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    Published on: June 23, 2017

    by Kevin Coupe

    There's been a fair amount of discussion recently about the synergies that may be realized if Amazon is able to go through with its proposed $13.7 billion acquisition of Whole Foods. One of the assumptions has been that Amazon can help Whole Foods be more relevant in terms of e-commerce and the use of customer data, while Whole Foods brings more bricks-and-mortar expertise to the table.

    I may want to quibble with this last premise.

    I recently was in Seattle, and had a chance to visit both the Amazon Books store and the 365 by Whole Foods format. I've been to both before, but it always is worth another visit to see how they might be evolving. Or devolving.

    At Amazon Books, one of the things that most impressed me was a display focusing on sous vide cooking technology. (You can see two pictures below.) There were a couple of cookbooks, the bags used for sous vide cooking, and a sous vide machine that can be controlled via Amazon's Echo/Alexa technology. The display was not just clever and coordinated, but it also managed to bring the entire concept within the Amazon ecosystem.

    Very smart.

    When I went to 365 by Whole Foods, I noticed that in one corner of the store there was a massive display of La Croix water - in a place where, I'm pretty sure, there used to be chilled wine. The cases were piled high in a cooler - but the cooler wasn't even turned on.

    It seemed pretty clear to me that the folks at 365 were trying to fill in a gap created by something that didn't work, but doing so in a way that seemed half-hearted. For a display that big, you'd think there would be a pretty big sign. But you can see how small the sign was in the picture, bottom right. Underwhelming, at best. (This seemed consistent, though, will all the out-of-stocks that plagued 365.)

    I know that these are just two examples. But when I visited these stores, I found an Amazon Books where they seemed to be completely on their game, and a 365 by Whole Foods that impresses me less and less every time I visit it.

    The synergies may not be where a lot of people expect them to be. The results from the acquisition may be an Eye-Opener.

    Article Text

    KC's View:

    Published on: June 23, 2017

    Columnist George Will has a wonderful piece in the Washington Post that is a must-read, and not just because it hinges on the constant disruption that has defined the supermarket business almost from the beginning. The piece is all about the importance of embracing rather than retreating from change.

    "In the accelerated churning of today’s capitalism," Will writes, "changing tastes and expanding choices destroy some jobs and create others, with net gains in price and quality. But disruption is never restful, and the United States now faces a decision unique in its history: Is it tired — tired of the turmoil of creative destruction? If so, it had better be ready to do without creativity. And ready to stop being what it has always been: restless."

    Read it here.

    KC's View:

    Published on: June 23, 2017

    Amazon may be making much of the news in the supermarket business these days because of its proposed $13.7 billion acquisition of Whole Foods, but Business Insider points out that Walmart, along with its Sam's Club division, remains the nation's dominant grocery retailer, owning more than 20 percent of the market.

    A study by UBS points out that the market is highly fragmented, "split between dozens of other players, including Kroger (10%), Albertsons (5.2%) and Costco (4.2%)."

    Those who hope that federal regulators may stop the Amazon-Whole Foods deal on antitrust grounds may be disappointed to learn that "Whole Foods controls just 1.4% of the market, making it the 13th largest grocery chain in America. Amazon, meanwhile, claims just 0.2% of the grocery market."

    However, some hopes remain in this group, as Reuters reports that "while antitrust experts expect Inc's bid for Whole Foods Market Inc to win regulatory approval, some critics argue the deal should be blocked because it gives the online retailer a nearly unstoppable head start toward domination of online grocery delivery. They argue the Whole Foods acquisition will give Amazon an unfair advantage over traditional grocers and new players that might emerge in the market, potentially grounds for the deal to be blocked for antitrust reasons."
    KC's View:
    It is hard for me to imagine that this deal could be derailed by antitrust regulators, especially because combined, Amazon and Whole Foods will have a whopping 1.6 percent of the grocery business.

    If this ends up with Amazon growing into having domination of the online grocery business, then shame on their competitors. Last time I checked, antitrust regulators don't make decisions based on what might happen.

    Published on: June 23, 2017

    CNBC has a piece about a new study from GPShopper, Reality of Retail: Consumer Connection," which focuses on the digital and physical innovations that consumers most want from the retailers that they patronize.

    The survey found:

    • "86 percent of shoppers like 'experience stores,' where they can test products in stores but buy on mobile or online, similar to the Samsung store concept."

    • "85 percent like the idea of product recommendations based on ratings, similar to what Amazon is doing with Amazon Books."

    • "80 percent like buying items online and picking purchases up in stores, as Wal-Mart and Target have been promoting."

    • "78 percent like stores that were first online and then developed physical storefronts, similar to Warby Parker."

    The biggest winners, the story says, are "Warby Parker, Apple and Bonobos, a men's clothing retailer that Wal-Mart plans to acquire, are all building their businesses around allowing customers to experience the brand rather than simply to sell their products."
    KC's View:
    The process of selling products to customers is one that increasingly not store-centric ... but, in fact, has to be shopper-centric. Which means, I think, that effective retailers have to look specifically at creating lifetime value associated with their brands, and address the pain points that occur throughout the selling continuum.

    Published on: June 23, 2017

    The Cincinnati Enquirer reports that Kroger CEO Rodney McMullen, speaking at the company's annual shareholder meeting this week, would not address the possibility that Kroger could make a competitive bid to acquire Whole Foods as a way of stopping Amazon from completing its proposed $13.7 billion purchase of the organic food retailer.

    "I won't get into that," McMullen told the Enquirer after the meeting.

    During the meeting, McMullen expressed optimism about Kroger's ability to compete with Amazon, despite the fact that the company's shares are down 25 percent in the wake of the Amazon-Whole Foods news.

    The Enquirer writes, "Kroger typically avoids fixer-upper acquisitions; it tries to buy competitors that excel in areas where the company wants to improve ... Kroger acquired Roundy's in 2015 in part because of its impressive Mariano's urban store format. A key reason Kroger acquired Harris Teeter in 2014 was for its buy-online-pickup-at-the-store technology, which was the template for Kroger's now nearly 700 stores with ClickList.

    "Kroger could afford to buy Whole Foods, which is not mired in debt, but it would have to pay a significantly higher multiple than it has for recent acquisitions. Amazon is already paying a nearly 50 percent premium for Whole Foods compared to the multiple Kroger paid for both Roundy's and Harris Teeter."

    It remains possible - in the eyes of some, probable - that Kroger will take the "approach they used to halt the seemingly inevitable Walmart takeover of the world in 2003. Back then Kroger, cut prices enough to neutralize Walmart's price appeal while ramping up product variety and customer service."

    Meanwhile, the Cincinnati Business Courier reports on Kroger CFO Mike Schotman's appearance at the Oppenheimer Consumer Conference in Boston, where he said that he "doesn’t envision grocery shopping evolving to the point that people order everything online and wait for groceries to be delivered to their homes."

    Schotman said, "“Part of me refuses to believe that everybody is just going to sit at home and everything is going to be brought to their doorstep and nobody is ever going to leave home to do anything again. I mean, humans are social animals and we thrive on interaction with one another. The good news is food is one of the things that’s at the center of social interaction today.”

    During his appearance, Schotman described as "phenomenal" his company's doubling of market share gains in the first quarter, compared to the fourth quarter, saying that it is remarkable "when everybody thinks brick-and-mortar isn’t relevant or traditional groceries aren’t relevant. Those households continue to spend more with us, come more frequently and continue to grow.”

    “We’ve been around for 134 years,” Schotman said. “We’ve pivoted and transitioned a lot through those 134 years. There’s been a lot of things that were going to put us out of business. But yet, here we are with growing loyal households and 8.5 million customers today. Probably today, it’s another pivot point in the industry. We think we’re well-prepared."
    KC's View:
    I think that Kroger has good reason to be proud of 134 years of pivoting and transitioning, but I also believe that to be successful long-term, they have to accept that every one of those 134 years are in the past ... and that it may be necessary to move faster and be more nimble about how they pivot and innovate in the future.

    With all due respect, I have a problem with Schotman's comments about not believing in grocery delivery being pervasive because "humans are social animals and we thrive on interaction with one another." That may be true, but the supermarket may not be the optimal place to experience such interactions. Me, I'd rather get my groceries delivered if it gives me time to play with my kids, hang with my wife, take the dog for a walk, read a book, go to a movie, or do any one of a dozen other things. That doesn't mean I'll always prefer delivery...because there are lot of ways that the store can make itself a relevant and compelling part of the human experience.

    But I'd argue that far too many retailers don't do that. They're about the transaction, not about being shopper-centric.

    Published on: June 23, 2017

    Reuters reports that Staples is in advanced discussion with Sycamore Partners, a private equity group, about a sale of the company.

    The story notes that "It would represent a bet by Sycamore that Staples could more quickly shift its business model from serving consumers to catering to companies if it were to go private. Sycamore is in the process of finalizing a debt financing package for its bid for Staples after it prevailed over another private equity firm, Cerberus Capital Management, three sources said."
    KC's View:
    After regulators shot down its acquisition of Office Depot, Staples probably didn't have much choice.

    Published on: June 23, 2017

    Reuters has a story suggesting that even while Amazon pushes into the bricks-and-mortar retailing business with its proposed $13.7 billion acquisition of Whole Foods, it remains behind its Chinese brethren that "are already digesting hefty bricks-and-mortar deals, taking the lead in the battle to transform supermarket shopping with big data and better supply chains."

    Among their investments - "Alibaba has invested over $9.3 billion in offline retail stores since 2015, including supermarket chain Sanjiang, department store Intime Retail Group and Suning Commerce Group Co Ltd, one of China's biggest offline retailers ... bought Wal-Mart Stores Inc's Chinese online platform Yihaodian for about $1.5 billion in shares in 2016."

    Reuters reports that Amazon plans to charge $2.8 million apiece for advertising packages that will run on its streaming of 10 National Football League Thursday night games during the coming season. The story says that "for each game, Amazon can sell 10 30-second spots."

    Those games will be made available free-of-charge to Amazon Prime members, in an effort to expand the program's already considerable appeal. Amazon is paying the NFL $50 million for the streaming rights to the games, which also will be shown on broadcast television by NBC or CBS.
    KC's View:

    Published on: June 23, 2017

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

    • In Minnesota, the Star Tribune reports on how, "facing slumping sales and stiff competition from online retailers and meal delivery kits," area supermarkets including Hy-Vee and Coborn's "are ramping up amenities to lure busy shoppers. They’re adding clothing departments, high-end cosmetics, full-service restaurants, and now, vegetable butchers.

    "For a fee, plant-based sous chefs armed with cutting boards and sharp knives will slice, dice or julienne whatever needs chopping.
    New to Minnesota, the concept is taking hold throughout the country at select high-end supermarkets. A main target is millennials, who are more likely than the average shopper to skip the supermarket and buy groceries online, according to a recent Harris Poll."

    • The Wall Street Journal reports that "the U.S. Department of Agriculture suspended imports of fresh beef from Brazil, citing recurring safety concerns. The USDA’s move came after Brazil earlier Thursday suspended beef exports from five slaughterhouses to the U.S., after a foot-and-mouth disease vaccine potentially caused abscesses in some cattle, according to the national meat-exporting group Abiec."

    • The Washington Post reports that in the markets where McDonald's is testing the use of fresh rather than frozen beef in its quarter pounders, a move "designed to woo back millions of customers that had left the Golden Arches for other fast-casual dining options," the fast feeder is getting some push back from customers complaining that it takes an extra minute to make the burgers.

    "People expect instant gratification,” said Alexander Chernev, a professor at the Kellogg School of Management at Northwestern University. “But there must be a fundamental trade-off. It is difficult to have good products and service infinitely fast. Even at Amazon, we order stuff and don’t expect it five minutes later.”

    For the record, I'd be happy to wait an extra minute for a better burger. But it may be that McDonald's is going to have to be patient in educating its consumers about the real value of that minute.

    • The National Retail Federation (NRF) is predicting that Americans will spend $7.1 billion on food for cookouts and picnics as they celebrate the Fourth of July this year, up from $6.8 billion in 2016 ... According to the survey, 219 million Americans plan to celebrate the holiday, or 88 percent of those surveyed. A total of 162 million — 66 percent of those surveyed — plan to take part in a cookout or picnic, spending an average $73.42 per person, up from last year’s $71.34.

    Me, I'll celebrate it as I have for the past five years - hanging out with the girl of my dreams, listening to music at the Safeway Waterfront Blues Festival in Portland's Tom McCall Waterfront Park, and then watching fireworks exploding over the Willamette River. Can't wait.
    KC's View:

    Published on: June 23, 2017

    Yesterday, MNB took note of a Washington Post report that "Amazon was awarded a patent May 30 that could help it choke off a common issue faced by many physical stores: Customers’ use of smartphones to compare prices even as they walk around a shop. The phenomenon, often known as mobile 'window shopping,' has contributed to a worrisome decline for traditional retailers."

    This is sort of remarkable, we wrote, not because the technology exists, but because it was just a few years ago that Amazon actually introduced a mobile application, called Price Check, designed to allow people to use their smart phones to scan any bar code anywhere and find out what Amazon would charge for the same item, and even order it if the price was lower."

    I argued that "customers first" always has been a core value at Amazon, and that the company should avoid doing anything that even creates the appearance that this precept is losing importance.

    Several MNB readers had a different take. One wrote:

    Amazon could have an entirely different idea of why they need this patent. I could see a scenario where Amazon invents the technology to address this problem then patents it so that others cannot use the fastest easiest route for their competitors to block this activity while using it in their stores to provide offers to Customers.

    If I did see a price comparison and was given an offer to match the lower price or a better incentive I don’t know that I would view this as anti-consumer if I were the consumer. They saved me a separate trip and gave me a better deal. That is pretty responsive and responsive to custom needs I have when I have them.
    Game changer!

    And from another reader:

    I read about this Amazon patent in the Post.  Isn’t it possible (likely) that Amazon may have acquired the Patent to prevent other companies from using this technology to block “window shopping?”  No other company profits more from “window shopping” than Amazon.

    And, from another reader:

    To say this is a double standard is huge understatement.  The fact that this flew under the radar of a major news story is unbelievable.  Imagine if this was something that Wal-Mart patented?  There would be a huge uproar and many groups calling for boycotts, It’s a major double standard.

    I have no dog in this fight and believe that both Wal-Mart and Amazon each have their own issues but it really appears that Amazon can do no wrong in the public eye.  The altruistic perception of amazon to isn’t total reality.  No doubt Amazon has been a very innovative company but also a very predatory company, is the perfect example.  If a traditional retailer attempted this tactic I believe it would have been perceived much, much differently.

    It also makes me wonder what amount of information Amazon actually does gather with the Echo system.  After reading this story we placed ours in a remote room of our house.  Not because we are worried about the actual information, the thought of it just creeps me out.

    For the record, I don't think this story flew under the radar. And it is worth noting that the first place it ran was in the Washington Post, which is owned by Jeff Bezos. Just sayin'...

    Yesterday, MNB referenced a Wall Street Journal report that athletic gear giant Nike "has agreed to sell some of its products directly to Amazon ... a concession by the sneaker giant that it can no longer afford to ignore the online retailing behemoth."

    The decision amounted to a public declaration that the company's traditional approach, selling to traditional stores and chains, is not enough. "News of the Amazon deal punished shares of retailers, with Foot Locker falling 5% and Finish Line down 4%. Shares of Nike gained 2%." The story notes that "Foot Locker and Finish Line each identify Nike as their largest vendor in securities filings, accounting for 68% and 71% of merchandise purchased last year, respectively ... Nike executives have been in talks with Amazon for weeks about cracking down on counterfeit product and the proliferation of unauthorized third-party sales on the site ... The two companies have reached an agreement where Nike would agree to provide some product directly to Amazon in exchange for Amazon policing counterfeit and third-party sales."

    I commented:

    Nothing wrong with Nike realizing that because its customers are taking a now well-worn path, it needs to do the same. The sad thing is how fast the markets react and punish the old ways of ding things. Not much that can be done about it, though ... The ways of the Lord are often dark, but never pleasant.

    But one MNB reader thought I got it wrong:

    Here's another way one might see this story...

    There is something wrong with Nike realizing that because its customers are taking a now well-worn path of a "technological" shakedown, it needs to do the same capitulate to the Godfather of the Cloud ... Had Amazon done the "Right Thing", and policed the counterfeits, they wouldn't have needed to make Nike an offer they couldn't refuse.

    Sometimes the RIGHT steps cost you some business, still, they are No Less, the Right Steps.

    I get your point, but I think I would take issue with the notion that Nike was being shaken down by Amazon. But I agree about the counterfeiting issue - while Amazon has made moves to be more effective in policing this issue, I've been consistently critical of the company for not doing more, faster.

    Regarding the Amazon-Whole Foods deal, MNB reader Jessica Duffy wrote:

    What I am afraid of is that we will end up back in the dark ages of food production, where everything on the grocery store shelves came from some giant conglomerate…except now it will come with delivery. That was when a whole lot of crap ended up in our food as those corporations sought to pad their bottom line by extending shelf life with crazy chemicals and reducing costs by filling products with cheap corn and soy fillers. They didn’t care about consumers and didn’t need to because they were the only game in town. That is why and when Whole Foods came to fill such an important niche, but now they will be on the other end of the equation.

    We referenced a piece in the Boston Globe about all the competition in the razor blade category, leading MNB reader Rich Heiland to write:

    I now use Harry's. I like the price and convenience. I used to use Gillette.

    I noticed the other day when I was in the drug store that the Gillette package now has this claim, or guide on it, that says how long you can go on the pack, the implication being that you can go as long as on Harry's and so the price per shave is equal.

    I found that interesting. I always used the blue stripe on Gillette as a guide. It turns white, you need to change. (Like most guys, though, I'd go a bit longer). I looked to see if there were any claims to "new and improved." What did they do to suddenly extend the life of a blade to match or beat Harry's?

    I couldn't find anything. I went on line, read the packaging. It just made the claim. Far from winning me back, it turned me off. How could I go longer with the same blade? Did they change the chemistry of the blue strip to make it last longer? Were they duping me all along to get me to use more blades?

    A question from an MNB reader:

    As Walmart seeks to have their suppliers distance themselves from Amazon Cloud it reminded me of this. Why do grocers sell gift cards for competitors? I’m talking about a grocer that sells cards for restaurants or hardware stores. After all the restaurant are competing for the same share of stomach that grocers are seeking.  Hardware stores offer many products also sold at grocers.  Seems to me that they are inviting their customers to go elsewhere.  Not that gift cards don’t have a place, just why make it so easy.

    You're playing my song. I've been asking this question for years.

    Respond to yesterday's FaceTime commentary, MNB reader Steve Workman wrote:

    Your piece on Good Character in Business really hit home with me this morning.  I am refreshed to see that Character still means something to you, although I am not sure we are in the majority.  Our Dads probably grew up in the same generation.  My Dad will be 89 this fall and he is and always will be my mentor both in life and business.  He is also a very religious man, not that it matters, but worth noting as there may be a relation.

    When I started out in the business world 33 years ago, my Dad’s first lesson was on integrity in business.  He told me to always be honest with people and in the long run that’s what they will respect, and that is what will make you successful.  Well, I have used that motto and advice for my entire career to date.  I have to admit that sometimes the temptation to sway and mislead a customer or “fudge” the information to make my company look better was hard to resist.  Especially when it was happening all around me.  Even as recent as this week in a situation came up where another Salesperson in my company called me crazy for being honest with my client about our ability to execute a project.  “Just write the order first, get the contract then you can always go back and tell them that there are some stores we may not be able to cover. At least you will have the contract signed and then it is harder for them to back out”.  That’s not me.  Why not tell my customer (partner) up front that we are challenged with some of the locations and maybe we can cover if they can provide some additional funding, etc.

    In other words, be honest and as partners we can work it out together. Even if in the end they go to another resource to help cover the locations, they will respect me for letting them know in advance and allowing for them the time to make the proper planning to fulfill their total needs.

    Every salesperson has their own style that works for them, and I always fall back on my first business lesson from my mentor.  I think that is why my clients respect me and continue to want to work with me in the long run.  It may not be the most popular style especially to drive short run revenue, but in the end that is what I will want my legacy to be.

    P.S. I am also a religious person, I was raised that way just like you and chose that path to help guide me in business.  And I forgot the mention that my Dad was the President of Benjamin Moore Paints (You may have heard of it) for 25 years before retiring, so things kind of worked out for him...

    A question from MNB reader Wanda Mundwiler about a phrase I used yesterday:

    What does this mean: "The ways of the Lord are often dark, but never pleasant?"

    It is a phrase often quoted by Robert B. Parker in his Spenser novels, and I've always interpreted it as meaning that the fates are rarely kind, nor predictable ... and usually inevitable. Which is why it is a good reason to prepare for what can happen, not what you think will happen.
    KC's View:

    Published on: June 23, 2017

    Miracles of miracles, the folks at Warner Bros. and DC Comics finally have made a fun superhero movie.

    Wonder Woman, based on the classic comic book, manages to transcend the gloom and pessimism that infected Man of Steel and Batman vs. Superman - mostly because of a deeply felt and star-making performance by Gal Gadot in the title role, assured direction by Patty Jenkins (notably the first woman to direct a superhero movie), and a script with tons of heart and a a kind of nurturing optimism about the human condition. (Also, let's not forget a terrific supporting turn by Chris Pine as Wonder Woman's love interest - he knows his place here, and he embraces it with gusto and self-effacement.)

    Wonder Woman is an origin story that takes our heroine from an island paradise populated only by Amazonian women and plunges her into World War I; she leaves her comfort zone because of a commitment to the notion that humankind can be perfected, even if it sometimes must be protected. It isn't an easy transition, and is ripe for both comedy (as when she encounters previously unknown things such as babies, dresses, and ice cream), and tragedy.

    I think the reason that Wonder Woman works so well is that its protagonist embraces the notion of being a hero. That's unlike the Batman and Superman of the studio's recent movies, who seem conflicted by the notion of being selfless and heroic; there's so much navel-gazing going on that their movies wear the audience out.

    Wonder Woman moves at a terrific pace, never flagging, and is just enormous fun. Maybe, after all, there is light at the end of this particular movie tunnel.

    I have a couple of wines to recommend to you this week - the 2015 Alloro Vineyard Rose of Pinot Noir, which is delicious and perfect for a warm, summer evening, and Willamette Valley Vineyard's 2014 Brut Grower Series Sparkling Wine, which is spectacular - a little pricey at $55, but worth the investment for a special evening.

    That's it for this week. Have a great weekend, and I'll see you Monday.

    KC's View: