Published on: September 6, 2017
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 topics: The importance of steady progress, Amazon-Whole Foods as change agents, and cultural imperatives that influence innovation.
And now, the Conversation continues…
KC: So, we’re back with the Innovation Conversation, after a summer during which not much happened. Let’s leave out Amazon/Whole Foods and all the stuff that Walmart is doing with Jet for a moment … other than those companies, has the summer been a time of revolution or evolution when it comes to technology/retail-driven innovation?
Tom Furphy: Evolution. People haven’t been sitting still, but most retailers have expanded their e-commerce efforts either on their own or with partners. We’ve seen Boxed Wholesale growing at an incredible pace, putting even further pressure on the center store. And we’re seeing many manufacturers and retailers focused on the basic data, systems and processes required to deliver the new e-commerce-enabled service models. It’s not sexy, but it’s important.
I’d characterize Summer 2017 not as one of breakthrough innovation, but one of steady progress. And that’s not a bad thing at all.
KC: Agreed. Progress is important, and steady progress is better. But I’m reminded of something you often say, and have written here … that speed is incredibly important in the current environment. While retailers and suppliers may be evolving, they’re competing with at least one company - Amazon - that seems to have nothing less than revolution on its mind.
When Amazon’s acquisition of Whole Foods was approved, they seemed to be moving quickly to integrate as much of the two companies’ operations as possible in a short period of time…and then do things over a slightly longer time like make Prime the Whole Foods loyalty program. One of the things that really surprised me was the number of emails I got when the deal was closing, from people who said that they firmly believe that the Amazon-Whole Foods combo will have no impact on their businesses. Which strikes me as preposterous … even if the whole thing collapses, it would have an impact on the food retail business, and I don’t think there is much likelihood that it will collapse. You feel the same way?
TF: What business are these people in? Are they delusional? I’m not saying Amazon is going to take over and claim victory in six months. But over time they will change the game. They will introduce new capabilities and experiences into the model that will shape what shoppers expect from their stores. And with the majority of US households as Prime members, how could this not have an impact on the industry?
Amazon has caused chaos in just about every category they have entered. They focus on the customer, redefine the value proposition and re-engineer the service model to better serve the market. They are taking between $50 million and $100 million out of the existing grocery and packaged good channel each week. They have already claimed the center store volume of about 1000 stores, even before adding 460 more in this acquisition. The Whole Foods acquisition is a logical step forward in their strategy to allow them to serve the entire basket. But to many it will be the first, wide scale, visible evidence of their impact.
Amazon now has a platform upon which they can experiment to serve the customer in almost any way that the model may enable. Customers can order with voice, from the web, from the app, from a Dash Button, from their IoT appliance or via a subscription. They can ship to home, provide local delivery, offer store-based shopping and offer in-store pickup. Their team will get up every day relentlessly focused on using these new assets to innovate on behalf of the customer.
This will crank up the heat on existing retailers. It will also force manufacturers and other service providers to become more shopper-centric and to lower their cost of goods and services. As Amazon innovates throughout the model, shoppers will learn what’s possible and expect to be served that way.
I think this will impact all existing businesses in the industry.
KC: And, it’ll almost certainly happen faster than anyone expects.
Let me pose another question. If the Amazon-Whole Foods tie-up is unlikely to collapse, it is likely to face integration issues … even if only cultural. You worked at Amazon, and you spent a long time working at Wegmans … what kinds of problems are they likely to face? And is there some problem that could be percolating beneath the surface, not immediately evident, for which they need to be on the lookout?
TF: This may surprise some folks, but I found there to be many cultural similarities between Wegmans and Amazon. The primary similarity is customer centricity. Both companies maniacally focus on the customer and constantly strive to deliver innovation to them that makes their lives better. Every detail of the customer experience in both companies is well thought out and deliberate. They are both willing to experiment and neither is willing to rest on their laurels.
Also, both companies are data-driven with a strong measurement culture. Both have a strong command of the costs of their business and how those costs drive the customer experience. Whether it’s Amazon understanding the cost and value of a new fulfillment capability, or Wegmans understanding how the prepared foods department contributes to the store equation, both companies have a granular command of their operations.
Although I don’t know Whole Foods deeply, they do appear to be customer-centric. Some have said that they may have lost sight of the customer a bit the last few years while over indexing their focus on mission and their own employees. Whether or not that’s the case, I think Amazon’s customer centricity will be positive for them and it’s a good match overall.
Conversely, it can probably be argued that Whole Foods has not been as data-driven and process oriented as they could be. As Amazon looks to introduce rigor in this area, it could cause internal friction. If that’s channeled positively, that could be a good thing. The team members that are more data and process driven will thrive in the new environment. But it could also cause those that are less so to push back or leave. So there is the chance that it could cause the culture to fracture. But I’d bet that Amazon is comfortable taking and managing that risk. And I’d also bet that it’ll make Whole Foods a much stronger operator that is even better at serving their customers.
KC: Finally, I’m thrilled that we’re going to be launching a podcast version of The Innovation Conversation next month … and I’m curious … what’s the appeal to you of expanding this franchise in this way? (After all, I do stuff like this for a living … and you have a day job creating and nurturing innovative companies.)
TF I love this industry and I’m quite passionate about helping it change with the times. This business is such an important part of people’s lives. But the people we serve are changing. The capabilities available to them are changing. This is a very exciting time. Amazon will be a winner, but there is plenty of room for other companies to win, too. The companies that are willing to get out of their comfort zones, try things and innovate to serve shoppers better will define the new service model and will thrive.
The industry needs a new dialogue. One that Amazon influences but doesn’t completely dictate. The Innovation Conversation, in both its written and live forms, has been a great platform to allow us to spread a little practical insight and inspiration to prompt retailers, manufacturers and service providers to maybe think outside the box and to take a few swings. Adding a podcast may allow us to reach a few more folks. Or maybe it will help the messages ring a little differently.
Plus, working with you has been a total blast!
KC: Same here.
The Conversation will continue...