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    Published on: August 23, 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.

    I’m recording this from the classroom at Portland State University where Tom Gillpatrick and I, for more than six years, have team-taught a class in retail and CPG marketing. MNB readers know that this is something I’m always talking about … it has been a tremendous privilege to come out here each summer and spend time with young people, and help facilitate visits to the campus by industry leaders.

    This year, we’ve had some terrific guests … Scott Moses of PJ Solomon … the current and future CEOs of WinCo, Steven Goddard and Grant Haag … Wendy Collie, formerly of Starbucks and New Seasons … Mike Burrington, formerly of Amazon and currently with Ideoclick … Ron Brake, of Marketing Concepts Northwest … and Carl Jorgensen of Daymon.

    Each of them has brought unique insights and enthusiasms to the class, and has given these students lots to think about. Hell, each of them has given me a lot to think about.

    I think that this always has been one of the advantages of spending time at Portland State. I always say that I learn as much as anyone, because I get insights into how these people think and act, and that’s invaluable … for me as a writer, and for the executives who visit as business professionals.

    And by the way, if you’d like to join us next summer … I’m not above a little shameless self-promotion. Let me know, and we can talk about dates.

    So the summer is just about over, and for these students, their college careers are close to ending … which means they are about to venture out into the business world. They have a lot to learn, but they also have a lot to teach us. It’s important for us to share what we know, but also to listen.

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

    KC's View:

    Published on: August 23, 2018

    by Kevin Coupe

    In a case of a traditional big company deciding that the best way to compete is to acquire a smaller, more disruptive competitor, mattress company Serta Simmons is merging with Tuft and Needle, the bed-in-a-box pioneer that we wrote about here on MNB a couple of years ago.

    The intention, apparently, is to build a company that can grow current online mattress sales - roughly 10 percent of the total - to something significantly greater.

    Terms of the deal were not disclosed.

    Fast Company writes that “Serta Simmons already has its own bed-in-a-box brand, called Tomorrow Sleep. Tuft & Needle, which was founded in 2012, serves a slightly more price-conscious customer, since it is known for its rock-bottom prices, which start at $350 for a twin bed (compared to Tomorrow Sleep’s $545 twin bed).”

    The story says that “by bringing on Tuft & Needle, Serta Simmons gets a digital-first brand along with the expertise of the founders, who managed to survive in a highly competitive online environment, where there are hundreds of bed-in-a-box brands. According to a statement put out by the two companies, Tuft & Needle will remain its own separate brand, but the startup’s founders will help shape Serta Simmons’s omni-channel strategy.” And USA Today notes that “in addition to online sales, the deal will allow Serta Simmons to distribute Tuft & Needle products to select stores.”

    It truck me as interesting that this merger takes place as two other scenarios unfold within the mattress industry.

    For one thing, Mattress Firm, the biggest retailer in the industry, is closing stores and is said to be flirting with insolvency. If it were to go out of business, it would leave Serta Simmons without one of its main distribution arms … hence the desire to find another way to come to market.

    Meanwhile, one of Tuft & Needle’s main internet competitors, Casper, seems to be taking a different approach.

    Fast Company writes that Casper has been engaged in the development of a raft of new products - “new bedsheets, blankets, and duvets, as well as more unexpected products like bedside tables, that took months of consumer research and testing to bring to market. It’s a different approach for a brand that launched in 2014 with one single product: A mattress designed to be universally comfortable.”

    And, in addition to that, Casper plans to open some 200 bricks-and-mortar stores over the next two years, from which it plans to sell mattresses and all these other items; the approach is designed to keep people returning to Casper more often and spending more money than they would if they only were buying a mattress from the company. And, it gets Casper into a business that has been growing - luxury sheets and blankets sold direct to consumers, by companies that include Brooklinen, Parachute, Boll & Branch, and Crane & Canopy.

    Casper, Fast Company writes, is “being strategic by branding itself as the science-based sleep brand, which will attract a particular kind of performance-oriented consumer.”

    I know people who have bought both Casper and Tuft & Needle, and are supremely happy. So happy that the next time we need to buy a bed, we’ll almost certainly use one of the two.

    I think the odds just got a little better that it’ll be Casper.

    The challenge for Serta Simmons, I think, will be to maintain the disruptive culture at Tuft & Needle when this acquisition is completed. That’s really hard … not impossible, but hard.

    The difference between Tuft & Needle and Casper is that the former company now will be put into the service of filling a gap in a much bigger company, while Casper is getting aggressive about expanding the areas in which it is being disruptive. It is likely that this will produce two different cultures, and the latter one, I think, will be more customer-focused.

    I could be wrong about this. It could end up differently. But I believe that this will end up being an Eye-Opening lesson in how to nurture or inhibit innovation.
    KC's View:

    Published on: August 23, 2018

    Wired has a story about Zippin in San Francisco, described as one of two cashier-free stores in America. (The other is Amazon Go.)

    Except that Zippin isn’t really a store. It’s what founder Krishna Motukuri calls a “software play,” with the playground now being a pop-up store.

    “All the hardware is commodity - the turnstile, the weight sensors in the shelves, the cameras in the ceiling that link your image to your unique QR code,” Wired writes. “It's up to the computers to match all that together and charge your card when you leave. (The computer puts a green square around your image from above; there's nothing biometric about it, unless someone figures out how to characterize individual differences in male pattern baldness.)”

    Motukuri “sees a checkout-free future for gas station stores, convenience stores, airports, hotel lobbies,” and tells Wired, "We expect everyone will want to customize it.”

    And there seems to be a lot of momentum for the checkout-free concept: “The basic technology is probably not going away,” Wired writes. “Microsoft, Walmart, and Toshiba have announced their own versions. A report from Juniper Research says technology-enabled checkouts account for just about $9 billion a year in the US today, but they're headed toward $78 billion by 2022. Meanwhile, in China a dozen companies are building cashier-free convenience-type stores from scratch, and everyone already uses a phone-based digital wallet - they made $9 trillion worth of mobile payments there in 2016.”

    You can read more about Zippin here.
    KC's View:
    No surprise here, in the sense that from the moment I heard about Amazon Go’s checkout-free technology, it seemed absolutely inevitable that we would see a lot more of it, in various iterations and created by a variety of companies.

    As I’ve said from the beginning, checkout-free technology rewires your brain. It is like EZPass or TSA PreCheck … one you’ve used it, you never want to stand in line again. And since checkouts are seen by consumers as a major pain point, it simply makes sense for most retailers, whenever possible, to eliminate the pain.

    Published on: August 23, 2018

    Engadget reports that Walmart has launched an e-book and audiobook website that it has been working on for the past year, since it established a partnership with Japanese firm Rakuten and its Kobo e-book subsidiary.

    That deal, the story notes, promised “to give its customers (in the US, at least) an easy way to access the six million titles in Kobo's library. Now, you can finally access the partner's e-book experience via Kobo e-readers and their new co-branded apps for iOS and Android devices. You can also purchase e-books on Walmart's US website, where they're listed alongside their physical counterparts.”

    Engadget notes that in addition to competing with Amazon’s e-book business online, the new Walmart/Kobo effort will include the sale of digital book cards in its stores; there also will be an audiobook subscription service. And, Walmart will begin selling Kobo e-book readers in about a thousand of its stores, beginning this week.
    KC's View:
    First of all, it is interesting that this is a move that Walmart is making now, a time when e-book sales seem to be leveling off. I suppose that this is a measure of how it views Amazon and the need to compete on all levels.

    I’ve been to the Walmart/Kobo site, and I’m not impressed. It is functional and minimalist without being really appealing. It also doesn’t do as good a job at creating context, and is sort of inconsistent in how it displays and differentiates e-books, audiobooks and physical books. I did like the idea that the site isn’t just selling books from Walmart, but also from third-party sellers.

    One thing I really liked - they’re selling “The Big Picture: Essential Business Lessons from the Movies,” the book that Michael Sansolo and I wrote. Gotta admire their taste.

    Published on: August 23, 2018

    Bloomberg’s Matthew Boyle has a piece about what appears to be a retailing renaissance. Here’s how he frames the issue:

    “Stellar results from bellwethers Walmart Inc. and Target Corp. have industry analysts asking: Is retail back?

    “In truth, retail never went away. Sure, troubled chains like Sears Holdings Corp. and J.C. Penney Co. are cratering, and icons like Toys R Us have disappeared. Sure, Inc. is now grabbing about 50 cents of every dollar spent online, leaving traditional retailers to fight over the rest. And of course, President Donald Trump’s looming China tariffs could upend finely-tuned global supply chains and clobber profits.

    “But the headwinds battering retailers in recent months have prompted the best of the bunch -- a group that also includes Nordstrom Inc., Best Buy Co. and Kohl’s Corp. -- to up their game. They’re sprucing up stores, adding more e-commerce delivery options and improving service with better-trained, higher-paid employees. Those efforts have been turbocharged by what Target chief Brian Cornell says is possibly the strongest consumer environment he’s seen in his 37-year career. Unemployment is near record lows, consumer confidence is at a 17-year high and shoppers have their wallets out.”

    You can read the entire story, including a section about winners and losers, here.
    KC's View:

    Published on: August 23, 2018

    CNN has a story about how Costco continues to be both viable and relevant in a fast-changing retail environment - even though its strategy seems to hinge on perfecting “what's been working for four decades.”

    And what’s been working? “Costco gets roughly three-quarters of its profit from $60 to $120 annual subscription fees … Members pony up for the subscription because they believe they can make it back over the year by buying cheap stuff in bulk, like giant jugs of ketchup and mayonnaise … The company pours the subscription proceeds into driving prices down.” At the same time, “Costco has strong partnerships with suppliers and can negotiate with them for the best deals, even when inflation rises, because brands trust Costco will use the cost savings to keep price tags in stores down. Vendors are happy to oblige because it boosts their sales.”

    This model creates what the story calls “exceedingly loyal” customers: About 90 percent of Costco’s 93 million members renew their subscriptions.

    While this model has been working for Costco for a long time, it also “is getting a boost from its digital business … Sales grew 21% in July compared to a year ago. Costco sells 10,000 products (compared to fewer than 4,000 in its typical store) on its website and app, including expensive items like furniture that weren't always available in stores.”

    CNN goes on to note that “Costco has a sizable customer overlap with Amazon, especially among wealthier shoppers. It's a looming danger for Costco if those shoppers decide they don't want to pay for both.

    “But the company has defended against its Washington State neighbor through low prices, offering fresh food and gas, and creating a treasure hunt buying experience that can't be copied online.”
    KC's View:
    I continue to believe that Costco may even have a bigger problem than Amazon - it needs to figure out a strategy to compete in environments where people are getting married later, having fewer children, living in urban environments and may not even own a car. Seems to me that this shift in consumer behavior poses significant problems for Costco … and a lot of other companies.

    Published on: August 23, 2018

    • The Financial Times reports that a new patent filing by IBM suggests that it wants to get into the business of smart coffee delivery drones.

    According to the story, “The August 7 filing with the US Patent Office describes a system wedding currently ubiquitous drones with cameras and biometric sensors that could dispatch caffeine to flagging employees and thirsty café customers even before they ask for it.

    “The technology, which the filing said could be used in offices to keep employees alert or by coffee shops to increase sales, would use the sensors to scan for people who have asked for a drink, perhaps only by waving or through an app, as well as those who appear to be in a ‘pre-determined cognitive state’ requiring coffee.”

    FT writes that “IBM declined to comment on whether the filing was part of its shift to new businesses. But the filing reveals how the company is looking to wed its traditional expertise in hardware with its newer AI focus.”
    KC's View:

    Published on: August 23, 2018

    • Target yesterday reported Q2 revenue of $17.78 billion, seven percent higher than the same period a year ago, on same-store sales that were up 6.5 percent. In addition, Target posted a 41 percent increase in digital sales.

    Target’s success, the Wall Street Journal writes, “is partly due to a strong consumer economy: Rising wages and low unemployment are helping retailers across the board. But it is also a sign that the company’s $7 billion investment to revamp its business is paying off.”

    USA Today reports that Oprah Winfrey now is out with her own line of frozen pizza, albeit with crust that is one-third cauliflower, which keeps down the carbs.

    The brand, called called O, That’s Good! and manufactured by Kraft Heinz, consists of “11-inch pies, which serve five people, (which) come in Five Cheese, Uncured Pepperoni, Supreme and Fire Roasted Veggie flavors. The suggested retail price is $6.99. Each serving contains 280 to 330 calories and 3 to 5 grams of saturated fat.”

    Melissa Abbott, vice president of culinary insights at the Hartman Group, tells USA Today that this reflects an important trend: "In the American food culture, we’re at a stage now where health and wellness is merging with culinary aspirations. There’s a seismic shift in terms of what was acceptable in the '80s, '90s and even the 2000s. Yes, you should eat vegetables, but it was 'grin and bear it.’"
    KC's View:

    Published on: August 23, 2018

    Responding to our story about the Supervalu reorganization designed to make it easier to sell off its retail businesses, one MNB reader wrote:

    I worked at Supervalu for 13 years (got laid off last November with a whole bunch of others due to a restructure).  Although I really enjoyed working at SV, the last few years were really tough. Every time you turned around, someone was getting laid off. Most people just wondered when it would be their turn!  However, I have since (March of this year), got one of the best jobs I’ve ever had, and even closer to home. See that – there is life after SUPERVALU.

    On another subject, from another reader:

    I read this Fast Company article yesterday about the Pinto App, and decided to take it for a test drive as I’m currently doing that Paleo thing. I found that the app is easy to use, and you can add not only your dietary preferences and allergies, but also create a profile including your height/weight, exercise habits, and your goals in conjunction with your eating habits. Pinto then creates a framework for reaching those goals, providing targets around calories, protein, carbs, fat, etc. based on the information you provided.

    I think Pinto has a lot of potential for marketing to people with specialty diets. For instance, if it shows you’re hitting your target calories, but lacking on protein, personally I would like if it could recommend specific products or suggest different food items to help reach that protein goal without tipping over on the calories.
    The database of products seems to be quite expansive, but already I found several holes trying to update my meal tracker. It will be interesting to see how Pinto grows and in which ways. Overall, I am enjoying using it and have already sent the article to a few friends with dietary restrictions.

    From another reader:

    I agree completely with you in thinking this Pinto App will be a great addition to the marketplace to help consumers know what they’re actually eating. However it also comes with a bit of concern that something like this is even required. I mean, shouldn’t the NFP be enough for a consumer to know what’s in the product?

    I know its a loaded question but it seems to me that there are far too many companies that are looking to hide the ingredient contents OR a typical shopper wont be able to understand them anyway. Not to mention newly required FDA regulations that require honey, molasses or maple syrup to be characterized in the same way as refined white sugar.

    Also, this probably wont be something that I’ll use while shopping; firstly when I need to consult the NFP, it’s usually a signal that Its probably not worth it (although I do when shopping for my kid), or second I don’t want to know anyway.

    Finally, its a really interesting time in Natural Foods because for every Reeses Peanut Butter Cup, there’s a Justin’s or Unreal that are both realistically better. For every Dorito, there’s Late July and for every Craft Mac & Cheese, there’s Annies. All are made from better ingredients, and realistically just taste better.

    Yesterday we took note of a lovely piece in The New Yorker by Michelle Zauner, who describes herself as the child of a Caucasian father and a Korean mother, and who finds that shopping at H Mart, a Korean supermarket, is simultaneously evocative of her youth and family while prompting in her a kind of sadness related to a past that never can be recaptured. It is, we said, a great example of how a store can be a cultural access point.

    It prompted one MNB reader to write:

    Beautiful story KC, I've been to the one in Burlington, MA. Super busy, unlike any other store in the area.

    I sent the story to my wife, who is half Asian and it brought her to tears. We had taken her mom who was born in Japan, shopping there several times before she passed, and she loved that store.

    And, more discussion about the fellow in Colorado who, having won a case in which he argued that he should not have to bake a cake for a same-sex wedding because of his religious beliefs, and now is arguing that those same religious beliefs mean that he should not have to bake a birthday cake for a transgender woman celebrating the “birth” of their new identity. (The requested cake would’ve had a blue exterior and a pink interior; I hope I’m getting the language right.)

    I’ve been saying that I believe that religion should not be used as an excuse for intolerance and discrimination. Yesterday, I wrote, in part:

    Someone once wrote that God judges people from the inside out; people judge other people from the outside in. That seems pretty accurate to me.

    The transgender person just wants to be who he or she is. The person who marries someone of the same gender just wants to love and be loved, and make a commitment to that love …

    My dad, who in many ways was as conservative about these things as they come, loved the Biblical verse that says, “God is love. And he who abides in love, abides in God, and God in him.” There were times in his life when, even though his instincts might’ve taken him in another direction, he found solace and guidance in those 16 words.

    This discussion was started by something as small as a cake, but as big as personal intolerance cloaked in religious belief.

    On this one, I’m going with my dad: God is love.

    MNB reader Jeff Gartner wrote:

    So let me get this right. Some people feel it's ok for that Colorado baker to refuse to bake a cake for a transgender person or for a gay couple, just because his religious beliefs lead him to find it morally objectionable. Don't they know that this same religious liberty argument was made not that many decades ago to refuse the same thing for interracial marriages or to serve any black person with food, lodging, water fountains, etc or to deny blacks and Jews housing, club memberships, etc.? There's no difference, discrimination is discrimination, and your religious beliefs do not give your business serving the public to discriminate. 

    Thanks for taking this on.

    MNB reader Ken Wagar wrote:

    This …is one of the best things you have ever written in MNB. It takes a very difficult and divisive issue and answers it in a better way than I or many others could have done. I totally agree and appreciate your putting this out there.

    And, from MNB reader Randy Evins:

    I absolutely enjoy your perspective. I don’t always line up with it but you help me keep my bearings as your arguments are compelling and cause me to think twice….that, for me, is a good thing. This topic really has no conceivable end. On one side is religious opinion and the other is religious opinion. I know I know you can’t classify “transgender” or “gay marriage” as religious but really if you line up the belief systems next to each other…they are very similar. It’s opinion that causes the angst. Truth is there’s a ton of faith required no matter what side you’re on. Faith in the bible and it’s moral compass, or faith in an internal feeling that no matter what a person is scientifically (x v y genetics) they “feel” they are something else. I don’t dispute that in any way because I only have access to my own feelings.

    However my issues in this particular case….why on earth would this transgender person, go to THIS bakery and ask for THIS cake? If I object to a particular opinion a person has, I have no desire to give them my money. If a baker is a Nazi, or a white supremacist, I am not interested in funding their life. Yep, this is sham case. It’s intentionally going after this individual because of the previous case. There are many more bakeries in Colorado, at least I presume there are, that this person can go to and get the cake they want……give this guy a break. If you know he’s not going to approve of your lifestyle, leave him alone, go find someone that will…

    I think I would be remiss if I did not reiterate that members of the LGBTQ community are not part of that community because of faith or belief. They simply “are.” I understand what you are saying, but I think there is a difference.

    As for just using another baker, I get your point. Except that, to follow Jeff Gartner’s point above, that’s the same argument that would’ve been used to black people in the South during much of this county’s history. Just use another hotel, another restaurant, another lunch counter. It’s not that we’re denying you services … it’s just that we’d rather not use the same services we do because of our beliefs. And let’s face it … there are people in this country who still feel that way.

    Such beliefs are abhorrent. And when beliefs translate into intolerance, and religion is used as a justification … well, I have a problem with that.
    KC's View:

    Published on: August 23, 2018

    As is my custom at this time of year, I'm taking the last few days of summer off. MNB will be on hiatus until the day after Labor Day, Tuesday, September 4, when we'll return with all new hand-crafted stories and commentaries.

    Between now and then, the MNB archives will, of course, be open. If anything big happens, I’ll weigh in on it. (This is not an idle threat. Last year, Amazon completed its $13.7 billion purchase of Whole Foods. I came back.)

    Thanks, as always, for your support … I hope you also have a chance to enjoy the waning days of summer.

    KC's View: