business news in context, analysis with attitude

Published on: May 15, 2019

Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

This week, we talk about Amazon’s new one-hour shipping promise … the infrastructure it has developed to support that promise … and the occasional symptoms of scale.

And now, the Conversation continues…

KC: So, I have a few Amazon-related questions for you this week. First, were you surprised by the announcement that they’re improving the default delivery guarantee for Prime members from two days to one day? I have to admit, I wondered if Amazon sort of had this one in its hip pocket for months, maybe years … and that it was waiting for the right moment to announce it. If I’m right about that, it makes me think that it has a bunch of other stuff that is ready to go, but that it is just waiting for the timing to be right.

Tom Furphy: I wasn’t surprised by the announcement. Amazon has been investing in faster shipping speeds and lower costs since their founding. The service level that they promise externally is always one they feel they can hit with a high degree of consistency. Something a little slower than what they are capable of. They will look at internal metrics and to meet the service level as close to 100% of the time as they can. Once they get to the point where they can deliver on the promise at scale, they announce the promise. So they may not have been sitting on this, but it’s likely been coming for some time.

Amazon invests well into the future. Jeff Bezos encourages the team to think five to seven years out. With innovation starting that early, most projects are pretty well baked by the time they hit the public. That’s not to say that they’re all guaranteed to succeed and that customers will take to all of them. But most projects have been designed, built and iterated upon several times privately before they hit the public view. Amazon expects that most of their innovations will require further iterations once they are in the market and being used by customers. Many of their innovations are ripe for further development as soon as they hit the market and Amazon measures customer impact. They build internally, test, measure and iterate. Then they launch, measure and iterate externally. It’s pretty straightforward.

KC: One thing that grabbed my attention was the comment from RBC Capital Markets, saying that the ability to go to one-day delivery was because of “the vast delivery network (that) is the result of significant investments over the past four years, a period during which Amazon built out fulfillment centers across the country, nearly tripling its U.S. logistics infrastructure.” Which in my mind translates to this: “While the rest of you were criticizing Amazon for spending as much money as we were spending, we actually were creating a system that potentially offers a hard-to-compete-with differential advantage. We win.” Fair?

TF: Fair statement, yes. Fair fight, not really.

KC: Well, someone once said that “if you find yourself in a fair fight, your tactics suck.” I don’t think anyone would ever say that about Jeff Bezos.

TF: Exactly.

The number of billions of dollars that Amazon has invested in hundreds of millions of square feet in their fulfillment network is astounding. They have inventory locations in most every town in the US, or at least within a few-hour drive of every town in the US. This is a level of investment that no other company can make. So, when it comes to competing based on the ability of an ecommerce supply chain to be responsive to customer needs, nobody will be able to match now or likely even in the foreseeable future.

The best way for existing retailers to compete with Amazon’s fulfillment networks is to use their existing distribution network and, most importantly, their stores. Stores put a good amount of inventory in markets close to shoppers. Whether existing stores, newly formed “dark store” nodes or other local facilities, retailers need to figure out how to use these effectively to serve their customers’ ecommerce needs.

It shouldn’t be lost that these networks of stores are valuable assets in serving the totality of customer needs. Not only do they put inventory close to shoppers to serve their needs quickly, but they also enable retailers to share information and experiences with shoppers. This is an important differentiator to online only experiences.

KC: Finally, what are we to make of some of the criticisms that Amazon is getting lately, like not knowing enough about the products being sold on its site (which created both safety and counterfeiting issues) and not being attuned enough to its members’ privacy concerns? Are these examples of Amazon being so caught up in day to day business that it is missing the point on some of these issues? I’d be surprised if that were the case … but what am I not seeing?

TF: I think these slips are the symptoms of scale. Amazon sends over $350 billion of products through its platform and warehouses. They do have authenticity, safety and legality standards that products are supposed to meet. And they do their best to put in controls and machine learning to police for non-compliant products. But they simply cannot catch everything.

It’s one thing to sell 100,000 SKUs through a store. It’s a completely different animal to sell tens of millions (or more) items through a platform business model. It’s impossible for humans to assess every single item. It requires systems, machine learning and AI to police this at scale.

I think it’s reasonable that Amazon has these growing pains. But I think it’s imperative that they build in controls to police for issues at scale. To maintain trust, their customers will require them to provide a good level of oversight and verification of the authenticity and efficacy the products they sell. Scale is not an excuse. I think Amazon agrees with this and is committed to building in better controls.

The Conversation will continue…

Published on: May 15, 2019

by Kevin Coupe
Interesting story in the New York Times about how Marriott International, after its acquisition of Starwood Hotels and its Sheraton brand in 2016, seems to be turning that 82-year-old brand into a test case for internal disruption.

Understanding that travelers largely see the Sheraton brand as “tired and dated,” or in another turn of phrase, “the epitome of the beige hotel,” Marriott decided to invest in an extensive renovation of the Sheraton Grand Phoenix and “remake it into a prototype for the new face of the brand.”

An extensive renovation has begun: “Guest-room furniture will be lighter in color and more streamlined. There will be adjustable tables in lieu of desks, updated lighting and multiple seating options. Public spaces are being restyled to be gathering places, with semiprivate studios and phone-booth-like pods in the lobby where people can retreat for private calls.”

The Times notes that “in June, Marriott’s chief executive, Arne Sorenson, pledged to invest half a billion dollars into updating the look of Sheraton and, hopefully, its reputation. But creating a consistent brand identity will take time. The Phoenix renovation is expected to wrap up at the end of this year or in early 2020,” and it could take much of the next decade to achieve any sort of critical mass throughout the chain.

Now, updating a hotel chain like Sheraton is a complicated thing. Marriott doesn’t actually own many of the 200 US hotels and 250 overseas properties, and there are limits to how much it can demand of its licensees under the terms of their contracts.

But what’s noteworthy about the situation in which Sheraton finds itself is how much it seems like other competitive scenarios. It has been around for a long, long time. What in the past might’ve seemed like a proud tradition had devolved into complacency with a veneer of dust. There are lots of new competitors in the marketplace (some 18 new hotel banners were introduced just last year), many of them offering more eclectic and differentiated value propositions. (See Michael Sansolo’s column from last week.) And that doesn’t even count the brands such as Airbnb that are roiling the competitive waters.

All of which adds up to one key insight.

Beige won’t cut it.

Let’s be clear. Beige can be a color. It can be an attitude. A culture. A flavor. A perception.

But whatever it is, it ain’t good.

Marriott, to its credit, seems to realize it. There are more than a few retailers, afraid of sinking in rough and rising competitive waters, that also have realized it.

But not everybody has, and to be clear, everybody needs to.

Repeat after me.

Beige won’t cut it.

That’s the Eye-Opener.

Published on: May 15, 2019

Amazon has been getting a lot of attention - and criticism - because of revelations that Amazon employees actually are listening selectively to people using its Alexa-powered system as a way to improve voice recognition capabilities. While Amazon says that it is an extremely small sample being listened to, and that it takes consumers’ privacy concerns seriously, the stories have portrayed the company as potentially having Facebook-style privacy problems.

But now, a story in Digital Trends suggests that there is another side to the whole “listening” thing that may put a positive spin on the technology … in essence, turning lemons into lemonade.

The story says that Amazon is “rolling out a bunch of advanced home security features enabled by Alexa and available on Echo devices — for free. The new platform is called Alexa Guard and it’s now available for all Echo device owners, with no additional fee or monthly subscription. Amazon tells us that Echo owners can set up and enable Amazon Guard features almost instantly using the Alexa app.”

In essence Alexa users now can go into the app and enable it to listen when they’re not at home … and send them an alert if it hears things like a smoke alarm or the sound of breaking glass. The service also allows users to “drop in on your Echo remotely to check out just what is happening at home.”

In addition, Alexa Guard “can integrate with those services, including hands-free voice arming and disarming of security control systems from a variety of services including Ring, ADT Pulse and ADT Control, including the ability to copy your security monitoring service on any Smart Alerts that come down the line.”

Published on: May 15, 2019

Fortune reports that Judith McKenna, the CEO of Walmart International, is saying that in the wake of UK regulators’ decision to block the acquisition by Sainsbury of Walmart-owned Asda Group, it is time to get over it and move on.

According to the story, McKenna told the meeting of the World Retail Congress in Amsterdam that merging the two companies “was a bold move. We genuinely believed that creating this combination from a unique, one-off opportunity would have allowed us to accelerate lowering prices for all our customers.”

But, “now that the deal is dead, Asda will focus on making ‘sure it has resources going forward to make sure it’s successful,’ McKenna said.

The story notes that UK regulators believed “the transaction would have led to a substantial reduction of competition at both a national and local level, resulting in higher prices in stores, online, and at fuel service stations.” Fortune points out that Asda may indeed be able to survive on its own: “Asda has had seven consecutive quarters of growth and leapfrogged Sainsbury’s in April to become the second-biggest U.K. supermarket operator behind Tesco, according to data from Kantar.”

Published on: May 15, 2019

CNBC reports that a new study from Bank of America Merrill Lynch concludes that “Whole Foods still has the highest overall prices among U.S. food retailers, despite the widely publicized discounts the Amazon-owned grocer made in April … Whole Foods’ price cuts, which extend beyond Amazon prime members, were heavily focused on produce but were less competitive for items found in the center of the store, the analysts said.”

The study also says that Walmart has the lowest prices.

The report goes on: “Kroger narrowed its gap with Walmart with an average premium of 7%, the analysts said. Sprouts Farmers Market had an average premium of 8%, while Whole Foods prices were the highest at 34% above Walmart — a percentage point higher than the previous 3-4 years of studies.”

And, CNBC continues: “As retailers lose traffic to Amazon for goods that shoppers can simply buy online, U.S. grocers have ramped up efforts to compete on prices and technology. Despite this, e-commerce accounted for just 2.2% of U.S. retail sales of food and beverages in 2018, though online market share is expected to rise to around 2.7% in 2019, according to a separate report by Coresight Research, also released Tuesday.”

Published on: May 15, 2019

The Food Marketing Institute (FMI) has announced the winners of its annual Store Manager Award contest, who, it says, are responsible for “motivating their employees to create memorable in-store experiences that keep shoppers engaged and coming back for more.”
The winners are:

• Category A: (1-49 stores)
Lori Hodgkinson, ShopRite Supermarkets, Inc., Croton-On-Hudson, New York
 
• Category B: (50-199 Stores)
Tim Collins, K-VA-T Food Stores, Inc., Pikeville, Kentucky
 
• Category C: (200+ Stores)
Bruce Yeo, Fry’s Food Stores, Chandler, Arizona
 
• Category D: (International)
Niki Scott, Sobeys, Paradise, Newfoundland and Labrador
 
• People’s Pick Winner
Niki Scott, Sobeys, Paradise, Newfoundland and Labrador

The 2019 Store Manager Award winners each receive a $1,000 prize and a crystal award. The People’s Pick is the result of a posting of all finalists on FMI’s website for one week and the nominee with the most votes by the end of the week wins a special trophy and $500 to celebrate their store employees.

Published on: May 15, 2019

• The New York Times reports that “at its annual Google Marketing Live conference, Google unveiled a list of new products meant to help it become a destination for shoppers and for marketers hoping to reach consumers considering spending decisions.

“Google’s latest move into Amazon’s core business is playing out as the retail giant makes gains in what has traditionally been the search company’s home turf: digital advertising … Google said on Tuesday that it planned to beef up its e-commerce with a shopping feature that would allow people to make purchases directly from searches, images and YouTube videos. By clicking ads in those settings, a shopper would buy products through Google.”

Here’s the situation Google needs to address: “In 2015, about 54 percent of product searches started on Google, and 46 percent started on Amazon. By 2018, the numbers had flipped, according to the marketing analytics firm Jumpstart. Google may be synonymous with many things — search, ads, email, even artificial intelligence — but online shopping is not one of them.”

The story points out that “the two companies, which competed only on the fringes of their businesses for years, now have a range of overlapping interests. Google Cloud is challenging Amazon Web Services in cloud computing. Amazon’s Twitch is becoming a popular alternative to Google’s YouTube for online video content. The Google Home and Amazon Echo are smart speaker vessels for competing intelligent assistants from the companies.”


• The Cincinnati Business Courier reports that Amazon - in the person of its founder/CEO Jeff Bezos, who made a surprise appearance - broke ground yesterday “on Northern Kentucky’s biggest economic development win ever, the online retail giant’s $1.5 billion air services hub.” Some 50 Amazon aircraft are expected to operate out of the hub once it has opened, likely by 2021.

“This hub is going to let us get packages to customers faster. We’re going to move Prime from two days (delivery) to one day,” Bezos said … and then he “hopped on a John Deere front loader to turn the first pile of dirt.”

Published on: May 15, 2019

• In Massachusetts, the Worcester Telegram reports that “a year after closing its warehouse club to customers, Sam’s Club is preparing to reopen the facility … as a fulfillment center for online orders … With a location in the center of New England and close to major highways, the center will fill and ship orders to customers from Maine to New York City.”

The Telegram writes that “the conversion revives a 139,000-square-foot building that closed in January 2018 when Sam’s, a division of Walmart Inc., shuttered 63 warehouse clubs and laid off thousands of workers. In Worcester, Sam’s Club laid off 167 workers, according to filings with state authorities at that time.

“Since then, Walmart has begun converting a small number of Sam’s Club stores into fulfillment centers – warehouses where workers gather and ship merchandise to customers who order online. The first Sam’s Club fulfillment center opened in Memphis in 2018 and others followed in Matteson, Illinois, and Fort Worth, Texas. Walmart is currently working on three more conversions, including the Worcester site. It continues to operate nearly 600 warehouse clubs.”

Published on: May 15, 2019

…with brief, occasional, italicized and sometimes gratuitous commentary…

• CNBC reports that almost two and a half years after the city of Philadelphia imposed soft drinks and other sweetened beverages - at the rate of 1.5 cents per ounce - sugary drink sales there actually have dropped 38 percent … Beverage sales inside Philadelphia’s city limits dropped by 51% but were partially offset by an increase in sales just outside the city, resulting in a net decrease in soda sales of 38% in the area, researchers at the University of Pennsylvania found.”

The story notes that “supporters argue soda taxes can discourage people from indulging in sugary drinks, possibly helping curb obesity, diabetes and other diet-related conditions. Critics say governments should not dictate what people drink, and raising the price in one city will simply cause people to shop elsewhere.”

Supporters no doubt read this story and are happy. Critics, on the other hand, are unhappy. But lobbyists … well, I’ll bet they probably are deliriously happy, because stories like these will prompt companies to write bigger and bigger checks to try to prevent similar taxes from occurring elsewhere.


• The Wall Street Journal reports that McDonald’s Corp. has decided to “let franchisees decide which breakfast items to serve all day, part of an effort to simplify operations as wait times have grown and traffic has stalled.

“The burger giant saw sales rise in the U.S. after putting breakfast items on sale all day in 2015, one of its biggest operational changes in years … Making Egg McMuffins and hash browns all day alongside Big Macs and McFlurry shakes … complicated restaurant operations, contributing to longer wait times that are now challenging the company’s performance, according to analysts.”

Now, the story says, same-store sales in the U.S. have “cooled as competitors improved their breakfast offerings.”

Published on: May 15, 2019

• Tim Conway, who with Harvey Korman helped to create memorable, laugh-out-loud skits on the old “Carol Burnett Show” - like this one - has passed away at age 85.

Conway had a long career, first coming to notice on “The Steve Allen Show” and “McHale’s Navy,” and later in life guesting in series such as “30 Rock,” “Newhart,” “CSI,” and “Mad About You.” But he is best known for his agile and idiosyncratic physical comedy that always seemed to crack Korman up and send sketches off into unexpected and hilarious directions.

Published on: May 15, 2019

…will return.

Published on: May 15, 2019

In this new edition of the Retail Tomorrow Podcast, we discuss the unique partnership between Kroger and Microsoft, developing cutting edge innovations that will take each of them to the next level when it comes to things like digital shelving, video analytics, sensor networks, temperature tags … and beyond. And here’s the thing - the innovations that emerge are not proprietary, but will be available to any retailer looking to leap into the future.

This podcast was recorded at GMDC’s recent Retail Tomorrow Immersion conference in Los Angeles.

Our guests:

• Kevin Fessenden, Senior Product Manager at Sunrise Technology, which is a Kroger company.

• Chris Dieringer, Senior Director of Industry Solutions for the Retail and CPG Industry at Microsoft.

The host: Kevin Coupe, MorningNewsBeat’s “Content Guy.”

You can listen to the podcast here, or on iTunes and Google Play.

Pictured, from left to right:

Kevin Coupe, Chris Dieringer, Kevin Fessenden.