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    Published on: May 17, 2018

    This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

    Hi, Kevin Coupe here and this is FaceTime with the Content Guy.

    Bloomberg had the story the other day about how “traditional brick-and mortar chains are starting to strike some innovative partnerships with their arch-competitor, turning to unconventional arrangements in the hopes of getting more shoppers back into their stores. If executed properly, there's a good chance these once-unthinkable alliances end up being a rare win-win scenario, with both the legacy retailer and Amazon getting something they need to unlock new growth.”

    The companies doing so include Sears (which will install tires bought on Amazon), Kohl’s (taking Amazon returns), Best Buy (which is selling the next generation of Amazon Fire TVs in its stores, as well as selling merchandise via Amazon), and Chico’s (which is now selling its own-label apparel on Amazon).

    I get the rationale behind these moves.

    At Chico’s, CEO Shelley Broader - an old friend of mine - suggested to CNBC the other day that she’s hoping to use Amazon to drive customers to its stores. "Finding alternative channels to introduce our products to new customers is what 2018 is all about for us," she said. ”When you have so many Prime members — we all know the number now — who better to partner with ... to gain those new customers for us?"

    At Kohl’s and Best Buy, while they have different situations to deal with, the goal is the same - drive traffic, and hopefully drive sales and profits.

    And at Sears … well, let’s face it, they’re going to make any deal that will stave off total extinction for another day. (They’ve already achieved irrelevance and obsolescence. Not many mountains for Sears left to climb.)

    While I can imagine that maybe the Amazon relationship might lead to me actually walking into these stores - especially Best Buy - I also think that they’re playing with fire.

    Amazon is omnivorous. It knows that there are certain things that physical stores do better than virtual stores, and so they’re happy to establish alliances that work in its favor.

    But that’s the key phrase, I think: “Its favor.”

    A friend of mine likes to say that “you can do business on Amazon, but you can’t do business with Amazon.”

    At the end of the day, Amazon wants to build its brand and its ecosystem. I think it is dangerous to give it a variety of platforms from which it can learn, experiment, and grow … and from which it is likely to take steps to compete with and perhaps destroy the very retailers with which it is doing business.

    It won’t happen immediately. It will be like the old Ernest Hemingway line from “The Sun Also Rises:”

    “How did we go bankrupt? Two ways. Slowly, and then all of a sudden.”

    Just like every retail brand, the retailers creating new and “innovative partnerships” with Amazon have to be careful to protect their brand equity at all costs.

    Because if they don’t, the sun will go down on their brands, and won’t rise again.

    That’s what is on my mind this morning, and, as always, I want to hear what is on your mind.

    KC's View:

    Published on: May 17, 2018

    by Kevin Coupe

    I was talking to my sister, Amy Coupe, last night when she drew my attention to a recent and highly successful promotion run by independent bookstores in Connecticut.

    Amy is a media specialist at a local elementary school, and is a devotee of independent bookstores; she’s visited them all over the country, and trumpets their advantages over the Amazon experience. (She’s been known to take me to task for my affection for Amazon.)

    According to Amy, 20 participating independent bookstores in Connecticut decided to celebrate Independent Bookstore Day on Saturday, April 28, by offering the following incentive: Shoppers could obtain a Connecticut Independent Bookstore Day Passport at any participating store and, if they visited 15 out of the 20 stores on April 28 and 29 - and got it stamped - they could will receive a $25.00 gift card from each participating location.

    More than 100 customers won the promotion, Amy said … and she was one of them.

    That’s remarkable. Certainly worth noting. And an Eye-Opener.

    I’ve never argued that bricks-and-mortar stores are dying … just that mediocre bricks-and-mortar stores are endangered, and that they deserve to be, because they are not doing what they need to do to survive.

    This is an example of a segment of the retail community taking control of its own destiny. It was a terrific idea … though, it must be said, that it must be followed up by more terrific ideas and strategies and tactics that differentiate these stores from their physical and digital brethren.
    KC's View:

    Published on: May 17, 2018

    Kroger has announced a deal that will have it taking a five percent stake in British e-commerce and logistics company Ocado, which will allow it to bring Ocado’s technology to the US exclusively.

    The Financial Times reports that “the deal with Kroger is the latest in a string of tie-ups announced by Ocado in recent months, soothing market fears that the retail technology and logistics group was struggling to find takers for its ambitious model. Earlier this month, it inked a deal to build Swedish supermarket ICA’s online grocery business, following deals with Canadian grocer Sobeys and French supermarket operator Groupe Casino.”

    The five percent of Ocado, FT writes, is worth about $247 million.

    Kroger will be required to hit certain targets in terms of penetration if it is to maintain its exclusivity. Ocado was said to be in talks with other US retailers before striking the deal with Kroger; those other talks now have been dropped.

    Reuters reports that “Ocado’s technology automates the processing and packing of online grocery orders, using hundreds of robots in technologically advanced order fulfillment centers. Kroger will identify at least 20 sites to build new, automated warehouse facilities in the United States … more than all of the facilities Ocado has built or is planning to build for all its other partnerships to date.”

    The BBC reports that “Ocado and Kroger are already looking to identify the first three sites for automated warehouse facilities in the US, and are aiming for up to 20 sites over the first three years of the agreement.”

    Kroger CEO Rodney McMullen says that the deal will help it speed efforts to “redefine the food and grocery customer experience — creating value for customers and shareholders alike”.

    Ocado CEO Tim Steiner says that “the opportunity to partner with Kroger to transform the way in which US customers buy grocery represents a huge opportunity to redefine the grocery experience of Kroger’s customers and create value for the stakeholders of both Kroger and Ocado.”
    KC's View:
    When Ocado launched, almost two decades ago, the strategy was to be a pure-play online supermarket … it had no stores, and no alliances with traditional stores. Clearly - and wisely - that has changed over time, as Ocado has recognized that it has far greater value being a component in a larger enterprise.

    Consumers, it seems to me, want options - they want the convenience of not having to go to the store, and like it when their store also gives them a rationale to go to a store that is compelling and differentiated.

    I think this was a smart move for Kroger, and I’m glad they pulled the trigger. The grocery space in the US just got a lot more interesting and competitive.

    Published on: May 17, 2018

    The Minneapolis / St. Paul Business Journal reports that Target “is reducing the delivery fee of Restock, its next-day service for household essentials,” from $4.99 to $2.99.

    The move comes as Amazon’s membership fee for Prime has gone by 20 percent from $99 a year to $119.

    According to the story, “Target hasn't said how many customers use Restock — analysts noted that the company lately has been talking more about its same-day grocery-delivery service, Shipt, which it bought in December — but it continues to expand the service. Restock is now available in 60 metro markets.

    “The company is also making Restock free of charge for members of its Redcard program. Growth of Redcard has slowed recently - to the point that Target is experimenting with other loyalty programs - and this would give customers who haven't picked up the card yet another reason to do so.”
    KC's View:
    It is a good time to lower prices. But Restock isn’t the same as Prime … it is more like an attempt to mimic Subscribe and Save and Amazon’s Dash buttons.

    But, it isn’t nearly as frictionless as those two Amazon services. It is the right direction, but doesn’t go nearly far enough … because automatic replenishment remains a great differentiator for Amazon that virtually nobody in the grocery segment has tried to compete against.

    Published on: May 17, 2018

    Business Insider reports that Amazon has begun informing at least some of the cities that it said were finalists in a search for a second headquarters city in North America - HQ2 - that they have not been chosen.

    Officials in Arlington, Texas, just 20 miles from Dallas, say that Amazon execs gave them the news a couple of weeks ago.

    According to the story, “While Arlington did not make the 20-city shortlist for Amazon's new headquarters, Dallas did. On Tuesday, Arlington city officials released details of the bid it had submitted with Dallas … Arlington had offered $921 million in incentives, the officials said after disclosing the bid's rejection. Those included things like parking space, incentives for Amazon to hire local residents, and land grants for developing the new headquarters.”

    Arlington officials say that it is their impression that Amazon may be looking for a more robust urban environment.

    Amazon has said that HQ2 will cost $5 billion to build and may result in the creation of 50,000 jobs - plus the economic development that results from supporting businesses.

    CNBC reports that “Amazon is closing in on the site of its new headquarters after visiting all 20 finalist locations … The report didn't indicate whether the list has been narrowed or whether there is a leading contender, but officials from several cities told NBC they had seen a flurry of interest from other companies (not Amazon) in the wake of Amazon's interest.”
    KC's View:
    I’ve been arguing that I think it’ll be either Boston or Austin, though I’ve been swayed to believe that Toronto may have a better-than-outside shot. I have one MNB reader who swears that it is going to be Columbus, Ohio, and that the decision already has been made … though I’ve seen no supporting evidence.

    Published on: May 17, 2018

    Raley’s has opened a new format - dubbed Market 5-ONE-5 - in the historic R Street District in downtown Sacramento, saying that it is “founded on the principle that discovering quality, nutritious food should be easy, accessible and affordable. Every item in the store was hand-selected based on three core values: Organic, Nutrition and Education (ONE).”

    The store, the company says, “was developed specifically to meet the needs of people who are overwhelmed trying to decipher food labels and translate ingredient lists. In fact, it goes to great lengths to stock the shelves with items that meet the highest standards of health and nutrition set according to the Market 5-ONE-5 brand promise. This includes minimally processed, organic and sustainably sourced products that are free of unrecognizable ingredients not found in nature.”

    Raley’s Michael Teel says that “Market 5-ONE-5, and what it stands for, has been a vision of ours for a long time. Its purpose is to offer our community access to fresh, nutritious and affordable food. Its mission is to help people live healthy, vital lives by taking the guesswork out of understanding nutrition.”
    KC's View:

    Published on: May 17, 2018

    The Wall Street Journal has a story this morning about the beers of summer - specifically, how “Mexican-style beers have become an unexpected darling of the artisanal set, and craft-brewed takes on this category have started to bubble up all over.”

    There are five that the Journal specifically recommends, perfect for “an empty beach, a lapping tide”:

    • Anchor Brewing Los Gigantes: “Like Mexican street corn straight from a vendor’s grill, this is sweet, with a lime-y tang and the slightly savory finish of Anchor’s trademark yeast.”

    • North Coast Brewing Co. Laguna Baja: “The darkest of this bunch, opening with the toffee sweetness of a good espresso’s crema and finishing with its sharp kick.”

    • Flying Dog Brewery Numero Uno: “Sweetened with agave nectar and zesty with citrus, a tart refreshing take for the Margarita set.”

    • Oskar Blues Brewery Beerito: “The honeyed bloom of roasted hazelnuts builds to a brittle, sugar-crusted finish, like crunchy cinnamon toast.”

    • Full Sail Brewing Co. Sesión Negra: “A weathered orange-brown in hue, this beer is sparkling-light, with the nutty, grainy chew of oat berries.”
    KC's View:
    I’m getting thirsty just reading about these. Here’s what I’m wondering … if I add a lime, does it make any of them a citrus-based breakfast beverage?

    Just asking.

    By the way … any retailer worth its salt should take this Journal article/list, blow it up down at Kinko’s, and then post it over these beers that have been pulled into a display, and maybe offer a deal if you buy all of them. Maybe do tastings if you’re legally allowed. The goal - do something that an online retailer can’t do.

    Published on: May 17, 2018

    • From Business Insider

    “JPMorgan estimates that Amazon Prime membership is worth $785 annually, versus the $119 that Amazon is now charging customers. The value of the membership has increased 12% since last year, with the addition of new perks like free two-hour delivery of groceries from Whole Foods through Prime Now, the report by JPMorgan said.

    The story notes that “in addition to free two-day shipping on 100 million items, Prime also offers one-day free shipping on more than one million items, and access to a vast digital library of videos, books, and music.”

    "Prime delivers such massive scale and features that we believe it would be very difficult for any company to replicate and compete against, and Amazon continues to expand and add more value to Prime by adding new benefits and growing existing offerings," analysts wrote.
    KC's View:
    I’m a Prime user and fan, but even I’m not sure I buy this. It strikes me as being written by an analyst with a position in Amazon.

    A thing is worth what people are willing to pay for it. No more, no less. Retailers that try to convince themselves otherwise are going down a path they probably should avoid … because it leads to self-satisfaction, self-delusion, and self-aggrandizement.

    Published on: May 17, 2018

    • The Food Marketing Institute (FMI) announced the four recipients of the 19th annual Store Manager Awards:

    Category A: (1-49 stores): Al Gartner, Lunds & Byerlys, Woodbury, Minnesota
    Category B (50-199 stores): Kathy Sweigert, Giant Martin’s, State College, Pennsylvania
    Category C (200+ stores): Pam Hudson, Dillons Food Stores, a division of The Kroger Co., Hutchinson, Kansas
    Category D (International): Joanne Walker, SPAR Northern Ireland/Henderson Group, Co. Down, N. Ireland
    2018 Store Manager People’s Pick (chosen via facebook vote): Mitch Cochran, Food City, Cleveland, Tennessee

    • Temkin Group is out with its annual Temkin Trust Ratings (TTR)., which benchmarks the level of trust that consumers have with 318 companies across 20 industries.

    Wegmans is the top ranked supermarket at 79 percent, followed by HEB at 77 percent.

    The highest ranked business in the country was USAA bank.

    According to Temkin, “The supermarket industry earned the highest average TTR (66%), followed by investment firms (62%), insurance companies (61%), and auto dealers (61%). TV/Internet service providers earned the lowest average TTR (32%), well below the next lowest industry, health plans (49%).”

    • The Puget Sound Business Journal reports that Starbucks, in calling China a main growth engine for the foreseeable future, now is projecting that “it will have 6,000 stores in 230 Chinese cities by 2022, which also means tripling its revenue and doubling its operating income in the country. This is up from the company's previous target of 5,000 stores by 2021.”

    Reuters reports that “Allergan Inc. was sued on Wednesday by four large U.S. retailers that accused the drugmaker of antitrust violations for trying to stop rivals from selling generic versions of Restasis, its medication to treat dry-eye disease.”

    The story says that the four retailers “accused Allergan of illegally preserving its monopoly by obtaining illegal patents, suing rivals that challenged those patents and transferring the patents to a sovereign Native American tribe, New York’s Saint Regis Mohawk Tribe, to escape scrutiny by U.S. courts.

    “The retailers said generic Restasis would have been on the U.S. market by May 2014 but for Allergan’s activities, and that the Dublin, Ireland-based company should pay triple and other damages for its anticompetitive conduct.”
    KC's View:

    Published on: May 17, 2018

    • Seattle-based Uwajimaya announced yesterday that it has named Stephanie Steiner as VP of Sales & Marketing; Steiner previously was Director of Sales & Marketing at Unified Grocers / SuperValu, and a grocery merchandiser with PCC Community Markets.

    Uwajimaya also named Stephen Keller as VP of Finance, saying that he “brings a wide range of experience from his former finance roles in technology, apparel retail and manufacturing including local favorite, Eddie Bauer.”

    Finally, Uwajimaya announced that is has added “iconic Northwest chef, restaurateur, author and entrepreneur, Tom Douglas, to its Board of Directors.”
    KC's View:
    Had to mention this last one … because Tom Douglas is, after all, the owner of Etta’s, which is my “local” whenever I’m in Seattle, and is the home base of Morgan, the best bartender on the planet.

    Published on: May 17, 2018

    Content Guy’s Note: Stories in this section are, in my estimation, important and relevant to business. However, they are relegated to this slot because some MNB readers have made clear that they prefer a politics-free MNB; I can't do that because sometimes the news calls out for coverage and commentary, but at least I can make it easy for folks to skip it if they so desire.

    • The US Senate yesterday approved a resolution that would “nullify the Federal Communications Commission's net neutrality rollback,” National Public Radio reports.

    “The final vote was 52-47. As expected, Sen. Susan Collins, R-Maine, joined Democrats in voting to overturn the FCC's controversial decision. But two other Republicans — Sen. John Kennedy of Louisiana and Sen. Lisa Murkowski of Alaska — also voted in favor of the resolution of disapproval.”

    Net neutrality is essentially defined as a policy requiting all internet providers to treat all websites equally, regardless of size. The Trump-era FCC is rolling back that requirement, saying that those rules reflected the ”heavy hand” of government excess that only served to inhibit innovation and research at telecom and cable companies. Those who object to this move argue that it will mean that companies with deep pockets will be able to pay for faster access to consumers, which is not in the public interest.

    The lines between the two sides of the issue has been fairly specific, with content companies like Amazon and Google favoring net neutrality, and service provider companies like Comcast, Verizon, AT&T and Time Warner lobbying for deregulation.

    The Senate vote seems to be more symbolic than anything else, since it is seen as highly unlikely that the US House of Representatives will follow its lead. However, as NPR reports, the symbolic vote is one that is likely to get a lot of attention in the upcoming midterm elections as the two parties look to define themselves and their narratives for the voting public.
    KC's View:
    As I’ve said before I’m with John Ross, the president/CEO of IGA, who took up an unexpected role as part of the resistance movement when he
    urged all of his members to fight the FCC on this one, saying that “killing net neutrality will give (big telecoms and cable companies) license to charge new internet gateway premiums that accelerate their margins and discriminate against smaller players on the Internet.”

    Like independent retailers.

    Several governors have taken steps to reimpose bet neutrality rules in their own states. The battle lines continue to be drawn, in stark terms.

    Published on: May 17, 2018

    • Joseph Campanella, a character actor who had a five-decade career that saw him in more than 200 TV and film roles, passed away yesterday. He was 93.
    KC's View:
    I know this seems obscure, and some of you are saying, “Huh?” But I needed to take note of this today because Campanella was an important part of one of my favorite TV series when I was a kid. On the first season of “Mannix,” Campanella played Lew Wickersham, Joe Mannix’s boss at Intertect, a detective firm that relied on computers to solve crimes, not the instincts and fisticuffs that Mannix preferred. That set up the dramatic tension of the first season … and keep in mind, this was about man vs. computers in 1967-68!

    The problem was that the show actually was ahead of its time, and the writers/producers didn’t quite know how to sustain the theme … and so they changed the format for the second season. But Campanella was great in season one (it is available on DVD), and I always kind of missed him when he was gone.

    And that’s why I wanted to mention his passing. Point of personal privilege.

    Published on: May 17, 2018

    Responding to yesterday’s story about Walmart dropping its Scan and Go app, one MNB reader wrote:

    I currently use the Sam’s Club Scan and Go app.  This is one feature that has attracted me to retain my membership for this club store.  The thought of waiting in long lines, especially at Sam’s, would be reason to ‘stay away’. I love that I can grab what I need and literally walk out the door.

    I don’t think they do a good job promoting this app and I can only speak of the club store I shop at.  Friends I talk to aren’t even aware it exists.  As for Walmart, they may not be testing this app in my area, but I certainly would consider using it specifically for the same reasons why I chose Sam’s Club.  The lines at Walmart are ten time worse.  I avoid that store because of that.  I hate that I need budget 30 minutes to check out a handful of items.  Self-scanning still not a ‘quick’ solution.  I hope they reconsider it and roll it out to more stores.

    From MNB reader John Rand:

    I find this to be an echo of a former (and continuing) problem in retailing – which is, to put it mildly, a lack of patience and inconsistent execution.

    When the first hand-held scanners were made available to the general public to do self-scanning and speed checkout, a number of companies jumped on installing these. Most of them stopped within a year or two. But I was in touch with Food Lion (actually it first showed up in a Bloom – another good idea that was not well executed) and spent some unscientific but interesting time discussing the adoption of the tech by shoppers – and the pattern later checked out, at least anecdotally, in other retailers as well – in year 1, uptake was 1-3% of shoppers and perceived as pitiful; but in year 2 it rose to 5-7%, in year 3 it was 11% or better…and it skewed heavily to mothers with children. Amusingly the children thought it was cool and tended to learn its use faster than the parent and helped drive adoption.

    But by year 3 the system was an orphan, shunted off into a corner, unadvertised, the rack of scanners  barely kept clean. The “converted” shopper knew how to use it, but new shoppers were largely left on their own, potentially clueless.

    Something of an exception was Stop & Shop, which had a seminal role in developing the concept in the first place. They stuck with it, at least in select stores, and, again anecdotally, it leveled off at somewhere between about 10-15% adoption depending on the locale.

    Still, relieving 10% or more of your shoppers of the entire checkout process, shortening lines and rewarding them for investing a little time to learn how to shop in a differentiated way, was hardly a failure. But because it was not a majority of shoppers, because it took patience and interaction with shoppers, because it was not an instant success, it tended to be abandoned, another wasted initiative.

    Retailers need to cultivate a little patience, and maintain some follow-through on new ideas, or they end up killing their own solutions in the cradle.

    I was criticized yesterday from paying too much attention to Amazon, which prompted the following email:

    It seems about 20 years ago journalists covering the food/grocery business spent a lot of time covering the unfettered growth of Walmart, and the potential demise of everyone else. I can recall at the time it was a very real concern for many retailers (a number of whom are gone today because they either couldn’t or wouldn’t adapt).

    Had you been writing MorningNewsBeat at that time (was it IdeaBeat?) it is likely that your articles and commentary would have carried a disproportionate amount of coverage related to Walmart. Walmart woke a lot of people up to the reality of a changing landscape.

    Amazon is now doing the same at breakneck speed and with a significant amount of both capital and intellectual capital at its disposal. These folks are clearly very smart, very well lead, and fearless. While to some your coverage might seem excessive, you are shedding light on what others need to do to compete. For many it sucks not to be Amazon, just like it sucked not to be Walmart 20 years ago. But many will rise to the challenge, the landscape will continue to evolve, and the fittest will survive.

    Who will it be 20 years from now?

    Good question.

    And yes, I know that in the early days of MNB (and yes, even before that at IdeaBeat), I got a lot of email saying that I was paying too much attention to Walmart.

    It generally is my feeling that often the folks who complain the most about my coverage of certain companies are the ones who ought to be paying the most attention to what those companies are doing.
    KC's View: