Published on: December 12, 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 talk about the importance of partnerships and alliances, do a reality check on Walmart’s online strategy, and look ahead to 2019…
And now, the Conversation continues…
KC: Hard to believe, but this is our last Innovation Conversation of the year … it is amazing how fast things are moving. In fact, in just the past week or so, we’ve seen some very interesting deals, like Kroger opening mini Kroger Express stores inside Walgreen units (just a test for the moment, but I’m confident of a rollout) and then Walgreen’s deal with FedEx for overnight Rx prescriptions.
To me, this just points out the importance of strategic partnerships - nobody can go it alone, though it is critical that the brand equity and value proposition of each partner be preserved and, better yet, enhanced by the experience. Thoughts? And, if you had to identify a made-to-succeed deal/alliance/partnership that ought to happen in 2019, what would it be?
Tom Furphy: Ever since we started the Innovation Conversation we’ve talked about how partnerships and ecosystems will be the way for companies to be most nimble and best serve customers into the future. Over the past year or so we’ve seen lots of examples of this coming to life. It’s quite encouraging.
I think it is important for each participant in an ecosystem to understand its own brand and to have that brand play the appropriate role in the ecosystem. To your point, for some partners this will overtly amplify their brand value to the consumer. In these deals Kroger stands for quality and freshness, Walgreens is about service, health and convenience, and FedEx is about reliable delivery.
In some partnerships, a participant’s brand value is amplified to others in the ecosystem while being invisible to the shopper. For example, in auto-replenishment a brand like Replenium provides value to the partners by sitting under the surface driving the capability. Here, the retailer gets brand credit for solving the customer’s replenishment needs and the brands are recognized for providing solutions through great products.
My friend Bruce Turkel, author of “All About Them,” says that brands should be all about the distinct value that they drive for the customer. They should stand for something clear, such as Volvo stands for safety and Apple for quality. As we look out to the next year in the industry, I think we will see a number of new partnerships that deliver on this.
Perhaps we’ll see Uber get into the grocery game in a big way, underscoring their proposition of on-demand transportation, which already covers cars and scooters, to encompass grocery delivery. We could see other services, such as Door Dash, Instacart and other on-demand platforms expand beyond their initial sectors. I think we’ll see Google and Microsoft doing more things to support more of the retail value proposition. And I think you’ll see more retailers working with a broader network of partners now that they’re learning to do so in the context of their own customer value proposition.
KC: I continue to be intrigued by Walmart’s acquisitive nature of late, with Art.com being just the latest off-brand purchase that it seems to be using to spread out its bets. But I also think that this is as much about acquiring talent that will drive the company in innovative and entrepreneurial directions during the coming decade, identifying possibilities that legacy execs might not have seen. Would you agree? And what does this tell us about what Walmart’s competitors ought to be doing?
TF: I do like Walmart’s strategy of acquiring a range of ecommerce sites spanning a wide range of mainstream and fringe retail categories. They are one of very few companies that are in a position to be successful in doing this. They have a large existing customer base to which they can introduce these offerings. And they can bring the customer bases of these sites into the Walmart family of sites.
This strategy by Walmart is similar to Amazon’s extensive, but unheralded, roll-up strategy that they have been using for years. Amazon has acquired dozens of niche offerings, allowing most consumer-facing brands to operate separately (such as Fabric.com, Shopbop and Zappos) and deploying other capabilities within the Amazon platform to drive a better customer experience.
(For a look at Amazon’s history of acquisitions, click here.)
Walmart’s acquisitions do open it to pools of talent that it likely wouldn’t otherwise attract. These are groups of entrepreneurs and enthusiasts that can bring a lot of fresh energy and expertise to the company as they expand and compete into the future. Very smart.
There aren’t many competitors that are well situated to compete directly with this approach. In the US, companies like Amazon, Alibaba and possibly Google are positioned to do so. But outside of these large platforms, I think most other retailers would struggle to serve such a broad range of customers and needs. That’s not to say they shouldn’t continue to expand and improve their customer value propositions. They absolutely should. But they may be best positioned to solve the range of needs that customers already look to them for as well as any logically proximate or related needs.
KC: As we look forward to 2019, it seems to me that more than ever the industry needs to re-define itself and many of its functions. It ought to think of the supply chain as the demand chain, and focus far more on consumers rather than infrastructure. I think that technology people need to start thinking like merchants, and marketers and merchants need to think like technology people. I think that companies that have convinced themselves that they are operating “good” stores need to realize that many of their assumptions are out of date, and that these stores are not up to the task of competing in 2020 and beyond.
You and I are both speaking at the National Grocers Association show in San Diego next February, and someone from the independent community recently told me that there remains considerable skepticism about the need to adopt digital/omnichannel strategies … which strikes me as a recipe for obsolescence. So what do you say to all this as we march into the new year?
TF: I think you’re right. The most progressive companies in the industry have been refining their business models and building out infrastructure over the past few years. Most of the focus has rightly been on the technology, warehousing and picking, and fulfillment processes and assets needed to support ecommerce. Next, with this infrastructure in place, retailers are in a good position to turn focus toward the customer and to creating demand chains.
For many companies, this will require a dramatic change in mindset. We work with dozens of retailers and manufacturers every week in our businesses. While I’ve been impressed with their focus on building infrastructure, I am not seeing very much true customer obsession. Certainly not nearly as much as I did in my time at Amazon and in my work with Amazon today. Seeing them invest in things like internet-of-things, quick delivery, auto replenishment and health care underscores how far ahead they are.
To catch up, store people, merchandisers, marketers and technologists all need to start working together with a singular focus on solving shopper needs. This will result in evolved stores and in further developed digital relationships with customers. Customers are highly digital in many aspects of their lives. As a retailer, it’s imperative to use technology to create demand and solve customer needs. No matter your market or your targeted customer, to think that you can operate stores without a digital strategy is naive. As you say, it’s a recipe for eventual obsolescence.
And with that … Happy Holidays!
KC: And Happy New Year to you! The good news is that there will be lots to continue to discuss in 2019 and beyond.
The Conversation will continue…
- KC's View: