Published on: October 17, 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, Rethinking roles and values, formats and business models.
And now, the Conversation continues…
KC: Since last we talked, there has been news of yet another bricks-and-mortar store with which Amazon is involved. (At this point, such stories are becoming an almost weekly occurrence, which maybe shouldn’t be surprising in view of the study that came out last week predicting that 850 bricks-and-mortar stores will be opened by e-commerce companies over the next five years.) In this case, the store is a partnership with Good Housekeeping called GH Lab, in which every product in the store has been tested in the GH Institute’s labs and designated as best-in-class across numerous categories.
Tom Furphy: This is a fantastic way for Good Housekeeping to amplify their brand and another great example of Amazon helping people buy things while most other retailers focus on selling things. Amazon has committed to being this, and they are consistently backing it up with their actions.
KC: I’m fascinated by this, because it shows yet again how e-commerce companies - Amazon, certainly, but pretty much any e-commerce company worth its salt - can slice the loaf any way it wants, and then use data to target the most appropriate customers. This was a best-in-class store, and Amazon also has opened its four-star store, but it could’ve been a store only with Made in the USA products, or with product designed for under-25 consumers, or virtually any other subset. Do you think we’re going to see more of this, and how would you advise competing retailers to effectively respond?
TF: I do think we’ll see more of it. I’m not sure that you’ll necessarily be overwhelmed by niche storefronts. But you’ll see a lot more of them. Technology allows us to completely rethink the role and value of a store. In the recent past, stores have been about aggregating inventory in one place, with the best stores also offering a range of solutions under the same roof. Now customers have digital access to virtually limitless products, so stores can become less about inventory access and more about information and inspiration.
There will always be value in stores providing access to products and services for many occasions. However, we will absolutely see new formats and more existing locations focus on providing expertise, information and demos. It can result in a richer shopping experience.
Think about all the opportunities at hand for grocery retailers – nutrition counseling, wellness management, Rx and healthcare, culinary exploration, home menu management, wine exploration, packaged good demos, new item showcases – so many ways that retailers can intimately connect with shoppers, solve their problems and truly help them buy things. This solidifies the retailer-customer relationship and makes it less vulnerable to disruption. Frankly, retailers already can and should be doing much of this in their current stores. These new formats give them even more options.
KC: We had a story on MNB the other day about the whole notion of building computers into everything and anything, and how while this may seem enormously desirable in some ways, it also creates a potential nightmare in terms of security and privacy vulnerabilities to which nobody really is paying attention. The only problem I have with that observation is the idea that nobody is paying attention … I’m wondering how you feel about where the tech industry is on this, and what consumers really want.
TF: The tech industry is absolutely paying attention. Across the board, companies are investing heavily in technologies and teams to secure customer and company data, and to ensure privacy. I have several contacts at Amazon and elsewhere in information security roles. I see that they are obsessing over this.
It’s important for companies to strike the right balance between information sharing and utility. Good tech companies will push the boundaries. That’s progress. Doing so allows them to provide increasingly valuable capabilities to their users. However, as the amounts and sensitivity of information increases, the security around that information must strengthen.
The internet is a dangerous place. The number and sophistication of cyber criminals is mind-numbing. Every interaction that a human has with the internet is subject to hacking. Criminals, armed with robust capabilities, constantly search for any crack in protection.
I think consumers love many of the new capabilities that the internet, mobile devices and IoT devices are bringing to them. They are willing to share information to the extent that the trade is beneficial to them. However, they absolutely demand their information to be protected. They expect companies that are profiting from these new capabilities to invest heavily in data protection and treat their information with extreme care. Although not infallible, I think that most do.
KC: What did you think about the announcement that Sedano’s is creating what it is calling a ”robotic supermarket,” but that actually is a dedicated fulfillment center that will serve the online needs of 14 Sedano’s stores in the Miami market, and offer pickup services at those stores. I know it was meant to sound revolutionary, but when I heard it, my first reaction was that this is exactly where retailing is going, and what took so long? Thoughts?
TF: I’m a big believer that local, efficient, fulfillment centers that serve the ecommerce needs of shoppers and stores in the market are a good idea. Store picking in ecommerce works for a while. But once the ecommerce volume reaches about 15-20% of store sales, it becomes detrimental to store operations and customer experience. Pickers get in the way, inventory is driven out of stock, and most of the best produce and other fresh foods go to the ecommerce customers.
Moving the storage, pick and pack processes to an efficient local facility allows the retailer to lower the costs of these functions, then spread them throughout the local market. However, automated facilities come at a relatively high cost. It’s imperative that they drive high volumes and that they’re able to achieve good order, delivery and pickup densities in the market. There are still costs to be born there in staging and servicing these orders. All of these costs must ultimately be covered.
I think it’s taken a while for us to get here because ecommerce volumes have generally not yet hit the tipping point of high customer adoption and negative impact on the store. But we’re getting closer as retailers scale their ecommerce efforts. Also, the capabilities of these warehouse and inventory handling systems are improving tremendously and worthy of adoption. Sedano’s move, plus others like Kroger’s partnership with Ocado, should become much more commonplace going forward.
KC: What did you think of Kroger's decision, announced on Monday, to get into the wine delivery business?
TF: I think it makes good sense. The wine delivery business is quite complex, with players having to navigate the multi-tier regulatory systems with different rules across states. Partnering with a company like Drinks Holdings should help Kroger handle the complexity. Looking at the totality of their ecommerce moves over the past year or so, it seems clear that they want to serve shoppers needs for any product across their assortment, while allowing the shopper to buy however they’d like – pickup, delivery or parcel.
The Conversation will continue…
- KC's View: