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    Published on: May 2, 2018

    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, evaluating the Walmart-Jet strategy, addressing uncharacteristic lethargy at Apple, and assessing the Amazon-Best Buy alliance.

    And now, the Conversation continues…

    KC: We had a story recently about how Jet’s site traffic was down about 60 percent last month, compared with Walmart;’s site traffic being up five percent … all of which seems to be related to the fact that Walmart seems to be devoting more resources to its own site and pulling them away from Jet … though Walmart argues that it is positioning Jet to focus on “key urban markets,” like New York, where it doesn’t have stores.  My first question is whether you think such a bifurcated approach makes sense, and if there is a lesson there for Walmart’s competitors.  And second, I wonder what you think about my speculation that we may soon see a Jet store opened in one of these urban markets, in which Walmart can experiment and push the envelope a bit.

    Tom Furphy:
    Given the overall shift in shopping toward ecommerce, with shoppers continuing to move purchases online in droves, a 60% drop in traffic is abysmal. A 5% increase in traffic means that you’re losing share of traffic. In addition to Jet, I understand that traffic is down across the other sites that Walmart has acquired such as Modcloth and Bonobos. That seems to indicate that traffic is not a priority for these sites and/or customers have decided to shift toward Walmart, with the latter not likely given a mere 5% increase in traffic.

    I’m not sure that a deliberate strategy to pull resources and focus away from these curated sites is a good idea. What made each of them successful, although was certainly still far short of successful when acquired, was their unique assortment, service and merchandising. If they were showing growth and moving toward profitability, a plan to shift that volume to the core Walmart platform is risky.

    I think Walmart positioning Jet to focus on key urban markets could make sense. They don’t have a current store presence in these markets, nor do they have good local ecommerce distribution. So using Jet as a way to focus on these markets, with their own merchandising strategy, unique merchant partners and local fulfillment centers could work. But why create another brand? Does Jet really have an established customer base in these urban markets? If so, it could be a brand to build upon. However, traffic trends would suggest not.

    If Walmart’s rationale is to allow Jet to stand on its own to focus significant resources in creating new, urban, shopping experiences, especially ones that might include stores, I applaud them. Having a sandbox to experiment is a good lesson for any retailer. Innovating for customers takes real commitment. It’s not about incremental tweaks to existing practices. We see Walmart taking big swings across their business now. That’s the real lesson for others.

    KC: We’ve also had a couple of stories about Apple’s HomePod, which seems like it is an hour late and a dollar short when it comes to the smart speaker business.  I figure that if they can’t attract an Apple junkie like me - not only am I completely wired into the Amazon/Alexa system, but they haven’t made a compelling case for why I should switch or even just test the HomePod - then they’re in serious trouble.  But it also occurs to me that this could illustrate something else - that the innovation window these days may only open for short periods of time, and that when competitors miss the moment, more than ever they may find themselves at a disadvantage.

    The game is basically over in the smart speaker market. Amazon and its closed system has a massive lead, with Google and number of partners trying to compete with their open systems. With roughly an 80/20 market share between these two platforms, tens of thousands of skills, and now a majority of US households that own one of them, there is very little room for new entrants in the market.

    We’ve all heard of Moore’s Law, where computer processing power doubles every 18 months. That has held up amazing well over several decades. I also think that there’s a Moore’s Law of innovation. Given the speed of technology advancements, the agility of leading businesses and a new ecosystem approach to market, we now see innovations coming at us far more quickly than in the past.

    So, I think you’re right. The moment to get innovations right is tight. And the ability to respond to innovations with a competitive option is very limited. The innovations that win will be those that are well thought out, drive a value that is substantially better than can be found today and can be rolled into the market quickly, with stickiness.

    Amazon wins across the board in bringing these innovations to market. The smart speaker market was Apple’s to win. But Amazon developed a strategy before the market was ready, innovated like crazy to build a great product, then got it to market well ahead of Apple. Google was a nimble 2nd mover. That’s exactly what Amazon is doing in packaged goods and grocery ecommerce. The things they’ve done around auto replenishment, voice ordering, local fulfillment and now stores sets them up to take massive share. Who will be the nimble second movers in packaged goods and grocery?

    KC: Finally, I’m wondering what you think of the deal that Amazon and Best Buy made to team up to “bring the next generation of Fire TV Edition smart TVs to customers in the United States and Canada.”  Not only will Best Buy have an Amazon TV section in its stores, but it also apparently now also will start selling on Amazon.  What does this tell us about both retailers’ intentions and plans?

    Amazon and Best Buy are both ecosystem retailers that can benefit from participating in each other’s ecosystem. I think this is a great move for both companies.

    Amazon knows that store experiences are valuable across many categories. A partnership with Best Buy gives them a good leg into electronics store experiences, with scale, without having to build or acquire stores of their own.

    Best Buy wins a great source of store traffic thanks to 100 million Prime customers all of whom can benefit from Fire TVs and other Amazon devices found in their stores. It also enables Best Buy to neutralize the potential that Amazon may look to open an extensive range of its own electronics stores.

    And Best Buy opening on the Amazon platform provides them a source of ecommerce traffic that is large and complementary to their current website traffic. Best Buy has held its own with its combination of stores as showrooms, a solid website and app, and a very good click and collect experience. Adding a presence on Amazon makes good sense.

    Both ecosystems are strengthened. A win for both companies.

    The Conversation will continue…

    KC's View:

    Published on: May 2, 2018

    by Kevin Coupe

    I was in Florida last weekend and a friend of mine and I went out for dinner at a Fort Lauderdale restaurant called Rocco’s Tacos. I’d never been there before, but my friend had - plus, the one hour-plus wait spoke volumes about the place’s popularity. (There apparently are several Rocco’s scattered across Florida, but I’;d never heard of it.)

    We put ourselves on the waiting list, ordered a bunch of margaritas, and engaged in some people watching on Las Olas Blvd.

    Once we got a table, we ordered dinner - four tacos apiece, plus chips and guacamole to start.

    That’s when the magic happened. That’s when a young man named Tory rolled his cart up to our table, inquired whether we wanted our guac hot, medium or mild, and then set about making it fresh, right there in front of us.

    First of all, the guacamole and fresh chips were amazing. (So were the tacos. And the margaritas were so good that I was glad we’d taken the water taxi to get there.)

    But it was the making of the guacamole that was so impressive. Tory estimated that he’s made some 6,000 orders to this point in his career, and so he knew what he was doing … and, having a ton of personality, he was a great ambassador for the restaurant experience.

    I was reminded of a visit that I made a couple of years ago to the Northgate Gonzales Market in Norwalk, California, where one of the many outstanding features is a fresh guacamole cart that gets rolled out every morning, staffed by folks who make it to order … and pretty much every morning, there is a line of folks waiting for it to get up and running.

    I did a story about it for MNB that you can see here.

    The Rocco’s experience spoke to me about the power of the theatrical experience - even small ones - within a retail environment. These are the things that can differentiate a store, create a reputation, empower an ambassador, establish an advantage.

    Theatrical experiences cannot, by their very definition, be replicated online. The Rocco’s experience was a reminder of that … and it was an Eye-Opener.

    KC's View:

    Published on: May 2, 2018

    The Wall Street Journal has a story about how 7-Eleven seems to be falling behind “rivals that are gleaning more sales from healthier snacks and freshly cooked meals,” with sales in this segment that went up 20 percent last year - which sounds good, except that industry-wide, those sales went up 31 percent.

    Chief Merchandising Officer Jesus Delgado-Jenkins tells the Journal that “7-Eleven wants to introduce home delivery of goods from deodorant and batteries to sandwiches in more cities. The company, which is competing with Inc. and others for home delivery, says half of people in the U.S. live within a mile of one of its red-and-green signs.”

    And, “the company’s executives said they are working to come up with better foods to sell in their 9,700 North American stores.”

    The extent of the experimentation: “Some 7-Eleven stores are selling freshly made chicken wraps and cold-pressed juices, and some have tested delivery by drone.”

    But, the Journal writes, there’s a problem: “The effort to freshen up 7-Eleven’s business has run into resistance from the chain’s franchisees. Eight out of 10 7-Eleven stores are owned by franchisees, most of whom own fewer than five stores. Many say it is too expensive to maintain new equipment like ovens, and that 7-Eleven needs to pay to remodel their stores if they want them to sell more fresh and hot food.”
    KC's View:
    I’m sympathetic to the financial concerns of the franchisees, but they’d better recognize the possibility - and maybe the likelihood - that if they don’t get with the program, their businesses may soon be rendered irrelevant. They need to understand that they’re not just competing against other c-stores, like Wawa and Sheetz, that are eating their lunch.

    They’re also competing against every supermarket, drug store and dollar store that wants to make a convenience play … not to mention online retailers like Amazon that want to marginalize every non-exceptional store experience …. and every restaurant with a delivery mechanism to satisfy hunger pangs and provide immediate gratification.

    Published on: May 2, 2018

    Two interesting stories about related Amazon stories…

    • The Wall Street Journal reports on how Amazon has been reaching out to some of the cities that did not make the list of finalists for its second North American headquarters, dubbed HQ2, telling them why they did not make the cut and offering advice for how they can better attract technology companies.

    Detroit, for example, was told that a key problem was the lack of a regional transportation network, plus a lack of technology workers. While the city wasn’t surprised by the rationales, city officials now feel that the Amazon comments may give it the juice to get a mass transit plan approved by voters.

    Orlando is responding by “starting a community fund to invest in local technology companies.” And “the Cincinnati Regional Chamber refocused an apprentice program for public high-school students on information-technology firms, to address Amazon’s criticism that the city didn’t have enough homegrown tech talent.”

    • The New York Times reports that as Amazon officials visit the cities that made the finalist list of HQ@ locations, they did something that surprised local officials: “Quiz them on how, if Amazon chooses to settle there, the company could avoid the problems it confronts in Seattle, the only hometown it has ever known.

    “If Amazon moves in, bringing up to 50,000 high-paying jobs to town over time, how would the officials deal with traffic on its roads? And how would the company’s tax dollars contribute to the creation of affordable housing in the region?”

    Local officials, the story says, “did not anticipate Amazon’s interest in how to tackle some of the troubles that have turned it into a polarizing symbol of Seattle’s booming economy. The e-commerce giant is celebrated by many in Seattle for being the city’s biggest employer and adding tremendous wealth to the area. But it is villainized by others for bringing too much change, too quickly.”

    One example: “In Denver, Amazon and local officials talked at length about public transit options and the creation of bike lanes … They even discussed the possibility of Amazon financing a new light-rail station for its system, though no commitments were made.”
    KC's View:
    I find this fascinating. Not only is Amazon aware of its Seattle problems and trying not to repeat them - though it probably will be tough to avoid housing prices going through the roof.

    I also like the idea that Amazon essentially is advising cities about how to be more attractive to tech companies … and not just to Amazon. It is just like business - cities that are mired in old ways of doing things and are not re-engineering themselves for the future will find themselves left behind by cities that do.

    Published on: May 2, 2018

    Daymon is out with a new report, “The State of the Store Experience,” in which it argues that “55 percent of shoppers said they would no longer visit a store where they experience repeated service issues – and 45 percent would not return due to navigation difficulties.”

    To help retailers address these challenges, Daymon says that it “used direct consumer feedback to identify 31 distinct attributes of the shopping journey that offer opportunities to create an ownable experience,” with private label defined as a key differential advantage.

    Among the findings:

    • “28% of best-in-class Private Brand programs are value-added. Retailers that go beyond ‘me-too’ products and services have a reputation for differentiation.”

    • “Store navigation frustrations lead to 45% attrition. Lean on your Private Brands not merely as products, but as the authority on helping shoppers identify what’s right for them.”

    • “Even the best retail strategy can be undermined by something as basic as out-of-stocks. In fact, Daymon finds that $1.4-$2.4 million per week is lost at an average retailer due to promotional out-of-stocks.”

    The entire report can be found here.
    KC's View:

    Published on: May 2, 2018

    • The Boston Globe reports that Amazon announced yesterday “a huge expansion in Boston that will bring 2,000 technology jobs to a new building in Seaport Square, where it will focus on developing its Alexa voice-activated technology, as well as cloud computing and robotics,” a move that “cements Boston as one of the retail giant’s prime technology hubs.”

    Boston remains in the running as one of the 20 finalists for Seattle’s second headquarters, dubbed HQ2.

    The announcement came as Amazon also announced a major expansion in Vancouver, British Columbia, that will be focused on e-commerce technology, cloud computing and machine learning.

    • Ahold Delhaize-owned Giant Food Stores of Carlisle, Pennsylvania, yesterday announced that, in partnership with sister company Peapod, “that the convenience of online grocery shopping and delivery is now available in the Reading, Birdsboro, and Temple communities.”
    KC's View:

    Published on: May 2, 2018

    Tech Crunch reports that Amazon is launching a new book club for kids, Prime Book Box, that will, for $22.99 a box, send age-appropriate groups of books to children.

    That’s physical books, not e-books. (Amazon already has a “reading service called Prime Reading,” the story notes, “but it is focused around Kindle e-books, along with selected digital magazines and travel guides.”)

    In its description of the soon-to-launch service, Amazon says that “these books include classics that have stood the test of time as well as hidden gems that our Editors couldn’t put down—stories that your reader can enjoy again and again. We will also use your recent purchase history to avoid including a book you have already purchased on Amazon.”

    Tech Crunch writes that “the idea of bringing out a physical book service specifically for children is notable. Parents are more likely to buy (and get gifted) physical picture books and young adult novels rather than e-books as presents, and so kids often build up libraries of these. It also could be a helpful fillip to those of us out there who are trying to figure out engaging ways of reducing screen time for offspring … It’s also a clever way of introducing younger people to using Amazon, and also for Amazon to start developing reading profiles for others in your household besides you the Amazon account holder.”
    KC's View:
    Sure, this is self-serving - it gets more people used to getting product from Amazon and using subscription services.

    But I still like the idea, and think that I might gets Mrs. Content Guy’s third-grade classroom a subscription, just for the fun of it. It would be a great thing for schools to encourage parents to do … even if it does help Amazon.

    Published on: May 2, 2018

    • The St. Louis Post Dispatch reports that Schnuck Markets plans to open a new small format store - 37,000 square feet and with a strong focus on fresh foods - in Warrenton, Missouri, this fall.

    According to the story, “The announcement of the new Warrenton store coincides with the closing of two Schnucks in Rockford, Ill. Workers at those locations will transferred to other Schnucks locations, the company said.”

    • Publix Super Markets said that its sales for the first quarter of 2018 were $9.3 billion, a 6.8 percent increase from last year’s $8.7 billion. Same-store sales were up 5.1 percent, while net earnings for the first quarter of 2018 were $680.3 million, compared to $555.3 million in the first quarter of 2017, an increase of 22.5 percent.”
    KC's View:

    Published on: May 2, 2018

    • The Fresh Market said this week that Rich Durante, the company’s executive vice president of Midwest and Southeast merchandising, has been named the company’s chief merchandising officer.

    Before joining The Fresh Market last year, Durante was president/COO of AG Supermarket Holdings, owner of Kings Food Markets and , Balducci’s.
    KC's View:

    Published on: May 2, 2018

    Last week, I did a commentary about the importance of retailers not just stocking product, but also aggressively selling it, especially when products are items with which shoppers may not be familiar or aware. I used Ohio-based Graeter’s ice cream as an example - though they didn’t ask for the attention, and they knew nothing about it in advance.

    Some MNB readers thought I was hopelessly naïve in my commentary, and I got the following email from George Denman, whop is Grater’s Vice President of Sales:

    You surely have created a fire-storm of feed-back from your column regarding your comments on the responsibility of retailers in supporting niche differentiated brands like Graeter’s and then leveraging that differentiation. I don’t disagree with many of the feed-back from retailers and consumers on your column. Graeter’s firmly believes it is incumbent on our brand to earn that coveted real estate with retailers like Wegman’s, Kroger, Harris Teeter, Mariano’s, Whole Foods, Giant Eagle,  Fresh Market, Meijer and many more coast to coast that made the decision to carry our brand. We invest not only millions in trade and marketing spend each year with these retailers but also have invested millions into food safety achieving SQF level 3 Certification and millions into plant and logistics infrastructure to ensure quality is maintained throughout the supply chain to the end consumer.

    Yes, there are local solutions in ice cream in every city but do they have the resources and capability to make these investments to ensure that their product is safe, can meet the retailers turn requirements, and quality isn’t compromised? Look at the number of food recalls that have occurred in this category in the past three years related to listeria, which did little to advance the growth of the category. Graeter’s has a 148 year legacy of being family owned and has an ownership that understood what it took to scale the company up from $8 million to over $65 million in just few years.

    That is where so many small companies fail, with owners not willing to invest in resources to help them grow beyond their capabilities and capacities. Graeter’s success in the market is directly related to the passion of its owners and employees that are committed to an un-compromised commitment to quality and a commitment to maintain production to our exclusive French Pot small batch process. Yes, we could make ice cream cheaper and faster through co-packing in modern equipment. But we wouldn’t have the texture, creaminess, and massive signature chocolate chips that differentiate our brand from everyone else. It is that differentiation is why Graeter’s is carried in 45 states coast to coast in select retailers that have agreed to collaborate with Graeter’s to provide and support our unique product to their discerning customers. That is also the brand has such a passionate fan following across the US not just in Cincinnati and why our robust mail order business is the largest in the ice cream category with LA and NYC being our largest markets. That is why Graeter’s has 56 scoop shops across the Midwest across multiples cities spanning from Chicago to Pittsburgh. Graeter’s is not just a Cincinnati brand as some of your readers have claimed and clearly we have never considered ourselves to be an “out of towner,” even in Fred Meyer.

    Graeter’s is the one of the world’s largest purchaser of black raspberries that are grown right there from the Willamette Valley in Oregon supporting hundreds of local farmers that support and shop every day at Fred Meyer. Graeter’s is not for every retailer, and we believe that 100%. We support all the other brands trying to compete in this tough retailing environment and offer one bit of advice. Know who your customer is and never deviate from what makes you different. Graeter’s doesn’t focus on the competition. We just focus on maintaining a quality and experience that fulfills our consumers needs and wants. This in turn ensures that the competition remains irrelevant to them.

    On another subject, I got the following email:

    I’m continually shocked at the level of customer service of brick and mortar stores that I experience in an ever increasing competition with online sales. Last week I found myself in an O’Reilly Auto Parts needing a new headlight. I would typically just order on Amazon but was driving past an O’Reilly. I walked in, was greeted by a very nice employee asking if I needed help, I turned, saw the headlights and said no thank you. Grabbing the bulb, I walked toward the counter where the same employee followed me and politely said she could quickly ring me up. 
    This is where this simple transaction took a strange turn. The phone rang just as she was about to scan my item. She answered and began a 3-4 minute conversation helping the customer on the phone. Once she hung up the phone, she profusely apologized to me, explained that corporate had enacted a policy to prioritize phones calls above customers in store as potential sales over a guaranteed sale of someone in-store.
    After this experience, it is unlikely that I will ever shop O’Reilly again. I have been getting my automotive parts from Amazon for years now due to better pricing and quality name brand parts rather than cheap imported or remanufactured units. New windshield wipers are waiting for me on my doorstep as I write this. Thanks Amazon Prime. I’m good with the price increase and can’t wait for the new Amazon exclusive shows!
    In an article on O’Reilly’s competing with Amazon here. CEO Greg Henslee said that, when it comes to "the transition to online," the company has "not seen much in our business that's led us to be very concerned about it." Online retailers "will continue to take a little bit of market share here and there," but "I don't see them nearly as one of our most prominent competitors." 
    Countless other retailers have said the same thing… The difference between healthy growth and a slow death are often only a few percentage points.

    Finally, we took note yesterday of a CNBC story about how Sen. Marco Rubio (R-Florida), is saying that there is “no evidence” that the recently passed federal tax cut is really helping US workers.

    “There is still a lot of thinking on the right that if big corporations are happy, they're going to take the money they're saving and reinvest it in American workers," Rubio told the Economist. “In fact, they bought back shares, a few gave out bonuses; there's no evidence whatsoever that the money's been massively poured back into the American worker.”

    I brought it up in our “Politics Desk” section because:

    … it reflects a theme that I’ve tried to return to frequently here on MNB. I’m in favor of tax policy that enables companies to be more profitable, but my concerns about this from the beginning has been that the rewards would be enjoyed by top execs and shareholders, and not so much by front line personnel who make companies, especially retailers, successful.

    By the way, we took note here the other day of a story about a company where this does not seem to be the case - Kroger says it is investing in wages, benefits and employee education, not just in its shareholder rewards. I think that’s admirable.

    One MNB reader responded:

    Senator Rubio might be right but remember that companies need to replace all the profits lost under the crushing regulations of the previous eight years. Trump delivered one of the biggest tax cuts in history and 4 months is not a very long period to start making judgment on how well they were received. It took Obama 8 years to destroy the economy and it will take eight years for Trump to correct it.

    I firmly believe that the nation’s economy always can be made stronger, more stable and more growth-oriented.

    But I do want to understand your premise, just in the interest of fairness and accuracy. You are arguing that Obama took a healthy economy and destroyed it during his eight years in office?

    I just want to be clear about this. In the interest of fairness and accuracy.
    KC's View: