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    Published on: October 3, 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 leadership commitment required for companies to deal effectively with continued and expanding competitive threats.

    And now, the Conversation continues…


    KC: Last we talked, we were talking about how scalable Amazon Go was. Your exact quote was, "I do think we’ll see more momentum in the short term.” It ended up being a little shorter than probably even you thought … a day later, there was a report from Bloomberg saying that Amazon has a plan that, if implemented, would result in the opening of as many as 3,000 checkout-free Amazon Go stores by 2021. That’s roughly a thousand stores a year … it would be impressive even if Bloomberg is only half right, and Amazon opened 1500 Go stores in that time.

    And then, a week later, they open Amazon 4 Star, a format that, to be best of my knowledge, wasn't even rumored to be in development. To me, this reflects a basic reality - we have no idea what Amazon may be developing in the bowels of its headquarters campus in Seattle, and that just when all the analysts think they have Amazon figured out, it is likely that it will surprise - and, often, delight - us. And that’s an enormous competitive threat.

    Tom Furphy:
    It sure is. Amazon is an innovation machine. It is baked into the DNA of the company through the types of people they hire, the way that teams are structured and the way that performance is measured. Each team inside Amazon is charged with innovating internal processes for efficiency and effectiveness and innovating their external offerings on behalf of the customer. They are measured and evaluated based on their performance toward these.

    Inside the company, each function sits as “separable, single-threaded teams” in the words of Jeff Wilke, CEO of the global consumer organization. Having each team separated from the others, is great for empowering them to innovate without being encumbered by other groups. They’ve taken the concept of a silo, which organizations naturally gravitate toward operating within, embraced it, and are using to a powerful advantage. It can make Amazon difficult to deal with from the outside, because each team doesn’t necessarily know that the others are doing, but they are all moving forward laser focused on their objectives. The teams are coordinated, and objectives coalesced, at senior management levels.

    We’ll see how accurate the Bloomberg report proves to be. There is no doubt that, once something is proven and backed for scale, Amazon can roll out aggressively. And the innovation engine is clearly working on new store formats, including a reimagined grocery experience. It will be interesting to see how these evolve and how quickly and widely they scale. And it will be imperative for competing retailers to be on top of their game to keep up.

    KC: What do you think this tells us about the kind of leadership that competing retailers need to have in the current environment? Does the business world today require a fundamentally different kind of leader than 10, 15 or 20 years ago? What leadership qualities should companies be developing and/or looking for outside the business? And how do often tradition-minded companies change their cultures to value and nurture those qualities?

    TF:
    In many sectors today, and especially in retail, the pace of innovation is blinding and accelerating. As a result, companies need to increase their speed and agility. They need to experiment broadly, measure quickly and thoroughly, and implement decisively. This requires a fundamental leadership and cultural shift that is much more significant than most companies realize.

    I think there are some must-have leadership principles that will endure time, such as customer centricity, team advocacy / servant leadership, focusing on metrics, etc. All of this is still critical. But the main difference today is that companies need to foster speed. It’s important to be able to experiment rapidly, read the results, modify and experiment again. I’m not talking about being haphazard, I’m talking about developing a culture and framework that encourages innovation, knows how to measure it and rewards both the failed experiments as well as the successes.

    There is no silver bullet solution to being successful in retail and/or e-commerce. And even if there was, today’s bullet would not be the same as tomorrow’s. The fundamental must-have is organizational speed and agility. The longer you take in developing a strategy, the more you invest in outside consultants, the more you spend on big technology, the more vested you become in a current plan or solution, the riskier you are being. What seems safe is actually destructive. That’s a recipe for longer term disaster. Instead, spend the time now determining how you can be faster.

    KC: Of course, the problem is that retailers and suppliers are dealing with far more prosaic issues, like costs going up but the need to keep prices down because of competition from discounters, not to mention the fact that format boundaries appear to be breaking down - all of which creates enormous competitive tsuris and tumult, which sort of prevents retailers from focusing on the big picture issues that Amazon is creating and on which it is focusing relentlessly. Any thoughts about what do in this situation?

    TF:
    Before I answer, I do want to acknowledge that these are very real and difficult issues. I worry that sometimes we can come across as glib and oversimplifying as we espouse perspective through our keyboards. Running the current business and dealing with the range of external and internal issues that leaders face is hard work and impacts thousands of lives every day.

    That said, businesses will not survive today and forward without a real shift in strategy, leadership and culture. This has to happen in coordination with running day to day operations. This is something Amazon does well and that other companies can emulate.

    Amazon has been in business for 24 years. That’s enough time to build legacy systems and processes that they could let get in the way of their innovation and make them less agile. It’s enough time to be faced with the issues you mention. What they are good at, and what other retailers desperately need to figure out, is how to truly focus on the customer and work backward into the organization. When you do that, the framework of how to deal with the real-world issues becomes much more logical.

    I would encourage companies to take an honest look at their major cost buckets across the organization. How much of that cost is truly necessary to run the company and service the customer? I bet there are several pockets of cash that can be freed up to spend on innovation.

    The Conversation will continue…

    KC's View:

    Published on: October 3, 2018

    by Kevin Coupe

    I returned to the original Amazon Go store in Seattle last week, after visiting the two new ones that the company has opened there. I continue to love the format, but I noticed something had changed.

    When the store opened, they gave away cloth bags. (They’re great - well-made orange bags with the Amazon Go logo emblazoned on them. I can’t tell you how many conversations I’ve had about them with my local Whole Foods employees when I’be brought them into the store; the conversations are particularly interesting with the checkout personnel, who are curious if they’re going to be losing their jobs anytime soon. No, I tell them. Not anytime soon.)

    But now, they’re charging for them. Ninety-nine cents.

    This tells me one of two things.

    That Amazon is comfortable enough with the way the format has been accepted and the business it is doing to no longer have to provide the freebie.

    Or, that Amazon is losing so much money on the store that it has to grab 99 cents anyplace it can.

    I’m betting it isn’t the latter.

    There is, however, one thing that intrigues me.

    You’ll notice that the sign instructs the consumer to “tap the bag icon in the app to buy” a bag.”

    Which I did. Though, when I thought about it later, it seemed to me that this sort of was like the honor system. If I’d just taken the bag without tapping the icon, does that mean I wouldn’t have been charged?

    More to the point, I wonder why I have to tap the icon at all. After all, you’d think that the same system that allows Amazon to track what I take off the shelves in the store and charge me for what I leave with would also be able to track how many bags I take.

    Hmmmm….

    I’ve reached out to Amazon with these questions. I’ll report back.










    KC's View:

    Published on: October 3, 2018

    Kroger announced yesterday that it is testing a new alliance with Walgreen that will allow customers to order groceries from Kroger online and then pick them up at a Walgreen drugstore.

    In addition, the Cincinnati Enquirer reports, the two retailers will test out the sale each one’s private label products in the other’s stores.

    The arrangement is being tested out at 13 Walgreen stores in Northern Kentucky, close to Kroger’s Cincinnati headquarters. If it works, the goal is to roll it out nationwide.

    “This exciting collaboration aligns with Kroger’s vision of serving America through food inspiration and uplift,” Rodney McMullen, Kroger’s chairman/CEO, said in a prepared statement. “This concept brings together the best of two great brands to rethink convenience and redefine the way America shops for food.”

    In its coverage, CNBC writes that “the deal is the latest in a series of partnerships and combinations in which retailers have sought to offer new products and services as shopping habits change. Pharmacies like Walgreens have been losing sales of household products like shampoo that they can buy at conveniences stores or online. Grocers like Kroger are looking to add service and distinction as they compete against the powerful union of Amazon and Whole Foods.

    “Examples include CVS Health's planned $69 billion acquisition of health insurer Aetna and Walmart's partnership with health insurer Anthem.” CVS also is running all of the pharmacies inside of Target stores nationwide.

    In addition, CNBC reports, “Kroger has been transforming its business to compete against the evolving retail landscape. It acquired a stake in British online supermarket Ocado in May, agreed to buy meal kit company Home Chef and launched grocery delivery service Kroger Ship. It also plans to open an online storefront on Alibaba's platform, Tmall Global, for international brands. The focus will include dietary supplements and private label products under the brand Simple Truth.”
    KC's View:
    Smart move and in its own way, inevitable … and perhaps indicative of an even closer relationship between these two giant retailers down the line.

    This is exactly what retailers like Kroger have to do - find new and innovative ways to make its stores and site the first and easiest choice for consumers. It is about being relevant and resonant to shoppers. And it is about making new connections that will serve the customer in smart ways.

    Kroger, in particular, seems to be making a flurry of moves in recent days … almost as if it knows the clock is ticking, and that speed and experimentation have to be of the essence. I would agree with that perception.

    Published on: October 3, 2018

    CNBC reports that Walmart is acquiring Eloquii, described as a “plus-sized online retailer.”

    According to the story, “Eloquii, which sells clothing in sizes 14 to 28, was started by teen retailer the Limited which sold the plus-sized lines online and in a limited number of stores. After The Limited shut down Eloquii in 2013, the brand for fuller-figured women reemerged as a digital-only retailer. It began opening stores in 2017.

    “It employs roughly 100 workers today and will stay in its Long Island City, NY and Columbus, Ohio locations after its sale to Walmart closes, which is expected later this quarter.”

    This deal fits into a pattern that Walmart has established in recent years of acquiring brands that are outside its core focus - Bonobos, Moosejaw, and ModCloth, for example - and then allowing them to operate relatively independently and not be identified as Walmart-owned.

    Terms of the deal were not disclosed, though CNBC puts Eloquii’s value at roughly $100 million.
    KC's View:
    It is all about spreading its bets around the table and widening its appeal to more people in more ways. We’re going to see more of this, I expect.

    Published on: October 3, 2018

    The New York Times has a follow up on yesterday’s announcement by Amazon that beginning next month, its minimum wage for all US employees will be $15 an hour, with people already making that much getting a raise.

    The increase will affect part-time, contract, and hourly employees, as well as seasonal workers brought on for the holidays and US Whole Foods employees. Amazon estimates that the increase will impact 250,000 people.

    The Times writes that “the move may buy the company valuable political capital, at a time when large technology companies are under pressure from Washington and beyond for practices that some lawmakers believe could be anti-competitive. It could also help Amazon recruit staff in a tight labor market.”

    At the same time, Sen. Bernie Sanders (I-Vermont) - who introduced legislation that would require large employers, including Walmart and McDonald’s, but apparently mostly aimed at Amazon, to fully cover the cost of food stamps and other federal assistance received by their employees - sung Amazon’s praises yesterday.

    NBC News quotes Sanders as saying, “Today, I want to give credit where credit is due and I want to congratulate Mr. Bezos for doing exactly the right thing. I urge corporate leaders around the country to follow Mr. Bezos' lead, and I congratulate him for what he has done.”

    Amazon, in making its announcement, also called for a federal minimum wage of $15/hour.

    The Times notes that it is “unclear how investors will feel about the additional expense. Amazon hasn’t yet said how much the policy will cost — it plans to provide details in its next quarterly earnings report, scheduled for later this month — but it will not be cheap.”
    KC's View:
    The assumption here seems to be that Amazon is going to pay for the wage increases out of current funds and not find ways to charge back manufacturers in various ways to cover the new expenses. I wouldn’t take that bet …and in fact, I’d bet the other way, that the screws on suppliers got a little tighter yesterday. And there’s very little that anybody can do about it … at least, anybody who wants to do business with and through Amazon.

    Published on: October 3, 2018

    CNBC reports this morning that you can add PepsiCo to the list of US beverage manufacturers “taking a hard look at the cannabis industry.”

    "I think we'll look at it critically, but I'm not prepared to share any plans that we may have in the space right now," says CFO Hugh Johnston.

    The story notes that “cannabis, which is federally illegal in the U.S., but legal in some states and in Canada, has attracted increasing attention from food and beverage companies as either an opportunity for future growth, or conversely, a threat to their brands.” Among the companies expressing interest are beer maker Constellation, which has invested billions in cannabis company Canopy Growth, and Coca-Cola, which is said to be “eyeing the cannabis-infused drink market.”
    KC's View:
    It seems as if everybody wants to get into this business, and only are being cagey because of concerns about what the feds might do. I think those are reasonable concerns, but that they are largely temporary … this is going to be a big business for a lot of people very soon.

    Published on: October 3, 2018

    Bloomberg reports that Target will begin selling the Quip toothbrush system, both online and its stores - adding to the number of startup companies making cool products with which the retailer has aligned itself.

    Other similar companies that have found their way into Target’s portfolio include Casper mattresses and Harry’s razors.

    Quip, which has been highly rated by dental organizations, offers subscription-based refill systems to get new brush heads; the Bloomberg story notes that “Quip just sold its one-millionth toothbrush,” and that the Target deal gives it access to a much larger customer base.
    KC's View:
    Target has been smart about this … it is a way to reignite the fires of its old “cheap chic” image.

    Published on: October 3, 2018

    CNBC reports that IMDb, the Amazon-owned movie database, “ is expected to announce this week a free, ad-supported video service for Amazon Fire TV users … The new service, which will be similar to The Roku Channel or some parts of Hulu, will feature TV shows and movies. It will be available to all Fire TV users, not just Amazon Prime Video users.”

    The story says that “the move could help Amazon capture revenue from the lucrative TV advertising market, which is expected to generate almost $70 billion in revenue in the U.S. this year according to eMarketer … The service will also help Amazon continue to grow its share of the digital advertising market, which is dominated by Google and Facebook. According to eMarketer, Amazon is now the third-largest digital advertiser, with about 4 percent of the market; Google and Facebook combined have more than 57 percent.”

    CNBC suggests that the ads on the new service could appear in between pieces of content or could mimic the computer screen experience in they wrap around content.


    TechCrunch reports that restaurant discovery platform The Infatuation, which earlier this year bought Zagat from Google, just has receive3d a $30 million investment from WndrCo, an tech investment firm controlled by former Disney and Dreamworks executive Jeffrey Katzenberg. The goal is to use most of the investment to develop a mobile app platform for the iconic Zagat restaurant reviews brand.
    KC's View:

    Published on: October 3, 2018

    …with brief, occasional, italicized and sometimes gratuitous commentary…

    MLive has a story about the new Gordon Food Service store in Grand Rapids, described as being focused on “creating a unique customer experience … Customers can watch an employee whip up a batch of guacamole, seasoned whichever way they like. They can pick up a bottle of fresh squeezed juice in a multitude of flavors, ranging from beet and celery to orange and grapefruit … And there's a meat and seafood counter, where shoppers can grab a piece of mahi-mahi fish, caught in Hawaii, that company officials say has been out of the water for less than 48 hours.”

    The story notes that the 16,000-square-foot store is “modeled after urban grocery stores found in large cities, and while it includes unique flourishes, such as a craft ice cream bar, it also includes staples, such as milk, eggs, cereal, bread and fresh produce.”


    Bloomberg reports that “the Toys R Us Inc. lenders that took control of the retailer during its liquidation -- and have faced criticism for their role in the shutdown -- are now working on resuscitating the brand, according to new court documents.

    “In a bankruptcy court filing Monday, the funds said they had canceled a plan to auction off the company’s intellectual property. Instead, they are seeking to reorganize the assets into a new company that will maintain the current license agreements and can invest in new retail operating businesses.”

    However, the story notes that “it may prove difficult to ramp up U.S. operations again given the fallout from the protracted bankruptcy process. Major suppliers including Mattel Inc. and Hasbro Inc. have found new distributors, and customers have largely moved on.”


    • PCC Community Markets, the Seattle-based co-op, yesterday announced a $1 million gift to PCC Farmland Trust, described as “the only statewide land trust in Washington State focused exclusively on farmland preservation, and one of the few with programs centered on sustainable practices, community engagement and farmland access. The organization uses conservation tools to remove development potential from farmland, making it more affordable for future farmers and preserving its agricultural value forever.”

    The money, according to the announcement, “will further protect some of the most fertile land in the nation and a significant source of local healthy food.”


    • The Chicago Sun Times reports that just days after announcing that it is going out of business, Treasure Island Foods is being sued by a produce supplier for unpaid bills in the amount of $453,062.30.


    • The New York Times reports this morning that the US Food and Drug Administration (FDA) “conducted a surprise inspection of the headquarters of the e-cigarette maker Juul Labs last Friday, carting away more than a thousand documents it said were related to the company’s sales and marketing practices.

    “The move, announced on Tuesday, was seen as an attempt to ratchet up pressure on the company, which controls 72 percent of the e-cigarette market in the United States and whose products have become popular in high schools. The F.D.A. said it was particularly interested in whether Juul deliberately targeted minors as consumers.”

    Juul has said it wants to be part of the solution to use of its products by minors, not part of the problem. Which sounds to me like the biggest crock I’ve ever heard.
    KC's View:

    Published on: October 3, 2018

    Yesterday, we reported on how the Trump administration is going to court to challenge just-enacted legislation in California that established the toughest net neutrality rules in the country, prohibiting Internet providers from being able to block certain sites and services, slow down web connections, or charge some content providers more for faster delivery of their products.

    As we’ve noted here before, the lines between the two sides of the issue have been fairly specific, with content companies like Amazon and Google favoring net neutrality, and distribution companies like Comcast, Verizon, AT&T and Time Warner lobbying for deregulation. But the federal government - under the Trump administration, which has reversed Obama-era rules - has come down firmly on the side of the distribution companies, arguing that a) they need to be able to charge what they want in order to invest in innovation, and b) states ought not be able to have their own internet regulations.

    I have argued consistently and persistently that retailers ought to be siding with the internet companies, lest the distribution companies exercise way too much control over how efficiently and effectively they can communicate with online shoppers.

    But MN reader Jim Huey wrote:

    I certainly don’t know enough about this to be certain of anything. However, what would be the difference between the advantage Walmart, Kroger, and others have by driving down the price of goods from wholesalers? Couldn’t it be argued that this gives Walmart an unfair advantage over small retailers? I work for a small grocer and the way we have been able to compete is by offering excellent service and an increasingly experiential shopping atmosphere. Why would it be unreasonable for the small providers to do the same? The companies mentioned Comcast, AT@T, Verizon, are hardly pillars of service. Just because a company cannot compete on price does not mean they cannot compete.

    No, but if I have to choose sides between content providers and distribution companies, I’m going with the content providers.

    I thought one of the best arguments made for why retailers need to know why they have skin in this game was made by John Ross, the president/CEO of IGA Inc. We had a long piece about it on MNB, and you can read it here.

    Also got the following email on the subject:

    For the record I do support net neutrality. However, I am surprised that Amazon falls on the side of favoring net neutrality, as they have been practicing the opposite on their site for quite some time in the form of Amazon Prime. I have been a loyal Amazon shopper for years but for one reason or another have not made the jump to Prime and continue to utilize their free shipping on orders over $25. A few years ago, every order I placed was processed and delivered typically within 2-3 days. But when they introduced Prime they slowed non-prime orders so that the Prime orders would be more special. Nowadays when I place an order, Amazon waits about 4 days to even process my order. They are prioritizing those who are willing to pay more and slowing the speed for those not willing to pay. It seems hypocritical for them to be supporting legislation that prevents other companies from doing the same thing they currently do.



    Responding to the video we ran this week illustrating Stephen Colbert’s love for all things Waffle House - even though he does gently poke fun at the brand - one MN reader wrote:

    This made my morning. Both of them, simply awesome and both of them simply the real deal. You cannot pay for that kind of PR or loyalty, especially from such talent.



    Finally, I know this email wasn’t meant to be funny, but I must admit that it made me laugh out loud. It came from MNB reader Brendan Walker:

    Please stop sending emails out at midnight! You’re waking up both me and my wife with my phone and watch buzzing late at night.

    I’m really sorry about that. (Don’t your phone and watch have do-not-disturb functions?)

    The thing is, when I’m on the road (with travel demands and speaking gigs) and especially on the west coast (as I am for most of the summer), it means that I have to fit MNB in when I can … and sometimes that means posting it an ungodly hours.

    Though, to be fair, when I post it at, say, 7 am eastern time, that means someone on the west coast is getting it at 4 am. Never got a complaint, though…and I do call the email the “Wake Up Call.” (Truth in advertising?)

    I’m really sorry I’ve awakened you guys from time to time. I really do recommend that do-not-disturb function…
    KC's View:

    Published on: October 3, 2018

    In the National League Wild Card Game, played last night at Wrigley Field, the Colorado Rockies defeated the Chicago Cubs 2-1. The Rockies now move on to the NL Divisional Series, where they will play the NL Central champs, the Milwaukee Brewers.
    KC's View: