retail news in context, analysis with attitude

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.

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.

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?

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…

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