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    Published on: May 18, 2017

    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.

    You may recognize the setting in which I find myself this week - I was standing in pretty much the same spot last January, albeit in much colder weather, when I spoke enthusiastically about the new Shake Shack that was opening in my Connecticut town. Shake Shack, I have argued, is proof - along with the likes of In n Out and Burgerville - that fast food doesn't have to cater to the lowest common denominator.

    One of the things that the Shake Shack culture always has emphasized is customer service; it is part of a through line that began with Danny Meyer's Union Square Hospitality Group which started Shake Shack in New York City almost as a lark back in July 2004. (Now it is a separate, publicly traded company with more than 100 locations in more than a dozen countries.

    Recently, however, I had a bad experience at Shake Shack. I'd placed a dinner order at the counter for my two kids, Mrs. Content Guy and myself, and when it was ready, I peered into the bag and saw these two little containers of yellow stuff. I asked what they were, and was told they were cheese for my cheese fries. But, I said, I didn't order cheese fries.

    The guy behind the counter stared at me and said, somewhat forcefully, "That's what your receipt says you ordered."

    Now, it so happens that the receipt did say I'd ordered cheese fries, but I know I didn't because I never order cheese fries. The mistake was made at the cash register, but it didn't really bother me, even though cheese fries cost a little more. No, the big mistake was that the guy who delivered the order treated me as if I were the enemy.

    I will tell you right now that the whole thing had a happy ending. I sent an email to management pointing out what I viewed as a crack in the system, and the folks at Shake Shack got back to me within about 20 minutes. I ended up having a very nice conversation with the store manager and the division manager, who said they were going to use the mistake as an opportunity to do more customer service training in the store. The irony is that my daughter knows the guy who I complained about, and she said he's normally an incredibly kind and solicitous fellow ... who, I'm thinking, was just having a bad day.

    I tell you all this because I think there's a lesson here about how even a first class company with a high focus on customer service can have problems when the system - which depends on the behavior of people - breaks down. It can happen to anyone, and it can happen to any company. It all can be amazingly fragile.

    Which is why it is so important for companies to make sure that their people feel invested in the mission and vision, and that they understand that they are the first, best ambassadors for the brand ... which means that companies have to invest in them as well.

    I think the folks at Shake Shack handled the breakdown of the system absolutely correctly - I couldn't have asked for anything more, and I have full confidence in their ability to keep learning and growing and getting better.

    I also think they'll continue to be vigilant.

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

    KC's View:
KC's View:

Published on: May 18, 2017

CNBC reports that Amazon is seriously looking at an entry into the $300 billion pharmacy business, believing it is a good time to make a health care play with consumer appeal: ""For Amazon, it's a lucrative market that would require navigating a variety of existing players. For consumers with a high dollar deductible, Amazon could someday be a go-to destination to shop for drugs."

The story says that "for the last few years, Amazon has held at least one annual meeting at its Seattle headquarters to discuss whether it should enter the pharmacy business, says two people familiar with the company's plans. But this year, with the rise of high-deductible plans and the trend toward consumers paying for health care, it is ready to get more serious.

"Two people said that it's not a done deal that Amazon will move into this space, given the complex web of established players. But it is bringing on a new general manager to lead the team and formulate a strategy, and is deep in discussions with industry experts. That hire would sit under the consumables business, the source said. Another person said Amazon has started to recruit more broadly from the pharmacy space."

Amazon, which often tests initiatives in markets other than the US before bringing them home, has tested a prescription business in Japan, CNBC writes.
KC's View:
There are, to be fair, differing opinions about how disruptive Amazon would be to the traditional pharmaceutical business. I don't know enough about the intricacies of the space - especially the pharmacy benefits management side of the business that some see as the place where Amazon could really have an impact - to make a definitive judgement, but history suggests that traditional drug store companies ought to be a little nervous.

Pretending that their business is internet-proof would be the worst mistake. If I were CVS and Walgreens, I'd be looking for places where I could take it to Amazon, instead of figuring out how to play effective defense.

Published on: May 18, 2017

The Star Tribune reports that Target "is getting into bed with another online-only brand that has been disrupting another part of the retail industry. The Minneapolis-based retailer will begin selling Casper mattresses next month on its website. Casper is one of the top selling of a number of bed-in-a-box start-ups that have popped up in recent years."

Casper products will be available in 1,200 of Target's 1,800 US stores, with mattresses actually on display in 35 locations.

According to the story, "The partnership is similar to Target’s exclusive retail partnerships with Harry’s and Bevel, two direct-to-consumer men’s razors companies that started off online with subscription models. While they initially bypassed stores, they looked to Target to help expand their reach and scale."
KC's View:
We had a piece almost a year ago about the whole mattress-in-a-box business, after MNB reader Bryan Silbermann told me about his positive experience with a company called Tuft & Needle. (You can read it here.) The story notes that while the mattress business used to be considered internet-proof, that's changed in recent years, with companies like Casper and Tuft & Needle coming at it with new business models and innovative products.

I've been pretty tough on Target recently, but I think that if the company wants to build a strategy around being the bricks-and-mortar location for brands that otherwise only are on the internet, that might not be the dumbest way to go. It might mean burning some bridges with some traditional brands, but the trade-off might be worth it if the approach means it can carve out some sort of differential niche for itself.

After all, if you're gonna go to the mattresses...

Published on: May 18, 2017

The Virginian-Pilot has a story about the Hampton Roads region of the state, concluding that it has way too many supermarkets ... with more on the way.

Here's how the paper frames the story:

"If it feels like the number of grocery stores in Hampton Roads is growing at a faster rate than the number of shoppers, well, it is ... The region's population of 1.7 million has increased a scant 3 percent since 2010. At the same time, the number of groceries has grown by 17 percent.

And that’s not counting nearly a dozen planned stores from new-to-the-U.S. Lidl and six more from its European competitor Aldi, which opened its first Hampton Roads store in Portsmouth in late 2015 ... At the same time, Wegmans Food Markets is opening sprawling stores, including one in Virginia Beach, and Florida-favorite Publix eyes new markets like the Outer Banks."

The story notes that this doesn't even count the area's older players - Food Lion, Farm Fresh, Walmart, and Harris Teeter. But, "with the exception of a few more Kroger Marketplace stores," the story says, "it’s the new players who are largely muscling in for market share. That could lead to a battle for lower prices in an industry with already-skinny profits."
KC's View:
I remember that we had a story last year about how the entire nation is overstored ... and yet, ironically enough, the reality is that there is less retail square footage per person than there has ever been, and the trend is unlikely to reverse.

And yet, as e-grocery becomes more accepted and prevalent, one has to wonder if all these folks may be backing the wrong horse ... or at least focusing on the wrong race.

Published on: May 18, 2017

The Seattle Times reports that Amazon is expanding the capabilities of its Alexa-based digital assistants, allowing users to enable them to notifications without being verbally prompted.

Until now, the system would only respond when a person uses a "wake word," like "Alexa" or "Echo."

But now, "the Echo device inhabited by Alexa will ring a chime and display a pulsing green light, inviting users to ask 'Alexa, what did I miss?' or 'what are my notifications?' ... Among the first to update will be AccuWeather, the Washington Post and a social messaging app geared toward families called Life360."
KC's View:
In other words, when something happens in Washington, DC (which seems to happen pretty much every hour these days), my Echo will be able to let me know that there's something I need to know.

Well, that's pretty cool.

It'll be interesting to see how this plays out, especially as the system becomes more intuitive and exchanges become less transactional and more holistic. Some will find it to be ever more useful, and others will find this to be somewhat alarming because of privacy concerns.

I do think, by the way, that Amazon may have to do more to address the privacy issue, reassuring Alexa users that the system is a tool and not some sort of hidden spy. The more intelligent Alexa gets, the more people may need to be educated.

BTW ... interestingly enough, CNBC had a story the other day suggesting that it is time for Amazon to get back into the smart phone business. (It tried an Amazon Fire Phone in 2014, and it flopped so badly that Amazon had to take a $170 million write-off.) This time, the story suggested, "Alexa should be the heart of Amazon's new smartphone," integrated and interacting with home-and-office based Alexa-enabled devices in a way that makes the smart phone even smarter.

Published on: May 18, 2017

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

• The Wall Street Journal reports that when Walmart's first quarter financial results come out later today, it is expected that they will show "steady progress at a time when brick-and-mortar competitors are stumbling." Analysts are expecting that Walmart will continue its same-store sales will increase for an eleventh straight quarter.

The story also suggests that Walmart will look good because it "has been raising wages, cutting prices and growing online sales, particularly in the U.S. These are necessary investments that have weighed on earnings. But more people have been going to Wal-Mart’s stores and actually buying stuff - something few retailers can brag about these days." And, investors "also are giving Wal-Mart the benefit of the doubt as it bulks up its e-commerce operations," mostly through its $3.3 billion purchase of Jet.

"The Jet purchase helped juice online sales in the U.S.," the Journal writes, "which rose 29% in the fourth quarter from a year ago. Now Wal-Mart is pushing in-store pickup of online orders as a way to get people to keep going to their physical locations. Wal-Mart is charging online buyers less if they go to stores and pick up their orders, a strategy aimed at competing with rival Inc."

I'm posting this well in advance of the Walmart numbers release, but I agree that investors should see Walmart's e-commerce efforts as positive, even if they don't have a short-term ROI. This is a long game, not a short one ... and Walmart should be lauded for taking the long view.
KC's View:

Published on: May 18, 2017

• The San Antonio Express News reports that H-E-B shoppers in the Texas markets of Midland and Odessa this week will be able to have their groceries delivered, as Instacart launches its service there.

In addition to H-E-B, Instacart also will deliver orders for Natural Grocers and Petco in Midland-Odessa, among others.
KC's View:

Published on: May 18, 2017

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

• The Richmond Times-Dispatch reports that Ahold Delhaize-owned Martin’s Food Markets "announced that the eight remaining Martin’s stores in the Richmond area and one in Williamsburg not being sold to Publix Super Markets will close July 10 and Aug. 2 ... Publix is buying 10 Martin’s stores, seven of which have already closed and are undergoing renovations before reopening."

The story notes that "last year when Royal Ahold NV merged with the parent company of Food Lion, Belgium-based Delhaize Group, federal antitrust regulators required the merged entity to divest itself of stores in markets where their business overlapped. Ahold Delhaize sold 10 Martin’s stores to Publix and put the others up for sale."

Eater reports that the iconic Portland, Oregon-based ice cream chain Salt & Straw has gotten a "substantial investment" from Danny Meyer's Union Square Hospitality Group, which created and grew the Shake Shack brand.

According to the story, "Perhaps America’s most famous restaurateur, Meyer and his Union Square Hospitality Group are clearly poised for expansion, eyeing up-and-coming franchises molded after his company’s vision. Union Square Hospitality Group invested in California’s Tender Greens in 2015 and New York’s Joe Coffee in January 2017."

Eater says that despite the investment, Salt and Straw CEO Kim Malek and her cousin, ice cream maker Tyler Malek, retain majority ownership.

• Last month, MNB took note of an Associated Press report that Greek yogurt company Chobani has filed a lawsuit against Alex Jones, the right-wing radio host, and his InfoWars website, charging that Jones posted fabricated stories "that linked Chobani owner Hamdi Ulukaya and the company to a sexual assault case involving refugee children."

Now, to resolve the suit, Jones has gone on the air and said, "During the week of April 10, 2017, certain statements were made on the InfoWars Twitter feed and YouTube channel regarding Chobani L.L.C. that I now understand to be wrong. The tweets and video have now been retracted and will not be reposted. On behalf of InfoWars, I regret that we mischaracterized Chobani, its employees and the people of Twin Falls, Idaho, the way we did.”

Chobani released a statement saying that the lawsuit has been resolved.

I said then that I wished Chobani luck in smacking down a bully who "manages to consistently combine ignorance with inflammatory rhetoric, resulting in nothing more than verbal flatulence. (His claims about 9/11 and Sandy Hook are particularly reprehensible.)" I'm glad they got an apology. The story doesn't say anything about a financial settlement, but I hope they also got a big check.
KC's View:

Published on: May 18, 2017

• The Wall Street Journal reports on the "quiet departure" of Justin Dye from Albertsons, where, until last month, he was the chief administrative officer seen as a potential successor to CEO Bob Miller.

The departure was said to be friendly, and designed to let Dye spend more time with his family in Florida.
KC's View:
I always wonder, when I see the "he wants to spend more time with his family" line, whether the person's family really wants to spend time with him.

This has nothing to do with Dye. It has more to do with my family, which tends to urge me to find a reason to get on the road if I've been around for more than three weeks in a row.

Published on: May 18, 2017

I love it when I get emails like this one from MNB reader Howard Carr:

As a person on the real estate side if retail for more than 45 years, I cannot understand what the problem is with the Bricks and Mortar operators.  I find it incredible that they do not do every day, what they do on Black Friday to entice customers into their stores.  Offer goods at special pricing for items purchased in store.  If people will line up on Thanksgiving night at Best Buy for the next hottest TV or computer, they will do so for other items if the pricing warrants someone to make the trek, and if they can figure out how to make it work on Black Friday, they should be able to figure out how to do it weekly.  They develop flyers every week, ,they just need to calculate the costs of losing sales against the overall costs associated with their occupancies, and use the difference to support the aggressive pricing model to entice the customers into the store.

Once there, they then need to find ways to “add on” to the buying trip with related and associated items that they can hold better margins with.

I think this is pretty much within the fundamentals of retailing.

You'd think.

And here's another thought-provoking email from an MNB reader:

I spent well over thirty years in the supermarket retail business, working for chains in the southwest, northeast, and southeast. And in that time, there is one thing that is perfectly clear to me, and that is there are two primary retail cultures; what I would call Merchandising Driven Retail Cultures and Operations Driven Retail Cultures. In my mind, Whole Foods, Wegmans and Dierbergs are great examples of Merchandising Driven cultures while a chain such as Walmart might perfectly define an operations driven culture. And chains such as Safeway, and yes Kroger are in my opinion also examples of operations driven retail cultures.

What’s the difference in such retail cultures? Just my opinion, but I believe that Merchandising driven cultures evolve from their beginning through defining how they are going to uniquely deliver visual merchandising objectives, customer service levels and store condition parameters from an identity standpoint and then operationally execute to meet those goals to maintain profitability, it’s not that they aren’t great operators, it’s that they employ great operational execution in order to deliver their brand promise which typically is not about price, but the shopping experience.
Conversely, Operations driven cultures typically do have a low retail price component as a part of their brand promise and tend to identify costs of doing business and then build processes to deliver results around those constraints. I know this is way over simplified, but that’s basically the way it works. Issues arise such as the one you identified when operations driven companies  step out of their lane and work to deliver unique shopping experiences that they aren’t prepared to support. They know what displays should look like, what offerings should be, but the hard fact is that as merchandising techniques, variety and fresh foods offerings become more complex, more labor is required to maintain those displays and manage all the backend consequences, like appropriate inventory management, in store production needs, not to mention shelf and display conditions…etc. etc. In an operations first environment, results of such initiatives quite often end up looking exactly like the pictures you took when they are managed by the same operations folks that manage their base format, it’s a square peg in a round hole. It works the other way around too…just look at Whole Foods low price format initiative. In my opinion, the investment in the necessary ingredients in any retail initiative have to match the expectations...Just has to happen. When things don’t go just right, the kneejerk reaction in an operations driven culture is not to invest to improve the shopping experience, it’s to remove the expensive ingredients. Keep your eye on the ball indeed.

Reading your email, I found myself thinking about where Amazon fits into the equation. I suspect Jeff Bezos would refer to his company as a third iteration - as a Customer Driven Retail Culture.

On another subject, from MNB reader Chris Vukich:

I agree that subscription is a big opportunity for online retailers and it definitely builds repeat purchases and loyalty.  However, one thing I would caution the online retailers is the pricing model on these subscription items.  I think the temptation to raise pricing once customers are perceived to be inelastic will be great.   Today, the online retailers give a 5-15% discount for subscribing, but if the e-tailors start playing pricing games, there could be blow-back if customers find out that they are paying more for a subscription than the everyday delivery price.

Responding to our story yesterday about the decline of the MP3 format, MNB reader Bob McGehee wrote:

I continue to reference a scene from ‘Men in Black’, 1997.  It’s when Will Smith is getting his initial tour of HQ.  Tommy Lee Jones picks up something the size of a dime and says, “Lookie here.  I guess I’ll have to buy the White Album again.”  Those two sentences were way more prophetic than anyone could have imagined.

We had a story the other day about an Arkansas murder trial at which audio files from an Amazon Echo are being examined to see if they will offer any clues as to the what was happening in the accused murderer's home at the time of the crime.

And I commented, in part:

To be clear, we don't exactly know what is on the audio files ... police may only know what song was playing when the murder was committed. (If the song is Eminem's "Kill You," though, just the music choice may offer some insight.)

Which prompted one MNB reader to write:

I guess I’ve never thought of you as a fan of “The Real Slim Shady” ... the things I learn reading your blog each day.

Actually I'm not. This is a perfect example of my knowing a little bit about a bunch of stuff, as opposed to being deeply knowledgeable about anything.

Though I should note that Mrs. Content Guy actually is an Eminem fan ... or at least a fan of some of his songs. After 34 years of marriage I must confess that I don't really understand this ... but then again, she doesn't really understand why I like sushi. So I guess we're even.
KC's View: