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    Published on: October 31, 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 how technology is providing lot of tricks and treats for retailers an suppliers, but very little reassurance about future survival.

    And now, the Conversation continues…

    KC: Happy Halloween. Good day for us to talk about the tricks or treats awaiting businesses in the coming days/weeks/months/years if they don’t start to innovate for a dramatically changing consumer. Take, for example, Michael Sansolo’s column last week about the Washington Post food writer who doesn’t cook because she hates food shopping. Now, she’s lucky because she’s in a job where she gets paid to eat out, which most of us cannot do. But I think she’s a lot more like other consumers than most retailers would want to admit, and she’s just responding to a food shopping experience that really hasn’t changed as much as other segments have in recent days.

    Tom Furphy:
    I really enjoyed Michael’s piece on the article. The author is certainly an edge case in her career and extreme disdain for food shopping. But, like Michael, I do think her general sentiments are reflective of many consumers, millennials and beyond. The comments to the article certainly support that. Many consumers dislike shopping for groceries in a traditional store.

    Across our lives technology and new business models have made life much easier and (in many cases) more fulfilling. Think of services like Airbnb, Netflix, Amazon Prime and Uber. These companies have blown up prior paradigms with technology and new models that have changed our expectations of service. The consumer is in a much different place now than they were five or ten years ago, with more control and choice. They expect models to change and they embrace models that do actually change. In fact, many younger consumers can’t remember a world without these models.

    Requiring someone to give up an hour or more to take a home inventory, make a list, go to the store, shop, wait in line to pay at the front end, then lug the products home is a pretty tall ask in today’s world. Shoppers have every right to challenge that and take their dollars to models that better serve their needs.

    KC: It really is extraordinary that entire other categories have gone through major transformations while too many supermarket retailers have kept telling themselves that they’re immune from the retail realities that have affected other channels. Gillette can get nicked by Dollar Shave Club and Harry’s … traditional bed companies are caught asleep while companies like Casper and Tuft & Needle turn into their worse nightmare … shoe retailers get kicked by Zappos … and so on and so on. (Did I forget to mention a little company called Amazon?) I’m just not sure how they justify a slow, cautious approach to change at a time when such tactics only leave you farther and farther behind more aggressive competition.

    Love the witty humor. Perhaps traditional retailers should fear the stored up aggression of Amazon.

    Change is hard. And I realize we risk oversimplifying when we advocate for change in our conversations. But the stark reality is that the Grocery industry, and this applies to CPG and grocery products in other retail segments, is massively behind where it should be. Remember, the innovations that you’re seeing in the market from Amazon were started years ago inside the company. These innovations are difficult and require true, long-term commitment. They will continue to be relentless with store format innovation, which will also encompass their Whole Foods and other grocery operations. It’s on!

    Think about it. If you were to close your eyes in the middle of a grocery store 20 years ago and open them today, for the most part you would not notice significant changes. Except for a few little tweaks here and there, some upgrades in the perimeter and the elimination of photo processing and video departments, the stores are fundamentally unchanged. That is dangerous.

    KC: In the food industry, I have to wonder if it is just a matter of time before CPG companies get fed up with the glacier-like attitudes that are standing between them and shoppers, and start to get even more aggressive about disintermediate traditional retailers. They may not be able to get around the top-20 players, say, but it strikes me that there are a lot of retailers out there (think every retailer that could be susceptible to competition from the likes of Aldi or Dollar General) that are not unique or innovative enough to survive the fast-approaching storm.

    You’re right. The top retail players still have the clout of market share on their side. But that clout is weakening by the month. Brands are generally not content to sit on the sidelines and let the retailers call the shots. They are treading forward with new initiatives and routes to market, albeit carefully for fear of large retailer backlash.

    In our businesses, we’re seeing it first-hand in spades. Manufacturers are being disrupted by new business models. They see Amazon as a partner that provides great volume and gets them more directly to the consumer. But is also a partner that is intensely competing via private label. That leaves them the options of direct-to-consumer, leveraging new capabilities, deeper retailer partnerships or some combination of the above. I can’t say too much here, but we’re seeing manufacturers pushing through directly to the customer in very creative ways. Some involving retailers and some not. Regardless, they are not waiting for the retailers to collaborate.

    The Conversation will continue…

    KC's View:

    Published on: October 31, 2018

    Reuters reports that Kroger “is expected to order the first three of 20 high-tech warehouses from online grocer Ocado,” as it finalizes the terms of a deal the two companies agreed to last May.

    According to the story, “Ocado will ratchet up its delivery business by building robotically operated warehouses for Kroger in the United States, raising the stakes in the battle with Amazon … The target is for (the warehouses) to go live within approximately two years of each order being placed.” The locations for the first three are expected to made public within weeks.

    Reuters notes that “The Kroger deal is Ocado’s biggest yet, exceeding all of the warehouses the firm has built or plans to build with Morrisons in Britain, Casino in France, Sobeys in Canada and ICA Group in Sweden … It includes how Kroger will order warehouses, or what Ocado calls Customer Fulfillment Centres (CFCs), and the basis on which Ocado will develop and operate those sites in the United States. Kroger is expected to order 20 CFCs over the first three years of the agreement.”
    KC's View:
    As Kroger finalizes its Ocado arrangements, it was interesting to read the Wall Street Journal story about how “startups are vying to sell supermarkets an array of robots that perform different tasks. Venture-capital firms have invested more than $1.2 billion in grocery technology this year, according to PitchBook, a financial-market data provider, double the total for 2017.”

    All this investment is building symmetries that will help change the face of the business, I would expect. The Journal also writes that this “spending on technology by many of the biggest U.S. food retailers could accelerate the adoption of online ordering for groceries. Deutsche Bank expects online orders to represent roughly 10% of the $800 billion grocery market by 2023, up from 3% today.”

    Another example, cited by the St Louis Post Dispatch is how Schnucks is expanding its relationship with Simbe Robotics, and soon will have “aisle-scanning retail inventory robots, known as Tally … wheeling around in a growing number of locations … The robot, which moves around on a Roomba-looking base, uses cameras and sensors to perform inventory checks and alert employees when an item needs restocking or if price tags don’t match advertisements.”

    Not only does this improve accuracy, but it also compensates for at least some of the labor shortages that many retailers are encountering.

    Published on: October 31, 2018

    Digiday has a story about how Ahold Delhaize-owned Peapod is banking on its new structure as Peapod Digital Labs and a new innovation center “to better position the company as it prepares for battle. The two areas it needs to win: personalized marketing and delivery speed.”

    The story quotes Peapod CMO Carrie Bienkowski as saying that the Digital Labs structure “will bring together departments that currently intersect under one roof: marketing, data science and analytics, technology, engineering and innovation.”

    “The future of grocery retailing is powered by digital and driven by the customer,” Bienkowski. tells Digiday. “As an e-commerce retailer, we have the golden goose of retailing, which is first-party data. So most important is changing the customer experience to be more personalized, and benefiting the customer at the end of the day. We feel a huge amount of responsibility to create more relevance.”

    You can read more about how Peapod plans to do this here.
    KC's View:
    The story acknowledges that Peapod is not playing from a power position when it comes to size - it is fourth, behind Amazon, Walmart and Kroger. But I’ve always believed that Peapod is the Ahold Delhaize division with the greatest long-term potential, and the Digital Labs construct seems as if it is specifically designed to enable Peapod to take flight creatively and technologically, without being tethered to the more earthbound mindset of the bricks-and-mortar stores owned by the company.

    That’s not to suggest it will be easy. After all, nobody is standing around waiting to see how Peapod is going to innovate … the competition is constantly innovating, too. And so speed will be just as important as innovation.

    Published on: October 31, 2018

    California-based Raley’s has announced the launch of a new multi-tier meal kit line, including “full kits, quick kits, creative kits, sides and components,” created by the company’s in-house chefs and designed to “bring a new offering of convenient, high-quality meals to customers.”

    According to the company, the line “represents another step in the transformation into a customer experience company that is committed to making personalized, healthier options available to customers, how and when they want them. Customers can find the new meal kits in-store or online, with an option to pick-up at the store or have them delivered to the home.”

    Subscriptions - such as those required by early pure-play meal kit companies - are not part of the program.
    KC's View:
    The two things I like best about this offering are 1) they are proprietary, with Raley’s taking responsibility for delivering on its promise, and b) they seem to be not just a tactic, but part of a broader customer-driven strategy that Raley’s is embracing to differentiate itself. I expect we’ll see Raley’s Mike Teel experimenting with them on his new video blog.

    Published on: October 31, 2018

    Reuters reports that Google will “grant about $25 million globally next year to humanitarian and environmental projects seeking to use artificial intelligence (AI) to speed up and grow their efforts.”

    The goal of the grant program - called the “AI Impact Challenge” - is to “inspire organizations to ask Google for help in machine learning, a form of AI in which computers analyze large datasets to make predictions or detect patterns and anomalies … Focusing on humanitarian projects could aid Google in recruiting and soothe critics by demonstrating that its interests in machine learning extend beyond its core business and other lucrative areas, such as military work.”

    Google got a lot of pushback internally this year because of contracts with the US military, contracts that it recently said it would not renew. Google AI Chief Operating Officer Irina Kofman tells Reuters that “the challenge was not a reaction to such pushback, but noted that thousands of employees are eager to work on ‘social good’ projects even though they do not directly generate revenue.”
    KC's View:
    I must say that I hope we can get to the point where the military is not seen as being anti-social good, because I don’t think that’s fair. I think it is more accurate to say that politicians don’t always use the military in the service of social good, as opposed to painting the military with such a broad brush. I tend to be a lot more worried about politicians than soldiers.

    Published on: October 31, 2018

    CNN has a story about how Kohl’s has managed to be a successful - and growing - bricks-and-mortar retailer in a world where Amazon seems to dominate the landscape. The reason? Women’s clothes, which accounts for about a third of its annual sales of around $19 billion.

    According to the story, “Kohl's stands out against competitors because it makes a big chunk of the clothes it sells, under three $1 billion private-label brands — Sonoma Goods for Life, Apt. 9 and Croft & Barrow. It also has relationships with designers for exclusive lines, such as LC Lauren Conrad and Simply Vera Vera Wang … Controlling the supply chain for those clothes is a big advantage for Kohl's. It can nimbly respond to shoppers' style preferences and minimize inventory mistakes, such as ordering too many heavy jackets during a warm winter.”

    Amazon, on the other hand, reportedly has had trouble gaining traction with its private label fashion business.

    In addition, the story says, Kohl’s has been partnering with more outside brands, and “has made an expanded push into selling more athletic brands, too. The strategy has driven sales and helped the company attract new, younger shoppers. Nike has become Kohl's largest national brand partner, and Adidas products are a top seller at its stores. Last year, Kohl's began offering Under Armour merchandise for the first time.”

    Kohl’s also is reducing the size of many of its stores, which also tend to be in standalone locations, as opposed to in problematic malls.

    The story goes on: “Reorganizing store space creates opportunities for outside-the-box thinking, too.

    “While many retailers are fighting against Amazon, Kohl's has joined with the online seller. It offers free returns for purchases at more than 100 stores in Los Angeles, Chicago, and Milwaukee. Kohl's is also experimenting selling Amazon Echo and smart home devices at designated stations within 20 stores.

    “More recently, executives announced a test with grocery chain Aldi to lease out 5 to 10 stores next to Kohl's beginning next year.”
    KC's View:

    Published on: October 31, 2018

    • Software company OrderDynamics is out with an interesting (though admittedly self-serving) study that it says is designed to “shed light on the omnichannel offerings” of some 2,000 retailers worldwide, concluding that just 37.6 percent of retailers surveyed offer click-and-collect services, and just a third of those “commit to having orders ready within 24 hours.”

    At the same time, there seems to be a greater commitment to Buy Online, Return In-Store services, with 72.6 of omnichannel retailers offering this option.

    The survey also says that “for the second year in a row, the U.K. is the leading country in click & collect, with 64% of retailers offering the service. Consistent with last year’s Omni-1000 results, the U.S. lags, ranking lowest of the countries assessed, with only 27.5% of retailers providing BOPIS (Buy Online/Pick Up In-Store).”
    KC's View:

    Published on: October 31, 2018

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

    • The Fort Worth Star-Telegram reports that “the cutthroat nature of the North Texas grocery industry is claiming four more supermarkets, including one in Fort Worth.

    Albertsons Companies LLC plans to close an Albertsons grocery store at 10800 N. Beach Street in far north Fort Worth (near Golden Triangle Boulevard). The company also plans to close an Albertsons in DeSoto and Tom Thumb stores in Coppell and Flower Mound Dec. 1.”

    At the same time, the Houston Business Journal reports that Albertsons-owned Randalls will close three more Houston-area stores around Dec. 1.”

    • The Financial Times reports that Rite Aid shareholders are rebelling after CEO John Standley “received a big pay increase despite a plunging share price and a series of strategic setbacks.”

    In a “say on pay” vote, 84 percent of shareholders objected to the pay increase.

    According to FT, “Rite Aid, which operates 2,500 stores, has been beset by a series of setbacks. Walgreens Boots Alliance had planned to buy the company last year but regulators scotched the deal. Instead, the company sold stores and then agreed a deal to be taken over by the US supermarket group Albertsons, although in August that deal also fell through after shareholders opposed the terms.

    “The collapse left Rite Aid facing questions over its future as a standalone company, since it lacks the scale of larger rivals CVS and Walgreens. Last month the pharmacy chain said it expected to produce a loss of between $440m and $485m for the full year.

    Hard to imagine that Standley deserves a raise. What this seems to be is yet another vivid example of pay misalignment … they folks at the top do well no matter how thins turn out.

    • The Wall Street Journal reports that “the Conference Board on Tuesday said its index of U.S. consumer confidence rose to 137.9 in October, the highest level since September 2000 … Americans’ assessment of present conditions remained positive, primarily because of strong employment growth, according to Lynn Franco, senior director of economic indicators at the Conference Board.”

    What doesn’t seem to matter in the index, the Journal points out, is that “U.S. stocks have dropped since the beginning of October. Private analysts and the Federal Reserve think an economic slowdown is looming.” However, “Stocks tend to be held by wealthier Americans, and job prospects appear to matter more to lower income consumers when gauging sentiment; the jobless rate is at the lowest level since 1969, potentially explaining the stock market-sentiment disparity.”
    KC's View:

    Published on: October 31, 2018

    Content Guy’s Note: Stories in this section are, in my estimation, important and relevant to business. However, they are relegated to this slot because some MNB readers have made clear that they prefer a politics-free MNB; I can't do that because sometimes the news calls out for coverage and commentary, but at least I can make it easy for folks to skip it if they so desire.

    Two food companies have announced that they are pulling their support for Rep. Steve King (R-Iowa).

    Bloomberg reports that “dairy giant Land O’Lakes announced on Tuesday that it will no longer make financial contributions to Representative Steve King of Iowa after a gun-fueled massacre at a Pittsburgh synagogue brought new attention to the Republican’s incendiary comments about race and association with white nationalism. Purina PetCare made a similar announcement Tuesday afternoon.”

    According to the story, “The murder of 11 people, many elderly, in the mass shooting this weekend resulted in the arrest of a man who allegedly made anti-Semitic and anti-immigrant rants online.” At the same time, “King has been at the forefront of a right-wing push to end birthright citizenship, a policy President Donald Trump said in an interview with Axios he would seek to enact, despite protections under the U.S. Constitution.

    “King, who’s previously made derogatory remarks about immigrants, has also expressed admiration for Hungarian Prime Minister Viktor Orban and tweeted support for his attacks on George Soros, a billionaire supporter of the Democratic Party who last week was one of a dozen recipients of mail bombs allegedly sent by a Trump supporter. The Iowa Republican also recently tweeted his endorsement of Faith Goldy to be the next mayor of Toronto. Goldy has been tied to white supremacists and was interviewed by the neo-Nazi website Daily Stormer. In 2017 she attended the white supremacist Unite the Right rally in Charlottesville, Virginia, during which a counterprotester was run down and killed.”

    Land O’Lakes, in its statement, said: “We take our civic responsibility seriously, want our contributions to be a positive force for good and also seek to ensure that recipients of our contributions uphold our company’s values … On that basis, we have determined that our PAC will no longer support Rep. Steve King moving forward.”

    Purina tweeted the following: “Our PAC contributions are typically made to elected officials from both parties who represent the local communities where we have operations and associates. Representative King’s recent statements are in conflict with our values and we are no longer contributing to his campaign.”

    Technology company Intel also has dropped its support of King.

    King is in a neck-and-neck re-election race, against Democrat J.D. Scholten, a former paralegal and minor league baseball player from Sioux City who also has raised considerably more money than King.

    HuffPo writes that “the congressman has on multiple occasions retweeted the views of white nationalists on his official Twitter page. Most recently, in September, he shared a post by a Holocaust denier and, in his tweet, argued incorrectly that Nazis were part of a left-wing movement. Republicans have continued to look the other way. King has also spread false claims that large portions of violent crime in the U.S. are committed by undocumented immigrants and called for the government to spy on mosques.”

    it isn’t just companies expressing their disapproval of King. According to Bloomberg, “In an extraordinary disavowal this afternoon, Representative Steve Stivers of Ohio, chair of the National Republican Congressional Committee, said in a post on Twitter that ‘Steve King’s recent comments, actions, and retweets are completely inappropriate. We must stand up against white supremacy and hate in all forms, and I strongly condemn this behavior’.”
    KC's View:
    I’m sure at some point, King was seen as being the best possible representative of the economic and political interests of Iowa’s agricultural community, and so they were willing to look past some comments and positions that business leaders may have felt were inconsistent with their values. Clearly, that is no longer the case. Hanging with neo-Nazis and white nationalists will do that.

    Published on: October 31, 2018

    Michael Sansolo’s column about what we can learn from millennials’ shopping habits and preferences elicited the following email from an MNB reader:

    Excellent article!

    I agree with you and have personally stopped Millennial Bashing awhile back because I think that a lot of good things that Millennials are doing isn't always picked up by the press. It's always the outrageous negative examples that seem to garner the most attention at least in my opinion.

    But if one cares to seek them out and engage a person might come away with some hope for the future as I have.

    I wonder if a lot of the bashing is going on because of the impact they are having now and will have in the future because of the changes they are causing...and we all know how much humanity gladly embraces change. (Sarcasm intended.)

    However, I must admit I am mystified by one thing...when did grocery shopping become such an experience to avoid at all cost?

    I started going with my Mom as a kid and still enjoy it now. If nothing else the walk with my wife is nice.

    Several points here, if I may.

    I think Michael and I have been pretty consistent over the years about millennials - we try never to bash them.

    I think grocery shopping became a chore when retailers failed to notice that the experiences they were offering were largely undifferentiated and uninspiring.

    And I love taking walks with my wife, too. Outdoors.

    MNB reader Craig Espelian chimed in:

    I have read with interest the assessment/analysis of retail and Millennials. Michael’s post today really struck a chord (or nerve). If any customer (does not matter which generation) were to do a cold-blooded analysis of current grocery shopping, I feel they would be hard pressed to say it is a good one. The Millennials, outspoken even when, perhaps, they do not have the wisdom to hold the opinions they do, are simply stating a fact that has been evident for many years - supermarkets and other similar shopping have way too many choices, SKU’s products or however you want to define it, and a store layout that is designed for the store’s benefit and not always for the consumer’s.

    Retailers do this to compete - they feel that if a neighboring store carries something then they better as well - add Amazon to the list (I have said before that while I am not an Amazon acolyte, I do use them as the country’s largest convenience store) and you have a problem as you can’t out-SKU Amazon. Also, the milk is in the back so that shoppers have to navigate through a lot of potential impulse sales to get to those things they absolutely need.

    So, how can someone break through this impasse and serve all of their customers better?

    Kroger does the best job for traditional supermarkets - their data mining has provided a pathway to a better curated assortment.

    Trader Joe’s and Costco are next - a sharply curated assortment with a twist.

    Aldi is probably next - even more sharply curated assortment with an aspirational bent - you buy an everyday product and get something just a bit more.

    Then you have the Lund’s/Byerlys, Wegman’s, Central Market, Stew Leonards, et. al. that opt into a completely different shopping experience.

    Lots of people are working to make the experience better - but they are, unfortunately, more the exception.

    For supermarkets, if shopping for the emerging cohort (Millennials) is too difficult (an opinion held by many outside their cohort but sort of accepted as the price we have to pay to get all of the selection) then figure out how to make it simple. Help them meal plan, leverage the “showroom nature” of the supermarket and provide hidden values for those coming through the store. Also, treat them with respect, acknowledge their existence and get them to become part of the community.

    Simple? Yes! Easy? Not necessarily - especially if we hold on like grim death to the way we have always done things.

    And, from another reader:

    Boomer myself, my children are obviously millennials. Not sure why boomers complain about millennial's so much, we raised them! If the values do not fit ours, whose fault is it? Visiting my millennial son and his family this past weekend only drove home to me the challenges I face (store manager of a 67,000 sq ft super market battling against Aldi to name only one).

    They live in a suburb of Nashville Tn. (Caveat here, hours from my market LOL) His wife shops all of the areas you would associate a stay at home mom, with twins and  both are well  educated millennials. IE; Amazon, Aldi, Walmart click and collect, Kroger click and collect, all designed to make her life easier and give her as much free time as possible. What struck me odd was how pleased she was to discover Sprouts and their fresh cut meat department. So it may take a while, but millennials will discover things they are missing that add quality to their daily lives, that they sometimes do not get at the other retailers mentioned.

    My wife and I would rather stay home, fix a nice meal and enjoy a bottle of wine. They (and I and assuming) and their generational cohorts would rather go out to enjoy the same. I have no answers to this difference in life styles, and I suspect this discussion will go on far awhile longer.

    That is why I like to read MNB - for the coverage of this ongoing battle that greatly affects my livelihood.
    KC's View: