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    Published on: January 2, 2019

    by Kevin Coupe

    It seems like a good way to start the new year … with the new release of a podcast that I think does a good job of sketching out some of the interesting and innovative delivery options that could exist in the future.

    Except that in these cases, the future is now.

    The premise is simple. For food, you used to have to go to a food store. To fuel your car, you used to have to go to a gas station. But no loner.

    Our guests are Patrick Fore, CEO/co-founder of Fleat Network, which has developed the ability to send intelligent mobile storefronts - with customized selections - to targeted neighborhoods, allowing retailers to go beyond traditional marketing boundaries … and Michael Buhr, president/CEO of Filld. which is a mobile fueling service that quite literally travels the last mile to provide a new level of convenience.

    It was a fascinating and, I think, Eye-Opening exchange about disruptive influences that have the potential to have a real impact on consumers and retail businesses, conducted with Jeff Lenard of the National Association of Convenience Stores (NACS) as part of its “Convenience Matters” series.

    You can listen to it here, on the NACS “Convenience Matters” podcast site. (It also is available on iTunes, Google Play, Stitcher, and Spotify.


    KC's View:

    Published on: January 2, 2019

    The Seattle Times has a story about how many traditionally low-wage retailers, having invested in higher pay for employees as a way of attracting them at a time of low unemployment, now also are investing in a variety of efficiency measures.

    The reason is simple: Higher employee pay means higher costs, but most retailers don’t want to pass those on to shoppers, especially at a time when competition is tougher than ever.

    So, they have to find technological and design solutions that will lower operating costs to compensate. And, the Times writes, “Though higher wages are driving retailers to make workers more efficient, cost isn’t the only factor. The companies are also under intensifying pressure to speed delivery times of online orders to compete with Amazon and please customers who expect fast delivery.”

    Examples from the Times story: “Walmart is automating its truck unloading to require fewer workers on loading docks. Kohl’s is using more handheld devices to speed checkouts and restock shelves. McDonald’s is increasingly replacing cashiers with self-service kiosks to free up workers for table service.”
    KC's View:
    It is the rare retailer that can afford to raise prices without concern, and so it makes utter sense to find ways to economize through efficiency. What always worries me about these kinds of scenarios, though - and I know I’ve sung this song before - is that retailers will focus more on efficiency than effectiveness.

    I think there are retailers out there that are not making this mistake - they understand that the stakes are higher than ever, and they realize that they have to deliver not just on a value proposition, but also on the promise of a compelling and differentiated shopping experience that makes it worth getting up off the couch or out of the chair and go to the store.

    Retailers absolutely have to ask themselves, “How do we make our processes more efficient?” But they have to give equal voice to the question, “How do we become a more effective agent for out consumers, giving them not just what they need and want, but products and services that are relevant to their lives and resonant to their hearts and minds … sometimes even before consumers have articulated these needs and wants to themselves?”

    Published on: January 2, 2019

    The Wall Street Journal reports that Amazon has big plans for its Whole Foods business - it wants to open stores in areas of the US where it currently does not operate, include facilities in those stores that will allow for pickup and delivery of Amazon orders, and also enable it to extend its Prime Now two-hour delivery service to new regions of the country.

    It may be ambition. Or it may be defense.

    The Journal story notes that this would be a reversal of Amazon’s approach since acquiring Whole Foods in 2017 for $13.5 billion, which was to slow down store growth and accelerate layoffs. “Amazon’s investments are helping to improve morale at Whole Foods after a stretch of falling sales and staff cuts,” though the story points out that “some Whole Foods workers have pushed to unionize this year for better benefits and working conditions.”

    According to the Journal, “Amazon offers Prime Now, a two-hour delivery option to members of its Prime subscription service in more than 60 cities, and online grocery pickup from Whole Foods stores in as little as 30 minutes from nearly 30 cities. Amazon plans to expand those services to nearly all of its roughly 475 Whole Foods stores in the U.S., according to another person familiar with the plans. Amazon also wants to use benefits for Prime members to attract new customers to Whole Foods and draw them back more often.”

    A Whole Foods build out, the story suggests, “would also intensify competition among grocers that are already fighting to retain customers. Supermarkets have been holding down prices and adding new services as consumers shift more of their shopping online. Other retailers are also widening the range of goods they sell, from discount grocers like Aldi and Lidl to pharmacy chains and convenience stores.”

    It appears that Amazon may be doubling down because it has to. Bloomberg reported the other day that “the number of Amazon Prime members who shop for groceries at least once a month declined in 2018 compared with 2017, according to the results of an annual consumer survey released Wednesday by UBS analysts.” This likely is because Amazon is facing more intense competition: “A separate study by research firm Brick Meets Click found that households using grocery delivery and pickup services from physical retailers spend about $200 per month and place orders more frequently than Amazon grocery shoppers, who spend $74 a month.

    “The number of households with access to online grocery delivery and pickup options will reach 90 percent next year, up from 69 percent in 2017, thanks to big investments by food retailers of all sizes, the report states.”

    Of course, it isn’t like Amazon is having a bad year. Business Insider reports that “in the US, Amazon will close out the year nabbing nearly half of all online sales, according to analysis by Emarketer, up from a 43.5% in 2017. Amazon will generate $258.22 billion in online retail sales in the US by the end of the year, a staggering increase of almost 30% from the year prior.”

    And CNBC reports that Amazon says that its “customers worldwide ordered more items than ever” from it during the just-completed holiday season … Amazon said tens of millions of people signed up this season for free trials or paid memberships for Amazon Prime. The company said it sold millions more of its own devices, like the Echo Dot and Fire TV Stick 4K, compared with last year. Amazon said it also sold a record number of smart home devices including the Amazon Smart Plug, Ring Video Doorbell 2 and the iRobot Roomba 690.”
    KC's View:
    One of the interesting insights from the Journal story is that while sales have grown at Whole Foods, profits haven’t, at least in part because of a sharper pricing policy and discount program - linked, naturally, to Prime membership. Which, when you think about it, sounds like it pretty much comes from the Amazon playbook … drive prices down, build market share, and worry about profits later.

    This will be an interesting and even potentially dangerous time for Amazon. Interesting because it seems to be a company of almost endless and unquenchable ambitions, and dangerous because it is possible for even Amazon’s reach to exceed its grasp … it is placing so many bets and making so many promises that, if it does not deliver, it will create both disappointments for its customers and openings for its competition. Despite Amazon’s reported positive end-of-year results, there was some evidence of this happening during the holiday shopping season … and I think Amazon has to focus rigorously on this.

    Ironically, poet Robert Browning once wrote, “Ah, but a man's reach should exceed his grasp, Or what's a heaven for?” I suspect that this would be the Jeff Bezos response … that a world in which Amazon’s reach and rasp were perfectly aligned would be one with fewer possibilities and opportunities.

    Which is probably how more business leaders should think and act.

    Published on: January 2, 2019

    The Washington Post has a story about a new study from the Oxford Review of Economic Policy looks at how “growing corporate power, particularly in industries dominated by shrinking numbers of huge companies, effectively ‘transfer[s] resources from low-income families to high-income families’.” In 2016, the study says, “U.S. companies' pursuit of bigger profits through higher prices transferred three percentage points of national income from the pockets of low-income and middle-class families to the wealthy.”

    According to the Post story, “The top 20 percent of U.S. households own nearly 90 percent of the country’s total equity … But those households account for a hair under 40 percent of total consumer spending. Looking at things from the perspective of the poor and middle class, the bottom 80 percent of the country owns just 10 percent of the equity but spends 60 percent of the money.”

    In other words, the poor and middle class can’t make up for higher prices through the performance of their stock portfolios, because they simply don’t own enough - if any - stock.

    The Post goes on: “The researchers take this analysis a step further by calculating exactly how much household income is transferred from the poor and middle class to the wealthy solely because of powerful companies' profit-maximizing price hikes. They find that monopolistic pricing takes a bite out of every income group’s share of national income, with the notable exception of the top 20 percent, whose incomes rise. In effect, companies are using their market power to extract wealth from poor and middle-class households and deposit it in the pockets of the wealthy, to the tune of about 3 percent of national household income in 2016.”

    You can read the full story here.
    KC's View:
    I’m no economist, so my ability to analyze this study is somewhat - some would argue severely - limited. But I have two observations…

    One is that while the income disparity figures seem hard to argue with, it has to be pointed out that many companies that market to poor and middle class consumers actually are doing their best to limit price increases even a time of rising costs. This may not be sustainable - especially at a time when shareholder value is perceived as more important than shopper value - but that seems to be a trend of the moment.

    The second observation is that none of what the study describes is good for the vast majority of retailers and suppliers … because it reflects a world in which most shoppers have less money to spend in their stores and on their products. The contraction of the middle class, as has been well documented, creates enormous problems for a lot of companies.

    Published on: January 2, 2019

    The Washington Post has a piece about the sad history of Marsh Supermarkets, founded in 1931 and then, in 2017, shut down by the private equity group that owned it after a bankruptcy filing with seemingly little regard for workers who had invested years of their lives in the company and were counting on pensions that ended up being dramatically underfunded.

    These workers are angry. To say the least.

    The Post writes that “the anger arises because although the sell-off allowed Sun Capital and its investors to recover their money and then some, the company entered bankruptcy leaving unpaid more than $80 million in debts to workers’ severance and pensions.

    “For Sun Capital, this process of buying companies, seeking profits and leaving pensions unpaid is a familiar one. Over the past 10 years, it has taken five companies into bankruptcy while leaving behind debts of about $280 million owed to employee pensions.

    “The unpaid pension debts mean that some retirees will get smaller checks. Much of the tab will be picked up by the government’s pension insurer, a federal agency facing its own budget shortfalls.”

    The Post notes that “when a company fails, it is sometimes impossible to pay everyone who is owed money. The trouble, according to some critics, is that financial firms often extract money from losing bets to reward themselves and then, through bankruptcy, leave obligations to workers unpaid. Companies owned by private-equity firms have used bankruptcy to leave behind hundreds of millions of dollars in pension debts, according to a government estimate.”

    Sun Capital denies that it did anything wrong, saying that “Marsh was a struggling business that we worked hard to save. Our investment kept the company alive and provided jobs for its employees for 11 years … We’ve done 365 deals in our history and the vast majority have grown and been successful.”

    Indeed, the Post points out that “companies that default on their pension obligations often blame business conditions. Executives say the companies simply lack the money to replenish the pension fund. But it is often the case that companies neglect the pension even when they have the money: The owners would rather use the cash for other purposes, including taking it as dividends for themselves.”

    And, the Post writes that “in recent years, some in Congress have sought to change the bankruptcy laws to prevent companies from ditching pension debts through bankruptcy. Last year, Rep. Tim Ryan (D-Ohio) introduced a bill that would give pensions higher priority in bankruptcy payouts. He said that in 2016 alone, 146,000 pensioners overall had seen cuts to their benefits. It did not win passage. ‘There’s this idea that pensions are a giveaway,’ said Ryan, who expects to reintroduce the legislation in 2019. But ‘it’s their money. Through negotiations, workers have deferred wages for a pension down the line. For them not to get that money is theft — in a lot of ways. The workers are a pawn in the game’.”

    You can read the entire story here.
    KC's View:
    Pity the poor Marsh workers … first, the founding family, having engineered an IPO, behaves in a fiscally irresponsible manner that creates a scenario in which a private equity group can step in and take ownership. And then, the private equity group does what many such groups do - knowing little about retail, they don’t make decisions that give the company the best chance at success.

    There was a time when Marsh was the gold standard in food retailing, being at the forefront of technological innovation, loyalty marketing and fresh food merchandising. This is a sad story about how almost everyone seemed to take their eyes off the ball, and a cautionary lesson about hubris and greed.

    Published on: January 2, 2019

    CNN reports that the “hedge fund controlled by Eddie Lampert bid $4.4 billion for the company's operating assets. The deal by Sears' chairman would keep about 425 Sears and Kmart stores open for business — 260 or so fewer than the retailer had when it filed for bankruptcy on October 15.” While “Sears' attorneys said that multiple parties were interested in buying the company's assets,” it now appears that Lampert may in fact be the only bidder, though his bid could also serve as a “stalking horse” bid against which other bids will be measured.

    It remains to be seen whether the bankruptcy court overseeing Sears’ affairs will approve the bid; it seems likely that Sears will. A decision is expected in a few weeks. CNN reports that “Lampert is Sears' biggest creditor, but he's not the only one. Sears owes billions of dollars to thousands of vendors, landlords and others. Many of them believe it would be better to shut all of the remaining stores and sell off Sears' assets to raise cash to repay the debts.”

    The story goes on to say that “Lampert is not offering to put up much new cash. Instead, he wants the new company to borrow money, and says he has arranged financing from three major financial institutions.”
    KC's View:
    Lampert’s end game has to have more to do with the real estate than the retail business, because he has pretty much proven definitively that he’s incompetent at being a retailer. He must be a helluva salesman, though, if he’s convinced three financial institutions to lend him more than three dollars for anything to do with Sears. I can’t even figure out why any manufacturer would ship Sears or Kmart anything (unless it was C.O.D.) … and it’ll be a big surprise to everyone, I’d guess, if Sears had a good end of year holiday sales season.

    Sears isn’t alone. There was a CNBC story the other day about how “U.S. department store chains are struggling more than ever headed into the new year. The products they sell from the likes of Nike or Coach can just as easily be bought directly from those brands’ own stores or online. Department stores accounted for 14.5 percent of all retail purchases in 1985 in North America. Last year, that fell to 4.3 percent and is still dropping, according to Neil Saunders, managing director of GlobalData Retail.

    “J.C. Penney, for instance, heads into 2019 with a bleak outlook; its stock fell below $1 per share for the first time last week. Meanwhile, Hudson’s Bay, the parent company of Lord & Taylor and Saks Fifth Avenue, has been shutting some of its flagship stores in the U.S. Separately, Neiman Marcus has significant debt coming due in 2020 and 2021.”

    There are some discounters that are doing fine - Walmart, Target, and companies such as T.J. Maxx, Ross Stores and Burlington Stores.

    Yeah, sure. Sears can survive in this environment. In a pig’s eye.

    Published on: January 2, 2019

    • Published reports say that Walmart and Amazon have run into an obstacle in their efforts to establish e-commerce beachheads in India, as the government there has ruled that online retailers cannot offer exclusive sales of own-label products, and cannot sell products in which they have any sort of ownership interest. The new rules also limit Walmart’s and Amazon’s ability to discount their products, with all these new regulations aimed at giving smaller retailers a better chance at competing against them.
    KC's View:

    Published on: January 2, 2019

    Yahoo Finance has a story saying that last year, Walmart “hired around 1,400 new drivers, up from 922 in 2017. Since August, the big-box retailer added about 694 drivers in net fleet growth, a number which includes the turnover that's coming mostly from retiring drivers.” And, the story says, it is still looking for hundreds more, even as it has some 1,000 drivers at various stages in its hiring pipeline.

    According to the piece, Walmart has managed to hire so many drivers - even in the middle of a truck driver shortage - “by offering $1,500 referral bonuses, using social media to reach the younger generation, shortening the application time from 73 days to 31 days, and changing the format of its hiring events resulting in a higher pass rate. Drivers still must have at least 30 months of experience and meet other stringent requirements.”
    KC's View:

    Published on: January 2, 2019

    Bloomberg reports that Swiss food manufacturer Nestle SA “is gearing up for its biggest push yet into the booming vegan market: the Incredible Burger, to be introduced under the Garden Gourmet label next spring. As consumers swap meat for leafy greens, Nestle wants to turn the trend in plant-based eating into a billion-dollar business.”

    It is, the story says, “a big shift for the world’s largest food company, whose products include Herta sausages and ham … Nestle is racing against rivals Unilever and new entrants like Beyond Meat, backed by Bill Gates and Leonardo DiCaprio, to find alternatives that resonate with a new generation of consumers turned off by animal protein and high cholesterol content.”

    Axios has a story about how it would be a mistake to “bet against sin industries like marijuana and sports betting in 2019, even if the broader economy and markets stumble.” The reason? These industries are “ being born into adulthood by rapidly-expanding legalization,” and won’t require the usual time to develop infrastructure and logistics “organically.”

    • Meal kit company Blue Apron announced last week that it “is partnering with WW, formerly known as Weight Watchers,” according to CNBC. This deal, the story says, “offers Blue Apron the chance to build in more demand for its product while being able to spend less on marketing.

    “Through the partnership, Blue Apron will pay WW a fee for subscriptions it secures as a result of the arrangement … the companies said that six new meal recipes would be available through Blue Apron … inspired by the WW Freestyle program and trackable in the WW app.”
    KC's View:

    Published on: January 2, 2019

    • Kroger announced that Scot Hendricks, president of the company’s Delta division (which served west Tennessee and parts of Mississippi, Arkansas, Kentucky and Missouri), is retiring after 38 years with the company.

    He will be succeeded by Victor Smith, vice president of merchandising for its Ralphs division.

    • Grocery Outlet Bargain Market announced that Eric Lindberg, the company’s co-CEO, has been named CEO, while the other co-CEO, MacGregor Read, has been named vice chairman.

    At the same time, RJ Sheedy, the chain’s Chief Merchandise, Marketing and Strategy Officer, has been named president of the company.
    KC's View:

    Published on: January 2, 2019

    Before the Christmas holidays, I used words like “mausoleum-like” to describe Barnes & Noble. It has prompted some push-back, including this email from an MNB reader:

    Another take on your piece about the B&N experience. Finishing up some shopping at our local mall - place was EXTREMELY quiet, with many closed shops. Places that were open were of the “pop-up” variety that at least filled some space, but tough to think about how much worse it will be to start the new year.

    The one bright, busy spot was B&N. Lots of customers, lots of help - most of whom were very engaged in taking care of folks.

    Barista was walking around handing out samples and talking up his holiday drink.

    When we got to the register the cashier was very pleasant and helped my wife with her assorted lists and coupons.

    I complimented him on the nice job the store did adding a toy section (which was VERY busy). He said they were originally concerned about taking away too much space from their music area (including vinyl) but they were “fortunate enough” to have someone from the Buffalo Music Hall of Fame working there, who does a great job of “leading” the department. “Customers ask when he is working so they can come in and get ideas on what’s new and interesting in various genres”. (He got extra credit for “genre.”)

    Really nice experience all the way around.

    On another subject, from MNB reader Carol Schnabel:

    Glad to read that Walmart is doing better at their delivery service than they have done with their grocery pickup service.  If they are going to offer a pickup service, then they should require their stores to have the staff to provide the service.  I tried to order groceries on Tuesday for pickup on Sunday and found out that there were no available times until the next Tuesday (a whole week, you have got to be kidding).  I go to the store and see all the pickup parking places empty which leads me to believe they don’t have the staff to deliver the pickup service.  Maybe Amazon can do better for delivery or other chain grocery stores.  Walmart is not staffing a good service.

    And, from another reader:

    I’m with you on not wanting to allow open access to my home whether I am there or not. I can understand the desire to eliminate the need to schedule delivery but I am convinced there are other solutions that do not include letting people I don’t know have access to my home. I would prefer that these companies focus on those solutions and throwing their considerable resources behind solutions to the “porch pirate” problems deliveries have started.
    As for the Subscribe & Save … Yes and yes! I haven’t switched many replenishment items in years and simply do not want to run out. I’m eagerly awaiting the bold merchant that looks at the store through the lens of “categories people don’t want to shop for” and “categories where the physical store and front line employees can make an impact/impression.”

    Me, too.
    KC's View:

    Published on: January 2, 2019

    I want to start the New Year the way I ended the old one … to thank the MNB community for your continuing support and enthusiasm, and the family of MNB sponsors that has kept the lights on around here for the past 17+ years.

    These companies include MyWebGrocer, ReposiTrak, Samuel J. Associates, Export Solutions, Webstop, City of Hope, Cloud Union, the National Grocers Association (NGA), the Western Association of Food Chains (WAFC), and Portland State University, among others.

    I couldn’t do it without you. I’m grateful, and I know that MNB’s readers are grateful, too.

    After taking some time off, the past few weeks, I was excited to get back to work this morning. I’m one of those people who really enjoys his work, and so sitting down to my newly repaired laptop (thank you Apple, for fixing and repairing it a week faster than promised!) was energizing.

    My feelings about the future dovetail nicely with one of the stories that has been much-reported over the past week or so, about how copyright protections for a number of books, poems, plays and movies have run out, putting them in the public domain. One of those was the 1922 poem, “Stopping by Woods on a Snowy Evening,” by Robert Frost, in which he wrote the following immortal words:

    The woods are lovely, dark and deep,
    But I have promises to keep,
    And miles to go before I sleep,
    And miles to go before I sleep.

    KC's View: