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    Published on: June 27, 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, we focus on the importance of fast responses in a digital world, why resistance to change usually is futile, and a lightning round of quick questions and answers.

    And now, the Conversation continues…


    KC: There was a story that I read the other day about how Consumer Reports gave a negative grade to the Tesla 3, and that Tesla was able to get the grade changed because, once it was made aware of what was essentially a sluggishness in its braking system, it was able to very quickly come up with a fix. Unlike most automobile companies, which would have to issue a recall notice and wait for owners to bring their cars in, Tesla was able to perform a remote software update that instantly improved the braking distance on the every Tesla 3 on the road. In the Fortune story, they wrote that the ability to do an over-the-air update "surprised Jake Fisher, director of auto testing at Consumer Reports. Fisher, who has been at CR for 19 years and tested more than 1,000 cars said in the CR write up of the testing and new decision that he’s 'never seen a car that could improve its track performance with an over-the-air update’.”

    It seemed to me when I read this story that in some ways it is an almost perfect metaphor for what you and I talk about all the time, and have been focusing on here in all our Innovation Conversations - technology not only allows people and companies to do what never has been done before, and to do it with increasing speed and potency, but also begins to change the consumer perception. Granted, we all don’t drive Teslas, but next time I see a recall notice for any car, or maybe any appliance, I’m instantly going to think about Tesla and how they didn’t have to recall anything - they just had to fix it. And, the Tesla story also reminds us of how scary innovation can be - because it is a little frightening that Tesla could just make that change in people’s cars without them even knowing about it. If they can do that, what else can they do, and what else can they know?

    Tom Furphy:
    Every day we experience the risks and benefits of personalization in our online interactions. Most websites that we visit, most posts that we like and most products that we look at are logged by commercial enterprises and used to market and sell us more products and services. We’ve seen how this can turn ugly when information, and then trust, is compromised. Those risks are real and it’s imperative that information is kept secure and used only for authorized purposes. The companies that do this the best will continue to earn trust and be able to have the privilege to use the information.

    We are now entering an era when much of the “hardware” we use in our lives are connected. Cars, devices, appliances and wearables increasingly include software that helps the hardware operate and also knows a lot about us, how often, where and when we use the hardware, and can adapt the performance of the hardware based upon this awareness. This can lead to richer experiences with the hardware such as updates to functionality, changing performance based on conditions and replenishing supplies.

    In the case of Tesla or other connected cars, the manufacturer could know how, when and where you’re driving in real time. They could target contextual messages or offers into the car based on permissions. The cars performance could be adapted based upon the driver. Maybe I like a stiffer, sportier ride and my wife likes a mellow luxury ride. The car would know when I need maintenance and could schedule it online directly with my dealer, could sync with my calendar and could suggest convenient appointment times. Any system and capability upgrade could be remotely deployed. Done right, all of these could dramatically improve my customer experience with the car.

    It’s not hard to envision how this could enhance your experience with your refrigerator, washer & dryer, coffee maker, filtered water pitcher, vacuum cleaner, electric toothbrush and more. Having all of this connected into commerce and replenishment is going to happen. Done right, it will be a big win for consumers. It can also be a massive win for the retailers and manufacturers that get it right.

    KC: If the Tesla story makes it clear what is possible, there was another story that I read that seemed to make it clear what often is probable, because change and innovation often scares people and makes them protective of what is rather than embracing of what can be. There was a story in the New York Times about a group that is bankrolling political efforts all over the country - in Arizona, Arkansas, Michigan, Tennessee and Utah, for example - to fight against the bankrolling of mass transit systems that have been proposed in order to deal with specific problems including too many cars clogging up city streets, pollution, and even the propensity by an increasing number of urban dwellers not to own cars. Now, the anti-mass transit say that their position is rooted in a desire for smaller government, and government-backed transit systems require bigger government, and a deep-seeded belief that public transit is anti-freedom, because freedom, in this construct, means being able to get around in your own car (or I guess, if you go back far enough, on your own horse), and not waiting for a train or bus and be dependent on schedules.

    To me, this argument falls apart because it does not recognize a changing reality - that many communities really are too crowded and require alternatives. (How crowded and unmanageable would places like New York or Seattle or Chicago be without mass transit?) There’s also the matter that not everyone can afford their own car (or horse). Now, we can have a perfectly reasonable discussion or debate about how such efforts can and should be funded, and whether government needs to find a more efficient and effective approach. (The falling apart system in Washington, DC, would certainly make that case.) But there’s another reality about the situation that again serves as a good metaphor for how some businesses approach change and innovation - the bankrolling of these political movements comes from business interests that have their roots in oil, gas, asphalt, and the automobile industry. Am I right that in some ways these folks are making the same mistake that we talk about when we discuss the move from horses to cars … that many in the buggy whip business probably complained and whined and even contributed money to anti-car forces, but the smart ones figured out how to sell or fix cars. To borrow a line from Star Trek, isn’t resistance almost always futile?

    TF:
    I think resistance to the extent that it can make us aware of risks and present valid counter-arguments can be valuable. For instance, in the recent case of the Seattle business head-tax, not only Amazon, but many groups came forward in opposition and presented several valid arguments against the tax. This resistance likely averted negative consequences and also seems to have garnered wider focus on the core issue being addressed – dealing with the rising homelessness situation in Seattle. Likely an overall positive outcome.

    However, if resistance is being used to push back against a market force, it will certainly be futile. The horse & buggy interests campaigning against automobiles lost to a market force. And the automobile interests campaigning against mass and alternative transportation will lose to a market force as you outline. The same will happen in retail.

    Retail has constantly evolved over generations based on the underlying capabilities and infrastructure that have been available at any time. As capabilities evolve, shoppers gravitate toward those capabilities and retailers that best serve their needs. We’ve seen that across format evolution and we are now seeing it in the format change to digital. As digital capabilities and fulfillment infrastructure improve, and as store formats evolve, the retailers that best match these capabilities to shopper needs will win. That’s the way it’s always worked. To try to hold on to old paradigms and resist change will certainly be futile.

    KC: This is our last Innovation conversation until after Labor Day - though we’ll come back for a quick Innovation Chat if something in the news prompts us to. So, I have three “lightning round” questions for you.

    In 2016, Amazon Prime Day sales were $1.52 billion. In 2017 (when it ran a little longer), they were $2.41 billion. Make a prediction: How big will they be this year?

    TF:
    $3.65 billion.

    KC: Yes or no - do you think there will be a major merger and/or acquisition affecting the food retail business between now and Labor Day? (This could be two retailers, or a retailer buying some sort of tech company, or a retailer being bought by someone else.)

    TF:
    Yes.

    KC: What will be the New York Mets’ record when Labor Day hits, and will Jacob deGrom still be on the staff, or will he have been traded to a contending team? (These questions pain me, as they do you … but I had to ask.)

    TF:
    Sadly, I don’t think the Mets get to 70 wins this year. Sadly, I can see them more 20 games below .500 by Labor Day. Call it roughly 53-77. I think the Mets keep deGrom on the roster. To trade him means they are committed to rebuilding from the ground up. I don’t see that happening.

    Have a great summer!

    KC: I’ll go with $3.8 billion … yes … and because I’m more of an optimist about the Mets than you are, I’ll say they’ll be 54-76, but that deGrom won’t be pitching for the Mets. (Though this also could mean that, like virtually every other player on the team, he could be on the DL.) It is going to be a long, painful summer for Mets fans.


    As noted above…The Innovation Conversation will return on Wednesday, September 5.

    KC's View:

    Published on: June 27, 2018


    by Kevin Coupe

    MNB readers are familiar with what has become my annual summer adjunctivity at Portland State University in Oregon. This is the seventh summer that I’ve made the trek to the Pacific Northwest to team teach - with Tom Gillpatrick - a retail/CPG marketing class during the summer semester. In so many ways, these summers have fed my soul … and they’ve done a pretty good job of feeding my stomach, too.

    I have, over the years, twice written about Stumptown Coffee here on MNB; one of those columns was expanded upon and became a chapter in my book, Retail Rules: 52 Ways To Achieve Retail Success.

    In the first column, I related an anecdote about the importance of getting things right -= even the things the customer doesn’t see. It came out of a conversation I had with one of the store managers, Bo, while I was sitting at the counter waiting for ,y latter to be made. It took some time (for reasons made clear in the column), but Bo put it this way: "It's not worth doing if we can't do it right.”

    The second column came out of a conversation I had last summer while sitting at that very same counter, with a young woman named Alina, a very nice young woman who was weighing coffee grains to make sure that they were between 19.5 and 20 grams of ground coffee … and that yes, being off by a little bit, one way or another, would make a difference. The column was about how little things matter.

    I tell you all this because a couple of days ago, once again having traveled to Portland, become ensconced in my short-term apartment rental and gone for an early morning jog along the Willamette River (I am nothing if not a creature of habit), I grabbed my iPad and backpack and walked to the Stumptown Coffee on Third Avenue.

    And found that it had been remodeled. And upgraded. It seemed bigger and airier than before, and maybe just a little bit cleaner, and certainly the tables and chairs had been upgraded. I missed the old look, I must admit, which somehow seemed more authentic, but I don’t want to be one of those grumpy old men who always thinks things were better the old way.

    But there was one big change that really bothered me.

    They’ve taken away the counter where I used to sit. Lots of tables and chairs, all very nice. But no counter.

    Now, in addition to being a creature of habit, I’m also a bit of a sentimentalist. I liked that counter. I got two columns and a book chapter while sitting at that counter, and spent a fair amount of time over the past six summers sitting there, drinking coffee, checking email and doing some writing.

    And talking to baristas.

    It seems to me that getting rid of the seats at the counter could end up being a mistake for Stumptown. Those seats created a sense of intimacy with the process and the people that combined to make the store experience unique. That’s gone now, and I’m not sure how it can be recaptured.

    Intimacy with customers is hard to achieve and even harder to sustain. Sometimes it happens by accident, and sometimes it is designed into the experience (although even the greatest design cannot create it without the right people and culture). Having it, and then giving it up on purpose?

    I cannot imagine this is a good idea.

    I’m not sure why they did it. Maybe it was the store designer who thought it was a good idea. It should be noted that Stumptown now is owned by Peet’s, and so maybe there is a bit of a corporate mindset sneaking in (though it doesn’t feel that way … even if the physical facility has been upgraded, there is a but of a subversive vibe that remains).

    Waiting for as refill on my coffee the other morning, I mentioned to the barista that I missed the seats at the counter. He looked at me, very seriously, and said, “I miss it, too.”

    And that’s this morning’s EyeOpener.







    KC's View:

    Published on: June 27, 2018

    interesting juxtaposition of stories recently about two upmarket retailers that are firmly convinced that physical stores keep them relevant to their shoppers.

    CNBC had an interview with Williams-Sonoma President and CEO Laura Alber, reporting that “as Williams-Sonoma's business shifted from selling via catalogs to selling online, the furniture and kitchenware retailer remained consistently adamant about one thing: its stores.”

    “"Even Amazon believes that they should have some real spaces," Alber told CNBC. "When you go in a store and it's wonderful, it helps you make the purchase … We see our best customers cross-channel. There’s a lot of people just online, there's a lot of people just focused on big stores. We are focused on both because we know that's how you shop.”

    At the same time, VentureBeat had an interview with Apple retail chief Angela Ahrendts, who says that “while she believes shopping will continue to move online over the next five years, actual purchases will still largely be done at brick-and-mortar stores.”

    “The smart outside guys, they don’t say retail’s dying,” Ahrendts says. “They say digital’s going to grow at three times the rate of physical. But in the next five years, and this is a McKinsey number … 75 percent of the people will shop online — shop, to ‘learn’ — but 75 percent of the business will still be done in physical stores. And so retail’s not going away. Retail’s not dying. But it has to evolve … I think it has to serve a bigger purpose than just selling.”

    And, the story notes, Apple has carved out a unique position for itself: “Beyond actually selling products and acting as hands-on showrooms, Apple’s stores provide local repair services, classes, and free internet access for customers, virtually guaranteeing foot traffic at all hours.”
    KC's View:
    I think we can stipulate that both Apple and Williams Sonoma run stores that are aspirational and not mediocre … the key is that when you go into these stores, “it’s wonderful.” Or at least more wonderful than a lot of other retailers.

    Ahrendts, of course, is right - retail isn’t dying. Just evolving. It’s just the mediocre stores that may find themselves endangered.

    Published on: June 27, 2018

    The Mirror reports that in the UK, “Tesco has announced plans to scrap its price match guarantee next month to focus on own-brand prices instead.”

    As currently constituted, the promotion “means that when you buy 10 or more products, the grocer will price match all branded goods if it's cheaper at Asda, Morrisons or Sainsbury's, to the maximum value of £20.” But the company is changing to a pledge “to ‘keep everyday prices low’ - with a greater focus on ‘straightforward value for money’.”

    The story notes that “Tesco is currently mid-way through an overhaul dubbed 'Project Reset' that will see it boost own-brand lines and slash the number of suppliers it works with to improve efficiency. Just last week it emerged that thousands of big names are being stripped from stores as part of the shake up.

    “The project will see it re-launch 10,000 of its own brand products, with 2,850 completed to date.”
    KC's View:
    This may not still be true, and the so-called rules may be different in the UK, but I can remember retailers telling me when I started out covering retail that moving back and forth between a high-low promotional strategy and an EDLP strategy is incredibly difficult, and a good way to lose faith with shoppers.

    It may be, however, that Tesco is nervous about pending deal that would have Walmart selling a majority stake in Asda to Sainsbury. It is changing up its loyalty marketing rules, shutting down a general merchandise website that served as a distraction, and generally trying to get more specific and targeted in its approach. Not a bad thing to do, but I wonder if it all will leave shoppers’ heads spinning a bit.

    Published on: June 27, 2018

    The Wall Street Journal reports that 10 of the world’s biggest food companies - retailers Walmart and Kroger, and suppliers that include Dole, Driscoll’s, McCormick, Nestle, Tyson and Unilever - are “building a blockchain to remake how the industry tracks food worldwide. The so-called Food Trust aims to improve recalls, quickly identifying the issue and shrinking the time consumers are at risk. Business benefits such as avoiding losses from overly broad food recalls are also expected.”

    The story notes that “blockchain establishes authorship or ownership that experts say can’t be faked and eliminates costly middle layers because of its peer-to-peer structure. The encrypted data stays up-to-date on all participants’ systems.” After a year of testing, the story says, “the system stores data related to 1 million items in about 50 food categories, according to IBM.

    You can read more about it here.
    KC's View:

    Published on: June 27, 2018

    The New York Times has an op-ed piece worth reading by Columbia University law professor Tim Wu, who also is the author of “The Curse of Bigness: Antitrust in the New Gilded Age,” in which he argues that this week’s US Supreme Court decision in favor of American Express and against retailers “delivered a big blow to antitrust law and its traditional mission of helping consumers and fostering economic competition.”

    The 5-4 decision, which said that American Express was within its legal rights to include in its contracts a stipulation that retailers cannot encourage customers to use other, less expensive forms of payment, is characterized by Wu as “a weak, highly abstract decision that masks the economic extremism of its ruling, which will further enrich Wall Street intermediaries at the expense of both merchants and consumers.”

    An excerpt:

    “The trial court in this case, after a full trial, found direct evidence that American Express’s gag orders were anticompetitive and thus an illegal restraint on trade. This included evidence that the gag order allowed American Express to raise its fees 20 times in five years.

    “Nonetheless, the five more conservative justices on the Supreme Court managed to find a way to win this case for American Express. They did so not by contesting the fact that the gag order stymies competition — for that was impossible to disprove. Instead the court put theory ahead of practice in an absurd way: Even though, in practice, American Express hurt competition and inflicted harm on consumers, the court concluded, the company was not, in theory, powerful enough to do so.

    “The logic is ridiculous: You could just as easily say that robbing banks is economically irrational, given the risks involved, and therefore it does not happen.”

    You can read the entire opinion piece here.
    KC's View:
    There are a number of emails about this subject in “Your Views,” with one popular sentiment being that maybe retailers ought to follow Costco’s lead and toss Amex out of their stores, and explain to consumers why. Maybe make Amex gag a little bit. I’m not sure how far retailers can push this, but maybe signs that say, “We’d like to be transparent about credit cards and the cost of goods. But we can’t. Amex won’t let us. Draw your own conclusions.”

    Actually, I wonder if some trade associations could underwrite an ad campaign with this theme. After al, trade groups don’t have contracts with Amex.

    Maybe this isn’t workable. I’m just wondering if there’s room for a little guerrilla warfare here.

    Then again … I had a conversation yesterday after MNB was posted in which it was pointed out to me - by someone who knows a lot more about this stuff than I do - that in part retailers have themselves, or at least their trade associations and lobbying representatives, to blame.

    This person suggested that trade associations have largely supported Republican candidates, and that these candidates are responsible for the makeup of the current court … which just cost their members millions of dollars. This person was by no means arguing that retailers ought to support Democrats, who, let’s face it, also take positions not necessarily in the industry’s favor.

    What this person was arguing for was a greater embrace of political diversity by industry lobbying groups, and that by spreading their influence - and yes, their money - around, they might have a better shot at heading off some of these issues or having a greater influence on the debate.

    To be honest, I hadn’t thought about it that way. It was not my immediate instinct to go for the political analysis on this one. But I thought it was an interesting point.

    Published on: June 27, 2018

    Reuters reports that “Orlando has stopped testing Amazon’s facial recognition program after rights groups raised concerns that the service could be used in ways that could violate civil liberties … Orlando was one of several U.S. jurisdictions that Amazon has pitched its service to since unveiling it in late 2016 as a way to detect offensive content and secure public safety.”

    However, last month “more than 40 civil rights groups sent a letter to Amazon CEO Jeff Bezos saying technology from the company’s cloud computing unit was ripe for abuse. The letter underscored how new tools for identifying and tracking people could be used to empower surveillance states.”
    KC's View:

    Published on: June 27, 2018

    Advertising Age reports that Target, “as it invests in new technology like same-day delivery and drive-up service to compete with Amazon,” is using its “Target Run” ad campaign to emphasize this component of its business, with a focus on “how Target supplies everyday essentials.”

    The campaign is designed to highlight recent strategic moves: “Late last year, the retailer bought Shipt, a same-day delivery service, for $550 million—the service will be available coast-to-coast by the holidays. The company is also in the process of rolling out drive-up delivery, where consumers can have their purchases brought out to a designated area of the parking lot without having to leave their vehicle.

    "We're evolving the campaign to highlight the new ways [consumers] can choose to complete their Target Run, how, when and where it's best for them," says Target CMO Rick Gomez,.


    • The Houston Chronicle reports that H-E-B today “is set to open its first multilevel grocery store in Houston.” The story says that H-E-B “redeveloped an older pantry store at Bissonnet and Rice into a double decker with 225 parking spots on the ground floor and a 78,000-square-foot store with more than 70 parking spots on the second floor. Shoppers use escalators and elevators to go between the floors.”
    KC's View:

    Published on: June 27, 2018

    Yesterday I posted a couple of pictures from a Target store in Portland, Oregon, that I felt simply screamed out for Target to find a grocery partner who knew something about fresh food merchandising.

    One MNB reader thought I was being harsh:

    I’ve got to disagree with you here: nothing about that picture is ‘a disgrace.’ To me, it looks like a clean, neatly organized display of stocked, decent looking, well labeled produce. Sure, it’s next to candles, but it’s not getting me down (unless the candles are creating a Yankee Candle store-like environment, where the scents are all fighting and it gives you instant allergies and a headache). It’s even next to what seems to be a clean, neat carriage corral, and we know how gross those can sometimes be.

    Additionally, I’ll mention that last week I was at Target for more Brita filters and decided to swing by the grocery section to see if it’s as bad as you’ve led me to believe. My observations were that I was almost the only person in those aisles (3PM on a Friday) whereas the rest of the store was seeing normal traffic, the dried goods seemed to be well stocked, and the freezer cases were more empty than they were full (however I appreciated the motion-sensing lights that turned on inside them upon my approach).

    That said, the produce area was a solid A: weirdly I couldn’t find a tomato anywhere, but they had avocados on a good sale that were not veritable rocks, I was able to get plain store-brand no sugar added yogurt, cucumbers and peppers, salad greens, and even the only type of eggs I will buy (Nellie’s certified free range). That last part was a very pleasant surprise, as was the price. Sure it’s an overall mixed result, and it’s not the same as a dedicated grocery store, but I’ll definitely be swinging by that section anytime I find myself in Target just to fill in the gaps.


    One of us is grading on a curve. I’m just no sure which one.

    MNB reader Todd Ruberg wrote:

    Your Target display picture is all too common and one wonders if this is a self fulfilling prophesy of being “Penny wise…pound foolish” and the continual cuts to in store labor…the belief that all merchandising ideas can come from a corporate planogram and in store execution is robotic follow thru only.

    Here is some simple napkin math…..what if they added a Merchandising specialist to that store? Let’s say that cost them $100K a year, or roughly $2000 a week. At 25% margins, to pay that out they’d need to create incremental $8000 sales per week, or about $1100 a day. Could a store with that kind of traffic generate that type of sales increase if merchandised better, with an eye to local tastes and trends?

    There are great local retailers (New Seasons, Market of Choice) that aren’t scrimping as much on labor and are merchandised excellently without out of stock problems like Target.


    Another MNB reader wrote:

    Somebody's head should be on the chopping block for this display, especially considering the size of Target.  Can't they attract better talent for fresh foods?  Or beg Kroger to take it over?



    Yesterday we reported that the US Supreme Court ruled 5-4 that American Express was within its legal right to include in its contracts a stipulation that retailers cannot encourage customers to use other, less expensive forms of payment.

    I commented that I did not understand any of the reasoning behind the majority’s argument (though conceding that I’m not a lawyer), and added:

    Retailers ought to be able to be transparent about the factors that go into the prices that shoppers pay. To prevent that kind of transparency protects one class, and victimizes the consumer … which strikes me as being a shame. I don’t get it. But then again, I didn’t go to law school … and I’m used to disagreeing with the some of the rulings made by this SCOTUS.

    MNB reader Dr. James M. Kenderdine responded:

    I did not go to Law School either, however, in my opinion this is a clear example of an anti-competitive ’”tying agreement” in which one party attempts to limit the other party’s freedom of action (i.e “tie their hands”) in an different action. Classic examples a copy machine manufacturer requiring a purchaser to only use the manufacturer’s brand of copy paper related supplies. The copier manufacturer wants the customer’s freedom of action relating to the purchase and use of the copier restricted for it’s benefit.

    I don’t recall that this issue has ever been raised in this sort of case, and I don’t understand how why the issue was not the critical issue in this case. Nor do I understand why the complainants did not simple stop accepting AMEX based transactions. I have been an AMEX cardholder for over 40 years and frequently encounter the situation of a merchant who does not accept it because of the high “swipe fees”.

    Unfortunately this is just the most recent example of where the weak anti-trust enforcement by the FTC and DOJ and the courts has favored those companies that use anti-competitive tactics to gain market share, and this opinion will encourage that behavior to continue.


    From another reader:

    There are many ways to look at the decision taken by SCOTUS with regards to the decision to protect AMEX.

    Retailers speak with forked tongue on the disclosure of costs.  I haven’t recently read what % of revenue Walmart receives that is used to pay the Walton family dividends.  Nor, how much Target Board members are paid for about 10 days / year worth of work. (Trust me – we’d all like to get that deal; read Board decks, vote whatever the CEO wants and be accountable for absolutely nothing.. I digress.)  Or, how much money Publix pays the Jenkins family (whom charge high rates) for real estate it leases to operate their stores. Or, how much some retailers make from bogus deductions from their suppliers, including paying invoices late.  Retailers love talking about how much they pay for theft from their stores but rarely disclose how much of that is employee vs. consumer theft.   My point is this: $97B is a lot, but retailers themselves benefit from credit card loyalty schemes.

    AMEX is perfectly OK to charge more for their offer.  It wasn’t long ago they lost their exclusive relationship with Costco; it hurt AMEX far more than Costco by all published reports. This decision by SCOTUS may well drive all retailers to only accepting one card.  If that occurs, which I think it will, the AMEX victory will have been a very hollow one.  With their own cards, they can then cut their own shopper credit deals, much like the retailers in S America are doing.

    I’ve been an AMEX card holder since the mid 80’s (signed up while in College just to build up my credit rating). For a while, they were a good value; I could get into every airline lounge when I travelled on business.  As those perks have evaporated, so has what I pay AMEX.  I’ve never paid rack rate for their Plat card; they fold like a cheap Jos A Banks suit every year when I tell them to cut my membership price or redeem my points then  I leave. I’m ready every year for this discussion and I’m really hopeful that one year they say “not this year” so I can try out another card.  Their offer is just “so-so” these days, in my opinion.   I’m good with AMEX charging more – its their right – just as it is for Publix to charge more for the same product than Target (or any other retailer). 

    Outside the US, AMEX isn’t as widely used because retailers actively discourage or simply won’t accept AMEX cards.  In fact, some retailers in Europe / Africa are moving to offer lower prices for cash payments, just as the petro retailers do in US now. 

    My view: If retailers are really serious that the $97B is causing them financial harm, that they can’t “sell more” without paying this fee, simply accept cash / EBT / check payments.  Or, accept only their own card.  It’s all better than  moving supplier payment terms to 90 days, which really limits innovation…


    From MNB reader Andy Casey:

    The obvious choice for retailers is just don’t take Amex; seems to work ok for Costco.

    And from MNB reader Robert M. Fawcett:

    You nailed that one, terms are a legal issue, don’t think this shake down will work too well. This is really going to upset everyone.

    And from another reader:

    I’m not a legal scholar either, but unless I’m mistaken, retailers are not forced to accept Amex as a form of payment. They are free to enter into a contract with Amex, which stipulates they won’t favor other forms over them. They are also free to say ‘no thank you’, and risk that they may lose loyal Amex users. The fact that most retailers don’t walk away says they see a benefit in accepting Amex, at the terms they have agreed to.

    And another:

    The good news is that retailers can still chose whether or not they want to accept AMEX cards. There are many places that choose not to accept “The Card” and that is still a good thing. Costco has converted many of us.

    And still another:

    Costco solved this matter long before the courts decided to chime in. Maybe Wall Mart Kroger Target HomeDepot and others are thinking about why they choose to pay Amex more than Visa for the same service.



    The other big story yesterday was about how Kroger has caused consternation in the manufacturer community with a letter informing them it is changing its payment terms, moving to a net 90 day payment program standardized across the store. It also is working with Citibank to charge a financing fee to suppliers who want to be paid more quickly.

    The changes are of particular concern to the produce industry, where there is a belief that the new terms could violate the federal Perishable Agricultural Commodities Act (PACA, which requires that fresh vendors be paid within 30 days.

    I commented:

    I have the impression that at least in some cases, there will be suppliers who will be willing to pay the financing fee in order to get paid sooner, and then will deduct that money from whatever promotional allowances they were planning to offer Kroger.

    Ninety days sounds like an awfully long time … and probably damned near intolerable for small companies that need to get paid to survive. They shouldn’t have to take a cut in order to get paid sooner.

    This may seem like a smart idea from an accounting point of view, but I also think it potentially creates a scenario in which small, innovative companies are not going to want to do business with Kroger, which could deny them a level of innovation that every business needs. It’s pretty hard to be taken seriously when talking to folks about trust and collaboration when you simultaneously have your hands in the other company’s pocket and are threatening its existence.

    Which this could do.


    Lots of email on this one.

    MNB reader Gary Breissinger wrote:

    This latest unilateral move by Kroger to dictate vendor payment terms shouldn’t really surprise anyone. It’s just another tactic in a continuing effort to transfer operating expenses from retailers to manufacturers. It’s another example of their “heads I win, tails you lose” mentality when dealing with vendors. Small suppliers are faced with an existential threat . However, large suppliers and the GMA need to categorically reject this demand...and be willing to withhold shipments to make their point. Bullying is a hot topic in our contemporary society...and what Kroger is attempting to do is nothing short of financial bullying. They need to be sent an unmistakable message that bullying wont be tolerated.

    From another reader:

    Yikes, 90 day terms, in produce (Meat and Deli/ Bakery) that’s 10- 15 turns before the supply chain gets paid, forget the small suppliers this is not sustainable buy any size supplier!

    It’s another sad day at The Kroger Company for everyone associated with their business but the accounting department. You couldn’t have said it better, a smart idea from an accounting point of view, which is where all the present Kroger ideas have been hatched. Kroger accounting has now alienated every one that touches there business, just walk the stores and observe so called in stock conditions and associate attitudes. Thanks to accounting, the store associated don’t care, the store management doesn’t care, the division management is disengaged, the service providers don’t care and now the suppliers. The accounting department has hijacked a 140 year old American icon and in the end forgot about the customer!

    I will close with a line I heard many years ago, loyalty only goes up…Kroger is losing that!

    This may sound bitter, it’s not but it is observant!


    Well, maybe a little bitter…

    From MNB reader Tom Robbins:

    Bet they won’t get away with that when their landlords, Utility vendors, and insurance carriers are are brought into the conversation.

    Maybe I’ll go to my neighborhood Kroger and tell them I’ll pay them for my purchases in 90 days. Can’t believe this one passed muster with their CEO.


    From another reader:

    I don't like it either KC, it is a very long time, especially from a company doing upwards or 120 billion a year. 

    While I have nothing but respect for Kroger, this doesn't put them in a good light.


    And another:

    Unquestionably, Kroger standardizing terms at 90 days is a “lose-lose” deal for business.  First, the large, multi-category suppliers are not going to accept these terms without a fight.  Walmart found this out a few years back when Greg Foran, as incoming  Walmart USA President, tried to implement several cash infusion tactics, including charging for warehouse slots and longer invoice payment terms.  The major CPG’s largely balked (refused) the payment lengthening but did provide Walmart funds in the other areas, taking it out of hip pocket reserve funds.  The smaller, innovative CPG’s, having no leverage, had to agree to these terms, particularly as a condition of being launched within Walmart stores.    Cash flow is the major need of these innovation-led businesses. And, let’s not forget these innovative companies are the one’s hiring the talented individuals in our industry who are being made redundant by the large CPG’s. 
     
    Second, if there’s any success by Kroger to lengthen their payables, then Walmart and every other retailer is going to follow suit and demand same. (Robinson Patman, anyone?...)  We’ll only know this in the course of 18 months or so if this initiative is successful. The timing is good from one sense, in that large CPG suppliers can now add this new cost with their freight cost challenges and pass it along now.  Small suppliers cannot.  Also,  for the suppliers who don’t own their production / supply chain, then more upfront payments are likely to be asked for to reduce the risk of payment default. 
     
    By and large, longer retailer invoice payments is a dis-incentive for innovation suppliers.   I’m amazed that every retailer Chief Merchant isn’t reviewing this with their CFO’s.
     
    The US retail industry does have the lowest invoice dating terms, based on a study I worked on about a decade ago.  Its not unusual, looking at retailers based outside USA, to see 60-day dating on some pretty fast turning / low margin categories.   Maybe the answer lies in selling on consignment or scan-based trading (where retailers have good inventory tracking processes and employee theft is low). “Selling more” is the answer, not buying disadvantaging  suppliers with longer terms.


    I have a couple of additional thoughts on this.

    One, it seems to me that Kroger may have forgotten that it depends on a large coalition of suppliers to make it successful … it takes a lot of people rowing in the same direction … and that it should want its suppliers to be successful because they work with Kroger, not despite the fact that they work with Kroger.

    Two, if I were running things at any of Kroger’s competitors (which, let’s face it, probably wouldn’t be a very good idea for lots of reasons), I’d resist the urge to follow suit. Instead, I’d make a point - loud and proud - that we are not going to 90 day terms, and that we want to create a climate in which our suppliers (especially the small, innovative suppliers most hurt by the Kroger move) are as happy as we’re trying to make our customers. I’d say that our goal is to reward and celebrate supplier innovation, not impose terms that hamper it.



    And finally, on an issue that continues to bubble up, one MNB reader wrote:

    On the Sarah Sanders debate. First I deplore her beliefs and I ABSOLUTELY deplore her employer.

    And while I say that, I think the people refusing Sarah Sanders service did a great injustice to their cause…they basically said we agree with the right to refuse service…and that (IMHO) is poor strategic move on their part.

    I was completely against the Supreme Court’s ruling that businesses can refuse service to people if the act would be against their religious beliefs. My feelings are that any business that benefits from public funded streets, police, fire, water, street lights, public access parking or electric services is compelled to serve the public that has funded those services. Even though the services are being paid for by the business, the public / community structure makes that possible. That meaning if a couple you disagree with want you to make a cake for them that will have no generally accepted abhorrent content or pornographic content the business should not be allowed to refuse service. The business is engaging in the community simply by having and using utilities and protective services. Why should a business be allowed to selective engage in the greater community and choose to receive services if they are not willing to participate in the (previously) constitutionally mandated right to not be denied equal treatment based on race, religion, political persuasion, disability et al and therefore sexual persuasion…

    In the end though I think it’s sad Red Hen did it the way they did because by perpetuating the divisiveness it really only makes things worse. They would have scored more points by saying we at Red Hen think your administration and its policies are hateful and un Christian but because we disagree with refusing people service based on their beliefs we will serve you…just as our side should be served by those who agree with your folks.


    Another MNB reader wrote:

    I found this quote on Twitter, And found it fitting:

    It’s encouraging that Sarah Huckabee Sanders was judged not by the color of her skin, but by the content of her character.


    To be clear, I think the Red Hen folks handled this in about as dignified and respectful manner as possible, considering that they were basically refusing her service. And I think it has to be noted that the refusal to serve was the result of a democratic vote by the restaurant’s employees - among whom are immigrants and members of the LGBTQ community - who feel not just disrespected by the Trump administration, but actually targeted by it. It was a visceral reaction to what they view as tangible bias and discrimination, and I feel a little unqualified to judge it.

    But I agree with you that it just fuels all the toxicity out there. There are two points of view on this. One is that one of the two sides has to be the first to say, “enough.” No more insults, no more demonization, no more disrespect. It doesn’t matter which side goes first, because it will raise the level of discourse rather than diminish it, and the public will reward whoever takes the high road. We accede to the better angels of our natures.

    There is a line from Robert Bolt’s “A Man For All Seasons” that sums this up:

    If we lived in a state where virtue was profitable, common sense would make us saintly. But since we see that abhorrence, anger, pride, and stupidity commonly profit far beyond charity, modesty, justice, and thought, perhaps we must stand fast a little - even at the risk of being heroes…

    The other point of view is that we live in a world where turning the other cheek almost never is rewarded (at least not in this life), and that you don’t win by bringing a knife to a gunfight.

    I prefer the first option. What worries me - deeply - is that the second option is the more accurate world view, even if it leads us to a dystopian place.

    One of my favorite classes in college was Ethics, which essentially was about the quest by societies and individuals for the “should.” It seems to me that there are a lot of folks out there who opt for the “can,” and not the “should.” And I am reminded of the line from Albert Camus:

    ”A man without ethics is a wild beast loosed upon the world.”

    Lots of wild beasts out there at the moment. And better angels sometimes seem in short supply.
    KC's View: