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    Published on: February 14, 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.

    I had an interesting conversation the other day with Pradeep Elankumaran, the co-founder and CEO at Farmstead, a San Francisco-based e-grocery startup. Now, I’ve been around long enough to know better than to drink the Kool-aid that a lot of dot-come startup folks would live to serve, but I’ve also been around long enough to try to keep an open mind. And there was something about Pradeep’s business model that struck me as interesting, though I certainly think there are challenges ahead.

    Farmstead has been in business since 2016, and it is closing in on its 10,000th customer, serving only homes and businesses within a 50-mile radius of San Francisco as it has tested out its value proposition.

    Which is this - instead of offering a so-called “long tail,” which a lot of e-commerce companies try to do, Farmstead has an exceedingly short tail: between 1,500 and 3,000 items, depending on the time of year. Much of the focus is on fresh, with Pradeep saying that their highly edited selection is targeted at having the best item in a category at several different price points, with the goal of always being cheaper than the local supermarket.

    What really intrigues me about this is the fact that Farmstead is using AI to keep the selection tight, which also means that there is a minimum of waste and shrink. Combine that with the fact that they are operating out of a small warehouse of about 3,000 square feet, with a relatively small corporate and warehouse support staff, and you have a model that seems like it could be expandable without enormous cost, especially as the machines keep learning and the algorithms keep being sharpened.

    As Pradeep explained the business model to me, I kept thinking of Farmstead as a kind of online Stew Leonard’s - which, as most people in the industry know, has built a business out of offering a tightly edited selection, largely focused on fresh foods, and generating millions in weekly revenue by offering a compelling place to shop. Farmstead has everything but the store … and Pradeep told me he’d never heard of Stew Leonard’s, so the commonality is happenstance. (I don’t blame him … he’s on the other coast, and it is only recently that he’s begun to think of himself as a grocer; until now, he’s been a technology and logistics guy who worked at places like Lyft.)

    I’m intrigued by what Farmstead is trying to do … especially because I think it might sense for a traditional retailer trying to find an e-commerce path to partner up with them. After more than two years testing the concept in San Francisco, it is time for Farmstead to spread its wings a bit … and Pradeep told me the company has its eye on three markets where it could expand this year, one of them on the east coast.

    I also think that Farmstead could do a better job on its site of telling its story … to me, it is all prose and no poetry, and I like a bit of poetry … especially since we saw that Google and Bain study that just came out saying that most customers, given a choice, would rather shop for groceries online at a bricks-and-mortar retailer where they’ve been doing business, not a pure play. If Farmstead is going to go against that trend, it needs to romance customers a bit.

    Depending on who you talk to, the numbers are all over the place, but nobody would argue that e-grocery is a runaway success at this point. Eight percent market penetration is about as high an estimate as you ever hear. But I think it would be foolish to think it is going to stay that way, and I think it is heartening to continue to see startups that are trying to slice the bread in different ways.

    It’s funny … over the past few months I’ve run into startups in this space that I find intriguing. First there was Fleat. Then there was Filld. And now there’s Farmstead.

    Which leads to the obvious question: WTF?

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

    KC's View:

    Published on: February 14, 2019

    by Kevin Coupe

    Fascinating story in Wired that references a new interactive map designed to show how climate change is likely to change America by 2080. It is, the story says, “s one of the best visualizations yet of how climate change will transform America. Click on your city, and the map will pinpoint a modern analog city that matches what your climate may be in 2080. New York city will feel more like today’s Jonesboro, Arkansas; the Bay Area more like LA; and LA more like the very tip of Baja California.”

    According to the story, “The data behind it isn’t anything new, but the public-friendly repackaging of that data, known as climate-analog mapping, represents a shift in how science reaches the public.” University of Maryland Center for Environmental Science ecologist Matt Fitzpatrick, the story says, “looked at 540 urban areas in North America using three primary datasets. One captured current climatic conditions (an average of the years between 1960 and 1990), the second contained projections of future climates, and the third provided historic climate variability from year to year taken from NOAA weather records.”

    I know there are people in the MNB community who doubt the veracity of climate science, who equate daily weather shifts and long-term climate change, and who will scoff at this map and its projections. That’s okay … they can move onto the stories about Kroger’s new proprietary mobile payment system, the continuing problems suffered by bricks-and-mortar retailers, and more.

    But for those of you who are interested, click here to take a look at the story, and then here to look at the map. If I were making long-term plans for my business, I’d sure want to know this stuff.

    It is the very definition of an Eye-Opener.
    KC's View:

    Published on: February 14, 2019

    Kroger announced yesterday that it launched a new proprietary mobile payments system, dubbed Kroger Pay, in its Columbus, Ohio, division, which it describes as being able to “securely combine a customer's payment and loyalty card information to create a faster checkout experience.”

    According to the announcement, “Kroger Pay is a quick, safe and easy-to-use feature within the Kroger Family of Stores apps - available for iOS and Android devices. After a customer enters their custom PIN or biometrics, the app provides customers with a single-use QR code to scan at the terminal to quickly communicate payment and loyalty card information, which includes digital coupons and personalized offers. The single-step solution reduces checkout time and creates a more frictionless experience for both store associates and customers. Kroger Pay is available to use at both traditional checkout lanes and self-checkout stations.”

    At the same time, Kroger is launched a new “Kroger REWARDS debit card,” described as “a payment option that connects directly to a customer's checking account. The Kroger REWARDS debit card offers benefits to customers, including bonus fuel points and Our Brands discounts, and the rewards double when the card is used through Kroger Pay.”

    Gary Millerchip, CEO of Kroger Personal Finance, describes the initiatives as “redefining the customer experience by creating innovative ways to pay at our stores and online.”
    KC's View:
    I can understand why Kroger would want to do this, but I have to wonder how much appetite there is among the customer base for multiple payment systems all loaded on the same mobile device. I’m sure this is a question that has been asked and answered by the experts at Kroger … maybe it is just me, but I’m rejecting complexity these days, preferring fewer alternatives, edited selections, and relevant/resonant options.

    Maybe I’m just getting old and cranky.

    Published on: February 14, 2019

    USA Today has a story about a new study from Coresight Research saying that there is “no light at the end of the tunnel” for the nation’s bricks-and-mortar stores, with closure announcements this year already exceeding that of last year.

    According to the story, “Six weeks into 2019, U.S. retailers have announced 2,187 closings, up 23 percent compared to last year. Those closings include 749 Gymboree stores, 251 Shopko stores and 94 Charlotte Russe locations … Bankruptcies also are continuing at a rapid pace ‘with the number of filings in the first six weeks of 2019 already at one-third of last year’s total,’ the report states.”

    Factors cited in the closings and bankruptcies include “online retail growth, flat and declining sale and rising interest rates.”

    There's "potentially many more (closings) on the way due to companies currently in the bankruptcy process and more on the horizon," the report states.
    KC's View:
    This shouldn’t be a surprise to anyone.

    But let’s be clear. For the most part, the stores are that going to close and the companies that are going to go bankrupt are the ones that have been undifferentiated, that have not created a compelling shopping experience, that have not invested in business models that connect with shopper needs and desires in visceral ways that transcend what online retailers can offer.

    Such companies have no constitutionally guaranteed right to survive. Their complacency has only guaranteed the inevitability of their demise.

    Published on: February 14, 2019

    Late this morning, Amazon announced that due to local opposition, it is canceling its plans to build a headquarters campus in New York City, a move that would have created an estimated 25,000 jobs and brought a minimum investment in the city of $2 billion, in exchange from close to $3 billion city and state incentives.

    Amazon’s commitment, the company said in a statement, “requires positive, collaborative relationships with state and local elected officials who will be supportive over the long-term. While polls show that 70% of New Yorkers support our plans and investment, a number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project we and many others envisioned in Long Island City.”

    Amazon announced late last year that after months of public consideration and speculation about where it would put a second North American headquarters (HQ2), it would be split the expansion between two of the finalists - New York’s Long Island City, just across the East River from Manhattan in the borough of Queens, and Arlington, Virginia, in the Crystal City neighborhood, adjacent to National Airport and just across the Potomac River from Washington, DC.

    Virginia, from all reports, has been easy to work with. New York City, not so much.

    The backlash came from a number of quarters, with people questioning things like the size of the incentives, the impact on local neighborhoods and housing costs, the expected stresses on the city’s infrastructure, and the company’s long-held resistance to unionization, which is not the most welcomed attitude in a highly unionized city.

    The Amazon statement continued:

    “We are disappointed to have reached this conclusion - we love New York, its incomparable dynamism, people, and culture - and particularly the community of Long Island City, where we have gotten to know so many optimistic, forward-leaning community leaders, small business owners, and residents. There are currently over 5,000 Amazon employees in Brooklyn, Manhattan, and Staten Island, and we plan to continue growing these teams.

    “We are deeply grateful to Governor Cuomo, Mayor de Blasio, and their staffs, who so enthusiastically and graciously invited us to build in New York City and supported us during the process. Governor Cuomo and Mayor de Blasio have worked tirelessly on behalf of New Yorkers to encourage local investment and job creation, and we can’t speak positively enough about all their efforts. The steadfast commitment and dedication that these leaders have demonstrated to the communities they represent inspired us from the very beginning and is one of the big reasons our decision was so difficult.

    “We do not intend to re-open the HQ2 search at this time. We will proceed as planned in Northern Virginia and Nashville, and we will continue to hire and grow across our 17 corporate offices and tech hubs in the U.S. and Canada.

    “Thank you again to Governor Cuomo, Mayor de Blasio, and the many other community leaders and residents who welcomed our plans and supported us along the way. We hope to have future chances to collaborate as we continue to build our presence in New York over time.”

    MNB earlier today took note of a Reuters report on how cities that were runners-up in the Amazon HQ2 sweepstakes see a glimmer of hope in the fact that some New York City politicians are objecting to the financial incentives offered in order to land the deal. Cities that did not get the HQ2 nod - such as Chicago, Miami and Newark - are “revisiting their bids,” the story said. Even Connecticut, just an hour away from the Long Island City site, was planning to make a play if Amazon pulled out of its original plans, even though it didn’t even make the list of 20 finalists.
    KC's View:
    So Amazon decided that it didn’t need a New York headquarters campus to prove that it had made it, and that it could make it anywhere.

    In the end, Amazon really got most of what it wanted, and it still has an enormous amount of information about hundreds of places were, to varying degrees, willing to move heaven and earth to get the HQ2 project. And, let’s be clear … those communities also know what it will take to land a 21st century company such as Amazon, and if I were them, I’d be making a lot of infrastructure decisions based on that information. It doesn’t make sense, after all, to be trying to attract 20th century companies with 20th century infrastructure. (In fact, I’d be thinking right now about 2050 and beyond, and creating community cultures that are designed to meet projected future needs.

    Amazon does say it won’t “re-open the HQ2 search at this time,” and I think that’s the truth - it doesn’t have to. It can make considered and informed and disruptive decisions anytime.

    As for New York City … well, it still is the greatest city in the world. Nothing has changed that. I just worry that an inability to embrace Amazon and build a 21st century infrastructure that could serve the company’s needs - while still being sensitive to local community concerns and desires - doesn’t speak well for it.

    Ironically, the New York Times had a piece the other day about nine mass transit systems outside the US that could fairly be described as superior - often vastly superior - to the New York City subway system (which isn’t setting too high a bar, let me tell you). If the city wants to be the greatest city in the world, and not just rest on its reputation, then it can’t settle.

    Amazon wants to be the greatest company in the world, so it decided not to.

    So much for Valentine’s Day. Amazon just gave NYC the kiss-off.

    Published on: February 14, 2019

    USA Todayreports that the US Food and Drug Administration (FDA) has concluded that “a number of California farms may have produced romaine lettuce contaminated with E. coli, causing an outbreak in late 2018 that hospitalized dozens of Americans.”

    Only one of those farms was specifically identified - Adam Brothers Farming of Santa Barbara County.

    However, the FDA conclusions came up short in figuring how why the outbreak took place.

    “The lone positive E. coli test was found in sediment in a water reservoir on an Adam Brothers farm in Santa Maria,” USA Today writes. “The agency stated it did not know how the reservoir became contaminated but provided possibilities, including that the water was ‘most likely’ not properly treated with sanitizer and extensive wild animal activity nearby, such as animal grazing. It’s also possible that E. coli was in the reservoir for months or years before the outbreak.

    “The other farms implicated in the outbreak did not use the reservoir. The FDA stated investigators could not find a potential source of contamination at those farms.”

    The FDA has recommended that “farmers review federal produce safety rules and said the agency will work with the produce industry to create quick and accurate ways to trace outbreaks back to their source.”
    KC's View:
    Yikes. Not sure about you, but there is way too much ambiguity in this final report for my taste.

    Published on: February 14, 2019

    USA Today reports on a new CVS format that the company is testing that will “shift more of its floor space to health care services … Someday soon you may walk into your local CVS Pharmacy with your prescription in one hand and your yoga mat in the other.”

    Three of these HealthHUB locations are operating in Houston: “Part of the concept store is closed-off space for classes, such as yoga, as well as expanded space for health treatments.

    “More than 20 percent of the floor space at the concept stores is devoted to health care services, including wellness products and personalized care. Pharmacists in the HealthHUB will also make regular calls and in-person consultations with certain patients to help them stay on track with their prescription drug plans … One of the key differences at the HealthHUB locations is the addition of new space for CVS MinuteClinic nurse practitioners, now capable of additional services like phlebotomy, diabetic screening and sleep apnea assessment.”

    The story notes that CVS’s test comes as “CVS integrates newly acquired insurer Aetna and braces for a potential fight with Amazon for pharmacy customers. The company pledged to use the Aetna deal to pursue lower health care costs and said this move to help patients become healthier is part of that plan.”
    KC's View:
    Another great example of a long-held MNB tenet - retailers can differentiate themselves by being more than just a source of product, and becoming an invaluable resource for customers.

    Published on: February 14, 2019

    Reuters reports that Amazon and General Motors “are in talks to invest in Rivian Automotive LLC in a deal that would value the U.S. electric pickup truck manufacturer at between $1 billion and $2 billion … The deal would give Amazon and GM minority stakes in Rivian, the sources said. It would be a major boost for the Plymouth, Michigan-based startup, which aspires to be the first carmaker to the U.S. consumer market with an electric pickup.”

    Amazon already has “invested in self-driving car startup Aurora Innovation Inc, in a $530 million funding round announced last week. The world’s largest online retailer has steadily increased its logistics footprint, building warehouses around the world and inking deals with Mercedes as well as cargo airlines to help with delivery.”
    KC's View:

    Published on: February 14, 2019

    • The Arkansas Democrat Gazette reports that “Walmart Inc. must pay a smaller retailer more than $95.5 million for using its trademarks to sell grills, a federal jury in North Carolina found this week.

    “The jury found in October that Walmart's Backyard Grill + Design trademark was likely to cause confusion with Variety Stores Inc.'s Backyard and Backyard BBQ trademarks. The jury also ruled that Walmart willfully infringed on Variety's trademarks.”

    Walmart says it is a considering an appeal of what it called an “excessive” verdict.
    KC's View:

    Published on: February 14, 2019

    • The Wall Street Journal this morning reports on Tyson Foods’ new strategy, “ to transform the 84-year-old meatpacking giant into a modern food company selling branded consumer goods on par with Kraft Heinz Co. or Coca-Cola Co.” The goal is to be “big in more-profitable prepared and packaged foods to distance itself from the traditional meat business’s boom-and-bust cycles. America’s biggest supplier of meat wants to also be known for selling packaged foods such as ‘Simple Scrambles’ - microwavable eggs with sausage and cheese.”

    The company has spent billions to acquire well-known names in the category such as Jimmy Dean sausage, as well as on developing its own proprietary brands. It hasn’t achieved the desired results - yet. The Journal writes that “investors say the initiatives aren’t yet enough to counteract the steep challenges facing the poultry and livestock slaughtering and processing operations that have been the company’s core” since 1935. Which may be why Tyson also is investing in what the company says will be one of its biggest new-product launches, of plant-based replacements for traditional meat.
    KC's View:

    Published on: February 14, 2019

    We had a story yesterday about some calling for Amazon to be more transparent about its line of leadership succession, especially in view of the tumult currently in founder-CEO Jeff Bezos’ personal life.

    This prompted MNB reader Tim McGuire to write:

    I think there is a huge difference between the Apple succession situation, where Steve Jobs was known to have a terminal illness, and the Amazon situation, where you correctly describe it as a “what if Bezos gets hit by a bus” situation. You suggest that Amazon investors have the right to know what is Plan B - I beg to differ.

    The investors have a right to expect that there is a plan B, but not to know what the details are. In many cases the plan B is something like “if it happens in the next 18 months our successor is X because X is the only individual ready to step up, but we are actively working to also develop Y and Z so that they are viable candidates, and that will take 24 and 36 months, respectively - and at that time we think they will be better candidates for the long term than X, who is more of a “safe hands caretaker””. If that hypothetical plan was made public, X might leave because they don’t think they have the long term opportunity; Y or Z might leave because they see the other two as competition or disagree with how much time is required to develop into the preferred candidate; and all 3 might be less effective teammates if it becomes clear they are direct competitors for the role. This would also open the company up to poaching - “hey #2 - the market has been told you’re not likely to be the one, so why don’t you leave and join us?”

    So don’t force public disclosure that will damage the likelihood of a good outcome for the company and the shareholders - but absolutely hold the board accountable for having an effective succession plan in place for not only the CEO role, but also other key roles including CFO, COO, CMO. That’s good governance and good for the investors.

    We took note the other day of a Business Insider report on how Kroger is “building a system that combines information about what food a customer buys with information about their prescriptions so that pharmacists can better counsel patients on healthier habits and ‘food as medicine’.”

    One MNB reader responded:

    I guess this doesn’t violate HIPPA laws but it’s creepy as hell. They want all the data their shoppers can provide. I predict some backlash about this from customers. The last thing I need is some non-dietitian/pharmacist telling me what to eat.

    Regarding possible reason for Amazon-owned Whole Foods raising prices, one MNB reader wrote:

    The other reason of course being payroll - new hires start at $15 hour, plus what longer term associates make.  And compared to other stores I shop(and work at), they are way overstaffed.  Even as their associates claim otherwise.  Or those other stores are understaffed, but that's a story for another day!

    Finally, following up on what I wrote about Albert Finney’s passing the other day, MNB reader Jim Huey wrote:

    I first saw Albert Finney in the Tim Burton movie Big Fish. I had a couple young sons at the time and a non-existent relationship with my own father. I knew how I thought about my father and wondered how my children would perceive me when they were grown. I cry every time when Billy Crudup’s character gets to the end and realizes that although his father was flawed he was not the charlatan he appeared to be. I may be nothing like Edward Bloom but I struggle with the same issues of wanting my children to like me and hoping they will see through my faults.

    Don’t we all.
    And from MNB reader Steve Yandel:

    I appreciated your thoughts on Albert Finney, in particular for the mention of Shoot the Moon … I’ve only seen it once, as part of a high school cinema studies course. That was in 1986 but the film has always stayed with me and I’ve admired Finney’s work ever since.

    We viewed several under-the-radar movies that semester. Other highlights were Birdy (also directed by Alan Parker), Local Hero (a wonderfully understated film that would be worth it for Burt Lancaster alone) and Independence Day (the 1983 version without the aliens), featuring a searing performance from a then little-known Dianne Wiest. Anyway, I always appreciate your take on the movies but mostly wanted to thank you for prompting the trip down memory lane.

    I love Burt Lancaster. Speaking of memory lane, I’ve told the story here before, but I’ll never forget meeting Lancaster in the mid-seventies when he came to a film class I was taking at Loyola Marymount University. He strolled in wearing khakis, sandals, a white button down shirt and a Mexican poncho, smoking Camels and just reeking of charisma. He answered every question the class asked him, and then stood around and chatted with a few of us for hours until he realized that he had to leave if he was going to catch an early morning flight to New York.

    They don’t make ‘em like that anymore.
    KC's View: