business news in context, analysis with attitude

Published on: September 4, 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 how the “the law of large numbers” is affecting Amazon, the likely impact of a recession on e-commerce, and whether Nordstrom’s eventual gains will be worth its current pain.

And now, the Conversation continues…

KC: Since last we had an Innovation Conversation, the conventional wisdom seems to be that Walmart is “catching up” with Amazon in some sense of that term. A few weeks ago, Nielsen came out with a study saying that while "Amazon remains the leader in online consumer packaged goods (CPG),” its “share growth has slowed … Back in 2017, Amazon had a 43% hold on CPG e-commerce. This year, that figure has fallen to 39%. On the flipside, we’ve seen Walmart triple its share to 6%, Instacart double in size to 8% and we’ve witnessed healthy share growth among merchants like Target, Kroger and chewy.com.” 

When I read this, I think to myself … okay, Amazon’s growth rate may be backing off a bit because of heightened competition (which they had to expect), but their growth is still a lot greater than anyone else’s.  What do you think?

Tom Furphy: It’s great to be back! I hope everyone had a nice summer.

I think Amazon is succumbing to the law of large numbers. I’ve seen numbers from Statista that show them growing CPG sales from about $14 billion in 2017 to $20 billion in 2018 (Food and Health & Personal Care on the platform). That’s 43% growth. Based on our work at Ideoclick, that may be a little generous. But even if it’s 30%, that’s still strong on a business of that size. That would equate to about another $6 billion in growth this year.

Given the small e-commerce bases on which the other businesses are starting, it would be reasonable to calculate that Amazon is adding more dollars than the others. Basic math – if Amazon’s $20B is roughly a 40% share, Walmart and Instacart would be at $3 billion and $4 billion respectively. So, to your point, Amazon grew by more than their total businesses last year.

Even more impressive (and should be concerning to others) is that all of Amazon’s sales growth is incremental to them and is taken out of the traditional channel. E-commerce growth for other retailers is often not completely incremental as at least some of it comes from converted store sales while some comes from competitors.

I would expect this category growth and share shift to continue for the foreseeable future. Retailers and new models are getting better and gaining traction. With the overall category growing as much as it is, there are still plenty of dollars to go around.

KC: There was a story we had the other day that took the position - some would argue an exceedingly obvious position - that if bricks-and-mortar retailers thought the last 10 years of a growing economy was tough, just want until a recession inevitably hits … things are likely to get a lot tougher a lot faster.

I guess I have a two-part question for you:  1) Are there things in terms of digital investments that these retailers should be fast-tracking right now in order to get ready for coming hard times (or is it too late)?  And 2) Does it seem as likely to you as it does to me that a recession will cause a lot of “traditional” retailers to move into “let’s get back to fundamentals” mode, which will mean cutting back on innovation and technology investments, which actually plays right into the hands of fast movers like Amazon?

TF: If retailers are truly focused on their customers, then they are constantly working to serve them in new and compelling ways. These retailers should not need to fast track anything because they are already working on the right stuff. Obsessing over the customer allows retailers to remain relevant no matter the economic conditions. These retailers may decide to change priorities or pull back on investment, including digital, but it shouldn’t be a dramatic shift.

Retailers that see digital investments as non-core projects that need to be scaled back to focus on the fundamentals could be in trouble. They stand to lose to fast-moving, more customer-focused retailers, who have kept focused on the fundamentals while building relevant new capabilities. For these retailers, it is likely already too late. They are the ones that are losing in the share shift we discussed above.

I don’t think the fundamentals of retail have changed in this digital age. Traditional retail fundamentals come down to providing great value, offering the right products and services for customers and presenting well-run stores that are appealing to shop. Specific formats and capabilities, including digital, evolve over time and continually change how these fundamentals are delivered. If a retailer isn’t already focused on these fundamentals every day, it would likely be tough to get back to them in a downturn.

In hard times, with fewer shopping dollars available, retailers must serve a clear purpose and benefit to the shopper in return for the dollars spent. Customers want their needs to be met economically and to have tasks taken over for them. Services around affordable self-care are valuable and economical. Auto-replenishment can take over mundane shopping tasks and help customers save time and money. Providing great tasting recipes, with ingredients merchandised together or bundled for pickup, can provide an easy and economical alternative to eating out. Interesting stores, with chefs cooking great-smelling and great-tasting meals, and staff that offer education and help, will always be appreciated by customers.

KC: I did want to ask you about another Seattle based company not named Amazon … Nordstrom.  It was interesting to recently to see a series of news reports about issues facing the company, and once again  the conventional wisdom seems to be that despite seeming like it was making all the right moves in terms of e-commerce and digital investment, Nordstrom seems to be facing some of the same issues that have brought other retailers - like JC Penney and Macy’s - down to size.  My feeling is that short-term issues don’t necessarily mean that the retailer isn't positioned for long-term and sustainable growth … like they used to say, “no pain, no gain,” and this is just the painful part.

TF: Nordstrom is doing a lot of things right to be positioned for the long haul. As much as we think Grocery and CPG is competitive, Nordstrom is fighting in a category where Amazon is approaching 20% market share. Not just online share, total share! Nordstrom has taken on the “pain” to fight the battle by investing in technology (including purchasing BevyUp from us last year!), going after new formats like Nordstrom Local and entering new flagship markets like New York City. They invest toward their most important customers with their Nordy Club, at 12 million customers, driving 60% of sales.

In addition to innovation, they are also doing a good job managing inventory and costs relative to the climate. They are seeing revenue stagnation and are pretty well positioned to weather it. Their digital sales growth is slowing now, up only 4% last quarter. But at a massive 30% of their volume – impressive for a traditional retailer – you would expect growth to slow. They are also right-sizing the store base, with gross footage down versus a year ago. As a result, they just delivered EPS higher than street estimates. A bit of short term “gain” in return for their “pain.”

It will continue to be a tough fight and they’ll have to withstand a lot of punches. But given their approach, I like their chances.

This is also a case study for traditional grocery retailers. Imagine a day when Amazon is 20% of total market share and the strongest traditional retailers are at 30% e-commerce volume. How ready will you be? Are you sufficiently evolving your business model today – stores, supply/fulfillment chain, services, and technology – to be ready for the coming reality?

The Conversation will continue…

Published on: September 4, 2019

by Kevin Coupe

Interesting story in the Washington Post the other day about a new business model that seems to be gaining some traction - companies that create technologies that allow people to interact with their descendants for years, maybe even decades and centuries, after they’ve passed away.

If these businesses work, the story says, “future generations will be able to interact” with dead relatives “using mobile devices or voice computing platforms such as Amazon’s Alexa, asking … questions, eliciting stories and drawing upon a lifetime’s worth of advice long after (the) physical body is gone.”

As opposed to autobiographies and memoirs, technology will make creative interactive experiences … and here is how the Post frames it:

“For decades, Silicon Valley futurists have sought to unchain humanity from the corporeal life cycle, viewing death as yet another transformational problem in need of a “life altering” solution. What began with the cryonics movement, in which bodies are frozen for future resuscitation, has intensified amid the rise of digital culture. Today, a new generation of companies is hawking some approximation of virtual immortality –– the opportunity to preserve one’s legacy online forever.”

The Post goes on:

“The rituals surrounding death may be as diverse as the cultures they spring from, but for decades now, many of us have followed a similar script after loved ones depart: We pore over old family photo albums, watch grainy home movies, plaster their faces on T-shirts — or even memorialize their Facebook page, preserving their digital quintessence online.

“But futurists say that script may be on the verge of a rewrite. If technology succeeds in creating emotionally intelligent digital humans, experts say, it may forever change the way living people cooperate with computers and experience loss.”

I find this fascinating … and in some ways a reminder of the impressive technology developed at Rival Theory, where they are using AI and machine learning to develop what essentially are technology-enabled virtual consultants that actually can have relationships with users. (Amanda Solosky, co-founder/CEO at Rival Theory, was featured on a Retail Tomorrow podcast that I did earlier this year.)

I’m not sure that my kids would be all that thrilled about having me virtually available even after I’ve passed away. (Though they might like the idea of being able to unplug me whenever they want to. They’d probably like that ability now.)

On the other hand, maybe we could develop that capability for MNB … I’ve often talked about not wanting to retire, but I wonder if we could develop technology that would allow me to do virtual commentaries long after I’ve kicked the bucket.

Now that would be an Eye-Opener.

Published on: September 4, 2019

Walmart and Kroger both announced new gun-related policies yesterday in the wake of a series of mass shootings that have left dozens dead in just the past few weeks.

Bloomberg reports that Walmart will “discontinue sales of .223 caliber ammunition and other sizes that can be used in assault-style weapons after it sells through its inventory commitments. It will stop selling handguns in Alaska, the only state where it still sells them, and won’t offer bullets for them anywhere after its stocks are depleted. And it’s ‘respectfully requesting’ that shoppers refrain from openly carrying their firearms in its stores.”

In a statement, Walmart CEO Doug McMillon - who emphasized that he himself is a gun owner - said that “it’s clear to us that the status quo is unacceptable. We know these decisions will inconvenience some of our customers, and we hope they will understand.”

Walmart also called on the US Congress and the Trump administration to take action on an assault weapon ban and expanded background checks, referring to these as “common sense measures.”

"We encourage our nation's leaders to move forward and strengthen background checks and to remove weapons from those who have been determined to pose an imminent danger," McMillon said. "We do not sell military-style rifles, and we believe the reauthorization of the Assault Weapons ban should be debated to determine its effectiveness."

At the same time, Kroger is asking its customers not to openly carry firearms in its stores, regardless of local laws.

In a statement, Jessica Adelman, Kroger’s group vice president of corporate affairs, wrote, “Kroger is respectfully asking that customers no longer openly carry firearms into our stores, other than authorized law enforcement officers … We are also joining those encouraging our elected leaders to pass laws that will strengthen background checks and remove weapons from those who have been found to pose a risk for violence.”

Bloomberg writes that “Walmart already runs background checks on all gun purchases and only sells to customers who have cleared them, the company said. The Bentonville, Arkansas-based retailer said it would explore sharing its proprietary gun-sales technology platform with other retailers.”

Walmart’s move, according to the story, “will reduce its market share of ammunition to between 6% and 9%, down from about 20% currently.”

While pro-gun control groups cheered the Walmart decision, the National Rifle Association (NRA) released a statement calling Walmart’s move “shameful,” saying that “lines at Walmart will soon be replaced by lines at other retailers who are more supportive of America’s fundamental freedoms.”

Bloomberg quotes Erich Pratt, senior vice president of Gun Owners of America, a pro-firearms group, as saying that it’s “disappointing to see Walmart ignoring the fact that guns are used more often to save lives than to take life.” Pratt said that Walmart’s moves “will have the opposite effect and will not make people safer.”

The NRA also accused Walmart of succumbing “to the pressure of the anti-gun elites.”

National Public Radio has this take on what the “elites” want: “A solid majority of Americans say they are in favor of stricter gun laws in the United States — 61% said so in a May Quinnipiac poll. But the breakdown by party is illuminating – 91% of Democrats think gun laws should be stricter, as do 59% of independents, but just 32% of Republicans. Almost three-quarters (73%) in the poll also said more needs to be done to address gun violence.”

Published on: September 4, 2019

CNet reports that Amazon is working on a new system that will use customers’ hands to make payments for in-store purchases. Unlike traditional biometric systems that require consumers to actually touch scanners, the new Amazon system will use “vision and depth geometry to scan the hands of shoppers with Amazon Prime accounts and then charge the purchases to their credit card information already on file.”

The story says that “the scanner is accurate to within one ten-thousandth of 1%, but Amazon engineers hope to achieve an accuracy of within a millionth of 1%.”

Amazon reportedly hopes to begin rolling out the system to its Whole Foods stores by the beginning of 2020.

CNet writes that “this wouldn't be Amazon's first attempt to reinvent shopping. The company gained loads of attention when it unveiled Amazon Go, a chain of convenience stores lacking cash registers. Introduced in 2016, Amazon Go lets customers check in at turnstiles using their phones, grab whatever they want and then walk out.

“However, state governments passed laws to ban cashless stores, saying they discriminate against lower-income or younger customers who don't have bank accounts, cards or smartphones. In response to these concerns, Amazon said earlier this year it'd start accepting cash at its Amazon Go stores.”

Published on: September 4, 2019

CVS yesterday sent an email to its customers noting that it is five years since it decided to stop selling tobacco products, a move that reflected the company’s broader interest and investment in the healthcare business, which was perhaps most dramatically illustrated by its $70 billion acquisition of insurance company Aetna.

In the end, however, CVS’s new priorities may be best seen in its decision to expend its HealthHUB concept - which offers expanded health services and products like blood testing and sleep apnea machines - to some 1,500 stores by the end of 2021.

From USA Today: “CVS is also cutting floor space for certain retail products, like poorly selling greeting cards, and devoting more space to health care, such as a new partnership with teeth-straightening service SmileDirectClub.

“Taken together, the decisions illustrate the company's evolution away from its image as a drugstore. The company’s chief rivals, Walgreens and Rite Aid, each recently raised the minimum age to buy tobacco products to 21 but continue to sell them.

“To be sure, CVS continues to operate about 9,600 locations, including standalone stores and pharmacies run inside Targets. But as the company fends off online retailers and faces the prospect of pharmacy competition from Amazon, it's under pressure to continue its transformation to ensure it doesn't get caught up in the same crisis that has engulfed many traditional retailers.”

In the email, CVS CEO Larry Merlo wrote, “ As a health care company now combined with Aetna, we’re taking even bolder steps to transform the consumer health care experience and help lead our customers, patients and the communities we serve on a path to better health. On our shelves, customers now have access to more health-focused products and services than ever before. And we recently became the first and only national retailer to require that all vitamins and supplements undergo third-party testing to confirm they meet our high standards.”

Published on: September 4, 2019

The Washington Post this morning reports that the Trump administration “is limiting scientific input to the 2020 dietary guidelines, raising concerns among nutrition advocates and independent experts about industry influence over healthy eating recommendations for all Americans.”

According to the story, “For the first time, the Department of Health and Human Services and the Department of Agriculture, which oversee the committee giving recommendations for the guidelines, have predetermined the topics that will be addressed. They have narrowed the research that can be used only to studies vetted by agency officials, potentially leaving key studies out of the mix.”

Among past issues that have been considered by federal regulators that apparently will not be on the table this year are “the consumption of red and processed meat, as well as the dramatic proliferation of ultraprocessed foods, which account for a growing percentage of calories consumed by Americans. Nor will the committee explore appropriate sodium levels for different populations.”

The Post writes that many experts believe that these issues “are among the most critical questions as the nation faces an epidemic of lifestyle diseases such as atherosclerosis, heart disease, stroke, obesity and Type 2 diabetes.”

These same issues, of course, also are the ones “that large food companies find most objectionable because they would probably cast high-sodium, high-sugar, high-saturated fat and highly processed foods in a poor light.”

Published on: September 4, 2019

The Washington Post this morning reports that Michigan has become the first state in the nation “ to ban flavored e-cigarettes, a step the governor said was needed to protect young people from the potentially harmful effects of vaping … The ban, which covers both retail and online sales, goes into effect immediately and will last for six months, and can be renewed for another six months. In the meantime, state officials said, they will develop permanent regulations banning flavored e-cigarettes.”

Gov. Gretchen Whitmer (D), in an interview, “said the state health department found youth vaping constituted a public health emergency, prompting her to take the action.”

Whitmer has pledged to veto any attempt by state lawmakers to overturn the ban. A lawsuit against the state by vaping advocates is anticipated.

The Post writes that “while Michigan is the first state to prohibit sales of flavored e-cigarettes, several cities and communities have restricted or banned sales of e-cigarettes. In late June, San Francisco became the first major city in the United States to ban the sale and distribution of all e-cigarettes; the ban goes into effect early next year.”

Published on: September 4, 2019

Fast Company has a story about the impact that food waste has on the environment … and what the food industry, empowered by regulators, can do about it.

“In the U.S., we waste as much as $218 billion on uneaten food every year when analyzing the entire supply chain, including farming and processing,” the story says. “Globally, the carbon emitted by wasted food can be classified as its own country - the third worst carbon emitter in the world, behind the U.S. and China.

The most important change, the story points out, is in how food is labeled and how expiration dates are calculated. In many ways, Fast Company says, it is a design problem… and you can read the explanation here.

Published on: September 4, 2019

• Eater had a story the other day about how “a new ‘ghost kitchen’ in Soho will soon be home to popular New York City restaurants such as salad sensation Sweetgreen.

“Zuul Kitchens, launching in September in the former building of failed delivery-only concept Maple, is offering space to multiple restaurants as a home base exclusively for deliveries. Located at 30 Vandam St. in Soho, the kitchen will be home to companies such as salad chain Sweetgreen, Chinese-American fast-casual spot Junzi, and Jewish deli Sarge’s, with a delivery radius of 1.25 miles in lower Manhattan.

“Nine separate kitchens will be in the 5,000-square-foot space, with some brands buying multiple units … At Zuul — named after that ghost in Ghostbusters that hung out in Sigourney Weaver’s fridge — the founders are betting that they’ll find success if they let the restaurants make their own food while Zuul takes care of everything else, from negotiating the building lease and getting the gas turned on to directing delivery courier traffic and washing the dishes.”

Published on: September 4, 2019

• The Cincinnati Business Courier has a piece about a speech given by Jim Kirby, Kroger’s senior director of pharmacy services, to the National Association of Chain Drug Stores expo in Boston last week, in which he said that the retailer plans to put a greater emphasis on health care as it works on future growth strategies.

According to the story, Kirby said, “If we in grocery are truly going to improve health outcomes beyond screenings, we're going to have to get in deep with how patients are living their life … This is something that we really harp on at Kroger. We have to engage every patient, every time.”

Kirby also said “pharmacists will also get involved in the near future in helping patients with nutrition by helping interpret labels and plan their food intake.”

The Courier writes that “Kirby told attendees that the upcoming flu season could be one of the worst ever, based on what Australia just experienced during its flu season.
‘Time is of the essence, but if there's any way that you can institute flu testing at your pharmacy, then that's a big business opportunity. But more important, it's a great patient care opportunity’.”


• HuffPost reports that Unilever-owned Ben & Jerry’s is taking yet another leap into the political arena, releasing a new limited flavor designed to support criminal justice reform.

The flavor, “Justice Remix’d,” is described as “a blend of cinnamon and chocolate ice cream, mixed with cinnamon bun dough and spicy fudge brownies.”

According to the story, “On its website, Ben and Jerry’s highlighted its partnership with the Advancement Project, a civil rights organization that tackles inequality and works towards systemic change on the issues of democracy, voting rights and access to justice. Together, the partners aim to close The Workhouse jail, a St. Louis facility where hundreds of people who haven’t been convicted of a crime are held because they can’t afford to pay bail. Although Blacks make up less than half of the city’s population, 90% of those incarcerated at The Workhouse are Black.

“A portion of the proceeds from the new, limited-edition ice cream will go towards the Advancement Project’s work in criminal justice reform, a media release stated.”

Published on: September 4, 2019

• Dollar General announced that Jeffery C. Owen, the company’s Executive Vice President of Store Operations, has been named COO, as Steven G. Sunderland, Senior Vice President of Store Operations, will move into Owen’s EVP role.

Published on: September 4, 2019

Got the following email from an MNB reader:

Had some thoughts on the whole plant-based "meat" debate going on. I empathize with ranchers who are fighting to defend their category from suffering a similar fate as dairy. It seems to me that there's a key difference between plant-based companies used the word "meat" versus the word "burger". To me, there's nothing wrong with these brands using the word burger - it's a format and doesn't have a standard of identity deeming what must make it up. Meat on the other hand has a pretty clear standard of identity being the flesh of a slaughtered animal. Seems like the best thing for these companies to do to avoid all of this is to slap the word "alternative" after meat and call it a day because then there's really not much of a case to say that's misleading at all (though I agree with you that it's not confusing to begin with, but hey we're not everyone).

Just my thoughts but just wanted to share. Great work as always - glad to have you back from your teaching sabbatical and writing full time again!



MNB reader Cathy Shifflett wrote had some thoughts about Michael Sansolo’s column yesterday about companies battling internal threats:

Michael’s story really hits home.  When I was at Giant Eagle, I had a boss who used to say “every great idea has a end date” and we needed to have a “healthy paranoia” in order to stay ahead of the competition.  We focused on collaborating with suppliers and other department heads to discover ways to continuously improve on our consumer offerings.  It was more often us against them instead of us against each other.  More organizations need to embrace this mindset if they want to succeed against organizations like Amazon.



On another subject broached here on MNB, a reader chimed in:

MLB has a big problem, the cost of going to a game. Three or four years ago, 3 friends and I drove to a Seattle Mariners game from Portland, OR: 4 tickets $180, 4 beers, $36, 4 Mariner dogs, $24.00, 4 soft drinks, $18.00, 2 bags of peanuts $8.00. Total cost $266.00. Watched a very mediocre team. Imagine a family taking in a MLB game today to watch a handful of grossly overpaid athletes. The cost is out of sight for the average family to go see a game. I watch Baseball Tonight every night, and all I see are a whole bunch of empty seats with the exception of 4-5 teams. My friends and I love the game, but not worth the cost to watch an overpriced product.



Regarding retailers getting into the business of payday-style loans for employees, one MNB reader wrote:

25% of Walmart employees are using this app. Do you think the employees at ALL retail outlets are under paid?

What happens when retail stores can’t find enough employees.  I think it has already started.




Responding to our piece about Target telling vendors that it expects them to absorb the cost of tariffs without any impact on its customers, one MNB reader wrote:

Kind of hard to make importers shoulder the tax increase if they close. Not many businesses I know have can take a 25% hit in profits and survive very long.



Finally, about Walmart’s new health clinic project, MNB reader John Faren wrote:

The Georgia clinic will have general health, hearing, vision and mental health counseling sessions.  Then since you're right there you can get your meds too.  So, how long before they add maternity?  They do have a nice baby department where Grandma can pick up some cute outfits while waiting for Junior.

Not the worst idea I’ve ever heard…