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    Published on: January 31, 2019

    This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

    Hi, Kevin Coupe here, and this is FaceTime with the Content Guy.

    The Retail Feedback Group (RFG) is out with its annual Supermarket Experience Study, specifically focusing on what retailers need to do in order to create a compelling in-store experience … and I have to say that I’m completely on-board with their conclusions, especially because the importance of creating a compelling store experience has been a constant theme around here for years.

    In fact, it has been so constant that some folks have accused me of beating a dead horse. But I’d argue that what I’m really trying to do is keep the horse alive by pointing out that the old race was being run in the circles, and the new race has to be run into the future.

    In order, the RFG recommendations are:

    “Supermarkets are missing an opportunity to demonstrate food expertise.”

    I don’t think there is any question about this - there is a clear and enormous difference between stores that have it and stores that don’t - it is a difference that you can see, smell, and taste. Plus, a food expertise is an advantage that physical stores, if they really work at it, and don’t cater to the lowest common denominator, can have over online retailers … though I’m absolutely, positively sure that more than one online retailer will manage to erase that advantage. But if you don’t work at it now, you have no hope in the future.

    “In-store assortment is not meeting consumer demand in several trending categories.”

    The RFG study suggests that “in general, shoppers are relatively satisfied with the selection of products offered in their supermarket.” But in certain “specific high-demand and differentiating categories – local, international/ethnic, natural/organic, allergen-free – consumer ratings are significantly lower.”

    I actually think the problem is bigger than that - because most retailers do not know what’s in their warehouses, what’s in their stores and where the out-of-stock problems are - I think it can be argued that in-store assortment may not be meeting consumer demand in the vast majority of categories.

    “Supermarkets are still geared for the wrong time of day.”

    The conclusion here makes a lot of sense - that supermarkets are geared so that they look their best at 11 am, but “sales and customer volume are highest during the peak time between 3 PM and 7 PM.”

    This illustrates something we’ve long talked about here on MNB - that too many chains and stores are built for their own operational needs and conveniences … not making the customer a priority. This is a problem that goes back decades, but too few stores have addressed it at a time when there is a lot less room for complacency. In fact, there is no room for complacency. None.

    “Too many shoppers are leaving the store without pleasant human contact.”

    Most companies and their leaders are judged on their ability to drive down their labor costs, no matter how important the human element may be. Most companies are using new technologies to get rid of jobs, rather than taking those people and putting them in the position of being customer influencers and ambassadors for the retail brand. And this is only going to get worse in most places, as technology gets better.

    Retailers have a choice. Not every store is going to have the best technology, or the best food, or the best people. It is just not possible.

    But it strikes me as critical that food retailers focus on these differentiating advantages if they are to have any chance of surviving over the long term.

    It makes me think of something that Michael wrote about on Tuesday … you have to aspire.

    It is, as he said, a six step process.

    Aspire. Experiment. Innovate. Implement. Evaluate. Repeat.

    That’s what is on my mind this morning and, as always, I want to hear what is on your mind.

    KC's View:

    Published on: January 31, 2019

    by Kevin Coupe

    Bloomberg reports that Trader Joe’s has decided to stop offering delivery in New York City, a service it has provided for more than a decade, citing “the costs associated with fulfilling e-commerce orders” as well as the fact that it now has stores scattered more conveniently around the city. The change is scheduled for March 1.

    ““Instead of passing along unsustainable cost increases to our customers, removing delivery will allow us to continue offering outstanding values — quality products for great everyday prices, and to make better use of valuable space in our stores,” Trader Joe's representative Kenya Friend-Daniel told Business Insider. “This was not a decision we made lightly. We value our customers and all that they do to come shop with us.”

    When Trader Joe’s started offering delivery, it had just one store in New York City. Now it has almost a dozen, and plans for more.

    Bloomberg writes that “the move illustrates how competition for online grocery shoppers is heating up in New York, a city well suited to e-commerce because many people don’t own cars and live in close quarters. FreshDirect has dominated the market for years, but rivals like Walmart’s, Ahold Delhaize’s Peapod and Inc. are closing the gap. Local grocers can also outsource delivery to startup Instacart, which maintains an army of shoppers who roam grocery-store aisles, picking and packing orders.”

    And, the story points out, “Delivering fresh groceries to people’s homes in Manhattan is still a costly proposition, though, as it entails refrigerated trucks, expensive drivers and the ever-present threat of parking tickets. New York shoppers also have high standards, which can boost the cost of processing returns and refunds.”

    Now … Abandoning delivery at this point in the space-time continuum seems a little counter-intuitive, but then again, Trader Joe’s can be a pretty counter-intuitive company.

    Two thoughts…

    One, I give Trader Joe’s credit for not outsourcing delivery to the likes of Instacart … Trader Joe’s is nothing if not distinctive and differentiated, and making that kind of move would’ve diluted its value proposition.

    Second, I know that MNB’s Kate McMahon has two daughters living in New York City who shop at a Trader Joe’s there, and the standard operating procedure for shopping at TJ’s is to go with a friend, with one person immediately going to wait on the checkout line while the other does the shopping. Otherwise, it takes forever. My point being … it is a lot easier to give up delivery when you’ve got in-store customers willing to make that kind of commitment.

    That’s the Eye-Opener.
    KC's View:

    Published on: January 31, 2019

    In Australia, CRN has a story about how Microsoft CEO Satya Nadella views his company’s recently announced deals with retailers that include Kroger, Albertsons and Walgreen.,

    "It's clear that [Microsoft has] fantastic alignment of our business model with the interests of our customers. In other words, we want to make sure we are, in fact, making our customers fully capable digital companies in their own right - whether they're in retail, whether they're in oil and gas, whether they're in health care. Because that's really what's in our long-term interest," Nadella said during an analysts conference call.

    Nadella went on: “And, of course, that means we have a trusted relationship, which is a competitive advantage … In a world where some of our competitors have more complex business models - where in some cases they give their platforms [to customers] and other cases where they compete with them or tax them—that's definitely something that I'm sure our customers pay attention to.”

    The CRN story suggests that Nadella’s comment amount to more than a hint that “Amazon's push into new industries such as groceries and health care could be leading some customers to choose (Microsoft’s) Azure over Amazon Web Services.” While Nadella didn't mention Amazon by name, “Amazon has expanded its business into new verticals in recent years including groceries, with the acquisition of Whole Foods, and health care, with acquisitions such as prescription delivery service PillPack. Meanwhile, Amazon Web Services is the market-share leader in public cloud infrastructure and the only larger public cloud than Azure.”

    The story notes that “for Microsoft's second quarter of fiscal 2019, ended 31 December, intelligent cloud revenue jumped 20.4 percent to US$9.38 billion, up from US$7.79 billion the year before. The growth was fueled by a 76-percent spike in Azure revenue, while enterprise services rose 6 percent.”
    KC's View:
    This is what you call a multi-front war, with a lot of partnerships and deals being formed to do battle with Amazon, which has totally roiled the competitive waters with so many of its moves.

    Where this stuff really will move the retail business forward is when these alliances focus relentlessly on the customer - and this is only going to happen, as my friend and MNB contributor Tom Furphy likes to say, when these businesses get outside their comfort zones and do things that really make them uneasy. Partnering with Microsoft is a good way to do that.

    Published on: January 31, 2019

    The New York Times this morning reports on a New York City Council hearing yesterday at which Amazon was questioned about its plans to open part of its second headquarters expansion in Long Island City, in the borough of Queens, which is expected to bring “25,000 jobs in exchange for as much as $3 billion in state and city incentives.”

    Since the planned expansion was announced, Amazon has gotten blowback from a number of quarters, with people questioning things like the size of the incentives, the impact on local neighborhoods, the expected stresses on the city’s infrastructure, and the company’s long-held resistance to unionization, which is not the best attitude in a highly unionized city.

    While Amazon has been on something of a charm offensive lately, “at the start of the hearing, Amazon’s vice president for public policy, Brian Huseman, made a glancing reference in his prepared testimony to the fact that the company still has some say in whether it expands in New York City. ‘We were invited to come to New York, and we want to invest in a community that wants us,’ he told the Council. He closed by repeating that the company wanted to ‘be part of the growth of a community where our employees and our company are welcome’.”

    The Times notes that “opponents of the deal and their allies on the City Council also raised the possibility of the deal unraveling, asking officials whether the city could opt out of the agreement.” And, the paper says, Amazon executives “have expressed frustration in private at their treatment in New York, comparing it to the open-arms welcome they have gotten in Virginia, where the company announced plans to locate another large corporate campus.”
    KC's View:
    I’d be willing to bet that there are a bunch of metropolitan areas that would not mind being Amazon’s backup choice if the NYC deal goes south. In fact, I wouldn’t be surprised if there already is a plan B, with Amazon knowing at what point it needs to go elsewhere. Like Boston. Or Toronto. Or Austin.

    Published on: January 31, 2019

    United Natural Foods Inc. (UNFI) has sued Goldman Sachs, which advised it in its recent acquisition of Supervalu, changing that Goldman put its own interests ahead of those of its client.

    At issue, the Wall Street Journal reports, “is a roughly $2 billion financing loan Goldman arranged for United Natural Foods on the deal. The company alleges that Goldman arranged the financing in a way that hurt United Natural Foods but benefited the financial firm and its hedge-fund clients that had placed bets in the credit-default swap market against Supervalu. The company also accuses Goldman of taking advantage of the deal’s provisions to extract more money from United Natural Foods.”

    The Journal describes the dispute this way:

    “Originally, the deal called for United Natural Foods to retire Supervalu’s $1.6 billion in debt. To investors who had bet against Supervalu in the credit-default swap market, this was disastrous - they stood to lose big if the debt was extinguished. Some $470 million in Supervalu credit-default swaps was outstanding at the time of the deal, the suit said.

    “Instead of retiring the Supervalu debt, Goldman persuaded United Natural Foods to add Supervalu as a co -borrower on the loan, the suit said, keeping Supervalu CDS trades alive.

    “Only after the deal closed, the suit contended, did United Natural Foods learn that Goldman had hedge-fund clients holding the Supervalu CDS, which doubled in value when the deal terms added Supervalu as a co-borrower. Some of those same hedge-fund clients also bought into the United Natural Foods financing loan, the suit alleged.

    As a result, United Natural Foods said in the suit, those holders now have an incentive to “manufacture” a default on the United Natural Foods debt to win their CDS bets against the company—though no hedge-fund holder has done so.”
    KC's View:
    I have a rule - I don’t comment on stories where credit-default swaps are the main point of contention. Everything I know about credit-default swaps I learned from The Big Short

    Published on: January 31, 2019

    The Spoon reports that Chef’d, the meal kit company that went out of business last year, is now back in business - revived as a “a clean-label meal kit” that will be sold at retail.

    The story notes that “True Food purchased the assets to Chef’d in July 2018, shortly after Chef’d unexpectedly closed its doors, citing funding and expense issues. The company was one of the first to sell meal kits in stores, via a Costco partnership, in addition to its mail-subscription service.

    “Under True Food, Chef’d kits will return to stores, this time with a 55-day shelf life thanks to a patent-pending formula True Food has developed that uses high-pressure processing without the need for preservatives. All kits require 15 to 20 minutes of prep time. Most interesting, True Food claims its kits’ 55-day shelf life has ‘cracked the code’ on meal kits and that it’s a ‘key differentiator and absolute requirement for retail meal kits to be commercially viable for nationwide distribution’.”

    A nationwide rollout is planned, though no retailers have yet been identified as having signed on to carry the line.
    KC's View:
    I think they may have some explaining to do, because an almost two-month shelf life could be seen by some as inconsistent with having a “clean label.” Not saying it is impossible, but they’re going to have to do some educating.

    Published on: January 31, 2019

    The Wall Street Journal reports that UnitedHealth Group has gone to court to stop one of its former executives, David W. Smith, from going to work for the new health care venture being started up by Amazon, Berkshire Hathaway and JPMorgan Chase.

    Here’s how the Journal frames the story:

    “The scope of the still-unnamed venture remains hazy beyond stated goals to improve health care and rein in costs for employees. But filings related to the case and court testimony offer some fresh clues about the closely watched effort, including that it may build its own solutions if what it needs isn’t available elsewhere.

    “In court, the new hire at issue said the venture is focused on serving the three founding companies and isn’t competing with UnitedHealth’s Optum health-services unit to sell services or products. Court filings indicate the venture is examining third-party vendors’ products and combining them in ways to boost value for the founding companies.”

    The story goes on: “Optum alleged in its lawsuit that Mr. Smith, who spent 2½ years working in Optum’s corporate strategy and product units before resigning last month, violated a noncompete agreement by joining the new venture. Optum also accused Mr. Smith of improperly accessing confidential documents before departing for the new venture, which filings referred to as ABC.

    “Mr. Smith denied the allegations in court filings and court testimony, saying he didn’t leave Optum with any company files and doesn’t want or have any use for that information in his current job at ABC. Mr. Smith has asked the court to order arbitration.”
    KC's View:
    This is all very complicated stuff, and I suppose the eventual legal decision will hinge not just on the existence of a non-compete clause, but the degree to which the Amazon-Berkshire Hathaway-JPMorgan Chase entity will be directly competitive based on information it shouldn’t have.

    If I understand anything about the new business, it is that the goal is to challenge long-held assumptions and delivery systems. I suppose this requires historical knowledge and context, but also the willingness to disrupt.

    One thought … is it possible that the lawsuit exists mostly to smoke out details about the Amazon-Berkshire Hathaway-JPMorgan Chase venture that have not yet been made public? Just wondering. I’m getting cynical in my old age.

    Published on: January 31, 2019

    MarketWatch reports that Walmart “has launched the Fan Shop by Fanatics for sports merchandise on the retail giant's website. Hundreds of thousands of items from across the NFL, NBA, MLB and more will be available.”

    Fanatics, the story says, “has the exclusive licensing rights for merchandise from a number of professional sports leagues.”
    KC's View:

    Published on: January 31, 2019

    CNBC reports that CVS is trying to put some teeth into its retail operations as it searches “for new ways to draw customers inside.”

    CVS, the story says, “is running a pilot with SmileDirectClub to fit people for the start-up’s invisible braces in CVS’ drugstores … In working with SmileDirectClub, a start-up that sells teeth straightening kits directly to consumers over the internet, CVS has added a so-called SmileShopExpress inside six of its drugstores. There, people can get a 3D scan that will be used to create their invisible braces. This is a pilot program for now, according to the two companies.”

    The story notes that “the teeth-straightening market has become extremely competitive since 40 of market leader Invisalign’s patents expired in October 2017. SmileDirectClub and a slew of other start-ups, such as Candid Co., are jockeying to overtake the teeth-straightening market, appealing to consumers with flashy marketing and less expensive treatments.”

    • PTS Diagnostics and Kroger Health, The Kroger Co.'s nationwide arm of health and wellness facilities, services and programs, announced yesterday “the full rollout of CardioChek Plus analyzers for point-of-care blood testing to help identify individuals at-risk of heart attack, stroke and diabetes … CardioChek Plus analyzers provide accurate, on-site results in as little as 90 seconds using the same technology as clinical laboratories.  Its speed and portability combined with the reach and influence of Kroger Health pharmacies and clinics will increase the number of potential patients who are able to receive preventative health screenings and begin clinical protocols.”

    The full rollout is expected to be completed by the end of next month.
    KC's View:

    Published on: January 31, 2019

    • Kroger yesterday announced the appointment of Stuart W. Aitken, chief executive officer of its 84.51° data analytics subsidiary, to the newly-created role of Senior Vice President, Alternative Business. Aitken will continue as CEO of 84.51°, the company said.
    KC's View:

    Published on: January 31, 2019

    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.

    The Hill reports that Starbucks executives have emailed staff throughout the company “with directions on handling questions from customers about former CEO Howard Schultz’s possible presidential bid.” Those directions are fairly simple - they are urged to “evade” the issue and “diffuse” any discussion of political opinions.

    The suggested message they are told to communicate to customers: "Howard’s future plans are up to him.”

    A company spokesperson, in confirming the memo, says that “employees will not be penalized for sharing their views as long as they do so in a respectful way.”

    The Schultz issue has been front-and-center this week in the wake of the former Starbucks CEO’s announcement on “60 Minutes,” repeated in subsequent interviews in a variety of venues, that he will be taking the next three months to decide whether to mount an independent campaign for the presidency. The announcement generated a lot of tsuris in some corners of the Democratic party, where there is a concern that a Schultz third-party candidacy could siphon off votes from whoever their candidate ends up being, thus reassuring the re-election of President Trump.

    However, Steve Schmidt, the former GOP campaign strategist who has been advising Schultz, has said in interviews that Schultz has promised not to be a spoiler - that if he cannot see a path to an Electoral College victory, he will not throw his hat in the ring.
    KC's View:
    I continue to believe that if this candidacy goes forward, it is going to create nine miles of bad road for Starbucks, drawing it into a partisan debate with which it does not want to engage. Just telling baristas not to engage won’t cut it.

    (By the way … there is a certain irony that under new CEO Kevin Johnson, Starbucks is suggesting that employees not engage with customers about a potentially contentious issue. When Schultz was still at the company, he wanted employees to engage with customers over the issue of race relations … which ended up not being a very good idea.)

    It was interesting yesterday on “Morning Joe,” when Mika Brzezinski asked Schultz if he knew what an 18-ounce box of Cheerios cost. He didn’t … he said he was a yogurt guy and didn’t eat Cheerios.

    Axios notes that this is a time-honored tradition during election cycles, that in 2007 “Rudy Giuliani was asked the price of milk and bread,” and “his answers were not particularly close.” In 1992, “George H.W. Bush was asked the price of bread,” and got it right.

    Axios goes on to point out that “Billionaires may be unlikely to know what a grocery item costs, and their actions as president would have limited effects on prices … But they should know the broader trends in the costs that most Americans face.” It suggests that, for example, these questions should be asked of every candidate:

    • “How much has the average health insurance deductible for a family of four changed over the past 5 years? How about copays?”

    • “What’s the average price of tuition at a public 4-year university? How much has this outpaced inflation over the past few decades?”

    • “What’s the average cost of child care in your home state? Is this a greater share of take-home income than it was 10 years ago? 20?”

    • “What percentage of 25-year-olds have more than $50,000 in student debt? What percentage of 25-year-olds have purchased a home? How do these compare to 10 years ago?”

    “How much of the average American's monthly paycheck goes to rent or a mortgage?”

    I agree with all this, and would add a few of my own simple questions:

    • “When was the last time you flew commercial?:

    • “When was the last time you wanted on a TSA line? For how long?”

    • “What does a babysitter cost per hour?

    • “How much is premium gasoline per gallon?”

    Published on: January 31, 2019

    Got the following email from MNB reader Tom Hahn about the Gillette “be a better man” commercial:

    Kevin, if Gillette really wanted to sell more razors – instead of simply talking a side on a popular issue among the SJW crowd - they would put together an ad campaign celebrating men who meet whatever standards they claim men are not living up to.

    When is that campaign coming out? I’m not holding my breath.

    They have committed “retail hari-kari” – an unforced error – can you imagine the heat a P&G rep will take the next time they sit down with the Shave Category Manager at Kroger or Wal-Mart? In a category where retail grocery is already being decimated by the on-line shave clubs, this campaign does nothing to help the retailer capture lost sales. This is the retail version of the old saying “death by a thousand cuts”; it can only drive more consumers away from buying Gillette products at their local grocery or mass store. Really, how many consumers will be driven by this ad to say “I guess I’ll drop my Harry’s membership and start buying Gillette products at XYZ Grocers again”?

    If they really want to have a conversation, they would present both sides of an issue. Alas, I don’t think they are interested in conversation; they just want everyone to know where they stand. Not that I’m a big consumer of P&G products, but I’ll go out of my way now to let them know where I stand.

    I was with you - not necessarily agreeing with you, but certainly understanding your perspective - until you said that “they would present both sides of an issue.” I’m not sure what the other side of this issue is … are we really going to argue that some men - not all, but certainly a percentage, and a group defined by the fact that they have power - are not guilty of the kind of bad behavior illustrated in the Gillette ad?

    I do believe that sometimes we go too far in the “both sides of the issue” approach … sometimes, facts are facts. Gillette certainly has put a target on its back - and front - with this ad, and whether this was a good idea for any business is a legitimate subject for debate and discussion.

    The opposing argument is that we live in a world where purpose-based companies are respected, not vilified. Where Gillette’s approach falls apart for me is that I am not really convinced that its purpose is anything more than to sell more razors and blades in a competitive environment in which it has been disrupted. But, I do respect the initiative, I think the commercial’s message has merit, and I’m giving them the benefit of the doubt. Now, I want to see what they do next … was this a one-off, or is it part of something larger?
    KC's View:

    Published on: January 31, 2019

    It is worth noting this morning that today is the 100th birthday of Jackie Robinson … who broke the color line in Major League Baseball when he took the field for the Brooklyn Dodgers in 1947. In the decade that he played for the Dodgers, he won the Rookie of the Year award (in 1947), the Most Valuable Player (MVP) award in 1949, was a six-time All-Star, played in six World Series and was on on one World Championship team (in 1955).

    Robinson, who passed away in 1972, was elected to the Baseball Hall of Fame in 1962 and, in 1997, Major League Baseball retired his number “42” across the entire sport.
    KC's View:
    I’ve always felt that Jackie Robinson isn’t just one of the greatest baseball players ever, but also one of the great Americans of the 20th century … not just a symbol of racial equality and the civil right movement who faced enormous obstacles in his career, but someone who met those challenges with uncommon discipline and courage.