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    Published on: December 19, 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: Amazon Go, the company's new 1,800 square foot convenience store format, scheduled to open in Seattle early next year, which will allow consumers to enter the store using a mobile application, choose the items they want, and then leave - without having to go through a checkout lane. can read MNB's initial coverage of Amazon Go, and see a video about the store, here.

    And now, the Conversation continues...

    KC: I guess my first question is whether there was anything in the announcement or video that surprised you.  I know that one thing that I found a little jarring was when they showed a guy making sandwiches, assumedly in the back room or some central facility. That suggested an approach to foodservice and fresh foods that I might not have expected from Amazon.

    Tom Furphy:
    That’s funny. That’s exactly the same thing that stuck out to me. We’ve often said in this column that Amazon doesn’t like to rely on humans because, as Jeff Bezos says, “They are variable”. I was surprised to see the chef preparing food right there, on site, in the store. To have that type of expertise in a large number of locations across the country and the world would certainly be a departure from traditional Amazon strategy. However, I wouldn’t put it past them. They likely have figured out how to standardize the roles and then replicate the role at scale. Or at least they’re on that path.

    KC: Amazon has not really spoken about how the Go stores might be integrated with Prime membership.  If it were you making the decisions, how would approach this issue?  And what might be the lessons for traditional retailers?

    I would have no problem enabling exclusive benefits and experiences for Prime members over non-Prime customers. It is consistent with the treatment of Prime customers through the rest of the Amazon ecosystem, such as allowing preferred access to content, special shipping terms, and access to Echo. I would have no problem giving Prime members access to exclusive deals or products. And I would support offering better pricing for Prime members. All in, the Go stores can be a great benefit for Prime members and a powerful marketing tool to recruit new Prime members.

    Traditional retailers are already giving basic benefits to their “loyal” customers by giving them access to specials by virtue of scanning or swiping their shopper card. Why not add additional services? Maybe give loyalty cardholders lower shipping/delivery thresholds for e-commerce. Perhaps they can have first access to new private brand products or free entry to exclusive cooking classes with company or high-profile chefs.

    KC: I’ve been interested in how many emails I’ve gotten from folks suggesting that this concept is problematic because shoplifting is going to eat them alive.  But I have to believe that a) Amazon has figured out what it believes is a solution to this problem, b) that it may be a solution that nobody else has thought of, and c) that it represents the kind of old-world, we-have-to-do-things-the-way-they’ve-been-done-because-that’s-how-we’ve-always-done-them thinking that in the end is a far bigger problem for the food retailing business than Amazon is.  Thoughts?

    I think the solution to thwart shoplifting is the very technology that enables the experience to work in the first place. Upon entry, the shopper scans their phone and is recognized and tracked by cameras throughout the store. If a customer enters without scanning they will likely be tagged as a “non-scanned customer” and tracked anyway by the cameras from the time they walk in. So their location and merchandise can still be tracked throughout their visit.

    Because the technology is used to charge them for their basket, it should be very powerful and accurate at tagging items to shoppers. If a shopper attempts to leave the store with products without paying for them, they will be flagged real time. I’m sure an alarm or alert could be set off to notify store personnel to intervene and “assist” the shopper with their purchase. To me this seems incredibly basic and fundamental to the offering. And it has the capability to be much more secure than traditional loss prevention measures.

    KC: When you look at the Go concept, what kind of rollout potential do you think it has?  And might it be integrate-able into the click-and-collect model that Amazon also seems intent on testing?

    The ultimate rollout potential of any of Amazon’s concepts comes down to demographics, population density and synergy with other Amazon offerings. The Go concept as outlined in the video looks spot on to serve millennials and upscale customers in dense urban markets. As such, I’d think there is easily potential for hundreds of these units nationally, thousands globally.

    But we know that Amazon will also be testing other formats. The drive-up and drive-through models should work in a number of markets. Couple those with various sized walk-in options using the Go technology, PrimePanty, Dash and Subscribe-and-Save and they have the ability to serve a number of consumable purchase occasions across a number of geographies and a range of shopper demographics. They are much better suited to serve the evolving shopper than any traditional format.

    The lead that Amazon has in this area is substantial, and the gap is widening. Retailers that are not actively innovating to compete with this should be very worried. At a minimum, they should be testing new formats, providing new utilities such as replenishment to lock in the center-store trip and experimenting with delivery or pick up. They need to be doing this aggressively and they need to be doing this now.

    KC: Agreed. There's no time like the present.

    The Innovation Conversation will continue in 2017...

    KC's View:

    Published on: December 19, 2016

    by Kevin Coupe

    Bloomberg has a fascinating piece about how "voice recognition has come a long way in the past few years. But it’s still not good enough to popularize the technology for everyday use and usher in a new era of human-machine interaction, allowing us to talk with all our gadgets — cars, washing machines, televisions. Despite advances in speech recognition, most people continue to swipe, tap and click. And probably will for the foreseeable future."

    That's because the technology in many ways is still in its infancy. But, Bloomberg writes, there's also another problem - "a serious deficit of data," such as "audio of human voices, speaking in multiple languages, accents and dialects in often noisy places that can defeat the code."

    As a result, "Amazon, Apple, Microsoft and China’s Baidu have embarked on a worldwide hunt for terabytes of human speech. Microsoft has set up mock apartments in cities around the globe to record volunteers speaking in a home setting. Every hour, Amazon uploads Alexa queries to a vast digital warehouse. Baidu is busily collecting every dialect in China.

    "Then they take all that data and use it to teach their computers how to parse, understand and respond to commands and queries."

    In just a short time, the story says, the technology has come a long way: "When Apple debuted Siri five years back, the personal assistant’s gaffes were widely mocked because it, too, routinely spat out incorrect results or didn’t hear the question correctly. When asked if Gillian Anderson is British, Siri provided a list of English restaurants.

    "Now Microsoft says its speech engine makes the same number or fewer errors than professional transcribers, Siri is winning grudging respect, and Alexa has given us a tantalizing glimpse of the future."

    That's because "The more a speech-recognition engine consumes, the better it gets at understanding different voices and the closer it gets to the eventual goal of having a natural conversation in many languages and situations." And these days, the technology is consuming a lot.

    While the piece gets pretty technical, there's the Eye-Opening part that really grabbed me - the possibility (or, to be more accurate, the likelihood) that at any moment, there will be a breakthrough, "catapulting research forward and turning Alexa and Siri into true conversationalists."

    And who knows where else it will catapult us?
    KC's View:

    Published on: December 19, 2016

    The National Association of Convenience Stores (NACS) produces a weekly podcast called "Convenience Matters," hosted by Jeff Lenard of NACS and John Eichberger of the Fuels Institute, in which they look at the wide variety of issues affecting the c-store business ... and the changing nature of convenience.

    This week, the guest on "Convenience Matters" is MNB's Kevin Coupe ... and the discussion is about Amazon Go ... and how it fits into the broader Amazon strategy and ecosystem. You can listen to it here, or can access this consistently interesting podcast on iTunes.

    KC's View:

    Published on: December 19, 2016

    The Wall Street Journal has a story about how a combination of last-minute shoppers and the realities of the calendar - Christmas falls on a Sunday and Hanukkah starts the day before - could combine to create a "perfect e-commerce storm" that could end up raining on the delivery parade for e-commerce customers.

    All this is happening as the National Retail Federation (NRF) is projecting that November-December e-commerce sales will be up 10 percent this year, accounting for as much as 18 percent of total holiday sales.

    "There already have been some signs of pressure on the delivery giants’ networks as consumers order online in record numbers, and carriers have a limited amount of space in their planes next week to accommodate last-minute holiday orders," the Journal writes.

    " Inc. aims to take advantage of the surge in last-minute demand with a service it dubs 'Procrastinator’s Delight,' offering one- or two-hour delivery via its Prime Now service until midnight Dec. 24. Wal-Mart Stores Inc. is also offering in-store pickups of online orders as late as 6 p.m. Dec. 24, provided the order was placed by that same time the day before.

    "To plan for 11th-hour orders, retailers have been working with delivery companies for months to forecast demand, booking space in UPS and FedEx planes for express delivery the week before Christmas. The U.S. Postal Service said it would deliver in select locations on Christmas Day."

    All of this planning and scrambling, the Journal writes, come "as retailers and delivery companies look to avoid past years’ delivery snafus, which have surfaced as e-commerce becomes an increasingly popular way to holiday shop. Last year, UPS successfully delivered on time, while FedEx’s network experienced problems which led to retailer complaints and Christmas Day deliveries."

    There are costs to consumer procrastination and the ways in which retailers and shipping companies respond: "A rough holiday season in 2013 meant $200 million in extra costs for UPS, while Amazon provided $20 gift certificates to inconvenienced shoppers. A number of retailers refunded either shipping costs or the entire cost of the order. Some retailers ask customers to pay for last-minute express shipping. But often they absorb the costs themselves to keep customers happy."
    KC's View:
    Perhaps inevitably, there were a lot of stories about the holiday shipping situation over the weekend, with many of them focused on Amazon and how these challenges could affect its profitability. And based on everything I'm reading, Amazon - the leader of the pack - is dealing with all sorts of issues ... not only last minute customers, but also a shipping infrastructure that is resisting being pushed as far and as fast as Amazon wants to push it.

    The problem, if it is one, for every e-tailer is that consumers don't really care about their problems. They just want what they want, when they want it ... and the businesses that meet those demands are the ones that will generate trust and additional business.

    Published on: December 19, 2016

    The New York Times had an interesting piece over the weekend by Tracie McMillan, author of “The American Way of Eating," who writes about working class anxieties that she encountered during several months she spent undercover working the night shift - for $8.10 an hour - at a rural Michigan Walmart.

    An excerpt:

    "From my reporter’s perspective, I could see similarities between the lives of the people I spent the night shift with and those of folks I’d met covering poverty in New York City: Unpredictable work schedules damaging health and home life; no dependable child care wreaking havoc on work; transportation and health care so tenuous that basic household functions like grocery shopping and doctor’s appointments fell by the wayside; wages that almost never matched expenses.

    "For all the variations that race and geography produced, there was a sameness to the tone of life for everyone I met who was working class, which usually meant they worked but were still poor." And if there some bitterness among the people she encountered,McMillan writes, "Much of it seemed to come from feeling they had been promised an easy path to the American dream, and had found only a dead end. They weren’t wrong. More than 90 percent of Americans born in 1940 earned more than their parents, but only 50 percent of those born in 1980 will, according to the Equality of Opportunity Project ... Nobody I worked with had the luxury of my aerial view. They had high school diplomas and uncertain futures, and no easy explanation for why the dream didn’t work out for them."

    It is a fascinating piece, and you can read it in its entirety here.
    KC's View:

    Published on: December 19, 2016

    The Chicago Tribune reports this morning on how McDonald's "ill test delivery through UberEats in three Florida markets next year, a nod to the burger chain's hyperfocus on technology and growing its base of younger customers."

    The test will envelop some 200 restaurants in Orlando, Tampa and Miami, and is scheduled to begin early next year. The length of the test has not yet been disclosed, though success is likely to mean an expansion to other markets and a potential national rollout.

    The Tribune notes that "McDonald's already delivers through third-party delivery companies like DoorDash and Postmates. The delivery and service fees, however, can run higher than most items on McDonald's menu. The delivery fee for UberEats is $5."
    KC's View:
    This is happening at a time when McDonald's also is testing a mobile ordering and payment system, as well as kiosk ordering and Bluetooth-enabled table ordering systems.

    In other words, management does not want is fast food restaurants to be like your father's McDonald's.

    Published on: December 19, 2016

    • The Associated Press reports that " Wal-Mart has a new program that offers prizes as incentives to get its legion of shoppers to sock away money in saving accounts. The 'Prize Savings' program features Wal-Mart’s branded reloadable pre-paid debit cards, which are linked to a free savings 'vault.' Savers are given one entry into a monthly prize drawing for every dollar they stash in the vault.

    "The sweepstakes will award 500 cash prizes every month, with the average prize being about $25. The monthly sweepstakes includes one $1,000 grand prize."

    Walmart, the AP writes, says it is "the first national and retail prize-linked savings program," as well as being a way "to encourage saving by its low-income shoppers, many of whom might not have enough saved to cover even the smallest emergencies, like fixing a flat tire." But more importantly, the story says, the program "underscores how the world’s largest retailer is expanding its financial services, which already includes check cashing and money transfers."

    • The Wall Street Journal reports that Walmart, "in a major test of blockchain technology, has begun to define data requirements for tracking and tracing pork in China and produce in the US." The project, according to the story, "is viewed as a major test of blockchain distributed ledgers outside the financial services industry, where the technology has received the most attention. Supply chain management and other sectors are interested in blockchain for digitizing the hand-offs between trading partners that are often managed in paper files and subject to delays and errors.

    "Among companies in consumer goods and manufacturing, 42% plan to spend at least $5 million on blockchain technology in the next year, according to a survey released this week by Deloitte. The firm polled 308 executives at organizations with revenues of at least $500 million about their outlook on blockchain."
    KC's View:

    Published on: December 19, 2016

    Advertising Age has a story about how the food industry is likely to see a lot more consolidation in the coming year, with companies such as "3G Capital and Berkshire Hathaway ... seemingly shopping for a major food marketer acquisition to add to their existing pantry of H.J. Heinz and Kraft Foods." At the same time, Kraft Heinz reportedly is considering a bid for Mondelez International.

    An upshot of this acquisition/consolidation activity, the story notes, is that it is "stepping up cost-cutting in the industry as potential targets try to fend off" the advances of unwanted suitors, with companies such as General Mills cutting hundreds of jobs in an effort to become more efficient and better positioned to stave off predators.

    The only companies that may be able to resist acquisition efforts may in fact be those like Kellogg and Campbell Soup, which "have large stakes owned by families that might vote against selling."
    KC's View:

    Published on: December 19, 2016

    Dr. Henry J. Heimlich, the thoracic surgeon who developed the widely used anti-choking maneuver that bore his name, passed away over the weekend after having suffered a heart attack last Monday. He was 96.

    The New York Times writes in its obituary that "more than four decades after inventing his maneuver, Dr. Heimlich used it himself on May 23 to save the life of an 87-year-old woman choking on a morsel of meat at Deupree House, their senior residence in Cincinnati. He said it was the first time he had ever used the maneuver in an emergency, although he had made a similar claim in 2003."
    KC's View:
    When I heard about Heimlich's passing, it occurred to me that there probably are not many doctors who can justifiably claim to having saved as many lives as he did since he created the Heimlich Maneuver back in 1974. I don't know anyone who doesn't know what it is ... nor anyone who wouldn't know basically how to attempt it in circumstances that call for its use.

    The thing is, I can also vividly remember when it was done to me ... and essentially saved my life. It was just before Christmas probably 20 years ago, and my friend Tony Kiser and his then-girlfriend took me out to dinner at a restaurant in the Museum of Modern Art in New York City after a long day of working on a new business project. It was cold and snowing, and when I bit down on a breadstick it got caught in my throat. I couldn't breathe. And for some reason I still cannot explain, I dashed out of the restaurant to try and dislodge it myself. Tony Kiser instantly knew what was happening, followed me out, and did the Heimlich maneuver on me ... instantly dislodging the breadstick.

    I can vividly remember the panic ... and the relief. And I know I'm just one of millions who have been saved by the Heimlich Maneuver (and a good friend with better instincts than I had).

    Published on: December 19, 2016

    On Friday, MNB took note of a Seattle Times report that "Amazon, focused on 'upending the archaic ways of the trucking business,' is working on a new service 'that would connect truck drivers with shippers, a move that would highlight the company’s multi-pronged foray in the world of logistics.' Such a service, the story says, would be a marked departure in an industry 'where brokers usually make these connections using old-fashioned phones and email, for a fee'."

    One MNB reader wrote:

    Kevin, look up a company called MicroStar, they do the same thing with kegs.  In the case of Convoy it is trailers, at MicroStar it is kegs.  Both are containers of some type.  It’s a real interesting business.

    MNB reader Bruce Wesbury wrote:

    Kevin, connecting drivers with shippers is nothing new, it has been going on for years. Some of my most reliable drivers are those that we have personal relationships with. Try to use a broker to pick-up from five locations, combine the loads and then ship to multiple warehouses. That call alone would make your head explode.
    There are literally hundreds of companies that already do what Convoy and “Middle Mile Transportation Technology” are planning to do. This only makes news because suddenly Amazon has invented some new way to battle logistics.

    But MNB reader Edward Zimmerman wrote:

    As a person who has relied on LTL shipments for decades, Amazon’s foray into this direct connect is the beginning of UBER for trucking – a VERY welcomed improvement.

    On another subject, from MNB reader Bob Martell:

    Second reference in 2 days to one of my favorite "Star Trek: The Next Generation" episodes, "Darmok”.

    I’ll turn 65 next year and I really appreciate some of your references that are easily recognized by people in our 7th decade ... Thanks for keeping MNB relevant!

    Being relevant to those of us in our sixties isn't that hard. Where I have to work is trying to be relevant to Millennials.

    Let's just say I'm a work in progress.
    KC's View:

    Published on: December 19, 2016

    In Week Fifteen of National Football League action...

    Dolphins 34
    Jets 13

    Browns 13
    Bills 33

    Lions 6
    NY Giants 17

    Eagles 26
    Ravens 27

    Steelers 24
    Bengals 20

    Colts 34
    Vikings 6

    Packers 30
    Bears 27

    Titans 19
    Chiefs 17

    Jaguars 20
    Texans 21

    Saints 48
    Cardinals 41

    49ers 13
    Falcons 41

    Patriots 16
    Broncos 3

    Raiders 19
    Chargers 16

    Buccaneers 20
    Cowboys 26
    KC's View: