manually done today (e.g. chopping and measuring) and allowing consumers to make restaurant-quality dishes at home with ease. In 2016, we’ll begin to see digital moving from being just a resource to offering sous chef expertise through app-controlled, sensor-enabled appliances, full customization through 3-D printing and connected kitchens. While consumers will not fully embrace this trend next year, retailers will get ahead of it in planning and development, such as by partnering with appliance companies to understand the ramifications of connected kitchen spaces and new tech-enhanced gadgets on products."

    Retailers Shift from Value to Values. "As consumers’ values continue to change, buying 'stuff' for its own sake is less important ... consumers are asking retailers to align with their core values including functionality, sustainability, diversity and purpose."

    The Badge in Badge Value Gets Redefined. "As consumers become more knowledgeable about food and where it comes from, they rely less on brand-driven assertions of premium and quality. New emerging quality markers, such as desire for authentic, regionally-specific and locally-sourced and more diversified culinary attributes like new flavor distinctions, textures and production techniques, will drive retailers to rethink signature brand offerings to better align with redefined consumer expectations."

    Retail Moves from Transaction to Interaction. "Retailers will transform stores to better connect with consumers, such as designing lifestyle spaces to educate and inspire, providing hybrid services (such as food and beauty), offering sensorial experiences (scent, sight, sound, taste, touch) to bring store concepts and products to life, sometimes in 3-D. They also will develop beta stores that encourage trial and error and two-way relationships and dialogues with the consumers they want to reach."

    And here's the big one, with the most likely immediate implications...

    Discounters Become the Primary Store. "Discounters, big and small, will continue their global expansion and morph into primary stores, expanding their organic offerings, fresh bakery and perishables to capture more mainstream consumers. Each will look to trump the next, moving faster and faster to grab share of wallet."
    KC's View:
    I think some of this will happen, but there are a lot of food retailers out there who remain deeply skeptical of the notion that this kind of tectonic change will ever take place ... and I worry that those retailers will be able to survive. They don't have a great short game, and they have no long game.

    I do think that companies are going to think about values as much as they do about value, and I obviously think - I've been writing about this for years - that companies need to be as much a resource of information and guidance as a source of product.

    If discounters become primary stores, I think, it'll be as much because other retailers have not competed effectively. Sure, the discounters are really good ... but they are marching into a hole in the marketplace, not facing off against a well-armed and highly strategic opposition.

    Published on: December 2, 2015

    Politico reports that "the National Restaurant Association plans to file a lawsuit against New York City's health department over its requirement that chain restaurants post warning labels on foods that contain more than the recommended daily limit for sodium."

    This rule, the story notes, "requires chains with 15 or more locations in New York City to display a warning symbol — a salt shaker inside a triangle — if a menu item has more than 2,300 milligrams of salt."

    “While the Board of Health thinks they are targeting corporate chains, in reality they are dealing yet another blow to many of New York’s small businesses that have been working and continue to work hard to provide nutritional access to their customers," Christin Fernandez, an NRA spokesperson, said in a prepared statement.

    The Politico story goes on to say that "the looming legal battle is reminiscent of fights between restaurants and the Bloomberg health department, which banned trans-fats and imposed calorie menus.

    "In 2012, when the city's Board of Health passed a rule limiting the size of sugary drinks, the National Restaurant Association, along with many others, sued to block the regulation. The New York State Court of Appeals ruled the board 'exceeded the scope of its regulatory authority'."
    KC's View:
    I think this is good information for consumers to have. I don't think that restaurants do their patrons - or themselves - any favors when they resist the opportunity to provide it.

    Published on: December 2, 2015

    Bloomberg Businessweek reports that "the pace of online spending slowed on Cyber Monday after consumers started their Internet shopping earlier over the weekend, turning to their smartphones to pick up deals, according to International Business Machines Corp. Web-based sales climbed 18 percent Monday from a year earlier, after jumping 26 percent on Saturday and Sunday, IBM said in a final report early Tuesday. Still, Cyber Monday remains the biggest online spending day, with total outlays hitting a record $3 billion this year, according to Adobe Systems Inc."

    At the same time, the Custora E-Commerce Pulse study, which it says is based on "key US e-commerce statistics and benchmarking data from 200+ online retailers and 500 million anonymized shoppers," says that Cyber Monday e-commerce revenue "was up 16.2% over Cyber Monday 2014 ," with orders growing 14.7 percent. The report also says that "26.9% of online sales were placed on mobile (phones + tablets), up from 23% on Cyber Monday 2014."
    KC's View:
    I would refer you to our discussion of Cyber Monday in "The Innovation Conversation," above.

    Published on: December 2, 2015

    The New York Post reports that federal regulators appear ready to block Staples' proposed acquisition of Office Depot for $6.3 billion.

    According to the story, "the Federal Trade Commission was uneasy about the Staples-Office Depot because it would be the sole nationwide office supply provider to corporations and the government. Other media publications have also reported that the FTC’s concerns centered less on the retail market and more on corporate clients."

    notes that "the commission already successfully blocked a merger between Staples and Office Depot in 1997, arguing at the time that the combined company would substantially hurt competition at the retail level. But the FTC signed off on the 2013 merger between Office Depot and OfficeMax, acknowledging the market for consumer office supplies has changed significantly since 1997."
    KC's View:
    Not sure why governments and corporations can't order online just like the rest of us. This is an antiquated approach to the subject of competition, IMHO ... and it leaves in place two retailers that could conceivable find it hard to survive on their own in the current climate. If they both go out of business, who does that serve in the long run?

    Published on: December 2, 2015

    • Target said yesterday that it is expanding its partnership with same-day delivery service Instacart to Chicago, following what it called "initial success" is both Minneapolis and San Francisco.

    • Associated Wholesale Grocers (AWG) announced that it has chosen Freshop as a technology solution provider, and will use the company to provide customized solutions - including updated websites and online grocery options - to its more than 600 member-owners and 3,400 retail outlets in 31 states.
    KC's View:

    Published on: December 2, 2015

    • The Morning Call reports that C&S Wholesale Grocers plans to take over a shuttered former Walgreen warehouse in Pennsylvania's Lehigh Valley, investing some $15 million in the facility and creating at least 500 new jobs.

    The story notes that C&S already operates several warehouses in Pennsylvania, and "plans to retain its existing workforce of 1,980 statewide, the release states."

    • The Boston Globe reports that Wegmans has signed a deal to open a new store in Medford, Massachusetts.

    According to the story, "Depending on its exact opening date, the new supermarket in Medford would likely be the sixth Wegmans location in Massachusetts, where the company is expanding quickly after initial delays. In addition to existing stores in Northborough, Newton, Burlington, and Westwood, Wegmans is planning to open a supermarket in Natick in 2017 and another in the Fenway neighborhood of Boston in 2019 or 2020."
    KC's View:

    Published on: December 2, 2015

    • Kroger announced that its current manager of finance, Kate Ward, has been promoted to the role of director of investor relations.
    KC's View:

    Published on: December 2, 2015

    Got the following email from an MNB reader:

    I really liked the detailed correspondence that described a reader's purchase of Lipton tea on Amazon. My guess this is how a lot of consumers make this transition. Unable to find something they like and use to buy in a local store is no longer available(or like me from a different part of the country that has different items available), they will go online to buy it. And once a new habits take over, there is no going back.


    We continue to have discussion about whether drone initiatives will be effective or dangerous, and one MNB reader yesterday bemoaned the fact that they will end up eliminating traditional delivery jobs.

    Another MNB user responded:

    I do not see as how drones will take away jobs. They are "filling" a need for a service -- immediate delivery gratification. If history teaches us anything about technology is that it creates jobs where jobs didn't exist. Certainly some new jobs are replacements for obsolete technology. But overall I believe jobs are created through new technology.

    This is not to say that I think delivery drones are a good idea. I don't have an opinion. I am more interested to see where it takes society in the future. Time and "progress" march on. If there wasn't a demand for drone delivery there wouldn't be drone delivery.

    I agree to the point. However, one of the things that makes Amazon so dangerous is that they figure out solutions to problems that most of us don;t even know exist. (This is a big part of what Tom Furphy talks about in our "Innovation Conversation," above.)

    MNB user John Rand had some thoughts about the big picture:

    I am old  enough (even older than you, Kevin) to remember things that would never change…and did anyway.

    If I had been smarter (or old enough to be able to afford it) I would have bought up milk boxes (every house had one – an insulated box into which the milkman would put your products). I might even have bought a milk delivery truck, and salted it away in storage, ready to trot it out and be sold as an antique in fabulous condition for big dollars.
    If you see what is coming you should buy a UPS van right now, for the same reason. Also a good well maintained Yellow Cab. Someone should tell Jay Leno to add these to his garage. They will be valuable someday, just as a well maintained DeSoto would be.
    Think about the progressions: Fountain pens. Carbon paper. White-out (liquid paper).  Carbon paper killed the fountain pen and the ballpoint took over. The white-out was for typewriters – remember those? You can still buy all of them – as fascinating near-archaic items, rarely used, living anachronisms. But you can ask Staples if that is the foundation for a good business these days.

    What I love about the retail food and consumer packaged goods business is how it evolves and changes and responds. If drones work, drones will be adopted. If shoppers want to order on their mobile phones, these will be enabled. Store WiFi. Smart chips. Organic food. Shopper data. Really good prepared foods.
    What drives me crazy about the retail food and consumer packaged goods business is how slow it can be to evolve and change and respond. Suppliers still trying to sell the same thing to everyone in a world of personalization. Retailers with shelves and aisles that look  precisely like the shelves and aisles I started stocking in 1967. Dull merchandising. Food that we all know is poor for your health. Sales that don’t add value. Circulars no one likes to read.

    The industry will grow and thrive and change and adapt.  The pace will be different and some will not survive. But in the end, resistance is futile.


    However, the reader who was worried about jobs - I called his argument "specious" - had a rejoinder to my comments:

    Specious? Perhaps, but until you (or anyone) can help my understand the widening disparity between rich and poor, and the alarming trend towards extinction of the middle class, I stand by my statement, which should not be construed as anti-technology. While you’re at it,  when I hear the statement “the real unemployment number is X”, who would you suppose those “no longer looking” people are?
    Finally, not all technological advances are good. Cloning comes to mind…

    I'm not sure it is fair to use drones as a whipping boy for the growing wage disparity in the US. I can think of a few other trends that I'd blame first.

    But, hey ... this is a great debate.
    KC's View: