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    Published on: June 9, 2016

    This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

    Hi, Kevin Coupe here, and this is FaceTime with the Content Guy.

    As I sat down to work on this commentary, a friend of mine called me and said that my name had come up in conversation. "I like Kevin and MNB," someone had told my friend. "But sometimes I just get so mad at him ... it is always Amazon and Walmart, Amazon and Walmart ... and generally he hates Walmart and loves Amazon."

    This person isn't alone. Just check out today's "Your Views."

    Well,they're going to love this one...

    I've been intrigued by some of the media and analyst reaction to the announcement by Walmart, carried here last week, that it is testing drone technology. Unlike Amazon, however, Walmart's plans are to use them inside its distribution centers, not to make deliveries to customers.

    Some of the pieces I've read have suggested that Walmart's plans are both more doable and smarter than Amazon's. Using drones inside a warehouse to check for out-of-stock merchandise is enormously faster than using a person to perform that same check ... and there are none of those annoying FAA rules to worry about. (Although I wouldn't be surprised if OSHA might have something to say about the subject.)

    While the point about being more doable certainly would seem to be true, I'm not sure we should be at all surprised by that. In fact, I think it might even be fair to suggest that the different approaches actually illustrate some of the very real differences between Walmart and Amazon.

    By focusing drones on warehouse operations, Walmart does what it has always done - worked very hard to drive costs out of the system and everything it can to be efficient as possible. By focusing on using drones to deliver products to customers - which could have enormous implications for people in certain areas who otherwise might have to wait for products they need or want - Amazon is being far more customer-facing in its approach. It is anticipating what shoppers may need or want, and is playing a long yardage game, while Walmart is doing what is doable, and playing a short game.

    In short, Amazon's approach is "gee, whiz." Walmart's approach is a little more paint by numbers, albeit with some pretty high-tech paint.

    Now, let's be clear. By focusing on warehouse efficiency, Walmart may be able to use drones to make sure that products are where they need to be, when they need to be there. That's pretty customer-facing in my book. And I'm not suggesting that one approach is better than the other, or will bear more fruit than the other. Just that they are different companies, with different approaches and different cultures. No reason that they can't both exist.

    Do I focus a lot on both of them? Sure. But here's the reality - almost everybody competes with Walmart, and everybody competes with Amazon. Both have dreams of retail domination, and their own particular takes on how to achieve it.

    That's a pretty good reason to focus on both of them ... not exclusively, but a lot.

    Because here's the other thing. When I talk to companies, especially about what Amazon is doing, executives usually follow up their own "gee, whiz" moments with "really? I didn't know they did that."

    Exactly.

    That's what's on my mind this Thursday morning. As always, I want to hear what is on your mind.

    KC's View:

    Published on: June 9, 2016

    by Kevin Coupe
    The Wall Street Journal reports on a new United Parcel Service (UPS) survey concluding that for the first time, online consumers are saying that "they bought more of their purchases on the web than in stores."

    According to the story, "The shoppers now made 51% of their purchases on the web compared with 48% in 2015 and 47% in 2014 ... This year, 44% of smartphone users said they made a purchase from their device, up from 41% a year ago ... The shoppers reported that only 20% of their purchases were made in a store the conventional way—going to a store, browsing there and buying—down from 22% a year ago. Forty-two percent chose to search and buy entirely online, while the rest said their purchases were made by combining online and in-store shopping and browsing."

    The survey polled more than 5,000 online shoppers who make at least two online purchases in a three-month period, excluding groceries.

    Interestingly, "Though millennials make 54% of their purchases online, the rate of adoption by older people is growing at a faster rate. Non-millennials made 49% of their purchases online, according to the survey, compared with 44% in 2014."

    The story also notes that "those surveyed said they now select two-day shipping 20% of the time, compared with 16% last year and 10% in 2014," apparently driven by programs like Amazon Prime. In fact, Amazon "accounted for 60% of total U.S. online sales growth last year alone, according to Forrester estimates."

    To be sure, this survey is of online shoppers, not of shoppers in general ... so the numbers are skewed. But is there anyone who wouldn't argue that this trend only will continue?

    I'd also argue that while groceries are excluded from this survey, there is no question that they'll get into the act. Sure, it is taking longer for this retail segment to make the shift, but there is way too much momentum for this not to happen.

    Companies are going to have two choices - play in the segment, or do their best to create a compelling store experience that will counter the lure of online retail. That's pretty much it.

    An Eye-Opener, to be sure.
    KC's View:

    Published on: June 9, 2016

    A guest column by Chelsea Ware

    Content Guy's Note: You may remember that I met Chelsea Ware at Portland State University's Center for Retail Leadership's annual executive conference. She was a student in the program, and when I found out she also was a blogger, I invited her to write a piece for MNB ... and she's written several, each generating a terrific reaction to her insights into how her generation thinks and acts ...

    Chelsea has graduated now, but was inspired by the recent MNB conversation about robotics and voice-activated computers to weigh in with some thoughts. They may surprise you.

    Enjoy...


    As a millennial, I consider myself to be pretty fluent in the use of technology. I’ve had Siri help me with research papers, I’ve ordered my groceries with just a few clicks, and I believe that social media is a form of art. Technology has benefited society in many ways, and I have no qualms about capitalizing on these advantages.

    But the notion of “too much of a good thing” is very real, and I think that we are headed that way when we deeply intertwine robotics with our food.

    From pizza vending machines to a mechanized metal tea barista at Whole Foods 365, we are beginning to be fed the idea that our food should be made and provided by machines. Not surprisingly, much of this is attributed to the growing wants and needs of millennials.

    Some are arguing that companies should invest in using more technology because millennials are pushing for less human interaction in their day-to-day lives, and that this is the reason services like GrubHub and Amazon ordering have taken off with success. Bloomberg recently reported that chains like McDonalds and Panera are looking to invest in kiosks and tablets so that they can feed millennial misanthropy in addition to their stomachs.

    Not only is the concept of all millennials being hermit-like and scornful of human interaction a bit offensive, but I also believe that it is an incorrect generalization of my generation. (As are, let's face it, most generalizations.)

    Many of these online and technology based services are popular because they allow us to save time and do more of the things that we want to do. Bloomberg writes that millennials order toilet paper from Amazon because we are too anti-social to go to the store and get it. But since when has purchasing toilet paper ever been a social activity? The popularity of these services boils down to convenience, not a wide spread epidemic of millennials being uncommunicative, and it surely doesn’t justify replacing capable human workers with machines.

    Most importantly, robots will never be able to replicate what makes the concept of food and eating so remarkable. Food is culture, self-expression, celebration, and a form of bonding. Food brings us together in ways that many other things cannot.

    While food represents warmth and joy, robots are cold and detached.

    Not long ago, my parents came to Portland to visit me and we went out for dinner at Bamboo sushi. In typical Portland fashion, the sushi was creative, quirky, and fun. But what made the experience most enjoyable was our waitress, who took the time to walk us through the menu and give us her opinion of the different offerings. We ended up ordering one of her recommendations, and during the meal she informed us of where the ingredients were sourced from and how much she enjoyed working there. My Dad is coming back to visit me this month and the first place we want to go when he gets here is Bamboo Sushi. I am sure that this sentiment would not hold true if our food had been made and served by a robot.

    So while millennials may be more tech crazed than other generations, if a company relies too heavily on it in order to appeal to us, they could wind up in the junkyard.
    KC's View:

    Published on: June 9, 2016

    The Wall Street Journal reports that Fairway Group Holdings, one month into bankruptcy protection after a 2013 IPO and aggressive expansion plan didn't turn out the way it hoped, "won court approval on Tuesday for a reorganization plan that will cut its debt load in half," and would allow the 15-store, New York-based chain to emerge from bankruptcy in two weeks.

    According to the story, "The restructuring plan cuts Fairway’s funded debt by $140 million and leaves it with about $50 million in cash to help maintain operations while it works to get back on its feet. All of the company’s 4,000 employees will keep their jobs, and Fairway won’t change collective-bargaining agreements for its unionized workers ... With its balance sheet restructured and debt payments cut by as much as $8 million annually, Fairway says it expects to have enough money for investments in new technology and marketing campaigns that will help it compete."

    The story says that Fairway's senior lenders will take the company private, getting ownership in exchange for what they are owned. Other creditors will be repaid, and existing equity will be "wiped out."
    KC's View:
    One of the more interesting things in the story is the note that Fairway's owners tried to sell the company, reached out to more than 60 potential buyers, but was unable to hook anyone on the chain's potential and possibilities once its debt and other liabilities were taken into account.

    I have to admit that I wonder how they identified 60 potential buyers. Did they just go on Google and look for anyone who sold food? Hard to imagine that there are 60 realistic, credible potential buyers for Fairway out there.

    I hope that the new owners bring the company back to its merchant roots and give the stores some badly needed energy ... if indeed the goal is to keep all of them. I can't shake the notion that maybe a couple of them could still be sold off, albeit on a piecemeal basis.

    Published on: June 9, 2016

    The New York Times reports that Netflix has released a tracking study examining the binge viewing habits of its global subscriber base, concluding that "subscribers who finish the first season of a show generally do so in a week ... And those viewers are dedicating a significant amount of time to do it: They watch about two hours a day."

    The study says that viewers tend to watch horror programs (think "Breaking Bad," "Sons of Anarchy" and "The Walking Dead") and thrillers at a faster clip, while taking their time with political dramas (like "The West Wing" and "House of Cards") and comedies.

    "We’ve gotten past, ‘The binge watch, it happens!’ Now we’re trying to distinguish that different series are consumed at different rates,” says Cindy Holland, vice president for original content at Netflix.

    The study looked at how subscribers "watched the first seasons of more than 100 television series during a recent seven-month stretch."

    The Times writes that "while Netflix contends that the binge model is what viewers want, some traditional network and cable executives continue to argue that their week-to-week rollout of original programming keeps their shows in the cultural conversations for months at a time."

    But Holland says that "the study proved to the company that, yes, Netflix viewers were inclined to binge, and reinforced the company’s faith in its policy of releasing all the episodes of an original series at once." Especially because - and this is fascinating - people tend to watch second and subsequent seasons of series at an ever faster pace than the first season.
    KC's View:
    I love binge viewing, but I have to admit that when I'm done, I always get the same feeling as when I've finished a good book ... I wish there were more, and regret that will take months or years for the author to come up with a new one.

    The larger lesson is that many consumers want to be in charge of how they consume. The notion that some other party can control our consumption habits is simply not acceptable. It is true in terms of Netflix content, but I think the lesson can be applied to a lot of other categories and retail segments.

    Published on: June 9, 2016

    The New York Business Journal has an interesting piece about food trends, suggesting, among other things, that the day of the "foodie" is over, replaced by a kind of democratization of food that is allowing consumers to be more "connected" to what they eat.

    The key traits of the modern and successful food business - transparency, authenticity, and relevance.

    Good and thought-provoking story ... and you can read it here.
    KC's View:

    Published on: June 9, 2016

    The Washington Post reports that a judge in San Francisco has granted a preliminary injunction, pending appeal, to the American Beverage Association, delaying at least for the time being a law that would have required health warnings on billboards and other advertisements for sugared soft drinks.

    The association argues that the law infringes on its First Amendment fee-speech rights; the California Retailers Association and California State Outdoor Advertising Association joined the complaint.

    The appeal could take several months, though there is some expectation that it could be expedited through the court system. The case is being closely watched, since San Francisco is the first city to try to mandate such health warnings.
    KC's View:

    Published on: June 9, 2016

    The Denver Post reports that Door to Door organics, which does home delivery of organic produce and natural products in 16 states, is merging with Relay Foods, which partners with more than 50 farms and 200 artisan producers to deliver to homes in Virginia, Maryland, North Carolina and Washington, DC.

    According to the story, "Financial terms of the all-stock merger were not disclosed," while "the combined company also announced that it landed $10 million in equity financing provided by The Arlon Group and Relay stockholders."

    The Post writes that the two companies "realized they could leverage each other’s strengths. Relay had invested heavily in technology — from warehouse management to front-end personalization options for customers — and Door to Door had a broader network to utilize those efforts."

    The two companies are expected to start doing business under anew joint name laster this year.
    KC's View:
    The story makes clear that in all likelihood, at least part of the impetus for this move is Amazon's growing footprint and expanding food ambitions. The market may be niche, but that doesn't mean the threat is any less tangible.

    Published on: June 9, 2016

    • Kroger announced that employees working at 41 stores in the company's Mid-Atlantic division have ratified a new labor agreement with Local 400 that covers 5,100 associates in Virginia, Tennessee and West Virginia. The new contract is said to provide wage increases, affordable health care and ongoing investment in associates' pension funds.


    Arkansas Online reports that Harps Food Stores plans to acquire nine Walmart Express properties in Arkansas and Missouri, which were being closed as part of a larger plan to close 154 stores across the country.

    The deal is scheduled to close later this month. terms were not disclosed.


    USA Today has a story saying that bottled water is about to pass soft drinks in terms of consumer popularity.

    A new report from Beverage Marketing, the story says, "found that bottled water consumption grew 120% between 2000 and 2015. That rapid rise has occurred as carbonated beverages have slowly fallen out of favor, going down 16% in the same time period. Increasing concerns over the health impacts of high-sugar beverages and the general trend toward diets filled with more natural food and drinks have helped push bottled water toward the top of the pack."
    KC's View:

    Published on: June 9, 2016

    So, I mentioned above that we've gotten some blowback on our Amazon coverage ... like in this email from MNB reader Bruce Wesbury:

    Kevin, I’m looking for information about markets and retail news, I, as well as others, are growing tired of your constant analysis of Amazon. Kate’s Take this morning is another story drooling over how good Amazon is this week.

    Free cash flow is essentially the amount of money generated from a company’s operations, minus any capital expenditures. Right now, Amazon does not even rank in the top 1000 of companies worldwide based on cash flow. They might be big but hardly worth the time you spend dissecting them. I think it’s fair to say “move along folks, nothing to see here”.


    Really? Nothing to see here? Forgive me for being blunt, but not only do I think that this is unfair, but borderline delusional.

    I'm afraid I disagree. I cannot imagine doing MNB without paying close attention to Amazon, and I have to admit that in any given week, at least a couple of the most intriguing stories are Amazon-related stories.

    I'm not doing this for my health. I'm doing it because they're changing the entire paradigm of shopping, and I think it is important for people to understand the degree to which the retailing environment and consumer expectations are changing.

    By the way, Kate's story was not so much about Amazon, but about voice-activated computer systems that have the potential to change consumer behavior in fundamental ways. Amazon's Echo is a leader in this, but as noted, there are other companies getting into the act as well.

    From my perspective, not only is this something about which MNB can write, but it is something that we must write about. I get that we can't please all the people all the time, but I think I have to follow my instincts on this one.

    Incidentally, we also got this email from another MNB reader about Kate's column:

    I have a Garmin in the car. It has a voice command which was started by saying, "Voice Command." After calling out Alexa a few times I changed the command to Alexa. Simpler and now both units answer to the same name. The absolute biggest feature of Alexa is that it is voice activated. I couldn't care less about pushing a button to start a conversation. Just wish I had voice activated Alexa in every room.

    Me, too.

    On a related issue, an MNB user wrote:

    Unless one has their head in the sand, it’s easy to see (unless you’re either too “busy” or too lazy to go outside) how companies like “the evil Amazon” or all the robotics we’ve been hearing about are leading to the de-socialization of America and further, the inability to properly communicate both professionally and socially. Combine that with their middle wage job killing effects and I certainly wouldn’t want to be a millennial when they wake up in their [age] 40’s to find they have limited retirement income, limited hope to collect Social Security due to a shrinking labor pool, a growing need to provide social services and coming to the realization they are not so special after all and the Generation Zer’s are hot on their tail….Alexa, please find me a job.

    I've said this before and I'll say it again. It is the responsibility of these millennials - and the broader culture to which they belong - to start figuring out what their place is in a world where all these technologies exist. Some jobs will go away, but others will emerge ... and people have to be educated and motivated enough to recognize the change and adapt.

    I'm sure some of the companies that made buggy whips thought that the companies that manufactured automobiles were "evil." The ones that survived are the ones that didn't think about this too much, but rather educated the people who made the buggy whips so that they could become car mechanics. The buggy whip companies that didn't survive are the other ones.

    The smart ones won't ask Alexa to find them a job. But they may create a job-finding app that works on Alexa.




    We also got an email from MNB reader Paul Schlossberg about our robotic vending story:

    Agree that younger people are not anti-social. There are times, perhaps when buying lunch or snack, that they just want to find what they want, buy it and move on. If they can do it without (human) interaction and do it quickly, vending can fill a need. These are purpose driven people who don't want to waste time. If you've sat in breakrooms at lunch observing the scene, you'd see that buying behavior (a lot of it). (There is market research with facts showing why younger people like vending.)

    Inferring that vending food is bad tasting is insulting (and untrue) with respect to lots of really good vending/foodservice operators. In fact, food has been a priority and it is paying off for the industry.

    The development and deployment of micro markets (essentially small C-stores) to replace vending machines is one of the most positive innovations in the immediate consumption channels. This has been a big factor in improving the food/menu.

    Last on my list is robotic foodservice. Maybe 20 years back Taco Bell was experimenting with an automated taco maker. There is a hamburger system which should be in a restaurant deployment soon. Why not? The engineering and control systems are not rocket science (even if the processes are based on it...it's not a difficult tech challenge these days). Use good ingredients and it's highly likely you're going to get good food. I'm aware of other robotic foodservice developments (but can't reveal the details).

    There is an opportunity to (use robotics to) deal with higher labor costs and improve product consistency. Concurrently foodservice operations can dramatically improve product taste, texture and deliver precisely customized food.

    It's coming. It's here.
    KC's View: