business news in context, analysis with attitude

Published on: September 5, 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 Albertsons’ options … the power of as customer-centric focus … Amazon’s latest bricks-and-mortar flirtation … and more.

And now, after the summer off, the Conversation continues…

KC: Welcome back. I hope you had a great summer. Since we’ve not done an Innovation Conversation for a few months, I was wondering if you would weigh in on a couple of recent stories.

I argued that when the Albertsons-Rite Aid merger fell apart, that the first thing Albertsons should’ve done was call Alibaba and say, “Let’s make a deal.” Now, that may be not be possible because Alibaba already has business dealings with Kroger, selling its own-label products in China. But would you agree that this is the kind of big-swing move that Albertsons has to make? If Albertsons called you and asked for your opinion about what its next move should be, what would you tell them?

Tom Furphy: It’s great to be back! I hope everyone had a good summer.

I try to be sensitive in commenting about specific retailers. But generally, I don’t see this merger falling apart as that big of a setback for Albertsons. I assume that they had a rationale and plan for the acquisition and that their offer price was set relative to the return they expected. Rite-Aid shareholders didn’t feel the price reflected fair value for the assets and Albertsons wasn’t willing to go higher. Therefore, terminating the deal seems like a fair outcome all around.

I do agree that, like most retailers, Albertsons needs to take some bigger swings than they are taking now. I don’t think they necessarily need to be massive swings. But they need to be thoughtful and taken within the context of their overall customer strategy. I’ve always found, from my work at Wegmans to Amazon to recently selling a company to Nordstrom, that when you focus on your customer, truly understand their needs and then to fully commit to serving them in compelling ways, customers reward you with their dollars.

In Albertsons’ shoes, I would address the largest vulnerabilities first. The biggest hidden killer in the industry today is the slow loss of center store volume and pricing pressure on the volume that remains. As shoppers turn to Amazon and other alternatives to solve their everyday needs, they become that much less reliant on traditional retailers such as Albertsons. Retailers need a compelling strategy, such as auto-replenishment, to defend this volume, take control of their cost structures and help their customers manage replenishment tasks.

Another area where they could increase their value to customers is in fresh & prepared foods as a better alternative to restaurants and other formats. Shoppers struggle with food discovery, meal planning and nutrition. This is an area that Albertsons could help. The acquisition of the Plated meal kit company was a pretty good swing at a portion of that, but they need to do more to raise their culinary relevance.

They’ll also need to determine how they will solve convenience and delivery – if they will continue to partner or if they will look to do it themselves. Then, health & wellness – how will they leverage their assets, locations and customer relationships to crack this and leverage the synergies between pharmacies, nutritionists and retail. To me, these seem like the big areas to address.

It can seem daunting. But with great locations, a large customer base and an energized team, I think Albertsons could address much of this in short order on their own and through partnerships.

KC: It was on a different scale and in a different business segment, but I was intrigued by the story last week about Serta Simmons merging with Tuft and Needle as a way of compensating for what appears to be the imminent insolvency of retailer Mattress Firm and a change in the competitive landscape; at the same time, we have Casper expanding its online brand offerings as it also pursues a store opening strategy.

To me, this was a kind of microcosm of the choices facing businesses … you either take big swings in terms of strategy, tactics and vision, or you compensate for weakness by merging/acquiring/selling or creating some sort of other alliance. I think we live in an environment where most people and companies will make the latter choice, but I’m not sure that this is going to be healthy for the business or consumers long-term.

TF: In the mattress business as well as any retail category, if you have a clear customer focus and obsess over what you can do to improve their lives with your products and services, the changes that you need to make to your model become very clear. I cannot overstate how powerful this is. It makes decisions that can seem daunting quite manageable. It also keeps you from becoming complacent and makes you less vulnerable to market entrants.

We’re seeing the traditional delineation of retailer and manufacturer blur. Companies are finding that the right combination of innovative products, technology to reach the consumer, and flexible business models that include both stores and delivery can really unlock value. Amazon is aggressively manufacturing its own products and opening stores. Dollar Shave Club redefined the shaving category. Warby Parker has changed the way we shop for glasses. All of these models win by clearly defining and standing behind their consumer value proposition. None get lost in the muddled middle.

Sometimes companies can adapt on their own. Other times a merger makes sense. It can also be best to start with a partnership to test things and get them to market quickly. Some partnerships can work well long term. However, retailers ultimately need to determine the core competencies that they will own in fact and in the eyes and hearts of their customers.

KC: Your thoughts about Amazon considering a bid to acquire the Landmark movie theater chain, which would give it an additional set of bricks in the bricks-and-mortar world? To me, it was just another entry into the “never say never” file, and it points to how Amazon has the freedom - and the inclination - to be able to try things that nobody else would or can.

TF: Amazon clearly believes that a combination of digital and physical experiences can be important in delivering a good customer experience. In the movie space, if they can add value to their customers’ lives by streaming to homes and devices as well as providing immersive experiences in brick & mortar theaters, more power to them.

I think it further cements their value in their customer eyes, improves their clout with third party content producers and also gives them an additional platform to showcase their own content. Brilliant!

KC: Finally…when we last did the Innovation Conversation, I asked you three quick questions:

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?

You said: $3.65 billion. I said: $3.8 billion. But we both underestimated: Internet Retailer put the 2018 global prime Day total at $4.19 billion, up almost 74 percent over last year.

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.)

We both said yes, and we were right: United Natural Foods Inc. (UNFI) bought Supervalu for approximately $2.9 billion.

And finally, 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?

You said they’d be 53-77 and I said they’d be 54-76 … and we both agreed that deGrom would still be on the staff. Well, we were right on the latter point - deGrom even is in the hunt for the NL Cy Young Award (though I would bet on him getting it), but we were wrong about the Mets … as of this writing they are 62-76, so they’ve won more games that either of us expected. Hope springs eternal…

So … any thoughts?

TF: In order…

• Amazon’s numbers are accelerating on almost every level. It’s scary to think that they hit these sales levels, even with the site outages.

• I’ve been quite impressed with UNFI. They are positioning themselves to be a significant player in the shift to ecommerce and store/ecommerce hybrid models.

• I’m glad that deGrom is still with the Mets. And I do hope that, somehow, they can get some things sorted in the off season. As a long-suffering fan of the “lesser” NY teams hope must spring eternal. Bring on the Jets!

The Conversation will continue…

Published on: September 5, 2018

by Kevin Coupe
There was a story that broke while I was on vacation that I didn’t report on yesterday. I can’t even tell you why I ignored it, but apparently I made a mistake, because I got a lot of email from readers that urged me to pay attention, saying that it was an important issue demanding discussion.

It had to do with a 57-year-old fellow named Geoffrey Owens, who has been working at a New Jersey Trader Joe’s. Owens had his picture taken while working last week, and the photo went viral … because between 1985 and 1992, Owens was featured on “The Cosby Show,” where he played Cosby’s son-in-law.

It only became a problem when some media outlets - Fox News is most often mentioned in the coverage - belittled Owens and his job, which created a backlash on social media. Many people argued that work is work, and that job shaming never is appropriate; there were a lot of actors who pointed out that their careers often require them to work other jobs in order to make ends meet in between gigs.

This, in fact, is exactly what Owens was doing. Even though he has a long list of credits on his IMDB page (a lot longer than mine!), Owens has said that he simply wasn’t getting enough acting work to pay the bills, and so he took the Trader Joe’s job more than a year ago.

Owens, in a “Good Morning, America” appearance yesterday (during which he wore his red Trader Joe’s badge), said, “I’d been teaching, acting, directing for 30+ years, but it got to a point where it just didn’t add up enough and you gotta do what you got to do … I didn’t advertise that I was at Trader Joe’s, not that I was ashamed of it, but because I didn’t want the entertainment community to kind of decide, 'Well, he's doing that; he’s not pursuing acting anymore.' I felt like I had to be careful about that.”

The New Yorker wrote that “it was a fitting subject going into Labor Day weekend. We don’t tend to think of actors as laborers, despite the robust unions that represent them—Actors’ Equity and SAG-AFTRA. The most visible actors serve as aspirational figures, celebrated (or vilified) for their glamour and luxury. When we do hear about salaries, even in the context of gender discrimination, it’s often in the million-dollar range.” And while members of the entertainment community often are painted as coastal elites, the fact is that creative people are every bit as diverse as the rest of society; there are a lot more of them working as waiters and in similar jobs than making big paychecks. (Even when they’re working, they often don’t make enough money to live, and have to take side jobs to support their art.)

(The New Yorker also points out that Owens probably has been luckier than most, because for years he could count on residual checks from “The Cosby Show” to see him through the tough times. But, it notes, those checks almost certainly have dried up, since the sex scandals precipitated by Bill Cosby’s behavior have caused most outlets to stop running the sitcom.)

The good news - for Owens - is that all this publicity probably means he’ll be getting some acting work. Director/producer Tyler Perry reportedly has offered him an acting job, saying that he has “so much respect for people who hustle between gigs. The measure of a true artist.” Though, to be fair, Owens says, “I wouldn’t feel comfortable getting acting jobs from this event … I wouldn't mind getting auditions, I don't mind if people call me in to try out for things, due to what's happened, but I actually wouldn't feel comfortable (with) someone giving me a job because this happened. I want to get a job because I'm the right person for that job.”

But here’s where Owens gets it absolutely right:

“"This business of my being this 'Cosby' guy who got shamed for working at Trader Joe's, that’s going to pass. ... But I hope what doesn’t pass is this idea ... this rethinking about what it means to work, the honor of the working person and the dignity of work.

“And, I hope that this period that we're in now, where we have a heightened sensitivity about that and a re-evaluation of what it means to work, and a re-evaluation of the idea that some jobs are better than others, because that’s actually not true.

“There is no job that's better than another job. It might pay better, it might have better benefits, it might look better on a resume and on paper, but actually it’s not better. Every job is worthwhile and valuable, and if we have a kind of a rethinking about that because of what’s happened to me, that would be great.”

Exactly. And an Eye-Opener, and not just because it is on the front lines where companies succeed or fail, and where true value often is created. The executives I really respect are the ones who know that, and act on it.

Published on: September 5, 2018

The Washington Post reports that Sen. Bernie Sanders (I-Vermont) plans to introduce legislation that “would require large employers such as Amazon, Walmart and McDonald’s to fully cover the cost of food stamps, public housing, Medicaid and other federal assistance received by their employees. The goal, he says, is to force corporations to pay a living wage and curb about $150 billion in taxpayer dollars that go to funding federal assistance programs for low-wage workers each year.”

According to the story, “The bill … would impose a 100 percent tax on government benefits received by workers at companies with 500 or more employees. For example, if an Amazon employee receives $300 in food stamps, Amazon would be taxed $300.”

Published on: September 5, 2018

Amazon, for a brief time yesterday, became the second US company to achieve a $1 trillion market valuation.

The company’s stock price “traded at $2,049.50 at 11:35 a.m. New York time, pushing its market capitalization over the trillion-dollar mark. It followed in the footsteps of Apple, which became the first trillion-dollar company early last month.”

It didn’t last long. The stock closed at $2,039.51, giving Amazon a market value of a mere $995 billion.

Some context from the Seattle Times:

“The landmark valuation was reached after two decades of growth in online retail, but was pushed the final mile by Amazon’s other businesses – largely cloud computing and its expansion into physical retail, notably with the purchase of upscale grocer Whole Foods.”

The Times notes that “just over a year ago, Amazon’s market value hit the $500 billion milestone, stirring speculation it might become the first company to hit a $1 trillion valuation. Amazon went on to surpass Microsoft’s market value early this year, then it passed Google parent company Alphabet.  But it couldn’t catch up to Apple and its four decades of selling computer hardware before the Cupertino, California, company hit the trillion-dollar milestone Aug. 2.

“Still, Amazon raced to the mark far faster than Apple did. While Apple lumbered through the final stretch of its slog toward $1 trillion, needing 15 months to traverse the last $200 billion, Amazon covered the same ground in a three-month sprint.”

And, the Wall Street Journal writes that the analyst community “expects Amazon to pass Apple in annual sales for calendar year 2019.”

Published on: September 5, 2018

The New York Times has the story about how the In-N-Out hamburger chain is facing the threat of a boycott because the company donated $25,000 to the California Republican party.

It is not the first time that In-N-Out, a company with conservative and religious leanings, has donated to the GOP. But, the company points out, it also has given to California Democrats.

Apparently Eric Bauman, chairman of the California Democratic Party, either didn’t know or didn’t care about those donations, because when he saw a reference in the news to the chain’s donation to the Republicans, he went on social media and called for a boycott.

There is no evidence to this point that sympathetic Democrats are willing to give up their In-N-Out burgers, though some Republicans have taken advantage of the moment to call for people to patronize In-N-Out as a way of showing support.

Arnie Wensinger, the chain’s executive vice president, said in a statement that “while it is unfortunate that our contributions to support both political parties in California has caused concern with some groups, we believe that bipartisan support is a fair and consistent approach that best serves the interests of our company and all of our Customers.”

Published on: September 5, 2018

The Triad Business Journal reports that Publix, which continues its march up the east coast, plans to build a $400 million, 1.8 million square-foot distribution center in Greensboro, North Carolina.

According to the story, “It will be the largest distribution facility in the region – larger even than the 1.75 million-square-foot former Sears Distribution Center in Greensboro. Among grocers, it would also outsize the 1.48 million-square-foot Harris Teeter hub in Greensboro and the newly built 900,000-square-foot Lidl hub in Mebane.”

The Business Journal goes on to note that “the Triad is already hot spot for distribution centers, grocery or otherwise. Walmart, Lidl and Harris Teeter all have hubs in the region. And brands such as Ashley Furniture, Ralph Lauren, Gildan and Coca-Cola Bottling also have warehouse and distribution operations in the region.”

Published on: September 5, 2018

The Chicago Tribune this morning reports that the announcement yesterday by Mayor Rahm Emanuel that he will not seek a third term “throws a big unknown into the city’s efforts to score Amazon’s second headquarters, which would be the crowning achievement in a line of corporate wins under his leadership … Emanuel has been hands-on in trying to woo Amazon to Chicago, touting the city’s growing tech sector, assembling 600 heavy hitters on a committee to support the bid and even hiring William Shatner to narrate a pitch video because Amazon CEO Jeff Bezos is a ‘Star Trek’ fan.”

Amazon has said that a second North American headquarters city will be a full equal to its Seattle headquarters, with a planned investment of $5 billion and an expected hiring of as many as 50,000 employees. Chicago is one of 2o cities that made the finalists cut.

The Tribune says that opinions seem to be split on the impact of Emanuel’s departure - some say that Emanuel’s passion and aggressive approach will be missed, but others say that Chicago’s appeal transcends any singular political personality, and that there are so many development projects in the pipeline that Amazon will find the city enormously appealing.

Published on: September 5, 2018

Delish reports on a Mexico City Starbucks that “ has become the first to be run solely by senior citizens … The hiring influx was a partnership between Starbucks and the National Institute for the Elderly to provide more employment opportunities for seniors.”

The senior citizens’ shifts are said to be 6.5 hours long, with two days off guaranteed each week. For the moment, the senior citizen employees are being trained by younger Starbucks staffers, but the plan is to have the entire store staffed and run by elderly folks.

The story notes that some adjustments in the physical layout have been made, such as lowering shelves, to make the plant more accessible to senior citizens.

Published on: September 5, 2018

• Meijer has opened a new convenience store format, a 5,500 square foot unit in Grand Rapids that has both a gas station and a Starbucks, plus grab-and-go meals, fresh produce, sushi and pizza.

The store reportedly is similar to a c-store opened by Meijer in Cascade two years ago; Meijer operates a total of more than 200 c-stores and gas stations in addition to its more than 240 supercenters.


• Darrenkamp’s, a local, family-owned, four-store grocery business established in 1932 and serving central Pennsylvania, announced yesterday day that it is going out of business. The liquidation process will begin immediately, with the official closing of all four Darrenkamp’s locations anticipated for early November.

The company’s Willow Valley Square store has been sold to Giant Food Stores. The others - in Elizabethtown, Etters and Mt. Joy - will close in a phased approach.


• Reuters reports that 30 more people “have reported sick after eating Kellogg Co’s Honey Smacks cereal contaminated with Salmonella, the Centers for Disease Control and Prevention (CDC) said, bringing the total to 130 cases in 36 states … So far 34 people have been hospitalized, but no deaths have been reported, CDC said on Tuesday, adding that three more states - Delaware, Maine and Minnesota - have reported cases of illnesses … Kellogg had in June decided to recall an estimated 1.3 million cases of its Honey Smacks cereal from more than 30 U.S. states due to the potential for Salmonella contamination.”


• CNN reports that “Starbucks is testing a program that will allow some employees to spend half of their workweek at a local nonprofit. With the help of Points of Light, a nonprofit volunteering group, Starbucks picked 36 Starbucks Service Fellows in 13 cities for the pilot program. For six months, the fellows will spend at least 20 hours per week working for Starbucks, and up to 20 hours per week at a local organization.”

The story says that “Virginia Tenpenny, vice president of Global Social Impact at Starbucks and executive director of The Starbucks Foundation, said that Starbucks (SBUX) sees the program as a way to keep employees happy. The fellows are spread across stores, and Tenpenny hopes they will talk up the program to their colleagues.”


• The BBC reports that Tesco in the UK has annoyed customers there by changing the way it charges for bananas at its urban stores - moving from charging by weight to charging by the piece. The result is that “the cost of each yellow fruit has more than doubled at its Tesco Metro and Express stores.”

Customer outrage has been voiced via social media. Tesco has responded by saying that it had to increase prices because “our convenience stores are in prime, central locations where leases are more expensive.”

Published on: September 5, 2018

Responding to yesterday’s story about how Whole Foods has benefitted from Amazon ownership, including increased traffic, one MNB reader wrote:

I believe It’s curiosity... and possibly prime members. But WFM has become just another grocery chain . Selection is shrinking; they are losing their Whole Foods’ core customer, the hard core natural / organic upper income , willing to try new things. I used to shop weekly or more for my family; now it’s a rare quick trip for 1-2 items..... haven’t set food in one for 3 months. Who won our weekly / twice weekly business? Sprouts. They have their act together - we are enjoying trying their private label “ everything” and they’ve expanded their selection to include many of our favorite items- that Whole Foods discontinued!

MNB reader Tom Murphy chimed in:

I would submit that the following quote from the article helps portent Amazon's next steps: "...Whole Foods is a niche, urban chain with only about 470 stores and little overlap with Walmart’s 4,000-plus stores and Kroger’s almost 2,800 locations that are mostly located in suburban markets."

Once Amazon feels comfortable with the Whole Foods experiment, they won't settle for missing out on the suburban markets owned by any of its competition.



We took note yesterday of a Wall Street Journal story about how baby boomers are “particularly self-conscious” about the words used to describe them, and different people feel differently about different words, which they see as labels.

One anecdote:

I had to shake my head a little ruefully when I read this story; it seemed so emblematic of what’s wrong about the culture in general and my generation in particular. We’re more concerned about what we’re called and how we’re defined by others than who we are, what we do, and how we do it.

I have to admit that I’m as guilty of this as anyone. The other day I was out jogging, and there was a young fellow walking several dogs in the opposite direction. I said, “Good morning” (I’m a friendly guy), and he looked at me and responded, “Good morning, sir.”

“Sir?” When did that happen?

I got over it, though. I’ve had to, since I’ve noticed that I get called “sir” more and more lately. I had to make a decision - be offended by it, or just realize that people are just trying to be polite. The latter seems like a far better way to go.

One MNB reader wrote:

I have to take issue with your dislike of the title, "sir".
 
Let me preempt my comments with some background. I was never in the military, nor was I raised in the south where etiquette and decorum seem to be prioritized. I was, however, raised to be respectful of all, and, as a child, respectful of my elders. This usually warranted addressing them as Mr. or Mrs..
 
As to the title, "sir", maybe this comes from 45 years of frontline retail, but, no matter age, I address every man as "Sir" and every woman as "Ma'am". If there's more than one, it's "Gentlemen" and "Ladies", as in, "May I help you, Gentlemen?" But I also address everyone the same way no matter which side of the counter I'm on. If I'm at the convenience store buying a pack of smokes from some 16 year old punk behind the counter, it's still, "Good afternoon, sir", "May I please have.....sir", and "Thank you, sir." From my point of view, it's general civility and respect. I'm no better than he, he's no better than I, even though, one is serving, the other one is being served.
 
Me thinks that you're too sensitive about your age.

From another reader:

I actually don’t think human nature has changed at all, notwithstanding longer life expectancy. I would guess a 40-year old 100 years ago would be shocked the first time he’s called ’sir’. We’ve all locked in our self-image at our charming and irresistible 25 year-old selves (guys particularly … guys in bars particularly) and are shocked when those inconvenient other people call it like they see it. Which we then ignore anyway.

What has changed is more aggressive marketing to ‘seniors’, and the youth-oriented culture trying to force us to act (or at least look) younger and younger. Seen any Country Time Lemonade or Bartles & Jaymes ads with old dudes hanging out on the porch? Didn’t think so. With apologies to Yogi Berra, seniors are younger than ever these days.

Other than ‘do these jeans make my backside seem large?’ (ably defused by the depiction of Mrs Incredible), no area seems as fraught as what to call seniors. The terminology and age range is all over the place. I do think that in general, positioning products and services as helpful to active people will be better accepted going forward than the ‘welcome to God’s waiting room, here’s your rocking chair’ approach.

Personal favorite: getting a ‘Wisdom’ discount at a hotel (15%)!. Least favorite experience: getting the squint from the counter person at McDonald’s, who makes the internal calculation and gives me the senior discount on coffee. I made her charge me full price.

MNB reader Georganne Bender wrote:

I’m still good with Baby Boomer, I’m not sure how I would respond if someone called me Perennial.” “Vintage” or “Golden ager”. It’s tough enough getting used to “Ma’am”.

A couple of weeks ago we tweeted something about Millennials. One came back and said they prefer now to be called “Young Adults.”

You’re right, the words used to describe us do matter.

One way in which the world has changed in terms of how people age was illustrated recently in a meme pointing out that Tom Cruise in Mission: Impossible - Fallout is five years older than Wilford Brimley was in Cocoon.



On the subject of Walmart’s decision to claim products are out of stock when they’re actually just to expensive to deliver to online customers, one MNB reader wrote:

Years ago UPS would not deliver a package, when I inquire about it I was told by the UPS representative the shipper required a signature.  I thought that was odd since REI never required that before so I called the REI and asked them why they needed a signature for a $7.00 item, they told me they didn't  ask for a signature.  It must have been a new or relief driver since at the time I left my front door unlocked and the regular driver just open the door and slide the package in the house.  This happened to me several times with UPS always stating the shippers require a signature and in each time that was not the case.  To this day if I have a choice, I would use FedEx or USPS since I have lost trust in UPS because they lied to me on more than one occasion.



Finally, responding to Michael Sansolo’s column about how email is out and texting is in, MNB reader David Spawn wrote:

Based on the number of texting solicitations I received in the past week (at least 25% of the texts I received).  Maybe it’s more personal for some, but I have to hope there’s a spam text folder that I can figure out soon.