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    Published on: September 6, 2017

    by Kevin Coupe

    Several years ago, when Tom Furphy and I began doing “The Innovation Conversation” together, it was largely designed to be a text version of the innumerable chats that we’ve had over the years; sometimes in cities and at meetings where we both were in attendance, often at Etta’s in Seattle, where he and I would go whenever I was in town, and where we’d talk for hours about technology and excellence and where the industry was headed. (We’ve also done “The Innovation Conversation” live for audiences in a number of locales, which always has been great fun and highly topical.)

    Which made it all the more ironic when during the summer there was a convergence of circumstances and interest in our doing “The Innovation Conversation” as a podcast. We both like to talk about the subject; I do it for a living, while Tom has a venture capital and development firm that nurtures new and exciting companies … meaning that he actually does the stuff that I only talk about. But these regular talks are fun for both of us, and we thought that it’d be a nice way to take “The Innovation Conversation” to the next level. Our plan is to include the occasional interview with interesting folks, and while we may not actually be sitting at the Etta’s bar being served by our favorite bartender, Morgan, we hope that the podcast will be breezy, spontaneous, and entertaining. (Our goal is for it to sound like sports radio, except about innovation.)

    And so, I’m happy to announce that starting next month, on a date still to be determined, we’re going to be adding an “Innovation Conversation” podcast to the mix. It’ll be on a quarterly basis to start, and will be available both here on MNB and in places like the iTunes store or wherever you find your favorite podcasts. (This will begin to placate, I hope, the MNB readers who I think I should turn the whole site into a daily podcast. I’m not ready to go that far, but maybe this is a start.)

    “The Innovation Conversation” podcast will be presented by the good folks at GMDC, who really got this ball rolling and who I think are committed to driving an ongoing internal and external focus on business innovation. And, it will be sponsored by ReposiTrak, a longtime MNB sponsor with whom readers are highly familiar for its breakthrough technological approach to the food safety issue.

    And so, I hope you’ll watch for the first edition of “The Innovation Conversation” podcast, coming next month … it’ll be an Eye-Opener.
    KC's View:

    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?

    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?

    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.)

    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...

    KC's View:

    Published on: September 6, 2017

    The Charlotte Observer has an interview with Kevin Kelley, co-owner of design firm Shook Kelley, in which he talks about the changes that retailers will have to make if they are to adapt to new competition and the urbanization of the country.

    “Learn to think small,” Kelley says he tells retailers. The reason:

    “Lidl, which is coming to Charlotte, are getting more customers,” the Observer writes. “Because they’re small, it’s easier and faster to find your way through them, and they can focus narrowly on the foods you’ll buy. You’re also seeing smaller, tighter grocery offerings in unusual stores, such as Target.”

    And, the story goes on:

    “The giant ‘we have everything’ food stores, like Walmart, Costco and larger chain supermarkets, have to change their model to survive, Kelley says. And many supermarket chains still resist that notion. ‘They really struggle with editing,’ he says. ‘No, no – we have to have 70 feet of sodas.’ Even though soda sales are going down.”
    KC's View:
    In a basic sense, I believe that retailers that traditionally have run 75,000 square foot stores need to start designing 40,000 square foot units. The folks running 40,000 square foot stores ought to be thinking about 25,000 square feet. The people running 25,000’s out to be focused on 15,000’s. And so on … because you have to start thinking now about the changes that may take place tomorrow. You have to prepare for what can happen, not just for what you hope/guess will happen.

    I also think that retailers and store designers ought to approach every new building by deciding where the click-and-collect station will be, and from what section of the store deliveries will be implemented. Not that these both will be offered right away, but you have to start planning now for the future.

    This is not about size. This is about mindset.

    Published on: September 6, 2017

    The Wall Street Journal has a story about how, while there is much concern in the culture that automation and robotics will have a broadly negative impact on employment trends and economy, exactly the opposite may be true.

    “The brick-and-mortar retail swoon has been accompanied by a less headline-grabbing e-commerce boom that has created more jobs in the U.S. than traditional stores have cut,” the Journal writes. “Those jobs, in turn, pay better, because its workers are so much more productive.

    “This demonstrates something routinely overlooked in the anxiety about the job-destroying potential of robots, artificial intelligence and other forms of automation. Throughout history, automation commonly creates more, and better-paying, jobs than it destroys. The reason: Companies don’t use automation simply to produce the same thing more cheaply. Instead, they find ways to offer entirely new, improved products. As customers flock to these new offerings, companies have to hire more people.”

    The fear of technology is hardly a new thing; the story points out that “in 1589 Queen Elizabeth I refused to grant the inventor of a mechanical knitting machine a patent for fear of putting manual knitters out of work.” And it notes that one of the tenets of Keynesian economics is that technology warned of how it “can create unemployment because tech advancements outpace the creation of new opportunities.

    But, the fears often are “baseless. James Bessen, an economist at Boston University School of Law, has found in numerous episodes when technology was supposed to annihilate jobs, the opposite occurred. After the first automated tellers were installed in the 1970s, an executive at Wells, Fargo & Co. predicted ATMs would lead to fewer branches with even fewer staff. And indeed, the average branch used one-third fewer workers in 2004 than in 1988. But, Mr. Bessen found, ATMs made it much cheaper to operate a branch so banks opened more: Total branches rose 43% over that time.”

    That’s not to suggest that the process is painless: “The people thrown out of work by automation are seldom the same people employed in the new industries that automation makes possible. But over time, the net effect is consistently positive.”
    KC's View:
    And, what we get is progress.

    There is reason to be concerned about the impact of technology, but I fervently believe that the Bessen conclusion is accurate - that in the long run, new jobs, careers and opportunities will be created. Now, like Willie Sutton, you have to be willing to go where the money is … it probably doesn’t make sense to simply wait for progress to come meet you on your own terms.

    Published on: September 6, 2017

    The Wall Street Journal reports that Amazon, looking to maintain its edge in what the paper calls the “artificial-intelligence assistants” game, now is “adding hundreds of engineers to the Alexa program and giving it hiring preference over other division.”

    Sources tell the Journal that “ Amazon executives are eyeing a land rush they have created, with new or planned devices using similar virtual assistants from Alphabet Inc.’s Google, Apple Inc., Microsoft Corp. and Samsung Electronics Co. All four rivals have access to different, deeper pools of data through their huge device businesses, which could be used to quickly train assistants on user behaviors and language.”
    KC's View:
    Amazon, on the other hand, only has “user data primarily from its retail website,” the story says.


    No small thing.

    Which explains the Amazon-Microsoft tie-up that we reported on yesterday.

    And, it illustrates that even Amazon, seen by so many people as an ultimate threat, also sees its own shortcomings, and is trying to address them.

    Good lesson.

    Published on: September 6, 2017

    GeekWire reports that Walmart wants to build its own “neural network cluster,” which will then allow its Walmart Labs division “to build a series of neural networks in order to train AI systems within current and future applications.”

    Here’s why that’s important: “AI could become a huge differentiating factor in the retail stores of the future, and it’s one big reason why Amazon bought Whole Foods for $13.7 billion this year. Whole Foods gives Amazon Web Services’ artificial intelligence team reams of data on shopper behavior to study and train its own AI systems, and AWS will be able to use Whole Foods stores to test drive AI-related services that could eventually become part of the core AWS product lineup.”

    While Walmart generally is not seen as being at the same AI level as Amazon (or Google or Microsoft or Facebook, for that matter), GeekWire points out that “this is what Walmart Labs was created to do: bring the dominant retailer of the 20th century into the digital world as quickly and efficiently as possible.”
    KC's View:

    Published on: September 6, 2017

    Fast Company has a story that is about how a supermodel named Karlie Kloss created an initiative that helps young women learn how to code.

    The program, called “Kode With Klossy,” has been in existence for three years, and in that time more than 400 girls have gone through summer camps on a scholarship program she developed. According to the story, “Kloss can now track where these students have ended up, and the results have been impressive. One of the original beneficiaries just won the grand prize at the TechCrunch Disrupt Hackathon, together with three other high school girls. (The team beat out 750 engineers with a virtual reality app that can help treat and diagnose ADHD efficiently.)

    “Another young woman from the first cohort has been accepted to top computer science college programs around the country, including NYU, Stony Brook, and Columbia.

    “Inspired by these successes, Kloss is expanding the Kode With Klossy program. In addition to these two-week summer camps, she has started to partner with women-led community organizations around the country to launch three-day coding workshops. She’s already collaborated with Electric Girls in New Orleans, Girls Inc. of Omaha, and CoderGals in Miami to offer “back-to-school” coding workshops to teen girls, entirely free of charge.”

    You can read the entire story here.
    KC's View:
    I know this story isn’t specifically related to retailing, but I love the notion that people and businesses can help create opportunities for people who might ordinarily not have them … especially in cases where primitive/traditional cultural attitudes might throw up barriers to accessibility.

    Kloss is said to be looking for partners who will help her expand the program even more, and I think that the companies that work with her may find that they have helped create a talent pool from which they can draw, and from which they may get new and diverse ideas about how to approach business.

    Published on: September 6, 2017

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

    • The Retail Dietitians Business Alliance (RDBA), which represents some 600 retail registered dietitians throughout the U.S. that most often work in supermarkets, today is launching a Social Media Dashboard, designed to give registered dietitians “an opportunity to manage their social media in one place while providing real-time results of their influence. In addition, members can compare their Social Media Ranking against other RDBA members.”

    Phil Lempert, president/CEO of the RDBA, said that the Dashboard is focused on helping dietitians become more influential within their organizations.

    Using social media to influence shoppers, which forges the kind of consumer connections that create lasting relationships between retailers and customers, is incredibly important … and nutrition guidance is a kind of ‘ground zero’ area where food stores - and the dietitians that represent them - can establish their differential advantages.

    • Kroger said yesterday that employees in the Dallas/Ft. Worth market represented by the United Food and Commercial Workers (UFCW) have ratified a labor agreement that “provides good pay increases, affordable health care and financial support from the company to our associates' pension fund to support their retirement.” The contract covers 11,000 associates working at 105 stores in the Dallas/Ft Worth and East Texas areas.  
    KC's View:

    Published on: September 6, 2017

    • Kroger has announced the Scott Hays, VP operations for the company's Fry's division, has been named president of Kroger’s Michigan division. He succeeds Jayne Homco, who is retiring after 42 years with the company.
    KC's View:

    Published on: September 6, 2017

    Back before I took a few days off, we had a couple of stories about LL Bean, and how the company was focused on making long-term decisions that were in synch with the brand’s value and values proposition, and it prompted the following email from MNB reader Steve Workman:

    It made me immediately think of the recent news on Chick Fil A opening a restaurant in the New Atlanta Falcons Mercedes-Benz Arena.  Of course they received a lot of press when they announced this a week or so ago, but most of it was negative.  “Why would they open a location in the stadium when they will be closed on Sunday’s, and therefore closed 7 out of the 8 home games for the Falcons this season?”  “I don’t understand what they are thinking!”  “Who’s smart idea was that?”

    I’ll tell you who’s smart idea – The Marketing Department!  Just think of the press they received for that over the last few weeks.  Just think of the press they will get again once the Falcons play their first home Pre-season game, their first home game, in fact every home game!!

    So Georgia is home for Chick Fil A, so that makes sense, and they have received and will continue to get Free Publicity, good and bad, from this move (Ever hear the old saying, any publicity is……), and oh by the way this stadium will be home to many other events that occur on every other day but Sunday, including Concerts, College Football, Tractor pulls, etc., etc., etc.  I can’t wait until this Stadium gets the Super Bowl in a few years, the absolute biggest single event each year, and Chick Fil A will NOT BE OPEN for that either…I can hear the press now…

    So not only did Chick Fil A stick to their values, but they actually, in my humble opinion, will profit tenfold from this move.

    I actually would disagree with you about the press coverage. I did a little research and read a couple of dozen stories about the issue, and thought that for the most part writers were pretty respectful of Chick fil A’s policy; if anything, they quibbled with the Falcons’ decision to have a closed-Sundays restaurant in their stadium, but most also pointed out that the venue will be opened other days for other events. I think that’s certainly a legitimate question worth asking … and in terms of Chick fil A’s position in the Atlanta community and its broader value proposition, the answer makes sense.

    MNB reader Ray England had some thoughts about yesterday’s Eye-Opener, which took a look at the efforts put forth by HEB in the wake of Hurricane Harvey:

    What a great story, one that illustrates that big companies are made of people, and more often than not; people with compassion.

    I often get distressed when “Corporate America” is described with blanket statements that pretty much denigrate everyone involved as nothing more than greedy, self-serving profit mongers. I’m sure that like me, many of your readers have spent a lifetime in the grocery business and what HEB is doing today does not seem unusual. I spent close to thirty five years in the supermarket business and no matter where, whether it was tornados or ice storms in Texas, thirty inch overnight snowfalls in New England, or hurricanes in the Alabama and Florida gulf coast…EVERY supermarket retailer I worked for responded in the same way. Try to get to work, try to get stores open and try to get people what they need as soon as possible. Was it for accolades, or jacking up profits? No, it was to make sure folks could get what they needed as soon as possible.

    You know, one of the marketing companies I’ve worked with over the years noted that we humans are hunters and gatherers by natures and supermarkets are where people come to provide food for themselves and their families. If companies that have that basic connection with their customers didn’t respond in the way HEB is…then what a world of hurt we’d all be in.
    KC's View: