business news in context, analysis with attitude

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…

Published on: December 12, 2018

Bloomberg reports on a new Federal Reserve study saying that Millennials, “long presumed to have less interest in the nonstop consumption of goods that underpins the American economy, might not be that different after all.”

In fact, the study says, their spending habits are pretty much the same as previous generations. That’s the good news.

The bad news? They have less money to spend at this point in their lives.

“Their findings are grounded in an analysis of spending, income, debt, net worth, and demographic factors among different generations,” Bloomberg writes. “ The conclusion that millennials aren’t all that different also holds for the researchers’ more granular examination of expenditures on cars, food, and housing.”

And, it goes on: “Millennials aren’t unique when it comes to what they spend their money on, either. The report finds that shifts in expenditure shares between different goods and services have been broadly consistent regardless of age. Housing and food are two areas where millennials have spent less than previous generations, with the younger cohort paying more for education.”

Published on: December 12, 2018

Bloomberg has a piece about FreshDirect, the New York-based pure-play online grocer that for years has dominated the sector in New York - even to the point of being profitable, which is “a rare feat in this corner of the web.” Its success allowed FreshDirect to expand, “adding new products to its website, rolling out same-day delivery of some items and opening a new fulfillment center that was supposed to cement its dominance.”

However, in recent months “New Yorkers have found reason to go elsewhere,” Bloomberg writes. “FreshDirect’s expansion has been bumpy, with more than a few deliveries going astray and once-loyal customers griping on social media. Meanwhile, four deep-pocketed rivals have set their sights on New York” - Amazon, Walmart-owned Jet, Ahold Delhaize-owned Peapod, and Instacart, which is providing delivery services to “legacy brick-and-mortar supermarkets, most of whom lack the capital and know-how for a full e-commerce service.”

These competitors, the story says, are “chipping away at FreshDirect’s market share, which is still a respectable 63 percent … but is 10 points lower than it was only a year ago.”

There are reasons that New York is a place where e-grocery companies want to make it: “With almost 9 million people packed into five boroughs of gridlocked traffic and subway chaos, no U.S. city is more suited to online grocery shopping than New York. Because in-store pickup of big food orders isn’t viable, speedy delivery of smaller bundles is the name of the game, and time-starved residents are willing to pay for that privilege. The close quarters of New York benefit online retailers because they need not deploy gas-guzzling refrigerated trucks and unionized drivers. (Parking tickets, though, are a cost of doing business.)”

Published on: December 12, 2018

Bloomberg reports that Amazon-owned Whole Foods “ranked worst in a study of five major U.S. grocery chains for chemicals it uses in packaging at its popular hot-food bar. In response, the company said it has removed all the coated paper products in question and has started a search for new biodegradable packaging.”

The study, by watchdog groups Safer Chemicals, Healthy Families and Toxic-Free Future, says that Whole Foods “was the biggest offender when it came to food contact papers that appear to have been treated with a class of chemicals, some of which have been linked to cancer. They found high levels of fluorine in five of the 17 items tested at Whole Foods -- four of which were containers for its salad and hot-food bar.”

The Bloomberg story notes that “other grocers, including Albertsons, Kroger and Ahold Delhaize NV, the owner of Food Lion and Stop & Shop, had fewer items that tested positive for the substance. These were usually deli or bakery papers. Trader Joe’s was the only company that had zero items.”

The chemical in question is fluorine, the presence of which “is a sign that the items were likely treated with a type of PFAS … The concerns around the chemicals are multiple: They may migrate to food held in the containers and can linger for a lengthy period in the human body. Some types have been shown to hamper the immune system or promote cancer, and have been phased out.”

Published on: December 12, 2018

Bloomberg reports that employees at a new Staten Island, New York, fulfillment center opened by Amazon have begun an organizing campaign that could lead to the facility becoming unionized - a move that comes at the same time as Amazon begins the process of creating a new headquarters campus in the city, which will involve spending $2.5 billion and hiring 25,000 people there.

According to the story, “Employees backing the union effort said issues at the warehouse include safety concerns, inadequate pay, and 12-hour shifts with insufficient breaks and unreasonable hourly quotas, after which they lose more of their day waiting unpaid in long lines for security checks.” They believe that the amount of money being spent by Amazon in New York, as well as the $3 billion in incentives being provided to the company by the city and state, will serve as “leverage to prevent the company from retaliating against them for organizing.”

Bloomberg writes that “employees are working with the Retail, Wholesale and Department Store Union, or RWDSU, which has also backed organizing efforts at the Whole Foods grocery chain that Amazon acquired last year. Amazon’s workforce is union-free throughout the U.S.”

“There’s never been greater leverage -- if taxpayers are giving Amazon $3 billion, then taxpayers have the right to demand that Amazon stop being a union-busting company,” says Stuart Appelbaum, president of the RWDSU.

Published on: December 12, 2018

The New York Times has a fascinating and in some ways frightening story about how smart phones - ubiquitous in terms of market penetration and increasingly accurate in terms of their ability to enable location tracking - have essentially created an entirely new industry of companies that follow consumer movement in a highly granular fashion and then sell that information.

An excerpt:

“At least 75 companies receive anonymous, precise location data from apps whose users enable location services to get local news and weather or other information, The Times found. Several of those businesses claim to track up to 200 million mobile devices in the United States — about half those in use last year. The database reviewed by The Times — a sample of information gathered in 2017 and held by one company — reveals people’s travels in startling detail, accurate to within a few yards and in some cases updated more than 14,000 times a day.”

The story goes on:

“Businesses say their interest is in the patterns, not the identities, that the data reveals about consumers. They note that the information apps collect is tied not to someone’s name or phone number but to a unique ID. But those with access to the raw data — including employees or clients — could still identify a person without consent. They could follow someone they knew, by pinpointing a phone that regularly spent time at that person’s home address. Or, working in reverse, they could attach a name to an anonymous dot, by seeing where the device spent nights and using public records to figure out who lived there.

“Many location companies say that when phone users enable location services, their data is fair game. But, The Times found, the explanations people see when prompted to give permission are often incomplete or misleading. An app may tell users that granting access to their location will help them get traffic information, but not mention that the data will be shared and sold. That disclosure is often buried in a vague privacy policy.”

You can read the entire story here.

Published on: December 12, 2018

Forbes has a piece about how Starbucks has “pinned its hopes of long-term growth on China, as a result of a significant increase expected in the per-capita coffee consumption. The coffee giant remains on track to add 600 net new stores per year and to achieve its goal of 6,000 stores in 230 cities across Mainland China by the end of fiscal 2022.”

While Starbucks has a 58.6 percent market share in China, its recent sales growth has slowed, at least in part because “there is a new upstart on the block. Luckin Coffee, officially launched in January, has been aggressively expanding in China, and has already opened 1,500 stores across 21 cities. Its popularity is based on its more affordable pricing, its promotional strategy, and a focus on delivery. Consequently, it does not come as much of a surprise that Starbucks is now concentrating on introducing such services in its own stores.”

The potential is enormous. Forbes notes that “per capita coffee consumption in China is about one-half of one cup per person per year compared to approximately 300 cups per person per year in the U.S. While consumption levels in China may never be able to match those in the U.S., even attaining a small fraction of it will benefit the company immensely.”

Published on: December 12, 2018

• The Milwaukee Business Journal reports that Kroger has “acquired a portion of Shopko’s pharmacy business.” Terms of the deal were not disclosed.

According to the story, “Dillon’s, Fred Meyer, Smith’s and Roundy’s divisions will receive the prescription file purchase. The acquisition affects 42 Shopko locations … The announcement came shortly after Ashwaubenon-based Shopko Stores announced it would close 39 stores across 19 states by the end of February, including one in Wisconsin.”


• The Wall Street Journal reports that McDonald’s “plans to reduce the use of antibiotics in its global beef supply in the next few years, a tougher task than removing their use from other types of meat.

“The Chicago-based company said Tuesday that it will take two years to decide how much of the antibiotics important to human health it will be able to remove from beef. McDonald’s said it would work with meat suppliers in its 10 largest beef-sourcing markets, including the U.S.”

Published on: December 12, 2018

• The New York Times has a story about how big business - alcohol companies, soft drink companies, and tobacco companies, for example - are “swooping in” to take advantage of growing cultural and legal acceptance of marijuana usage.

“The arrival of large multinational corporations portends sweeping changes for an industry that until recently operated in the shadows,” the Times writes. “As billions of dollars pour into product development, marketing and manufacturing, these companies will be looking to create big brands with the market share to match.”

One estimate suggests that “global legal cannabis sales will reach more than $31 billion in 2021, up from less than $8 billion last year.”

The marketplace remains fragmented and in some ways, dicey; while individual states have legalized cannabis for medical and/or recreational usage, the federal government has remained opposed to such a move, which creates banking and taxation issues. But major corporations are laying the groundwork so that they are ready to move when the moment is right.

• Ganjapreneur reports that California’s Bureau of Cannabis Control (BCC) has ruled that cannabis products can be delivered everywhere in the state, even those places where this segment has been banned.

The story says that the BCC ruled that “Proposition 64 - California’s adult-use legalization initiative - allows for statewide deliveries. The bureau, however, needed to add explicit language addressing the issue after several law enforcement officials said they would arrest licensed delivery drivers if they were caught in areas that had banned cannabis sales.

“Supporters say that sick or handicapped patients in regions with cannabis bans will need deliveries so that they can still receive their medication.”

Published on: December 12, 2018

…will return.