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    Published on: August 10, 2016

    by Kevin Coupe

    Seeking Alpha reports that in a conversation with CNBC, Walmart CEO Doug McMillon said that in acquiring e-commerce business Jet for $3.3 billion, ""Basket economics are more attractive to us than unit economics."

    Which is interesting - if not particularly surprising - since that was where Walmart's corporate head was at when it went into the groceries business. it was never about just selling food, but rather generating customer traffic and using food to build basket size, especially with the sale of more profitable nonfood items.

    But Seeking Alpha also suggests that while the Jet purchase may be "accretive to earnings," it won't solve a potentially more vexing problem for Walmart - the extent to which Amazon is developing an artificial intelligence-driven ecosystem to drive sales and loyalty.

    Here's how they frame the issue:

    "If e-commerce was a quantum leap in reducing the 'friction' of shopping, then Amazon is on the verge of another quantum leap in reducing the friction of on-line shopping through its Alexa artificial intelligence assistant.

    "Alexa is now available in a number of Amazon devices, including Fire TV and the Echo, which I recently profiled. According to the Q2 earnings report, Alexa now has over 1900 skills. Most of those skills involve home automation or opening and interacting with third party apps. The Domino's Pizza app allows you to order your favorite pizza by voice command.

    "Most of Alexa's built in skills pertain to home automation or initiating media streaming through Echo or Fire TV. But it's clear that e-commerce is where the money will be for Amazon and its Web Services partners that can employ and develop new skills for Alexa."

    I think this is a very good point, highlighting the degree to which Amazon is ahead of both Walmart and Jet in the e-commerce continuum. in fact, I think it can be argued that part of the problem is that Amazon has a much broader definition of its own role and mission - it isn't just about e-commerce, but also about web services and logistics and providing all kinds of content to consumers.

    It isn't just about selling stuff.

    (Incidentally, the New York Times had a story the other day about artificial intelligence and intelligent assistants like Alexa - and Apple's Siri, and one being developed by Google - and how these companies are essentially trying to create "Star Trek households" where computers are accessible all the time, offering a wide range of services. You can read it here.)

    This isn't to say that Amazon has it right, and Walmart/Jet have it wrong. It is just to suggest that they have different views of the world and their roles in it.

    The Seattle Times reports that Amazon has launched a new "Daily Dish" service in that city, described as "a delivery service that offers two meals each from two restaurants. The service is an extension of Amazon’s restaurant-delivery service from Prime Now, which offers a wide selection of restaurants for delivery with a $20 minimum ... Daily Dish has a fixed price for each dish, usually between $9 and $12. Each day, Amazon will text you around 9:30 a.m. with the day’s selections — one meat option and one vegetarian option each from two local restaurants. You order through the Prime Now app, with lunch arriving between noon and 12:30 p.m."

    The Daily Dish service is available only to Prime members ... but its very existence speaks to how Amazon is operating in one sphere and Walmart/Jet are operating on another.

    I do think that everybody has to take a deep breath when considering the potential impact of the Walmart-Jet deal. Over the last few days, I've seen headlines and stories suggesting a wide range of possibilities - from "this is the deal that will allow Walmart to bury Amazon" to "this deal won't affect anything."

    I suspect that neither extreme will prove to be accurate. It remains to be seen whether the combination of an e-commerce business that hasn't been able to get sufficient traction with one that hasn't really proven anything yet can add up to a business that can "beat" Amazon, which already must be gearing up for the battle. But I also think it would be foolish to suggest that the combination of these two companies won't have any impact, since the likelihood is for heightened price cutting and marketing that will have consequences for both e-commerce and bricks-and-mortar competitors.

    As I said the other day in this space ... every retailer has to ramp up its game. Now.

    I love the line from Craig Ostbo: "Either you are at the table, or you are on the menu."

    It's going to be a battle. It is going to be intense. And it is going to be an Eye-Opener.
    KC's View:

    Published on: August 10, 2016

    The Albany Business Review reports that Golub Corp. has described stories about how it is considering a sale of the company as being "rumor and innuendo."

    Mona Golub, a spokesperson for the company, tells the Business Review that the company does have "a new board finance committee to explore capital opportunities to help us accelerate" the conversion of its Price Chopper stores to the Market 32 concept.

    Golub Corp., which has a total of 135 stores, now has 10 Market 32 stores, with plans to convert dozens more units.
    KC's View:
    Rumors about Price Chopper being for sale usually crop up every six months or so, and I've learned over the years that if you want to tick off company chairman Neil Golub, you tell him that you've heard he wants to sell the company. I absolutely believe that the company is looking around for a potential financial partner to help finance the conversion effort; this only makes sense, since it a) is a costly endeavor, and b) these days, slow and steady doesn't win the race - it is important to make these kinds of changes as quickly and effectively as possible.

    I have no idea who is spreading these rumors or why, but I've pretty much decided that I'm only going to believe that the company is for sale when Neil Golub tells me it is.

    Published on: August 10, 2016

    The Tampa Bay Business Journal reports that Sprouts Farmers Market has confirmed reports to enter the Florida market, saying in a regulatory filing that Florida is a "mid-term expansion market," as well as North and South Carolina, Louisiana, Mississippi and Arkansas. The story says that "at least three locations in Tampa Bay are in the works, in Valrico, Palm Harbor and South Tampa."

    The story suggests that the plans mean "even more competition for Publix Super Markets Inc., both in its home state of Florida and in North Carolina, where Publix is heavily focused on growing its footprint."

    And, the Business Journal writes that "Sprouts clearly has grocers like Publix in its crosshairs. The company said in the filing that its main competitor is the 'mainstream grocery store.' Half of its shoppers are 'coming from traditional grocers.' The company also said it appeals to a wide demographic base — middle and upper income households and baby boomers, Generation X and rising Millennials."
    KC's View:
    This makes perfect sense. Since traditional, mainstream supermarkets are doing their best to compete with the likes of Sprouts, it is only sensible that companies like Sprouts will try to compete more effectively with mainstream supermarket chains such as Publix.

    Of course, it appears that more than a few companies have Publix in their crosshairs...

    Published on: August 10, 2016

    The Tampa Bay Business Journal reports that Wegmans CEO Danny Wegman has said that "it is kind of sad" that his company will be competing head-to-head with Publix in the Richmond market.

    The story notes that "Wegmans, which is based in upstate New York and has a cult following among foodies, opened its second store in the Richmond area this weekend. Publix in July announced its intentions to buy 10 former Martin's Food Markets stores in the Richmond area." The two iconic retailers never have competed against each other before.

    "George Jenkins, who founded Publix, and [my] dad (Robert Wegman, who died in 2006) were like best friends," Wegman says. "In many ways, it’s kind of sad that we will compete. We didn’t know that they were going to Richmond. Anyway, here we go."
    KC's View:
    A lot of people would've said that "it is kind of sad that we're going to have to kick their butts." But Danny Wegman didn't.

    I have a lot of respect for Publix, but I haven't talked to one retailer who thinks that it will be victorious in a head-to-head battle against Wegmans. hate to say it, but that's just the way it is.

    To be clear, Wegmans and Publix run very different types of stores, but I do think that there will be a lot of overlap in their target shopper. In Richmond, there is a lot of competition and there is going to be more ... there's going to be blood.

    Published on: August 10, 2016

    The Minneapolis /St. Paul Business Journal reports that Coborn's is launching a new meal kit service with a 'To The Table" offering described as "a fresh meal kit service with a seasonally rotating menu."

    The story says that the service is offering "eight meals that serve two people, ranging from $17 grilled margarita pizzas to $29 for Hereford top sirloin steaks ... Unlike Blue Apron, To the Table customers don’t have to subscribe to at least two meals per week. They can add meal kits onto their normal grocery orders at no extra charge besides the normal $4.95 for next-day delivery and $9.95 for same-day delivery."
    KC's View:
    I think we are going to see a lot more of these experiments, as traditional retailers test concepts and try to assess how sustainable the whole meal kit business may be. I approve.

    Published on: August 10, 2016

    The Nielsen Co. is out with a new consumer confidence survey, saying that despite the "uncertainty and starkly contrasting rhetoric" in what is a highly contentious presidential election season, "Americans remained optimistic in the second quarter with a with a three-point confidence increase to 111." But if Americans are not reacting negatively to the US election debate, "the U.S. was the only country in the global survey to sustain growth momentum in the second quarter; in contrast, the the global consumer confidence index for the same period was flat at 98."

    According to the survey, "More than half of the U.S respondents were confident that personal finances (70%), immediate spending intentions (58%) and job prospects (56%) would be good or excellent in the next 12 months—each indicator showed improvement from the first quarter ... Despite concerns over the recent flood of refugees and the ongoing threat of terrorism, Americans listed the economy (34%) as their biggest and second biggest  concern."

    However, at the same time, the National Association of Convenience Stores (NACS) is out with its own survey saying that "despite declining prices at the pump and a prevailing expectation that lower prices will continue, a majority of U.S. fuel consumers remain pessimistic about the overall state of the American economy.

    Specifically, "Only 44% of Americans say they are 'very optimistic' or 'somewhat optimistic' about the economy, down 3 points from last month. Economic optimism is also down compared to this time last year, when nearly half (49%) reported feeling optimistic about the state of the economy. Consumers in the Northeast are least optimistic (37%) and consumers ages 18-34 are most optimistic (51%)."
    KC's View:
    The conclusions seem to be different, but I suppose this could have as much to do with how the questions are posed as anything else. As I consider the national conversation taking place at the moment, it isn't so much that I feel optimistic or pessimistic. It is more like I want to take a shower...

    Published on: August 10, 2016

    The Seattle Times reports that while China-based Alibaba is known for being "one of the largest e-commerce companies in the world and an international rival to Amazon," it actually has achieved a scale "that generates vast amounts of data and tentacles that reach into everything from social media to financing and payment, navigation to digital entertainment."

    According to the story, "Alibaba is invested in everything from health care to food delivery to entertainment. And it’s using its Yun­OS operating system in everything from smartphones to an Internet-enabled car to smart refrigerators and TVs.
    Like Amazon, it’s also focused on providing cloud infrastructure to businesses with Aliyun — Alibaba Cloud."

    Alibaba’s chief technology officer, Jeff Zhang, says that the company is able to mine customer information from not only its own e-commerce platforms, but also from a variety of sites owned by companies in which it has a financial stake. “We possess all these data from our ecosystem,” he says. “It’s rich and diverse.”
    KC's View:
    The point here is that Alibaba, like Amazon, seems to be focusing on the notion that it is all about data, and using it to communicate with and sell stuff to consumers. It is about satisfying consumer needs and anticipating desires. Ultimately, it is about compiling actionable data, and then actually acting on it.

    Published on: August 10, 2016

    Fast Company has a story about Hampton Creek, the startup vegan mayo company that, while raising $90 million from investor, "undertook a large-scale operation to buy back its own mayo (in stores), which made the product appear more popular than it really was."

    The story says that "the program went from a small operation to pull unsavory products from stores to a $77,000 operating expense may actually have less to do with a plot to fluff up sales and more to do with a need to ensure Just Mayo’s place on store shelves. And it reflects just one part of Hampton Creek’s aggressive modus operandi, which also involved hiring contractors to pose as customers when they called up stores to demand the product."

    While the company has said that it only bought back product to do quality checks, the story suggests that the real impetus was to find a way to counteract the promotional/slotting fees that much bigger companies pay in order to get shelf space.

    The story goes on to say that "since Hampton Creek is a private company, the legality of this situation all depends on what the company disclosed to its investors." If the valuation presented to investors was based in part on the product that it bought itself, or presented numbers that "didn’t account for its sales in ways that reflected the impact of the buy-back program," then it is at least possible that investors could file suit again the company.
    KC's View:
    Not sure if it is illegal. But it certainly sounds kind of slimy.

    Published on: August 10, 2016

    United Press International reports that Amazon's offices in Japan have been "searched by government regulators seeking to learn if the company sought unfair advantages over competitors." Regulators say they wanted to find out "if the e-commerce retailer had forced suppliers to set lower prices to give Amazon.com a competitive advantage ... Under Japanese law, it is illegal for businesses to impose restrictions on commercial activities of counter-parties, including suppliers."
    KC's View:

    Published on: August 10, 2016

    ...with brief, occasional, italicized and sometimes gratuitous commentary…

    • The Boston Globe reports that a restaurant in that city called Tasty Burger is challenging Chipotle's plans to open a chain of restaurants called Tasty Made, with plans to "aggressively protect" their trademark.

    The story says that Tasty Burger believes that Chipotle is stealing both its name and trademarked logo. Chipotle, on the other hand, believes that "there is sufficient difference between the names and logo marks so as not to cause consumer confusion, and we believe both brands can co-exist.”


    • The Los Angeles Times reports that "unionized Southland grocery workers have approved proposed labor contract with the owners of Ralphs and Albertsons/Vons," apparently by a wide margin.


    • The Wall Street Journal reports that food manufacturers are looking to achieve new levels of simplicity in their product lines.

    "Food giants such as ConAgra and General Mills are winnowing their ingredient lists to as few elements as possible," the Journal writes. "Some snack bars boast they are just fruit. Tortilla chips are nothing more than corn, salt and sunflower oil.

    "Instead of burying ingredient lists in the fine print on the back of the package, food manufacturers are trumpeting simpler formulas prominently on the label’s front. More people care deeply about what’s in their food and insist on recognizing the ingredients. The litmus test for many consumers is whether those ingredients might appear in their own kitchen cupboards, food scientists and marketers say. For the clarity, people are willing to take some extra sugar or fat."


    • In the UK, the Telegraph reports that a Tesco customer registered a complaint on the chain's Facebook page that was shared more than 27,000 times. The issue: he found a worm in his cucumber, which he said (tongue in cheek above stiff upper lip) he thought might be Tesco's attempt to improve on the time a few years ago when a customer found a poisonous spider inside an order of bananas.

    I read "a worm in his cucumber," and wondered if this might be some sort of British euphemism...
    KC's View:

    Published on: August 10, 2016

    Regarding the Hampton Creek vegan mayo buyback scheme, one MNB user wrote:

    I can relate to what Hampton Creek was doing in claiming their purchases of their own mayonnaise constituted “quality control”.   When I was running a store, I would go into our bakery and buy a couple of donuts that had just been glazed and warm from the fryer as my own method of “quality control”.   It probably explains my trim physique today. 




    We got a response to the piece the other day about how former Tesco executive defended his stewardship of its Fresh & Easy division in the US:

    I’d offer the following reasons for their demise:

    1) Incredibly poor leadership by Tim Mason and his team of UK whiz kids. Despite lengthy market research, they completely missed the mark on US food retailing.
    2) Lousy name… Fresh & Easy… sounds more like a deodorant
    3) Confusing business plan… "the innovation of a Trader Joe’s, the convenience of a Walgreen’s, the pricing of a Wal-Mart".. when you try to be all things to all people you are doomed to failure
    4) Poor, secondary locations
    5) Poor merchandise mix for a small, limited assortment store… odd UK brands ( some that were complete unknowns) and odd assortments in various categories
    6) Self service only as check out option
    7) Many short coded and out of code products… certainly not very fresh
    8) Poor perishable selection
    9) Odd merchandising- product locations changing from store to store, core products on end caps rather than inline, etc.

    Lest I go on… in addition they were quite arrogant in the dealings with the trade. Their UK management team expressed a “better than you” attitude toward established US food retailing food professionals.

    And… finally... look at Tim’s Mason exit package (as stated in 12/5/2012 Guardian article). This was after losing an estimated $2 billion+ dollars on the failed Fresh & Easy business enterprise:

    • Pension of £9m and yearly payments of £477,000. 
    • Nearly 2m shares of Tesco stock worth £6.6m, having sold 1.8m shares over the past 18 months.
    • Tesco executive’s one year’s resignation pay – in Mason's case £852,000  
    • An average of two years' bonus of about £580,000.
    • £282,000 for an expatriate allowance
    •  £2.3m of shares due to be paid as part of long-term incentive plans, becoming available if strict growth figures are achieved.
    • £1.7m from an executive incentive plan

    My condolences to those employees that placed their faith in Tim Mason’s leadership.


    But tell us how you really feel...




    On the subject of e-commerce, one MNB user wrote:

    I think, going forward, it might be useful to treat grocery and general merchandise separately when discussing eCommerce.

    While Amazon is ahead in general merchandise, it is at a huge competitive disadvantage versus the local neighborhood grocery that effectively converts its stores to neighborhood eCommerce distribution centers via click and collect and/or home delivery (e.g., via a combination of My Web Grocer and/or Insta-cart?).  I suspect that Amazon’s Fresh Direct will be  left which niche markets in heavily urbanized areas (which present many operational challenges).
     
    In regards to general merchandise, Jet.com is a good fit for Wal-Mart in that both companies focus on value creation through economies of scale in transaction sizes and/or operations.   Lore for example, focused on reducing shipping and handling costs at Diapers.com by deploying a shipping container selection algorithm that, based on the specific order, stipulated one of 27 different shipping containers to avoid markups in UPS charges due to odd or over-sized containers.   Lore also focused on minimum order incentives and businesses that had high gross margins that, in turn, could absorb shipping and handling charges and still show a profit (something that is not an Amazon strong suite).  Lore also laser focused on categories where a critical mass of shoppers would pay for the convenience of home delivery almost no matter the cost (e.g., diapers).  Finally, Lore used guerrilla marketing with great effectiveness at Diapers.com to build the business.   Net – Lore is about doing things both effectively and efficiently – like Wal-Mart.

    In regards to Wal-Mart specifically, I wonder if we are seeing with its recent sale of its small Express format and now its acquisition of Jet.com a strategic pivot by Wal-Mart?  This looks like the kind of moves a very smart CEO would make.
    Not sure I would want to play in this field without a highly differentiated model of some sort.


    I'm not sure everyone would agree with your assessment of Lore's achievements.

    Another MNB user had thoughts about my suggestions for how retailers need to compete in the current environment:

    I couldn't agree more, KC.  I work for a large national chain at a store in the Northeast.  I can just hear them saying "let's get back to basics" and especially "we need to cut labor."  Never for a minute have they made me feel like an ambassador for the company, and I have been in the business for 38 years, all in produce.  What they do make me and the people I work with feel like are liabilities, not assets.  As you have said before, a company that does this is destined to fail in the long run.
    KC's View: