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    Published on: May 6, 2019

    by Kevin Coupe

    Excellent piece in the Wall Street Journal over the weekend about architect Frank Gehry - described as someone who “has dreamed up some of the world’s most fantastical structures - designs that have been compared to billowing clouds, undulating sails, alien spacecraft and (during a cameo on The Simpsons) crumpled pieces of paper.”

    I know nothing about architecture, though I’ve often said that I wish I had a talent for it; it seems to me that there is something magical about seeing an empty space and creating something physical and tangible and moving out of it. (Back in 2006 I reviewed Sketches of Frank Gehry, a documentary directed by Sidney Pollack that l found fascinating.)

    This Journal piece was about how Gehry - who at 90 has an amazing number of projects on his plate - is working to revive and redefine a part of Los Angeles (where he lives) that has been long been one of the poorest parts of California.

    An explanation from the Journal story:

    “Gehry hopes to repair this historic scar. If he has his way, a three-mile section of river here will include an arching platform covered in parkland, transforming an urban void into a futuristic, linear version of Central Park. It’s just one part of a master plan for the waterway that Gehry is overseeing in collaboration with numerous partners and consultants. Last year, he revealed designs for a concert hall in nearby Inglewood as a new home for the L.A. Philharmonic’s youth orchestra, and is now in discussions with the Los Angeles County Museum of Art about creating a satellite museum, perhaps in this area.”

    The entire story is really interesting, and I urge you to read it here.

    For the purposes of this Monday morning business lesson, however, I want to tell you about one particular part of the story, which takes place in a public school in the poor area of Los Angeles, where Gehry has come to talk to sixth grade students about what it takes to make a city.

    The first thing he says to the students is, “You know what’s wrong with this room? It’s too clean!” He turns to the teacher. “Do you mind if we mess it up?”

    The Journal writes that “the day’s project is to create an imaginary city, for which the kids will each model a structure. ‘The buildings don’t have to look like any you have ever seen,’ Gehry says pointedly. ‘They don’t have to look like any of the things built around you’.”

    The Journal goes on: “An hour or so later, the students show off their wildly playful creations, which Gehry helps place around parks and roads in their fantasy metropolis. ‘Look at this new city!’ he says when they finish. ‘Is it boring? No! So it’s possible to make a new city without it being boring.’ It’s a disarmingly simple statement that could be on the Gehry coat of arms.”

    To me, that exchange reflects so much of how businesses need to think these days - to succeed in the future, they shouldn’t rely on how things have been. Wildly playful sounds pretty good … even potentially Eye-Opening.
    KC's View:

    Published on: May 6, 2019

    The Washington Post has a story about how “multiple retail outlets” around the country have been testing drones to do inventory control, and the technology is expected to begin rolling out more broadly in the near future.

    The Post writes that “what would take a person hours to accomplish - tediously checking shelves for missing or misplaced products - is accomplished in minutes by the tiny aircraft. Once finished, the drone uploads its findings to the cloud, setting a massive supply chain in motion and offering the store’s owners, and potentially brand manufacturers, the kind of precise data about shopping habits that has largely eluded brick-and-mortar stores … Each time the autonomous robot drops down to scan a crowded shelf using an onboard camera, the machine collects valuable data about the store’s ever-changing inventory.”

    The story suggests that this drone usage is reflective of a larger reality - that the supermarket industry “finds itself in the midst of a technological upheaval, one that is providing the public with a glimpse of a future far beyond self-service kiosks and online shopping.”

    And yet, the Post writes, “Those changes are not without risk. As U.S. retail companies embrace automation, many experts believe that the impact on jobs will be significant, with some analysts predicting as many as 7.5 million retail workers could lose their jobs over the next decade.”

    However, the U.S. Bureau of Labor Statistics is more optimistic, and “suggests the retail-sales labor force will grow over the decade between 2016 and 2026, although more slowly than average.”
    KC's View:
    I’ve seen some video of this, and I’m really impressed by the degree to which this technology can make a difference - the drones work the store at night while it is closed, and employees have their marching orders when they come in the next morning. Hard to imagine that this won’t become a differential advantage, especially in an industry where it is agreed that every out-of-stock is a potential lost sale.

    When it comes to the impact on labor, I’m not entirely sure what stories the folks at the U.S. Bureau of Labor Statistics are reading … I’d like to think that the people displaced by technology will be put into other, more customer-facing roles in stores, but that’s not traditionally the way the supermarket industry has rolled.

    Published on: May 6, 2019

    Vox has an oral history of Amazon Prime, which starts out in 2004:

    “Amazon was worth $18 billion at the time. Its online rival eBay, on the other hand, was an internet darling worth nearly $33 billion. If you were an outsider to both companies and you had to pick one as the future Everything Store, it might have been hard to imagine Amazon as the victor.

    “But 15 years later, Amazon is worth more than $900 billion, compared to just $33 billion for its old foe eBay, which spun off its (more valuable) payment division, PayPal. And the Amazon Prime membership program is perhaps the biggest reason why.”

    With it, the story says, “Amazon single-handedly — and permanently — raised the bar for convenience in online shopping. That, in turn, forever changed the types of products shoppers were willing to buy online. Need a last-minute gift or nearing the end of a pack of diapers? Amazon was now an alternative to the immediacy of brick-and-mortar stores.

    “But the idea came with huge risks, and it spurred real tension inside Amazon. Some managers resented that their projects appeared to be deprioritized for a secret program they knew little about. Others feared that Amazon’s top customers were going to abuse the program and ultimately bankrupt the company with soaring shipping costs.”

    You can read the entire history here.
    KC's View:
    Jeff Bezos wasn’t interviewed for the piece, but a number of other people were, and they recall him saying things like, “I want to draw a moat around our best customers. We’re not going to take our best customers for granted.”

    And: “I’m going to change the psychology of people not looking at the pennies differences between buying on Amazon versus buying somewhere else.” The goal was to make Amazon the default position for many consumers … and to a great degree the company has succeeded.

    Brilliant. And the companies that have taken their customers for granted, that have not endeavored to change the psychology of shoppers so that they are the default choice, really only have themselves to blame.

    Published on: May 6, 2019

    In Minnesota, the Star Tribune has an interview with Mike Stigers, the new CEO of UNFI-owned Cub Foods, who says that even though UNFI would like to sell all 70 of its Cub stores in one deal, “the company won’t let the sale process get in the way of its plans to update stores and improve offerings.”

    Stigers says that “we’re looking at which stores are going to get remodeled next fiscal year. There’s no slowing down the growth of this brand as we look for the correct suitor in the future.”

    The Star Tribune story suggests that there are not a lot of retailers out there who would be interested or able to acquire all the Cub stores: “Hy-Vee CEO Randy Edeker said last year that he’s not interested in acquiring the Cub stores. Kroger, known for buying regional grocery brands such as Roundy’s, continues to struggle financially and may no longer be in acquisition mode.”

    But Stigers says he still thinks there is a chance to make one big deal: “The strength of Cub as a strong regional brand is its totality,” he says.
    KC's View:

    Published on: May 6, 2019

    CNBC reports that “Kraft Heinz’s U.S. chief marketing and global brand officer,  Eduardo Luz, is leaving the company,” one of several senior executives departing the CPG giant.

    Here’s how CNBC puts the departure in a broader concept:

    “Luz … started with the company at H.J Heinz, which private equity firm 3G Capital and Berkshire Hathaway acquired in 2013 … In his time managing the grocery portfolio, Luz helped the unit restore top-line growth, according the internal memo. Luz is credited with the Heinz brand’s growth, which has seen sales rise 26% over the past six years, according to Nielsen. He also oversaw the launch of frozen meal brand Devour, which helped revitalize its branded frozen-food business. But other brands at Kraft Heinz, particularly those that came from the Kraft Foods portfolio, have not fared as well. Many lack the same global appeal as brands like Heinz ketchup. Products like Maxwell House packaged coffee are particularly susceptible to premium or cheaper store-brand competitors.

    “Kraft Heinz has been criticized for focusing too much on 3G’s hallmark cost-cutting and large-scale dealmaking, instead of needed investment to combat against intensifying competition. Struggles with the company’s Oscar Mayer and Kraft cheese brands contributed to the $15 billion write-down Kraft Heinz disclosed February.”
    KC's View:
    Yet more evidence of what we’ve talked about previously on MNB … that it shouldn’t come as such a surprise that a company cannot cut its way to prosperity … that it is extraordinary how little real innovation seems to take place at major CPG companies … and that there is an object lesson here for both manufacturers and retailers. If all they do is cut, and don’t invest in the kind of real innovations that can disrupt their own businesses as well as the competition’s, then they’re not going to succeed long-term.

    Published on: May 6, 2019

    • While Amazon is making a big deal of the fact that it is improving its Prime offering so that it will now include one-day delivery rather than two-day delivery, CNBC writes that “Amazon is already capable of offering same-day and next-day delivery to 72% of the total U.S. population, including almost all of the households (95% or more) in 16 of the wealthiest and most populated states and Washington, D.C., according to a report published in March by RBC Capital Markets.”

    That report says that “while store-level distribution is still the fastest way for a consumer to acquire a product, Amazon’s continued rollout of same-day and next-day delivery capabilities continues to reduce that historical competitive barrier and represents a growing risk to retailers who are too often fighting yesterday’s (2-day) delivery wars.”

    Business Insider writes that while “Amazon has claimed several times that it is only responsible for 4% of US retail sales, making it not quite as large as some may think,” but “to think 4% of US retail is insignificant ignores a major trend in shopping, and it relies on the consumer's ignorance of how retail works to have impact.”

    The goal behind Amazon’s claims is to reduce regulatory and political focus on its innovations and growth. The story notes that “Amazon does get a lot of attention due to myriad factors: a hugely expensive stock, a market cap that has hit records, an attitude toward category expansion that leaves no stone unturned, the second-largest workforce in the US, and a relentless release of highly complex consumer and enterprise technology.”

    Here’s how Business Insider puts Amazon in context:

    “Online sales grew about 14.2% in 2018, while the rest of retail grew only about 4%. On a long enough timeline, it's not hard to see online sales reaching parity with other sales or even overtaking them. Online shopping's share of all retail sales has grown from 8.9% in 2017 to 9.7% in 2018.
    Amazon's core competency is online shopping, and growth for that is way outpacing the rest of retail. Nearly 50% of the nation's online sales will be claimed by Amazon this year, according to an estimate by EMarketer.
    In fact, e-commerce was responsible for 51.9% of all retail growth for the year, according to analysis by Internet Retailer. And if Amazon took about half of all retail sales, it's not hard to imagine which portion of retail growth is simply Amazon's growth. Amazon's strength is perfectly in line with where retail dollars are flowing like a river.”

    A river that threatens to swamp many of the businesses in its path.
    KC's View:

    Published on: May 6, 2019

    • The Wall Street Journal reports that “America’s biggest milk maker is running out of options as milk consumption continues to decline in the U.S. Dean Foods Co.’s sinking sales also have been hurt by big customers such as Walmart Inc. opening their own dairy plants to help guarantee their own supply. The dairy company’s sales last year of $7.8 billion were down 38% from a decade ago.”

    The story points out that milk prices have been falling, even as dairy cows have become more efficient. (Did they have any udder choice?) All of which means that “Dean has hired bankers to review options including a sale of the company, privatization or divestiture of some assets.
    KC's View:

    Published on: May 6, 2019

    • Walmart announced that it has named Sara Mortimore as its new vice president, Global Food Safety Compliance. She joins the company from Land O’Lakes where she was vice president, Product Safety, Quality and Regulatory Affairs in charge of product safety, quality and regulatory within all of Land O’Lakes businesses.
    KC's View:

    Published on: May 6, 2019

    …will return.
    KC's View:

    Published on: May 6, 2019

    The 145th running of the Kentucky Derby over the weekend resulted in a win by Maximum Security, which 20 minutes after the finish was stripped of the victory because of what racing officials said was interference - the horse apparently jumped a puddle and slid slightly to the outside in a way that impeded the progress of War of Will. As a result, Country House was declared the winner; his owners collected $1.86 million, and people who bet $2 on him collected $132.40.
    KC's View: