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    Published on: May 18, 2016

    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.

    This week's topic: The first of two conversations about this week's ShopTalk conference, focusing on e-commerce trend-setters, and technology roadmaps they follow.

    And now, the Conversation continues...

    KC: So, you're at the ShopTalk - the self-described "nextgen commerce event" - in Las Vegas this week, and we'll feature a more detailed look at what you saw and learned there next week.  But I get the impression - just from looking at the agenda items and the speakers - that a lot of these folks may be playing this e-commerce game at a different level than a lot of food industry folks, embracing technology in an entirely different way than people in other industries.   Is that your sense of it as well?

    Tom Furphy:
    I think so. The agenda is certainly loaded with many trend-setters in e-commerce. Tech companies, investors, retailers and manufacturers from across verticals are here. ShopTalk has gone from an idea to one of the five largest retail shows in less than a year. I think that demonstrates a few things – e-commerce is important to a lot of people, there is a tremendous breadth of innovation occurring now and that brands and retailers feel a high sense of urgency to get it right.

    But that doesn’t necessarily mean that all of these folks are doing it better than food retailers. It just means that they’re doing more of it. It’s really a matter of timing. E-commerce has penetrated other retail verticals well in advance of the food business. Even Amazon got into food as one of its last retail categories to capture. I know sometimes we make it sound easy in this column. But e-commerce in food is tough. The low margins, high SKU intensity, high weight to low value ratio of products, expiration and food safety issues all make e-commerce – from customer experiences to profitability - in food very difficult.

    Other verticals are more advanced because they are easier and because they lend themselves more favorably to e-commerce. In many verticals, the vast selection, low prices, depth of product information and efficiency of delivery improve the shopping experience over brick and mortar. Because these companies have been at it longer, they are further along the innovation curve. They have launched valuable capabilities and are integrating the tech experience into the store experience. We haven’t gotten there yet in the food industry, but we will. We have to.

    Also, there are many business here that have been built because of the capabilities that the technology enables. They were able to start with a clean slate. Some are creating breakthrough models, others are technologies looking for a business models.

    Ultimately, this show represents and industry full of companies trying to keep up with or disrupt Amazon. They are the gold standard. Remember, Amazon does almost twice as much business as the next 10 e-commerce businesses combined!

    KC: Interesting. I was just reading a piece in the Seattle Times about ShopTalk that said much of the conversation there is about how to compete with the Amazon juggernaut; Scott Thompson, CEO of ShopRunner, is quoted as saying, "You’re crazy if you compete against Amazon and you don’t recognize they are bigger, stronger, faster ... They’re playing their sport on their field with their referees and their fans."

    The story also notes - and I think we've talked about this a lot in this space - that while Amazon has disrupted a lot of retail businesses, "its often contradictory business ventures offer different layers of challenge and even opportunity to competitors." Beyond the fact that Amazon offers other retailers the ability to take advantage of its infrastructure to do business online, which probably has both upsides and downsides, there's also an argument that Amazon, by creating so much retail fragmentation, is creating an environment that other retailers can exploit ... if they're fast enough, open-minded enough, innovative enough, and even disruptive enough. Some will be, and some won't be.

    So let me ask you this. Going in, what are the two or three things that you are hoping to gain more insights about at ShopTalk?

    I’m here with one of my CEP partners, Justin Leigh. We’re going to dig into these companies a little bit to learn more about them. We want to press them to see which ones have solid business models beneath the hype. There has been a lot of venture capital poured into these companies. Companies have raised anywhere from a few million to hundreds of millions of dollars. We want to learn from the founders. We want to understand what they are doing to truly improve the shopping experience.

    Also, we have meetings set up with several CPG companies and retailers that will be attending the event. It will be interesting to discuss these companies with them. We want to hear their take on what they are seeing and how it may impact their strategies and technology roadmaps.

    This will be a fun week!

    KC: Sounds like it ... and I'm glad you're there covering it for MNB from an unusually informed context.

    And the Innovation Conversation will continue...

    KC's View:

    Published on: May 18, 2016

    National Public Radio reports that in a new study, the National Academy of Sciences "has reaffirmed its judgment that GMOs are safe to eat ... The report tries to answer a long list of questions about GMOs, involving nutrition, environmental effects, effects on the farm economy and monopoly control over seeds.

    "The most basic conclusion: There's no evidence that GMOs are risky to eat.

    "The committee also found that GMOs, as promised, have allowed farmers of some crops to spray less insecticide to protect their crops — although there's a risk that the GMO crops may not work as well in the future, because insects could develop resistance to them. Also, there's no evidence that GMOs have reduced the amount of wild plant and insect life on farms."

    However, the Academy report also says that "some claims about the benefits of GMOs have been exaggerated." One example - GMOs have long been cited as a way to improve crop productivity in the US, but the Academy found no such correlation.

    Not surprisingly, there were two basic reactions to the study. NPR writes that "many scientists who got their first look at the report Tuesday praised it. Some called it the most comprehensive review of GMOs that anyone, so far, has carried out.

    "But longtime critics of GMOs were less impressed. Patty Lovera, from Food & Water Watch, the group that attacked the National Academy's committee for being too closely linked to industry, took a quick look at the report and didn't see much that seemed new." However, NPR also notes in its story that Food & Water Watch was criticizing the report even before it was issued.

    "The preemptive attack frustrates Fred Gould, the North Carolina State University scientist who chaired the committee," NPR reports. "Gould has been known in the past as a GMO critic. He has pushed for restrictions on the planting of some GMO crops ... Gould says that over the two years that he and the other members of this committee worked on this report, they had one important rule: 'If you had an opinion, you had to back it up with data. If you didn't have the data, it didn't go into the report'."
    KC's View:
    As much as I wish it did, I'm not sure this actually will resolve anything. People will just retreat to their familiar foxholes/opinions and it won't matter what anyone else says, even a bunch of scientists who must be morally and intellectually compromised if they conclude something with which I disagree.

    I also don't think it'll change many minds about mandatory - except maybe mine. Because as much as I've pretty much always argued for mandatory labeling of products with GMOs, it is hard for me to do so when the freakin' National Academy of Science reaches conclusions that would seem to deem them unnecessary. I struggle with this, but I can't be so anti-science as to ignore or dismiss this report.

    But it is a struggle.

    Published on: May 18, 2016

    The Washington Post reports that the Obama administration plans to publish a new Labor Department rule today that will "make millions of middle-income workers eligible for overtime pay, a move that delivers a long-sought victory for labor groups.

    "The regulations, which were last updated more than a decade ago, would let full-time salaried employees earn overtime if they make up to $47,476 a year, more than double the current threshold of $23,660 a year. The Labor Department estimates that the rule would boost the pockets of 4.2 million additional workers ... About 35 percent of full-time salaried employees will be eligible for time and a half when they work extra hours under the new rule, up significantly from the 7 percent who qualify under the current threshold, according to the Labor Department."

    While labor groups said the change was long overdue, the story notes that there was criticism from business, nonprofits and universities, all of which said in various ways that the change could result in some of the affected employees actually making less money, since employers will not have to track and reduce hours to stay within budget.

    The new rule will go into effect on December 1.
    KC's View:
    I must admit to having trouble relating to this rule. I am all in favor of preventing employees from being exploited or abused, and I certainly don't want to be locked into a we-always-did-it-this-way mentality. But my memory of being a salaried employee is that I stopped counting hours - which had upsides and downsides. The good employers went out of their way to compensate me - either with time or money - when I went above and beyond, and the bad ones didn't. And so my first impulse when I hear about this rule is that it assumes too much about inequitable employer-employee relationships. Though I have a feeling someone will write in to explain to me why and how I have this wrong ... and I welcome the email.

    Published on: May 18, 2016

    The Wall Street Journal reports that the American Beverage Association has failed to get a court order that would've prevented the implementation of a new rule in San Francisco requiring "health warnings on advertisements for soda and other sugar-added drinks," and so the rule will go into effect on July 25.

    Specifically, the rule will require billboards and other advertisements to include the following disclaimer: “WARNING: Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay. This is a message from the City and County of San Francisco" ... The San Francisco ordinance would require the health warnings to cover 20% of public advertisements in the city, including posters and bus shelters. The warnings wouldn't be required on television or radio ads or on beverage packaging or menus."

    The Journal story goes on to say that "the San Francisco ruling comes as more politicians and regulators seek to curb consumption of sugary drinks to help curb rising obesity and diabetes rates. Such measures have the support of a growing number of public health officials and are being challenged by the beverage industry, which is worried that it is being singled out like the tobacco industry."
    KC's View:
    I think that even though many will argue that this is unnecessary governmental interference, I have no problem with this rule. After all, soft drink companies spend billions on ads that create a fantasy around the consumption of their products ... just like most companies do about the products they sell ... and so these may be the most truthful words in the ads.

    Though I must admit that it seems like San Francisco tends to reach these conclusions earlier and more often than almost anybody else.

    Published on: May 18, 2016

    The Silicon Valley Business Journal reports that Amazon plans to build a second drive-up grocery store in the San Francisco Bay Area, in San Carlos, which the Journal says reflects the company's desire "to roll out the new concept on a broader scale as it seeks a bigger share of the enormous grocery market."

    A first drive-up grocery store was reported last year to be planned for Sunnyvale, California, less than 18 miles away from the San Carlos site.

    The facilities, as described in public records, seem to be designed as places where customers can pick up products after having ordered them online.

    In a related story, a new study of online grocers in the US points to so-called "basket bandits" that it describes as e-grocery sites "that siphon off sales, generating a steady stream of sales leakage." The biggest of these, it says, is Amazon, which "captures nearly half of all online grocery trips (48%), compared to 15% for mass and club retailer sites and 21% for non-Amazon sites."

    The study was generated by Brick Meets Click, which suggests that there is a kind of Amazon "multiplier effect," which means that "as online grocery trips per month increase, so does Amazon’s share of trips. They are continually working on making buying easier, and supermarkets need to respond."
    KC's View:
    It makes sense for Amazon to test click-and-collect, just as it makes sense for Amazon to expand its private label food lines, offer same-day and even one-hour shipping, provide delivery of restaurant food, and do all the other stuff that it feels makes the site robust and creates an ecosystem from which nobody will want to emerge.

    The Bricks Meets Click study points to the absolute necessity for other retailers to not just get into the game, but to innovate at a high level ... there is no room at the inn for people who are agnostic about the impact of e-commerce on their businesses.

    Published on: May 18, 2016

    There is a piece in the New York Times that likely will resonate with a lot of employers, reporting that "all over the country, employers say they see a disturbing downside of tighter labor markets as they try to rebuild from the worst recession since the Depression: They are struggling to find workers who can pass a pre-employment drug test.

    "That hurdle partly stems from the growing ubiquity of drug testing, at corporations with big human resources departments, in industries like trucking where testing is mandated by federal law for safety reasons, and increasingly at smaller companies.

    "But data suggest employers’ difficulties also reflect an increase in the use of drugs, especially marijuana — employers’ main gripe — and also heroin and other opioid drugs much in the news."

    The story goes on to say that "data on the scope of the problem is sketchy because figures on job applicants who test positive for drugs miss the many people who simply skip tests they cannot pass. Nonetheless, in its most recent report, Quest Diagnostics, which has compiled employer-testing data since 1988, documented an increase for a second consecutive year in the percentage of American workers who tested positive for illicit drugs — to 4.7 percent in 2014 from 4.3 percent in 2013. And 2013 was the first year in a decade to show an increase."

    It is worth reading here.
    KC's View:
    I've had this conversation with a number of store managers over the last few years, as they've commented to me that they are almost chronically understaffed because of the difficulty in finding employees who pass drug tests - and in some cases, these are drug tests being administered in places where marijuana has been legalized for medicinal or even recreational use. Which would seem to suggest that some companies may have to at least consider a change in testing policies that fly in the face of cultural realities.

    Published on: May 18, 2016

    • Amazon yesterday announced what it called "new Alexa voice features are coming to Fire TV, including the ability to control playback of Amazon Video and Add-On Subscription content, launch apps, access local movie show times, search local businesses and restaurants, and more—all just by using your voice ... these new Alexa features will be automatically delivered via free, over-the-air software updates in the coming weeks."

    Meanwhile, the New York Times reports that "Google will introduce its much-anticipated entry into the voice-activated home device market on Wednesday, according to people who spoke on the condition of anonymity. Named Google Home, the device is a virtual agent that answers simple questions and carries out basic tasks. It is to be announced at Google’s annual developers’ conference in Silicon Valley."

    The Times goes on to write that "Google Home will come to market in the fall — a long time away, given the speed of technology, but Google needed to plant a stake in the ground now. The device will compete with Amazon’s Echo, which was introduced less than two years ago. Amazon has already sold an estimated three million units."
    KC's View:

    Published on: May 18, 2016

    Bloomberg reports that "Merchant Customer Exchange, a mobile payments company started by major retailers including Wal-Mart Stores Inc., said it will eliminate 30 employees and postpone the national introduction of its highly publicized product, a would-be Apple Pay competitor." The company which was launched in 2014 with a highly publicized to start a mobile payments system called CurrentC, reportedly is being challenged by its ownership - which includes Target and Best Buy, in addition to Walmart - to "reduce the role played by Visa Inc. and MasterCard Inc. and cut the fees they pay to the financial services. The retailers loathe paying fees to accept credit cards in their stores and have long sought better data on what their customers buy."

    Just this week, Walmart said that it is making its Walmart Pay mobile payments solution - which would compete with CurrentC - available to customers at 110 of its stores in Arkansas, apparently positioning itself for a potential broader rollout.

    Advertising Age has a story about how PepsiCo has launched a brand new state-of-the-art content studio in New York City that is designed to generate branded content "while also pursuing distribution deals with film studios, online publishers and other outlets for brand-agnostic content. And the central mission of all of that content is to entertain, not to sell chips, soda, oatmeal and other PepsiCo products -- at least not directly."

    According to the story, "PepsiCo envisions selling enough unbranded content to cover the costs of creating ad content that does fuel product sales. The unit, called the Creators League, will serve as an internal production arm for scripted series, films, music recordings, reality shows and other content distributed for TV, online viewing and services such as Amazon Prime."

    In other words, it is hoping that revenue-generating content generation will help pay for the expense of having a studio developing marketing content.

    Reuters reports that Office Depot, now facing a future in which it cannot be acquired by Staples, having had that merger blocked by the courts and antitrust regulators, said this week that it is "considering selling some of its European operations" to generate cash, as well as looking at "various capital structure and shareholder return alternatives."
    KC's View:

    Published on: May 18, 2016

    • Target Corp. said yesterday that it has hired Mark Tritton, former president of the Nordstrom Product Group, to be its new chief merchandising officer.

    And, Target also announced the promotion of Jason Goldberger, the president of its mobile operation, to the role of chief digital officer.
    KC's View:

    Published on: May 18, 2016

    We've had several stories about voice-activated computers from companies like Amazon, Apple and now Google, that are designed to enable the smart-home and help draw users into one ecosystem or another by allowing them to easily place orders or even track packages.

    One MNB user commented:

    Last night I said “Alexa, order a refrigerator water filter”, “she” described the one I ordered in the past and the cost.  I said PIN and voila, ordered.  It amazes me every time and I LOVE IT!

    And from MNB reader Nathan Williams:

    Awesome.  Just tried it.  Amazing.  She responded my package will arrive today. How cool is this thing!

    Totally cool.

    The other day, I made a joke when commenting about a Washington Post report that McDonald's "has ended a controversial practice of giving nutrition advice to students in schools, pulling back on a program that critics said was a subtle form of fast-food marketing that could imperil kids’ health and understanding of nutrition." The fast feeder had hired John Cisna - a formerly 280-pound Iowa teacher who ate McDonald's for 540 straight meals, got regular exercise, and lost 56 pounds - as a 'brand ambassador'."

    I commented:

    The idea that McDonald's was offering nutrition advice to anyone is a joke. The fact that schools were letting them do so, to kids they are responsible for educating, is malpractice.

    That said, I've never been surprised that Cisna was able to lose 56 pounds after eating McDonald's for 540 straight meals. Eat that much of anything - but especially McDonald's - and you're gonna spend a lot of time throwing up.

    One MNB user was not amused:

    We all know that you don’t like McDonald’s but your comment today jumped the shark.

    It was totally a cheap shot. I hate myself for it, but sometimes I just can't help myself.

    MNB reader Jim Mahern also thought I was off-base:

    Your comments regarding McDonalds are very interesting, but somewhat misleading since you seem to believe their business is nothing but "burgers and fries". To go even further and state that the fellow who lost 56 pounds may have lost it because "if you eat that much of anything, especially McDonalds, you're going to spend a lot of time throwing up" is unfair. McDonalds currently has some of the following on their menu: chicken, fish, biscuits, hotcakes, bacon, sausage, fruit 'n yogurt parfait, oatmeal, 5 different salads, yogurt, apple slices, apple juice, milk, coffee, lattes, ice cream and shakes. Sounds like a pretty diverse menu to me. I would also be willing to bet that many of those students in Portland for whom you seem to have a great deal of respect, are McDonalds customers at least on a casual basis. Maybe you should join them occasionally.

    McDonalds always seems to bear the brunt of people who like to criticize the "fast food" segment and theorize that they are responsible for a lot of the obesity in America. On the flip side, I wonder how many people are  alive today because McDonalds is the best and most affordable option for them.

    (I am not a McDonalds franchisee. I am an occasional customer who believes in fair play on all issues).

    I never claimed to always be fair.

    But I'm also not sure to suggest that it is often a best and affordable option. Easy, maybe. But really less expensive - when you take everything into account - than buying some hamburger meat and a roll, and maybe a fresh tomato and some onion, and cooking it up yourself?

    From another reader:

    McDonalds can't win, furnishing caloric content of their foods just simply is not good enough. In a prior life I was a Clinical Dietitian and often spoke to people about moderation. I would tell them if you wanted a candy bar have a candy bar. Too often people jump on diets that are so restrictive that they cannot follow and very soon leave them behind.

    I don't care much for McDonalds but I do like their coffee and stop a few times a week for a warm cup. Obviously you have a real problem with McDonalds but seem to have zero issues with Starbucks who's caloric content of some of their drinks is more than a Big Mac. I would also add that McDonalds has more of a balanced selection than Starbucks. You can also stop by a Starbucks and be reminded about the social issue of Black Lives Matter. So I would rather learn about nutrition from McDonalds than a $7.00 an hour barista on why I should care more about our society.

    Fair enough. But for the record, my coffee of choice at Starbucks is a venti nonfat two Equal latte, not one of their calorie-busters.

    The other day, MNB reported on a Fox News story that Donald J. Trump, the presumptive Republican presidential candidate, has gone on the offensive against Amazon founder/CEO Jeff Bezos, saying that he bought the Washington Post in order to use it to influence corporate tax policy.

    "Amazon is getting away with murder, tax-wise," Trump told Fox host Sean Hannity on his program. "He's using The Washington Post for power so that the politicians in Washington don't tax Amazon like they should be taxed." And he suggested that Bezos and Amazon might have antitrust problems if he is elected president.

    I commented:

    If the Washington Post plans to run exhaustive investigative pieces about all the things that Trump and Hillary Clinton would not want us to know about their lives and careers, I suspect they'll have a pretty busy five months between now and the election.

    By the way, y'think maybe Rupert Murdoch created Fox News and bought the Wall Street Journal because he wanted to have some influence? Of course he did.

    And hasn't Trump bragged about financially supporting both Democrats and Republicans over the years because he wanted to exert influence? Yup.

    But let's not let the facts get in the way.

    One MNB user responded:

    The irony of this comment, coming from a presidential candidate who is refusing to release his tax returns, shouldn’t be ignored.

    Another MNB user wrote:

    I agree Trump has played it both ways but he is openly stating that he did whatever was necessary and played both parties for the success of his businesses.  I don’t think him calling out that all businesses are doing the same thing and that they are looking out for themselves, their bottom lines, NOT their consumers, NOT the country as a whole, NOT unemployment and that he is going to try to rectify the problem is an issue.  There is nothing wrong with calling a spade a spade – including himself.

    You are always talking about transparency – I think Trump is being transparent – might not be pretty but he is not denying what he did/has done.  He has made millions (maybe billions)  on the backs of others and taken advantage of our government system and he is calling out that everyone else out there has done the same thing and continues to.  Don’t think this is a surprise to too many folks out there but it’s not talked about. Just like in business,  if you don’t truly understand and call out what the problem is,  how do you fix it?

    Finally, we had a reader the other day who wrote that millennials ought to be referred to as the "snowflake generation," because "they melt in the face of any heat, they cannot be faced with any opinion that differs from what they are spoon fed by the liberal professors and an even more liberal media.

    I profoundly disagreed with this characterization, and so did MNB reader Chuck Jolley:

    Spoken like a true old fogey who has reduced himself to standing on his front porch and yelling at the neighborhood children to get off his damn lawn.

    Can I get an amen?
    KC's View: