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    Published on: March 31, 2017

    Bloomberg reports that Amazon has invited a number of CPG companies to a three-day meeting in May at which it will work to persuade them that their brands would be best served by cutting out traditional retailers and begin shipping directly to shoppers, a process that Amazon would facilitate.

    According to the story, "Amazon is looking to upend relationships between brands and brick-and-mortar stores that for decades have determined how popular products are designed, packaged and shipped. If Amazon succeeds, big brands will think less about creating products that stand out in a Wal-Mart Stores Inc. aisle. Instead, they’ll focus on designing products that can be shipped quickly to customers’ doorsteps. Brands have been experimenting with such changes, so the Seattle event may well resonate."

    The invitation reads, in part: ""Times are changing ... Amazon strongly believes that supply chains designed to serve the direct-to-consumer business have the power to bring improved customer experiences and global efficiency. To achieve this requires a major shift in thinking."

    General Mills and Mondelez are among the companies that have accepted the invitation.

    Bloomberg which obtained a copy of the invitation and broke the story, writes that "manufacturers would have to re-imagine everything from the way products are made to how they're packaged. Laundry detergent could come in sturdier, leak-proof containers. Instead of flimsy packages designed to pop on store shelves, cookies, crackers and cereal could be packed in durable, unadorned boxes. Plants could spit out products for individuals rather than trucks-full of inventory."

    The clearly disruptive initiative comes as Amazon continues to look for ways "to crack the food and packaged goods market - an $800 billion category still dominated by Wal-Mart and other traditional chains."

    The story notes that the invitation is "unclear who would handle the shipping, though Amazon offers a range of fulfillment services."
    KC's View:
    (No, this isn't an April Fool's story.)

    So, let's think about this for a second. It seems to me that it could break a number of ways.

    If manufacturers handle the fulfillment themselves, I think it means that Amazon would be serving as an ordering platform, with the ability to reduce costs and prices because part of the supply chain would be eliminated.

    If Amazon handles the fulfillment, it really is just a reframing of Amazon's traditional value proposition, though the creation of new packaging would certainly highlight the initiative to consumers. (Unless they want this to be virtually invisible to consumers, but I don't think that makes any sense - this is the sort of thing that you want to get headlines for, since it'll be positioned as pro-consumer.)

    I suspect that any manufacturer that attends this meeting will face questions from bricks-and-mortar retailers with which they do business about their intentions; it is hard to have a trusting, collaborative relationship with a company engaged in a relationship with a competitor in which the stated shared goal is to disintermediate you.

    I also think that it may be that Amazon is planning to offer manufacturers with which it engages some sort of heightened data flow about the shoppers who buy their products. Suppliers always want to find ways to connect directly to their customers, but retailers resist that; if Amazon were to engineer way to enable this, it could grease the wheels for this initiative to gain some momentum.

    Let's not forget that this also happens as Walmart is spending a ton of money and devoting lots of resources to its own e-commerce business. And there's another interesting bit of timing...

    I was reading a story in Re/code about how Walmart recently "gathered some of America’s biggest household brands near its Arkansas headquarters for a tough talk" about price. Concerned that it is too often being beaten on price, Walmart told the suppliers that its goal is "to have the lowest price on 80 percent of its sales," which meant that "the brands that sell their goods through Walmart would have to cut their wholesale prices or make other cost adjustments to shave at least 15 percent off. In some cases, vendors say they would lose money on each sale if they met Walmart’s demands."

    The message was clear: "Brands that agree to play ball with Walmart could expect better distribution and more strategic help from the giant retailer. And to those that didn’t? Walmart said it would limit their distribution and create its own branded products to directly challenge its own suppliers."

    Probably not a coincidence that Amazon says it wants to reimagine everything, and maybe even redefine the retailer-manufacturer relationship in a way that makes Walmart - always a tough negotiator - look bad, or unfriendly, or at least behind the times.

    Whatever happens, I think Amazon has managed to get everybody's attention with its desire to share up the CPG and retail businesses.

    Published on: March 31, 2017

    by Kevin Coupe

    SAN MATEO, CA. -- If you were going to start your business today, how would you do it?

    That was just one of the questions made yesterday by Tracie Maffei, who runs the retail practice at Google, when attendees at the GMDC Retail Tomorrow conference converged on the company's campus in Mountain View,California. And it was just one of the observations that should have had everyone in attendance questioning virtually everything about their businesses.

    There are, Maffei said, certain basic realities that businesses have to understand (and ignore at their own peril):

    "Millennials represent the most diverse, educated, socially conscious and tech-savvy group in history ... they've never used a fax, never used a rotary phone, never listened to a cassette tape." In other words, if you are operating a business in a digital world with a rotary phone mentality, you simply cannot succeed.

    "Ninety-eight percent of the economy," she said, "will be impacted by digitization." And, "65 percent of children entering primary school today will have jobs that don't even exist yet."

    I thought that one of the things that was most interesting about Meffei's comments was the fact that so many of her observations related not just to e-commerce, but bricks-and-mortar business as well. For example, she asked if the businesspeople in the room (and outside the room, for that matter) are "setting goals that go beyond accepted industry standards?" She talked about the notion of banishing the notion of "online" and "offline," and focus on "all-line," creating a new standard that is "seamless" and "end-to-end," establishing "lifetime value" that is not just transactional.

    In a world where one company - Amazon - captures 51 percent of all the dollars spent online (and obviously has designed on many more than that), Maffei suggested that retailers really have no choice.

    Companies like Google, Maffei said, are focused on creating an environment that is more suggestive than reactive, and in which the new standard requires the software to get smarter with every interaction. And again, that resonated with me - because that's also what stores and store employees need to do. Instead of focusing on this transaction and that sale, there needs to be a greater focus toward that extended relationship with the customer, especially because shoppers are being empowered and enabled by technology in a way that gives them greater control with every passing minute.

    Now, it would not be a trip to Google without a glimpse of how it is working to create more fertile ground for e-commerce. Among the observations were the prediction that "devices will fade away" and there will be a greater "blending of the physical and virtual world." Google, we were told, is moving from being "universal" (available across all devices) to "natural" (interacting with it in the same way that you interact with people) to "intelligent" (the technology provides answers and solutions immediately, and can even anticipate questions and problems). Artificial intelligence is at the core of Google's strategic vision; the company believes that "30 percent of all searches will happen without a screen by 2020." And the company believes that "shopping is moving from being a discrete activity to being an ambient activity," able to be "executed everywhere and anytime."

    "The shopping experience," Christian Santiago, Strategic Partner Development Lead at Google, told us, "needs to be personal and predictive ... we have to know the basics, remember preferences, drive discovery, anticipate needs, and understand context."

    As amazing as some of the technology is, Maffei suggested that retailers should "not start with technology. Start by asking, what problem are we trying to solve?" But then, understand that "we are only one percent of the way to how technology will change the world."

    Maffei commented that more than ever, it is all about creating "magical experiences." But I cannot help but think that the definition of "magical" is changing. Fast. And no where is that more obvious that on the campus of Google.

    From there, it was on to On Q Solutions, a Hayward, California-based display and experiential marketing company that uses technology to engage with shoppers in the physical store. Fascinating place, and we were treated to a conversation between Paul Chapuis, the company's CEO, and Marc Tarpenning, one of the co-founders of Tesla.

    The story of Tesla's development was an interesting one, but the observation that most caught my attention was how creating the electric engine that powers the Tesla was, in fact, not the hardest problem to solve; it was a matter of science, and solvable given enough time. In some ways, Tarpenning said, it was a lot harder to figure out how to make a door, and a rear-view mirror, and all the other stuff that goes into a physical car.

    It ended up that the solution to that was collaboration - that traditional car companies only make engines, and outsource pretty much everything else. Those outsourcing companies also were available to provide products to Tesla, though the company had to find companies willing to work with a limited production model.

    One of the other interesting comments from Tarpenning was how one of the things that concerned them was that, as the technology developed, they'd face enormous competition. "We never discussed the possibility that the other car companies wouldn't do anything" to compete with us." But, of course, that exactly what has happened.

    Tarpenning noted that while it may be easier to create a disruptive culture in a start-up company outside traditional industry, a critical factor is disrupting from within is to create "a culture of always questioning assumptions."

    Which certainly is what the entire GMDC Retail Tomorrow conference managed to do.

    I have to say that the last two days have been among the most provoking that I can remember, and GMDC, in many ways, has set a benchmark for what a technology conference should do. Between presentations and store visits and hands-on workshops (which taught me exactly how limited my imagination is, and I thought I was a pretty enlightened guy), the conference was constantly challenging, and challenging of any level of complacency.

    The question is, do businesses embrace Tomorrow? Or deny the inevitable changes that are reshaping the retail landscape?

    I come back to the opening question:

    If you were going to start your business today, how would you do it?

    KC's View:

    Published on: March 31, 2017

    by Kevin Coupe
    Streaming music service, Variety reports, for the first time in 2016 were responsible "for more than 50% of all U.S. music industry revenue."

    The Recording Industry Association of America (RIAA) put out numbers saying that "paid and ad-supported streaming together generated 51% of music revenue last year, to be precise, bringing in a total of $3.9 billion. In 2015, streaming music was responsible for 34% of the music industry’s annual revenue.

    "Much of that increase can be attributed to a strong growth of paid subscriptions to services like Spotify and Apple Music. Revenue from paid subscription plans more than doubled in 2016, bringing in $2.5 billion, with an average of 22.6 million U.S. consumers subscribing to streaming services last year. The year before, subscription services had an average of 10.8 million paying subscribers."

    The growth came at the expense of paid downloads and CDs, iTunes and other transactional digital music services generated "22% less money in 2016, to the tune of $1.8 billion. CD sales also continued to fall, with all physical media bringing in $1.7 billion, which is 16% below 2015 levels."

    There was a time when CDs disrupted the cassette tape business, and when paid downloads disrupted the CD business. It wasn't that long ago.

    And if one thing is for sure, change will happen again. It is and will continue to be an Eye-Opener.
    KC's View:

    Published on: March 31, 2017

    The Wall Street Journal reports that McDonald's has announced that it will begin using fresh beef, not frozen, for its Quarter Pounders in the vast majority of its US restaurants.

    The story notes that the decision "marks one of the biggest moves the company has made to turn around its struggling U.S. business."

    McDonald's is facing increased competition from fast food rivals that use fresh beef, as well as the failure of a number of initiatives designed to serve healthier food. The company has said that this is just part of a broader strategy of focusing on the quality of its burgers, though there has been no commitment to using fresh beef for its other hamburger offerings.
    KC's View:
    The position here for a long time has been that the best way for McDonald's the revive its failing fortunes is to serve tastier food. If fresh burger patties taste better than frozen burger patties, it seems to me that this will be an important step. It won't make them Shake Shack or In-n-Out, but it will make them a better McDonald's.

    Published on: March 31, 2017

    The New York Times has a story about hedge fund owner Edward S. Lampert, who during his time as CEO and major stockholder in Sears and Kmart has presided over a company that "may be setting a benchmark for slow, painful declines thanks to its outsize, long-term bet" on the two retailers.

    An excerpt:

    "Where did someone as smart, successful and hard-working as Mr. Lampert go wrong? His initial concept to combine two iconic but deeply distressed retailers — Kmart and Sears — initially appealed to many investors as a classic investment in undervalued, poorly managed assets in the Warren Buffett style. But Mr. Buffett doesn’t personally manage his portfolio companies. Several former Lampert investors (said) that Mr. Lampert’s fundamental mistake was one common to many once-successful hedge fund managers: hubris, and the belief that investment prowess would translate into management skill."

    You can read the entire piece here.
    KC's View:
    So, a thought here...

    This week, I was at the Plug and Play startup accelerator in Sunnyvale, California, where relationships with established with large, existing companies serve to give them access to the young startups and entrepreneurs who take space there. During a tour, I noted that Sears was one of the companies listed as a partner, asked about it, and was told that Sears only has signed on in the past few weeks.

    My response: "It is a little late."

    But ... I've been thinking about that, and I'm wondering if, in fact, Sears wants access to startups and entrepreneurs not in search of way to revive its retail business, but because it is seeking unorthodox and innovative approaches for dealing with all the real estate that it owns and that is growing less and less relevant as retail businesses.

    I could be wrong about this. It also could be that Sears was being swallowed by the shark before realizing that it needed a bigger boat.

    The folks at Plug and Play certainly aren't saying. And I'm only speculating.

    Published on: March 31, 2017

    The Seattle Times reports that Starbucks has decided where to open the first of 1,000 planned high-end Reserve stores - the lobby of its headquarters in Seattle.

    The story notes that "the Reserve stores — which will serve Starbucks’ premium, small-lot coffee beans, brewed in a variety of methods, along with food from Italian bakery Princi — are a new store format for Starbucks and represent a key part of the coffee giant’s strategy to capture the high-end of the coffee market."

    The existing store in the lobby "will close April 7 for broader headquarters renovations and to make way for the new store, which will open this fall, according to an email sent to Starbucks employees working at corporate headquarters."

    Starbucks' headquarters also is going to see another innovation - the opening of its "first location at which customers can only order via Starbucks’ mobile ordering system ... The company will be putting in the mobile order-and-pay-only location on the eighth floor of its headquarters building, across from the existing Starbucks store there. The existing store is one of the company’s top three mobile-ordering sites in the United States, according to the email to employees."

    The concept is designed to see if Starbucks can find a way to address concerns that mobile ordering has become so successful in some locations that it creates congestion in stores where people also want to walk in and place their orders in more traditional fashion.
    KC's View:
    I love the idea of a mobile-ordering-only store, and can imagine a time when in certain locations this will be precisely the best way to address the congestion issue. As for the Reserve store at headquarters ... I just hope that the folks at Starbucks don't fall so in love with the new shiny object that they forget about the engine that drives the train. I don't think they will, but it has happened to other companies and it is something about which they need to be vigilant.

    Published on: March 31, 2017

    • The Charlotte Observer writes that a new study from the NPD Group says that "more than 40 percent of primary grocery shoppers are men, and 60 percent of them – those in the millennial and Gen Z group between the ages of 18-44 – have bought their groceries online."

    According to the story, "That’s in part because young adults nationwide – who are also more likely do use the Internet for other types of shopping – are delaying marriage and the formation of families, NPD Group said. The group also said men tend to make grocery shopping 'a mission,' and they spend less time in brick-and-mortar grocery stores compared with women. They also buy fewer products in stores and will leave if they can’t find something, the group said."

    One other note from NPD Group: "About 31 million households have Amazon Prime, and approximately 52 percent of them buy their groceries online."

    Business Insider reports that "eBay has announced that it's launching a 'Guaranteed Delivery' program, which will provide delivery within three days or less for 20 million items and ship millions of them for free ... The improved delivery service will be key to sustaining the company’s growth after a strong year spurred by several initiatives."

    Free and fast shipping, the story notes, "has become ubiquitous in e-commerce, and it is extremely difficult to compete without offering this perk to customers."
    KC's View:

    Published on: March 31, 2017

    • The Cincinnati Business Courier reports that Kroger "has spent $180 million on its first-ever voluntary early retirement buyout plan ... Kroger made the offer in December to about 2,000 non-store employees across the country. Kroger said earlier this month, shortly before the deadline, that it estimated about 1,300 employees would accept the early buyout deals."

    Newsweek reports that Domino's Pizza has announced plans to use robots to deliver pizza in Germany and the Netherlands.

    According to the story, "Domino’s Pizza Enterprises Ltd. created a special project group, Domino’s Robotic Unit, to oversee the project, which will use six-wheeled self-driving delivery robots created by London-based Starship Technologies. The battery-powered robot, which can carry up to 20 pounds, will drive itself to customers’ locations via sidewalks instead of roads."

    The effort is similar to one already being employed by Domino's in Australia and New Zealand.
    KC's View:

    Published on: March 31, 2017

    • The Puget Sound Business Journal reports that Nordstrom has hired Brent Beabout, the former SVP, eCommerce Supply Chain at Walmart, to be its new executive vice president of supply chain. The story notes that Beabout was one of a number of e-commerce executives who left Wal-Mart "toward the end of 2016 after Wal-Mart acquired in September and founder Marc Lore took over as CEO of Walmart eCommerce U.S."
    KC's View:

    Published on: March 31, 2017

    ...will return next week.
    KC's View:

    Published on: March 31, 2017

    I've been trying to catch up with some of the movies released during late 2016 before the onslaught of movies that usually marks the beginning of spring and goes right through summer. this week, that meant watching Jackie, a highly impressionistic profile of Jackie Kennedy that focuses mostly on the days surrounding the assassination of President John Fitzgerald Kennedy.

    When I say impressionistic, that's because the movie has a somewhat disjointed narrative, moving back and forth through time, framed by a post-assassination interview that the grieving former First Lady is giving to a journalist (based on a real interview she gave to the great journalist Theodore H. White, who had written "The Making of the President, 1960.") Played by Natalie Portman, this Jackie Kennedy seems like someone who was ill at ease with her life in the White House, not entirely at ease as a Kennedy, but entirely focused on protecting her husband's legacy in the wake of his death.

    I have no idea how much of this film, directed by Pablo Larraín and written by Noah Oppenheim, is true .... but the structure actually works for it, since it comes off as a series of impressions. Portman is extraordinary in the role, though I cannot say the same of the rest of the cast. Caspar Phillipson is a nothing as JFK, and Peter Sarsgaard, as Robert F. Kennedy, never persuaded me.

    "Jackie" is a good movie, not a great one, with a great performance at its core.

    I have two really good Oregon red wines to recommend to you this week - the 2013 A to Z Oregon Pinot Noir, and the 2015 Corvallis Cellars Pinot Noir. Cracked them open last weekend when we were serving burgers, and the general agreement around the table that they were perfect.

    That's it for this week.

    Have a great weekend, and I'll see you Monday.

    KC's View: