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    Published on: October 2, 2017

    by Kevin Coupe

    The Associated Press reports that a California drone company, Matternet, is involved in a test that has drones involved in the delivery of a variety of products in the Zurich, Switzerland, market.

    Matternet is teaming up with Mercedes Benz and Siroop, a Swiss e-commerce startup, in a program that is designed to have the drones “speed up deliveries, buzzing over congested urban streets or natural barriers such as Lake Zurich.” However, the drones are not making deliveries to shoppers; rather, they “will take items from a distribution center in the Zurich area and transport them 8 to 16 kilometers (5 to 10 miles) to awaiting delivery vans. The van drivers then bring the packages to homes.”

    According to the story, “The experiments come as big firms such as Amazon and Google have spent several years investing in drone delivery research. So have some traditional delivery companies that are eager to find new ways to transport small packages, which take up the bulk of the market. Several African governments have also embraced drone networks to deliver medical supplies in rural areas.”

    I think this is interesting, since the assumption generally has been that drones would be used to deliver products directly to consumers. But what this shows is that drones actually could be deployed in a lot of ways to make the supply chain work more efficiently … and I think the broader lesson is that innovative companies are going to approach problems from a lot of different angles, and may find unexpected solutions.

    Which is what every company and business leader needs to do.

    It ought to be an Eye-Opener.
    KC's View:

    Published on: October 2, 2017

    Forbes has a piece by Neil Stern, Partner at McMillanDoolittle, in which he says that German discounter Lidl may be having a tougher problem getting traction in the US than expected - the company “has appointed a new executive in Germany to oversee its operations in the United States. Though local U.S. management disputes aspects of the initial reporting of the reshuffle by a German newspaper, which pointed to ‘frighteningly weak’ performance at some of the current 37 stores, it does seem to be a signal that conquering the U.S. may be a bit more difficult than Lidl had foreseen.”

    Stern says in his piece that he believes that the Lidl stores are overbuilt - “too large (25,000 square feet), too overly-engineered and too costly to operate. Eleven full-sized checkout lanes, as one example, adds costs to the box and seems overkill for demand.” He also believes that there is too much reliance on nonfoods for US consumers. Stern does give high marks to the stores’ bakeries, wine departments, produce and private label prices.

    Stern concludes: “Lidl is an enormously tough competitor. Well capitalized and easily capable of making course corrections, it is not to be taken lightly, despite some early miscues. The road to 500 or 1000 or 1500 stores, however, must begin with a store model that works. I don’t see that yet. It will be interesting to see if new corporate management makes any significant course corrections.”
    KC's View:
    The thing that people familiar with Lidl tell me is that it is a mistake to think that Lidl will suffer the same fate as Tesco’s aborted Fresh & Easy format in the US. Lidl has a lot more freedom to make mistakes and recast itself because it is a private company without the same demands that investors can make of a public company like Tesco.

    I’ve never believed that Lidl will totally disrupt the US supermarket industry; I’ve been doing this way too long to think that. (When I started writing about this industry, there were fears that Cub Foods was going to destroy every other format.) But it can have an impact, both in terms of specific operations and consumers’ expectations.

    Published on: October 2, 2017

    TechCrunch has a really interesting story about delivery service Instacart in which it uses the biological difference between the spleen and the kidney to explain what Instacart needs to do to be successful, especially since it seems likely that at some point it will lose the Whole Foods business because of Amazon’s acquisition of that retailer.

    Here’s the metaphor:

    “The spleen does things in the body, real things. It filters poisons and biologists think it once did much more. But, if your spleen goes sideways you can take it out and not change your lifestyle much. It does stuff, but not enough to make it indispensable. Lose your kidneys and your life is going to start sucking real fast.
    You wouldn’t die with just one kidney, but you’d certainly notice. And that’s the point.”

    The story suggests that what Instacart has to do is go beyond the simple delivery function and become more integrated in the e-commerce experience:

    “There are two critical ways to improve the Instacart experience overall, but both can be boiled down to building a stronger connection to its network, including users and grocery partners. Instacart needs to know you, what’s important to you, while maintaining a real-time understanding of what’s going on at every grocery partner location on its platform.”

    You can read the story here.
    KC's View:

    Published on: October 2, 2017

    During a recent panel discussion at Marquette University's annual commercial real estate conference, Joe McKeska, president of Elkhorn Real Estate Partners, suggested that his analysis indicates that “a significant portion of grocery sales (will) move online—from roughly 2% today to upwards of 20% by 2025.”

    But, while “the ready assumption is that Amazon or other e-commerce players will take the lead,” McKeska said that this is not going to be just from Amazon and its e-commerce brethren, but also because of “the significant progress U.S. chains have already made in developing their e-commerce capabilities, including bringing click-and-collect to their stores … Traditional grocers have begun to identify ways to leverage their brick-and-mortar stores. They are rolling out more rational e-commerce business models as a bulwark against Amazon and other online companies.”
    KC's View:
    This could be accurate, but I almost don’t think it matters. The only thing that predictions like this accomplish is creating expectations that, if they fall short, persuade people that the trend has been overblown. What’s more important, in my view, is the degree to which online interactions between shopper and retailer are integrated seamlessly into a bricks-and-mortar environment that becomes increasingly experiential.

    Published on: October 2, 2017

    USA Today reports that “two weeks after filing for bankruptcy protection,” Toys R Us “is debuting an augmented reality experience that it hopes will help reinvigorate its stores and make them destinations for shoppers who might otherwise choose to shop online.” The AR installations are scheduled to go live in 23 stores today, and then nationwide in three weeks.

    CEO Dave Brandon says that the AR initiative was in the planning stages long before the bankruptcy filing, and that “it's going to transform the experience of coming into a Toys R Us bricks and mortar store and turn it into something that’s quite different and a lot more fun. We believe that’s going to drive a lot more traffic into our stores which will ultimately put us in a position where we can be more successful at growing our sales and our company.’’

    At the same time, Toys R Us said it plans to launch a new online store sometime next year that will allow it “to increase its product selection and decrease time to market for new merchandise.”
    KC's View:
    Augmented reality installations? Good idea.

    Better online experience? What took you so long?

    I’m not sure that the AR installations are enough to change the game for Toys R Us, but even I - someone who generally finds that the Toys R Us experience makes my skin crawl - might visit one just to see what it is all about. That’s step one … but it is the beginning of creating a better store experience, not the end.

    Published on: October 2, 2017

    Newspapers and television stations In Texas have been reporting on the trial of John Morgan Campbell, the former H-E-B executive who was instrumental in the development of its Central Market concept, who is charged with 53 counts of child pornography and is facing up to 600 years in prison if convicted.

    According to the stories, Campbell reportedly accidentally attached a pornographic image of a young boy to a business-related email sent to an H-E-B co-worker back in 2014. That co-worker immediately reported it to both company executives and the police. Campbell was fired by H-E-B, and, according to the Dallas Morning News, “Texas Rangers seized Campbell's work devices and found 50 graphic images and three videos,” all of boys who appeared to be underage.

    The San Antonio Express News notes that when Campbell, 66, was arrested, he allegedly told officers, “You got me,” and “This is what happens when you do stupid things.”
    KC's View:
    This is so far beyond stupid that I don’t even know where to start. Even allowing for the fact that people are innocent until proven guilty, the news coverage suggests that the evidence is overwhelming, and that the defense isn’t denying the existence of the pics on Campbell’s computer - just trying to find legal reasons to mitigate the legal damage to his case.

    It pains me to write this story. I know John Campbell. I’ve spent some time with him looking at stores, taking advantage of his insights. He took me to dinner once when I was in Austin. I found him to be extraordinarily knowledgeable, gifted in his understanding of retail, and extremely charming. I know people who have known him for a long time, people of strong moral character who must now be at an utter loss. It is difficult for me to reconcile the man I knew, if only a little bit, with the man whose portrait is being painted in deep, dark and disturbing colors in a Texas courtroom. I am, in a word, gobsmacked.

    Published on: October 2, 2017

    Fox Business reports that Amazon “has sold about $1.6 million in Whole Foods beans, breakfast cereal and other store-brand products in the first month since taking over the organic chain, one of the first infusions of cash the e-commerce giant has delivered to the natural grocer through its site … During the past month, 19% of Whole Foods sales on Amazon were of snacks and candy, followed by frozen fruit and vegetables.” The numbers are based on an analysis by One Click Retail.

    The story notes that “Amazon is mass marketing Whole Foods' store goods just as American consumers are looking for healthy food sold under less-expensive private labels. Of the 2,764 shoppers surveyed by the Bain & Co. data firm earlier this year, 85% said they were open to trying private label goods.”
    KC's View:

    Published on: October 2, 2017

    • The Tampa Bay Business Journal reports that Publix “is expanding its meal kit pilot, offering the kits at another store in the Tampa Bay region … It is only the third Publix store to sell the kits; the other stores are in Tampa and Orlando, which debuted the kits earlier this year. The kits are offered in three levels of complexity: simplest, which requires heating the food; simpler, which could mean up to four steps; and simple, a meal that takes up to six steps.”

    The retailer has said that the meal kit sales thus far have been “promising,” but that the program is still in a test phase.


    Bloomberg reports this morning that “Canadian grocer Metro Inc. agreed to buy pharmacy chain Jean Coutu Group Inc.” for the equivalent of $3.6 billion (US), in an effort “to diversify its business in an industry under increasing threat from Amazon … The deal links two giants from Quebec and gives Montreal-based Metro an expanded foothold in the drug business, mirroring Loblaw Cos.’ purchase of Shoppers Drug Mart four years ago.”
    KC's View:

    Published on: October 2, 2017

    • Rite Aid Corp. announced the hiring of Kermit Crawford, the onetime executive vice president and president of Walgreens’ pharmacy, health and wellness division, as its new president/COO.

    Most recently, Crawford has been a consultant with private equity firm Sycamore Partners.
    KC's View:

    Published on: October 2, 2017

    • Monty Hall, who co-created and hosted the TV game show ‘Let’s Make A Deal” for more that four decades, passed away over the weekend at age 96.
    KC's View:
    Hall’s passing gives me an excuse to quote from one of my favorite Jimmy Buffett songs, “Door Number Three:”

    And I don't want what Jay's got on his table
    Or the box Carol Merrill points to on the floor
    No, I'll hold out just as long as I am able
    Until I can unlock that lucky door
    Well, she's no big deal to most folks
    But she's everything to me
    Cause my whole world lies waiting behind door number three.

    Oh Monty, Monty, Monty, I am walking down your hall
    Got beat, I lost my seat but I'm not a man to crawl
    No I didn't get rich … I’ll be back just wait and see
    Cause my whole world lies waiting behind door number three
    Yes my whole world lies waiting behind door number three.

    Published on: October 2, 2017

    We had a story last week about a new online shopping survey from the Retail Feedback Group (RFG), concluding that Amazon and Walmart both get high marks, and that traditional retailers with online functionality still have a lot of work to do. RFG principal Doug Madenberg wrote in with some clarifications:

    One of the survey findings has gone below the radar in terms of media coverage but should be a warning call for brick-and-mortar food retail:  We asked respondents which aspects of the grocery shopping experience were best served by ordering online, versus shopping in-store (or somewhere in between).  While online shopping won out on the more obvious factors like “efficient use of my time” and “more convenient for me,” shopping online was also roughly equal to shopping in-store when it comes to “more enjoyable” and “can be more pleasantly surprising.”

    It seems to me that physical stores should own the sensory, experiential elements of food retailing… where a shopper can sample a product or smell something cooking, or run into a gregarious butcher or baker, and come away with an experience that can’t be replicated on a two-dimensional screen.  But it seems that stores are not generally capitalizing on what can (and should) make them stand out.  One encouraging image advantage for shopping at physical stores, according to our shopper panel: it demonstrates that the company knows and cares about food.  Amen at least to that.





    Responding to our recent story about Amazon pushing Whole Foods to become more centralized in its purchasing behavior, and eliminate some in-store third party support, one MNB reader wrote:

    I have to say this could be the first miss step by Amazon/ WF and the WF team is letting it happen. They surely know that turnover in most grocery chains approaches 100% over a two to two and a half year period. That said, the only consistent retail support in the grocery store is manufacturer rep and broker retail support team. This second and third party support in many cases is the difference between success and failure for many grocers, even is some don’t see it. These outside services provide reset, grand opening, re-grand opening support. They stock promotional and regular priced items, rotate product, fill voids and support speed to shelf on new product introductions. They check promotional and regular pricing tags. And, they provide competitive activity if asked for the grocers, as well as serve as emergency blitz support for hurricanes, power outages and store equipment failures.

    These businesses go in when the store employees don’t show up, they have to sell in order to make a living! The grocer doesn’t need to worry about hourly wages, unions, hours, training employees with these outside services. In other words these services give the grocer more bang for the buck than any 5 of their own in-store employees.
     
    My goodness, doesn’t WF know this, I am confident when I say that most if not all grocery retailers do!


    From another reader:

    At the risk of starting a centralization/decentralization religious debate, let me just offer the following thoughts on the Amazon and Whole Foods enterprise business model.  There is no doubt that the closer you can make the decisions that impact customers near the customers, the better customer experience you are likely to have for a given business unit, the store in this case.  That said, unbridled decisions can often solve the same problem or meet the same customer expectations in different ways but at a higher cost, e.g., lost volume leverage, multiple costs duplicated across units, etc.

    The real trick given all the data available to understand customer expectations that is being analyzed by some smart business people…both local, regional and national, is deciding what is best for the customer and what is best for cost efficiency.  I gotta believe that Amazon will look to balance those positions with any question as to which is best…falling on the side of the customer.  Which after all, is how Amazon got here.


    And another:

    Please, Amazon, go and get rid of the local selections and vendors in Whole Foods. We, at Kroger and our other banners, are happy to continue to promote local entrepreneurs and their products!

    And still another:

    How tragic that the real power of local brands will be left behind. I love being able to buy local at Whole Foods. Not all last, but I love supporting those with the courage to step up and create something new and put it out there. Whole Foods has been such an important platform for new and local producers. And we all get to know and become friends with the vendors who come to our store every week. I truly don’t think Austin can really know what or how to promote a small Vermont Cheese company in Massachusetts. Or if they would even blink along enough for a tiny new company to come into their radar and get their attention. But what do I know….?




    We had a story the other day about how Beth Newlands Campbell, the former president of Hannaford Supermarkets, Food Lion, and the Atlantic/Ontario Business Unit of Sobeys, has been named president of Rexall Drugstore, which operates 471 pharmacies across Canada.

    Prompting one MNB reader to write:

    While in downtown Toronto this summer with my pharmacist wife, we stopped in a newly remodeled Rexall.   As my wife visited with the young pharmacist behind the counter, I walked the store and found it to be bright and well-merchandised.   Despite its small footprint, its shelves had a high profile that allowed them to carry most everything an urban resident might need.   Most interesting to us was the large selection of colognes and perfumes, none of which was locked in a case or had security tags on them as you typically would find in the US.




    The other day we took note of a New York Times story about how “marriage, which used to be the default way to form a family in the United States, regardless of income or education, has become yet another part of American life reserved for those who are most privileged. Fewer Americans are marrying over all, and whether they do so is more tied to socioeconomic status than ever before. In recent years, marriage has sharply declined among people without college degrees, while staying steady among college graduates with higher incomes.”

    MNB reader Steve Baus responded:

    Regarding marriage, a few years ago I remember reading a list of things to do to increase your chances of not being poor.  On the list was get married, stay married and do not have kids until you are married.  If you followed the list, the chances of being poor were in the very low single digits.  Now my wife would say one way to not be poor is to buy the roasted chickens at Costco for $4.99.

    MNB reader Mary Cosper pointed to another trend:

    A monogamous relationship with children but not married.   I do not have any data to back up this idea, but I have several antidotal stories of friends, family and acquaintances from various socioeconomic backgrounds living this lifestyle (both straight and homosexual).

    From another reader, another reason for the decline in marriage:

    Don't forget the marriage penalty with taxes.  I think a lot of people are starting to realize that Uncle Sam takes a much higher cut of income from married couples than two singles.

    And from another:

    I fall into the jaded/complacent/cynical bunch whose parents divorced when I was young. I’m very much the “third option” you mentioned; I’m 27 and in a relationship with no plans of marriage, but it is a topic of conversation often amongst many people my age. Some feel pressured by society/social media to find the perfect partner and other do not feel that pressure. I have friends who:

    • Have children but aren’t married. Some in relationships still, some single parents.
    • Have children and are married.
    • Have already been married & divorced.
    • Have been engaged but broke things off (some seem to chronically be engaged & breaking things off…).
    • Have opted for the I guess “traditional marriage” route – High school or college sweethearts, move in together, get engaged/married after a few years.
    • Have dated for a long time with no desire to ever be married.

    A ring and a ceremony don’t really mean that much to me, nor are they indicative of a happy/successful relationship by any means. But I’m glad Mr. & Mrs. Content Guy seem to have things sorted out!


    To be honest, a ring and a ceremony don’t mean much to me, either … we had them, but that’s not the reason we’ve been together for so long. (The other day we celebrated the 38th anniversary of our first date.) I got lucky … because nobody else would’ve or could’ve put up with me for so long.




    Regarding Amazon’s expanding Alexa universe, one MNB reader wrote:

    I’m a big fan of Alexa and have the Dots scattered throughout the home and even have the smart plugs and switches.  I’m hoping that Amazon will create a standalone store similar to the Apple store where one can go and learn more on how to use Alexa and to set up one’s dwelling to better utilize the ecosystem that Amazon is creating for the home and to purchase products there.   I think this would be a huge step forward in promoting the Amazon products and providing a great customer experience.

    That’s part of what they offer in their Amazon Books stores. But I agree with you - the larger and more nuanced the ecosystem gets, the more of a resource Amazon will have to be.




    We had story the other day about a Ralphs store that just gave away food to local residents driven out of their homes by fires, prompting MNB reader Andy Ellen to write:

    How many e-commerce retailers were there to lend a helping hand? But those same people who walked into Ralph’s to be helped in a time in need will go back to their laptop or smart phone to order their groceries and other purchases when their lives return to normal soon forgetting the kindness shown by Ralph’s.

    I agree with your first point, but I’m not sure about your second. I’d like to think that people are not quite that cold and forgetful about the kindnesses of strangers.
    KC's View:

    Published on: October 2, 2017

    In Week Four of the National Football League…

    New Orleans 20
    Miami 0

    Carolina 33
    New England 30

    Jacksonville 20
    NY Jets 23

    Tennessee 14
    Houston 57

    Pittsburgh 26
    Baltimore 9

    Cincinnati 31
    Cleveland 7

    Detroit 14
    Minnesota 7

    LA Rams 35
    Dallas 30

    Buffalo 23
    Atlanta 17

    Philadelphia 26
    LA Chargers 24

    San Francisco 15
    Arizona 18

    NY Giants 23
    Tampa Bay 25

    Oakland 10
    Denver 16

    Indianapolis 18
    Seattle 46




    In Major League Baseball, the playoffs begin tomorrow night with the American League Wild Card game between the NY Yankees and the Minnesota Twins; on Wednesday night, in the National League Wild Card game, the Colorado Rockies will face off against the Arizona Diamondbacks.

    The other teams in the MLB post season are:

    NL East - Washington Nationals
    NL Central - Chicago Cubs
    NL West - Los Angeles Dodgers

    AL East - Boston Red Sox
    AL Central - Cleveland Indians
    AL West - Houston Astros
    KC's View: