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    Published on: December 13, 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 topic: Questions from MNB readers.

    And now, the Conversation continues…


    KC: As we wrap up the Innovation Conversation for 2017, I thought I’d pass along three questions that I’ve gotten from readers….

    First … about Amazon packaging.  A reader wrote in to mention how he’d recently bought an electric razor from Amazon, and it came in an enormous box, with lots of bubble wrap.  It struck him as a total waste … and I think we’ve all had that experience.   What’s the explanation behind how products are boxed up?  Is this a weakness for Amazon as people become concerned about the environmental impact of such practices?

    Tom Furphy:
    I think packaging is an area that Amazon takes seriously, but also an area that they are far from mastering. I’ve had personal experiences as well where boxes were excessively large and also where items were boxed together in such a way that a heavy product caused damage to a lighter product.

    Amazon’s systems calculate which box and fillers should be used based upon the items in the order and those being shipped together. And I think they’re pretty good most of the time, but not as often as they strive to be. In the outlier cases where the packaging is clearly excessive for the order, either the packaging algorithm was not accurate or the fulfillment center employee did not select the correct box or did not pack it properly.

    And Amazon Fresh has also struggled with packaging over the years. Totes, bags and cooling materials can quickly become excessive in an effort to protect the products. It’s a constant effort to reduce these.

    Amazon relies on feedback from customers to gather data that they can use to reduce these problems over time. For example, if they saw a high customer contact rate on the razor mentioned above, they would look into it to identify the source of the problem and rectify it. So I would recommend that anyone that has these issues should feel free to report it. You’d be doing Amazon and the environment a favor.

    Amazon also has a couple other strategic packaging initiatives that they’ve championed over the years. Frustration Free Packaging reduces the amount of packaging being used and makes it easy to open and use the products inside. Things like twist ties and clamshell cases are eliminated. They also have a program called Ships in own Container (SIOC) that encourages manufacturers to package their products such that they can be shipped without over-boxing and adding extra materials.

    These efforts are intended to drive a better customer experience. And it is all a work in process.

    KC: Second...Do you have a sense of whether Walmart/Jet are customizing their home pages the same way that Amazon does - creating an entirely different experience for each unique user?  I’ve done it from different computers and it doesn’t seem to be the case.  We’ve always identified this ability to personalize/customize as one of Amazon’s key advantages.

    TF:
    Walmart does have some very basic personalization based upon recent browse experience. However it does not appear to be nearly as sophisticated as Amazon’s. I would imagine that this is something they are focusing on improving. Personalization is critical to succeeding in e-commerce.

    I would also expect Amazon to continue to up their game in the coming months and quarters. As they gather more and more customer-specific information from behavior across devices and voice, they will continue to hone the individualized experience. Not only will placements continue to be improved, but you will likely see search results becoming more tailored to the individual.

    KC: Third…and this is a question I get a lot…if you had to guess, what do you think Amazon’s next big retail acquisition will be, assuming you think that Whole Foods is not their final bricks-and-mortar move?  We won't hold you to it, but there’s a lot of speculation out there and you have a better sense of the company than most people.

    TF:
    I also get asked this question all the time. And I feel completely unqualified to answer it.

    Whole Foods was a logical acquisition toward Amazon’s Fresh strategy. It is a fantastic platform upon which to innovate on behalf of their customers in order to find the optimal way of serving their grocery needs. But it was made after years in the business in which they were able to experiment, understand and appreciate the value of a local brick and mortar presence. That said, I don’t think that Whole Foods will be Amazon’s final brick and mortar acquisition.

    I would expect any future retailer acquisitions to be made under similar circumstances. It would likely come in a category where they feel that a physical experience and local presence is important to the shopper value proposition. Perhaps that could be in the apparel and fashion space with a company like Macy’s, Nordstrom or Kohl’s. Or perhaps it could be in pharmacy if the company pursues that direction. Maybe a retailer like Rite Aid would make sense. None of these are obvious to me now, but if it makes sense based on Amazon’s testing and strategy, I could see them making a move.

    The Conversation will continue … in 2018…

    KC's View:

    Published on: December 13, 2017

    by Kevin Coupe

    Fair to say, I think, that even though “disruption” may have become an overused word, it continues to occur, affecting almost every company … and a New York Times story points to how it can hit entities from unexpected angles.

    The use of ride-hailing services such as Uber and Lyft clearly has had a major impact on the traditional taxi business. But it also seems to be affecting airport profitability.

    According to the story, airports “depend on fees from parking lots, rental car companies and taxis as their biggest source of revenue other than the fees paid by the airlines.” As more and more people use Lyft or Uber, it means that they’re not driving their own cars to the airport, renting cars or taking taxis. And the money airports “currently collect from ride-hailing services do not compensate for the lower revenues from the other sources. (Expectations are that this is temporary … but it is current reality.)

    “At the same time, some airports have had to add staff to oversee the operations of the ride-hailing companies, the report said. And with more ride-hailing vehicles on the roads outside terminals, there’s more congestion.”

    What the Times story makes clear is that airports are having to change the ways in which they do business in order to make up for lost revenue. In some cases, this has meant developing premium parking lots for fliers that gives them faster, more convenient access to terminals. In others, it has required a heightened focus on food and retail that can generate higher fees. (The Times has another story about how Pittsburgh International - which has long been aggressive in its retail offerings - now offers a pass that allows non-fliers to access terminals so they can eat and shop there.)

    The larger, Eye-Opening point, I believe, is that nobody is safe from disruptive influences, and everybody has to be open to the possibility that they have to change the way they do business if they are going to continue to be relevant … resonant … profitable … sustainable … and viable.
    KC's View:

    Published on: December 13, 2017

    The Street reports on how Walmart has “started selling meal kit offerings on its website, including some under the Takeout Kit and Home Chef brands, and some selections are already sold out.”

    The story notes that “each meal kit company is … responsible for fulfilling each order,” with Walmart getting a “referral fee and a small commission.”

    Meanwhile, the Columbus Dispatch reports that Kroger - after having tested meal kits earlier this year in Cincinnati - now will roll out its meal kit offering - a proprietary option dubbed Prep+Pared - in 200 of its stores.

    Estimates are that meal kits, a $1.5 billion business just last year, could hit $4.6 billion this year, and within five years could exceed $11 billion.

    The Dispatch writes that “as the baby boomers have aged, they are eating out less, according to NPD. They also cook less, turning more to prepared foods and easy-to-make meals. Millennials, who now outnumber baby boomers, also are shaping the food landscape through their demand for delivery services, kits and experiences instead of just meals.”
    KC's View:
    Different companies, and so they’re going to have different approaches to the meal kit segment. But, I tend to prefer Kroger’s because it is differentiated and proprietary … which I think matters.

    As for the segment in general … the growth ought to serve as an object lesson for retailers. After all, food retailers had all the ingredients - literally - to invest this category, but left it to outside disruptors to do so. Can’t let that happen anymore.

    Published on: December 13, 2017

    Market research company Euromonitor International is out with a new study suggesting that e-commerce in general will grow 73 percent between now and 2022, and will become larger than the traditional grocery retail channel.

    At the same time, the food-and-drink categories within the e-commerce segment is expected to be the fast growing, at 80 percent between now and 2022.
    KC's View:

    Published on: December 13, 2017

    MarketWatch has a story about how Walmart - “working hard to broaden its appeal to compete with e-commerce juggernaut Amazon” by acquiring upscale brands (like Moosejaw) and establishing new strategic alliances (with the likes of Lord & Taylor) - also is “facing a competitive threat from dollar-store retailers like Dollar General Corp. that are beefing up their value proposition” to appeal to value-driven shoppers to which Walmart traditionally has appealed.

    The story says that it isn’t that Walmart is abandoning price-oriented shoppers. MarketWatch writes that “a retailer’s value proposition isn’t only about low price, but can also include factors like convenience and assortment.” In the end, though, experts say that Walmart has to be careful to consistently reinforce its low-price image if it wants to avoid market share loss to the competition.
    KC's View:
    It is a tough tightrope to walk, and I do think that Walmart has to be careful. I recently said that I think that Amazon’s advantage may be that Jeff Bezos is Jeff Bezos, while Marc Lore (who is running all Walmart’s US e-commerce businesses) just wants to be Jeff Bezos. Walmart has to be careful not to be swallowed up by this ambition.

    Published on: December 13, 2017

    Bloomberg has a story about “ a recently released consumer survey by RBC Capital Markets … showing Amazon already dominating online grocery shopping.” Amazon seems to have a wide lead in terms e-grocery market share, and it “has only just begun absorbing Whole Foods' merchandise and its perishables supply chain, which should help it build on its wide lead.”

    But, the story says, it is too early to draw long-term conclusions about the future, because e-grocery remains a largely uncharted frontier (especially when compared to other categories). And, “while many retail categories have seen a significant share of spending move online, grocery remains largely a brick-and-mortar business.”

    Bloomberg writes: “So Amazon has a big slice of the pie -- but at this point it's a pretty tiny pie. It will be much easier for rivals to topple Amazon from its perch here than, say, in electronics, where swiping and tapping your way to a purchase is already an entrenched behavior.

    “In the online grocery business, shoppers' habits are still forming. Their priorities are different. And that gives Kroger Co., Wal-Mart Stores Inc., Target Corp. and others a real chance to woo them.”
    KC's View:

    Published on: December 13, 2017

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

    • The National Associated of Convenience Stores (NACS) is out with its December 2017 Consumer Fuels Survey, reporting that “low gas prices continue to push consumer optimism to high levels and this optimism will likely translate into more holiday travel and shopping … For the third consecutive month, 61% of gas purchasers say they feel optimistic about the economy, tied for the highest level recorded over the past five years of the monthly surveys.  Optimism is largely uniform across regions but there is a significant difference by gender: Men are far likelier than women to say that they are optimistic about the economy (69% vs. 53%).”

    Not surprised that women are less optimistic, since I have to imagine that all the stories and headlines about sexual harassment and assault in the workplace have to be eroding their ability to feel good about the nation’s direction.
    KC's View:

    Published on: December 13, 2017

    • The Fresh Market announced that it has hired Mary Kellmanson - formerly a vice president of marketing and advertising at Wegmans and senior vice president of marketing at Winn-Dixie and Bi-Lo Holdings - to be its new chief marketing officer, responsible for its brand, marketing and communications strategies.


    • Walmart-owned Asda Group in the UK reportedly has hired Rob McWilliam, formerly Amazon UK's vice president of finance, to be a part-time strategic advisor to its CEO, Roger Burnley. McWilliam worked for Asda in various roles between 1997 and 2013.
    KC's View:

    Published on: December 13, 2017

    Last week, MNB took note of a New York Times story saying that several outdoor and clothing equipment retailers, including REI and Patagonia, are challenging a plan announced by the Trump administration “to slash the size of two national monuments in Utah by some two million acres.” President Trump plans to shrink Bears Ears National Monument by 85 percent, and another monument, Grand Staircase-Escalante, by half.

    Patagonia, for example, sent an email to people on its mailing list in which it said the following:

    “The president stole your land. In an illegal move, the president just reduced the size of Bears Ears and Grand Staircase-Escalante National Monuments. This is the largest elimination of protected land in American history.”

    The same message is prominently displayed on Patagonia’s website.

    At the same time, Patagonia has filed a lawsuit against the Trump administration that will challenge its plans for the public lands.

    Yesterday, GQ had a follow-up story, noting that “many people lauded the company’s decision to defy Trump. Among the most popular sentiments: I’m about to buy myself and everyone I know some fleece.

    “And fleece they bought, according to sales data from Slice Intelligence, a company that measures online shopping. Slice compared each day last week to sales numbers on November 1, a day unaffected by external factors—a shopping holiday like Black Friday, or Patagonia’s anti-Trump statement.”

    The GQ story says that “on Tuesday, the day immediately following the late-afternoon statement, Patagonia’s external web sales—that is, Patagonia gear sold online by non-Patagonia retailers, according to Slice—were six times higher than a typical day. And shopping goodwill remained strong the entire week: Sales were more than five times higher on Wednesday and five times higher on Thursday. Overall, sales were 7 percent stronger the week of the statement than they were the previous week - which included Cyber Monday.”

    The message, GQ suggests, is that “in Trump’s America, it pays to be part of the #resistance. That’s not to impugn the brand’s motives, actions, or statements—it’s just to note that, in this case, they exist hand-in-hand with a display of masterful marketing. And with Patagonia, those two things are never mutually exclusive.”
    KC's View:
    I think that the GQ conclusion needs to be clarified a bit. It may pay off for companies to be part of the resistance movement, but only if the political/values positions being taken are in synch with those of the company’s core consumers. That’s certainly the case here, but it would not be the case for every company.

    It is worth taking positions sometimes, but you’d better know what you’re doing … who your customers are and what is important to them … and it better be authentic, because phoniness could be more dangerous than taking a political position.

    One other thing. There were factions that, in support of the Trump initiatives, suggested in their own publicity efforts that this was just a marketing ploy by Patagonia, that the company “just wants your money.” I think it is worth pointing out that these factions should’ve done their homework, because Patagonia actually long has been forthright about being anti-excess consumption, promoting reuse and recycling programs for its products.

    In 2011, as we reported here on MNB, the company sent out an email recommending that customers notbuy a particular jacket and supporting the Common Threads initiative, which is designed to generate support for a lifestyle that reduces excess consumption and gives “the planet's vital systems a rest from pollution, resource depletion and greenhouse gases.”

    Like I said, Patagonia’s efforts have been consistent and totally on-brand.

    Published on: December 13, 2017

    Got the following email from an MNB reader:

    In Your Views, a reader commented that Out of Stocks = Lost Business . . . and you wondered if it is even more relevant today, simply because e-commerce companies often don’t have the same out-of-stock issues.

    In my personal experience, it’s VERY relevant.  I have food allergies (dairy, eggs, nightshades) which means I buy a lot of non-mainstream food items.  Several retailers carry items that I can eat, but they are often out of stock.  I recently went in to our local Natural Grocers with a shopping list with 9 items on it.  They were out of 6 of them.  Years ago, I just did without.  Now, I go home, power up the laptop, and order a case of it from Amazon.  I now have a list of things that I no longer put on my shopping list; I just order them online.  My online list continues to grow as I add things I just don’t want to wrestle with, even if it is in stock.  My case of coconut milk arrived safely on my doorstep just yesterday.


    Pay attention.




    I was critical yesterday of some of the conditions at my local Ahold Delhaize-owned Stop & Shop, using it as an example of a store that is bringing its D-game to a competitive environment that requires an A-game.

    MNB reader Peter Talbott wrote:

    Looking at the photo of your local Stop & Shop, it’s easy to see how out of the relative affluence of Fairfield County and the continued dearth of premium shopping available, that Stew Leonard’s was born and continues to thrive.

    I’m sure Stew Jr. saw that picture of dirty cart corrals yesterday and did two things. First, he pumped his fist and said that he was glad it wasn’t his store. Second, he went out and checked to make sure that his shopping cart corrals were in good shape, and showed the picture to his people as an example of how not to do business.

    To be honest, I hope that every retailer did that yesterday. That was the point of running the story.

    From MNB reader Phil Herr:

    The Westport, Connecticut, Stop & Shop store is almost as bad. Rather than being an agent for the customer, they have chosen to see the customer as a “target”. So many free-standing displays clogging the aisles, hangers on refrigerator cases and last month, entire cases of Cheerio’s new flavor stacked on the check-out lanes. Taking space where you are expected to unload your cart.

    Wegmans, please come to Connecticut!




    Yesterday, MNB took note of a San Francisco Chronicle report that UK supermarket chain Marks and Spencer has begun marketing a safer avocado - one with no pit and tender skin, that can be eaten whole, and does not require the use of a knife. This apparently is a big deal, especially with the growing popularity of avocado toast - there has been a trend toward hand injuries, including severed fingers and sliced tendons, because of difficulties people have had cutting up avocados.

    The story and comment prompted an email from my friend Karen Caplan, CEO of Frieda’s:

    We giggled when we read the weekend about this “new” avocado coming from Spain…..according to our company records, Frieda’s introduced Cocktail Avocados back in 1966.  They are actually the “Aborts” of the Fuerte variety (now, Hass is the the most widely grown).  The total crop in a season might be a few hundred pounds, but we always enjoyed selling “guacamole in a tube.”

    Thanks for the history lesson … I love Frieda’s, as well as the whole Caplan family.




    Yesterday, MNB reported that Mario Batali, celebrity chef turned retailer - he is a partner in Eataly USA - has been accused of sexual harassment by four women, and has admitted his guilt while stepping away from his restaurant and retail businesses as well as his co-hosting duties on ABC’s “The Chew.”

    I commented:

    Inexcusable. And I’m sure just the beginning within the retail industry.

    I know this. I love Batali’s Tarry Lodge restaurant in Westport, mostly because I’m pretty much addicted to the black fettuccine with rock shrimp, fennel and chilis. But I’m not going back. It is a small protest, but my own.


    I got several responses along the same lines.

    MNB reader Peter Becker wrote:

    Totally your right to boycott Tarry Lodge but by doing that you end up punishing the people who work there and have nothing to do with Batali’s behavior.

    From another reader:

    Not going back hurts the employees.  He on the other hand is finished (albeit with a lot of money) forever. He is getting what he deserves.

    And another:

    I think I have been following MNB for just about as long as there has been MNB and I don't actually recall ever disagreeing with an opinion but you finally came up with one.

    First I want to say Mario's behavior and for the most part all the rest of the accused is reprehensible and inexcusable PERIOD! 

    On the other hand I recently booked a room at the Residence Inn in downtown Chicago specifically because of its close proximity to Eataly and I have every intention of going through with the trip. Mario has $250 million in the bank. Boycotting his establishments will do much more to harm the employees at the bottom of the food chain than it will Him and they have committed no crime.


    I think these are all fair observations, and they make me rethink my protest.

    The problem is, how does a consumer make his or her disgust known if not through some sort of boycott? But you’re right - it probably hurts employees (some of whom may already have been victimized by him) more than him.

    I’m conflicted. But thanks for making me think about what was, to be honest, a knee-jerk reaction.

    On the same subject, from MNB reader Sandi Snowberger:

    Good grief.  Maybe I’m too old and thick-skinned.  Yes, I do not know the situation, but getting tired of hearing about it.  Soon we will be mutes and be arrested for our thoughts like Minority Report.

    Twice we voted a man into the office of President who did MORE than harass women.  NOW it is unacceptable.


    Only twice? I’d bet it was a lot more often than that.

    But I’m going to have to respectfully disagree with you about what has become the ubiquity of this story. It is an important story, it deserves to be told over and over, and people need to lose their jobs because of their bad behavior.

    I’m with US Supreme Court Associate Justice Louis Brandeis, who said: "Sunlight is the best disinfectant.” As far as it is relevant to MNB’s field of play, I intend to provide as much sunlight as possible.




    Finally … we took note yesterday of a Seattle Times report that Amazon, that city’s largest employer, “appears to be seeking the smallest number of new employees in the city in years after a feverish, four-year growth spurt that more than doubled its head count … Open job postings at Amazon’s headquarters, which stood at more than 9,000 as recently as June, have declined sharply and steadily in the last few months.”

    I commented:

    There seems to be general agreement that the city of Seattle, despite the fact that Amazon has helped to make it a 21st century city with enormous growth and prosperity, has not invested enough in the care, feeding and nurturing of the company, which is why it has begun looking to see if there are greener pastures elsewhere.

    The interesting thing is that while there may be general agreement about this fact, some see it as a positive (because Amazon has enabled a housing boom that is seen as hurting the middle class) and some see it as a negative (because Amazon is, well Amazon).


    One MNB reader responded:

    Kevin, I think you have trouble pointing out the truth.

    Here are just a few:

    $15.00 min wage
    Construction Impact Fees
    City tax rate of 10.10%
    Gun laws
    Government Overreach

    Does not shock me at all Amazon is slowing hiring.


    I don’t think I have trouble with the truth. Your truth, maybe…

    A couple of things. First, there was a Fortune story earlier this year that said the following about cities with the highest minimum wages:

    They’ve consistently found that higher wages boost worker pay and haven’t led to either job loss or a slowdown in economic growth.

    Employers see big benefits, too. Workers stay on the job longer, reducing turnover and training costs. They’re also significantly more productive, according to researchers studying wage increases in the United Kingdom.

    There are big benefits for broader society as well. Poverty goes down, as does reliance on public assistance programs—one of the few things both Democrats and Republicans can agree is a net positive. Also improved are infant health and adult mental health outcomes, including a significant reduction in depression. (At a time when one in six Americans pops an anti-depressant every day, this seems particularly important.)


    And while there have been some studies suggesting that the Seattle minimum wage has been stifling to the local economy, there also have been stories debunking those studies.

    As for construction impact fees … if they’re having an impact, you can’t tell by the number of construction sites in Seattle. I remember reading something about how Seattle has more construction cranes than any other city in the country. (Not per capita. More in total.)

    You certainly could be right about the high local taxes and the subject of government overreach. On the other hand, Seattle seems to be a solidly blue city where there is little chance of a political shift. (Taxes may be too high and government too involved for you … but not, apparently, for local residents of a city that I think is one of the nation’s most interesting.)

    But gun laws? Really? You think that Seattle’s gun laws are partially responsible for a hiring slowdown - possibly/probably temporary - at Amazon?

    I’m pretty comfortable with suggesting that you’re mistaken on this one … and that you are like a hammer that thinks everything is a nail.
    KC's View: