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    Published on: April 20, 2022

    The continuing 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.

    Today, Tom and KC talk about the opportunity for retailers in developing subscription and auto-replenishment programs.  Now, to be transparent about this, Tom led the team that created Amazon's Subscribe & Save, and now is CEO of Replenium, which they describe as "Subscribe & Save for everyone else … except bigger and better."  But, as KC explains (and Tom agrees), it would be delinquent not to discuss the subject on The Innovation Conversation, since along with checkout-free technology, it is potentially the initiative that will be most disruptive and transformative to traditional retail. 

    If you'd rather download and listen to The Innovation Conversation as an audio podcast, click below.

    Published on: April 20, 2022

    Netflix - the company that disrupted and then made Blockbuster and virtually the entire video rental store industry obsolete while simultaneously virtually inventing the streaming business model - announced yesterday that in its first quarter it lost 200,000 subscribers and expects to lose another two million in Q2.

    Variety writes that "this marks the first time Netflix has lost subscribers during a quarter in 10 years. Netflix said that not accounting for the losses in Russia, where the streamer cut services over the countries invasion of Ukraine, it would have added 500,000 subscribers in Q1.

    "The streaming service previously forecast 2.5 million paid net adds in Q1, while Wall Street analysts expected Netflix to add 2.8 million new subscribers worldwide in the first quarter vs. 3.98 million in the year-earlier period, according to FactSet. So the expectation it would perform poorly compared to previous quarters was a given — the fact it actually lost subs is quite shocking. Netflix cites both increased competition and password-sharing, which the streamer is looking to monetize, as drivers of this subscriber loss."

    Variety goes on:  "Co-CEO Reed Hastings said Netflix is currently exploring launching lower-cost, ad-supported streaming plan options, something the streaming mogul has long been against. Hastings also pointed to how cracking down on password sharing will help Netflix bring in subscribers it technically already has as users: 'They love the service, we’ve just got to get paid'."

    KC's View:

    I do think that there are some lesson in here for retailers, who, while they compete in a different sphere than Netflix, face some of the same issues.

    Let's start with Hastings' assertion that people love the service but just aren't paying for it, and that Netflix has to expand on current tests to find ways to enforce limitations on password sharing.  The payment issues somehow remind me of the Bed Bath & Beyond conundrum, in which the retailer's promotional activities were so connected to coupons - just like a lot of other retailers - that people wouldn't even go into the store without one.  It became about price, not value … which is a dangerous place to be, because it defines the game in a way that always can be subverted and disrupted.  That's something every retailer has to avoid - price is important, but if it becomes the only differentiator, the retailer has to realize that there is an inherent vulnerability.  There has to be something else.

    Which is not to minimize the importance of price, especially in a time of inflation and, if you believe some of the economists' predictions, a real risk of recession in the not too distant future.

    Netflix's new willingness to accept the idea that there ought to be a new pricing tier - lower, but including advertising - that can bring in a new subscriber base makes a lot of sense.  It recognizes reality, and goes someplace that other other streaming services are embracing.

    Here's how The Information characterized the shift:  "Hell has frozen over. Netflix co-CEO Reed Hastings’ revelation tonight that he is willing to introduce a lower-priced tier of service supported by commercials is a ground-shaking strategic shift for the video-streaming pioneer. In the past he had resolutely opposed adding advertising, even as most Netflix rivals had done so. But Hastings is nothing if not a realist."

    In his New York Times analysis, Andrew Ross Sorkin notes that "Disney+ will begin offering an ad-supported subscription, for a reduced fee, this year.  HBO Max began showing ads on its service last summer and said it had not lost premium subscriptions to the ad-supported alternative.  Amazon doubled down on its free, advertising-supported streaming service last week, renaming it Freevee, from IMDb TV, and expanding its programming budget.  Other streamers, like Hulu, Paramount+ and Peacock, have been offering ad-supported services for a while."

    Again, a lesson for retailers, even for those of the upscale variety.  We may be entering a period of extended price sensitivity, and so it will be important, even as you raise prices to reflect your own costs, to find ways to give consumers a win every once in a while.  Be transparent about higher costs and the need to pass them on, but do so in a way that positions the retailer as an advocate for the shopper, not a sales agent for the supplier community.

    I think there's another lesson for retailers in the Netflix story.  Let me quote, for a moment, from the coverage by New York magazine's "Intelligencer" column:

    "Netflix was supposed to be the antidote to the bloated world of cable television. Remember back when you had those low gray boxes on your console? You’d click through hundreds of channels, spending a fraction of a second glancing at one low-budget show after another, and feel — after all that — that there was nothing on TV.

    "Of course, there was plenty to watch, but the problem was none of it was good. So when the pandemic hit, things were very good for Netflix, just as things were good for all kinds of businesses that ask you to do nothing more than sit on your ass. But now Netflix is an expensive, swollen monster of a company that’s not very different from its competitors. Why pay $20 a month for a premium subscription when you’re not even sure if that new show you want to watch is Apple+, or Disney+, or Hulu?"

    Damning words, so much so that they demand repeating:

    "Netflix is an expensive, swollen monster of a company that’s not very different from its competitors."

    Let's drill down on what I think are the most important seven words in that sentence:

    "… that’s not very different from its competitors."


    The question I would ask is, how many retailers out there, if they were really honest with themselves, would have to concede that those seven words also describe their businesses?

    Meaning … most of the products you sell, and most of the services you offer, are virtually the same as offered by all their competitors.  Meaning … if a customer were blindfolded and placed in the middle of your store,  he or she would have no sense of where they were if the blindfold was removed.

    I'm a longtime Netflix customer.  I abandoned Blockbuster for its DVD-by-mail business almost as soon as it was offered, and I enthusiastically embraced streaming when the model shifted.  But if I am honest about it, I've been largely disappointed by the content available on Netflix.  I find that even its original productions tend to have big stars and big budgets, but somehow they almost always seem to need one more draft of the screenplay.  There are exceptions, of course, but I must admit that I spend more time watching Amazon Prime Video, Apple TV+, Paramount+, Hulu, etc…. Netflix hasn't quite become irrelevant, but its differential advantage strikes me as diminished.

    Netflix says it plans to maintain its plan to spend $18 billion on original content this year, but I think that maybe the company should re-evaluate how it invests in content.  In my view, too much of it is focused on lowest common denominator programming … which ends up being largely undifferentiated.

    Again, a lesson for retailers.

    Published on: April 20, 2022

    Ars Technica has a story about how Walgreen is working with Google's Wing division to offer drone delivery service in the Dallas suburbs, even as Walmart has been offering its own drone delivery service since November from two (soon to be three) Bentonville, Arkansas, area stores.

    "The Wing and Walmart services are still pretty limited," the story says, "with each service initially designed to perform around 100 deliveries per day. But drone delivery is finally moving beyond the research-and-development phase. Wing and Walmart are using drones to deliver real merchandise to real customers. The question is how quickly they can scale up—and how many other companies can follow their lead."

    Compare this to the fact that Amazon "has yet to launch a commercial drone delivery service in the United States—despite a December 2013 segment on 60 Minutes where Jeff Bezos predicted drone deliveries might reach the market in four to five years."  In fact, Amazon has been getting negative publicity for drone accidents that have thrown its lack of progress into sharp relief.

    Plus, as we pointed out here on MNB a few weeks ago, "Amazon has done internal projections that suggest it will cost $65 to make individual drone deliveries via its Prime Air service, which it plans to roll out later this year … That's $65 for each of the one million packages that Amazon believes it will be delivering via drone in 2025 … That's $65, as opposed to less than $5.50 that it currently costs to make deliveries on the ground."

    To this point, the story notes, regulations set by the Federal Aviation Administration (FAA) have created some limits on how far the drone business can grow, though there are expectations that evolving rules and improved technology are likely to combine for an environment in which growth can accelerate.

    KC's View:

    I keep thinking about the Axios story pointing out that Logan, Australia, has become the drone delivery capital of the world, with Wing making more than 50,000 deliveries in the past eight months, "including a record 4,500 in the first week of August.  That includes more than 10,000 cups of coffee, 2,700 sushi rolls, 1,000 loaves of bread and 1,200 hot chooks (Australian slang for rotisserie chickens).

    "Wing started in two Logan neighborhoods and now serves 19 suburbs with a combined population of more than 110,000 people."

    You should check out the Wing/Logan site here.

    Published on: April 20, 2022

    LendingTree is out with a new study saying that "nearly 70% of buy now, pay later users admit to spending more than they would if they had to pay for everything upfront."

    Here are some other key findings from the study:

    •  "43% of Americans have used a buy now, pay later (BNPL) service, an increase from 31% a year ago. These services are gaining traction among baby boomers: 22% of those ages 57 to 76 have used BNPL, up from 9% this time last year."

    •  "42% of BNPL users say they’ve made a late payment on one of these loans. That’s likely one reason 23% of BNPL customers have regretted financing a purchase this way."

    •  "Consumers still prefer credit cards, but BNPL is gaining share. 47% of consumers would prefer to use BNPL to pay for a purchase they don’t have money in the bank to cover. BNPL is preferred to plastic among women (51%) and those making less than $50,000 a year (53%)."

    •  "The fact that 42% of BNPL users said they’d made a late payment was the most troubling and most shocking finding. That figure is even more disturbing when you consider that BNPL loans are growing more popular by the day, and that nearly half of consumers would prefer them to credit cards. "

    KC's View:

    Sure, LendingTree has a dog in this hunt.  But that doesn't mean the conclusions are inaccurate or any less alarming - that there may be a growing population of cash-stressed customers out there looking for solutions.  That's fertile ground for savvy retailers to work, though it will be important to talk about value, not just price.

    Published on: April 20, 2022

    There is an interesting piece from The Information that is worth reading, especially for the last sentence of the following excerpt:

    "When former Uber executive Rachel Holt and ex-NEA partner Dayna Grayson formed Construct Capital in early 2020, they set out to back companies that many venture capitalists overlook: manufacturing, supply chain and industrial startups.

    "Then came the coronavirus pandemic, which threw global manufacturing into disarray and made supply chain problems a household topic du jour. It was a challenging time to launch a fund for industrial and transportation startups, which were suddenly more visible to investors but also roiled by labor and chip shortages and a halt to travel. On Tuesday, the pair announced a new $225 million Construct Capital fund, along with a $75 million fund dedicated to follow-on investments … The pair said they’ll use the new capital to continue investing in seed and Series A deals, as well as to double down on past investments, which include several companies founded by Uber alumni.

    "But one sector they’ll continue to avoid is the cash-intensive, overcrowded instant-delivery industry."  (Content's Guy's italics.)

    You can read the piece here.

    Published on: April 20, 2022

    •  From HuffPost:

    "The union representing Starbucks workers won a clean sweep of five store elections in the Richmond, Virginia, area on Tuesday, showing no signs of slowing as they try to organize the coffee chain store by store."

    The story notes that "as the union continues to rack up election victories, the battleground is shifting to the bargaining table, where workers will try to secure a first union contract. A Starbucks spokesperson predicted in an interview with HuffPost last week that 'developing a contract that meets or exceeds what we already offer to our partners is going to be difficult for them to do'."

    Published on: April 20, 2022

    Random and illustrative stories about the global pandemic and how businesses and various business sectors are trying to recover from it, with brief, occasional, italicized and sometimes gratuitous commentary…

    •  The United States now has had a total of 82,416,687 total cases of the Covid-19 coronavirus, resulting in 1,016,159 deaths and 80,276,197 reported recoveries.

    Globally, there have been 506,154,879 total cases, with 6,228,817 resultant fatalities and 458,342,312 reported recoveries.   (Source.)

    •  The Centers for Disease Control and Prevention (CDC) says that 77.4 percent of the total US population has received at least one dose of vaccine … 66 percent are fully vaccinated … and 45.5 percent of fully vaccinated people have received a vaccine booster dose.

    •  From the Associated Press:

    "Moderna hopes to offer updated COVID-19 boosters in the fall that combine its original vaccine with protection against the omicron variant. On Tuesday, it reported a preliminary hint that such an approach might work.

    "Today's COVID-19 vaccines all are based on the original version of the coronavirus. But the virus continues to mutate, with the super-contagious omicron variant — and its siblings — the latest threat.

    "Before omicron came along, Moderna was studying a combination shot that added protection against an earlier variant named beta. Tuesday, the company said people given that beta-original vaccine combination produced more antibodies capable of fighting several variants — including omicron — than today’s regular booster triggers."

    Published on: April 20, 2022

    •  Whole Foods has announced that in Texas, its "Arbor Trails store will become the first Whole Foods Market location in the Austin area to introduce Amazon One, our palm recognition service, as a payment option to make it convenient for shoppers to pay with just a scan of their palm. Austin is the first region outside the Seattle area where Whole Foods Market is offering Amazon One as a payment option."

    •  The Verge reports that there is anecdotal evidence that Amazon may be preparing to make a play in the "XR" world, which encompasses virtual reality (VR), augmented reality (AR) and mixed reality (MR).  The company is said to be hiring for engineers and software engineers with XR experience, and the story notes that "Amazon could have an advantage in AR (and VR if it decides to use that technology) given its vast range of smart home gadgets."  For example, "imagine a scenario where a pair of Amazon AR / VR glasses connect with other Alexa-enabled devices to give you an at-a-glance picture of everything going on in your home right in front of your eyes."

    Various components of XR are the focus of development efforts at a number of big tech companies, including Apple, Google, Microsoft, and Meta (the company formerly known as Facebook).

    Published on: April 20, 2022

    •  Walmart-owned Sam's Club said yesterday that it is "introducing a new identity for its Member’s Mark brand – 'Made with Our Member and Planet in Mind' – that comes with an aspiration for all items to be of the highest quality while featuring trend-right innovation and a focus on people and the planet … Sam’s Club aims to remove certain ingredients from Member’s Mark food and consumable products, while boosting its assortment of items that are made using practices that promote animal welfare, help support land and ocean health, mitigate deforestation, utilize more sustainable textiles, and come from renewable sources."

    Sam's says that the evolution of Member's Mark into "a purpose-driven brand" has taken place over the last two years, as it "worked behind the scenes to strengthen its assortment of Member’s Mark items. It has launched, renovated, and reformulated more than 1200 items since 2020, and as a result, more and more members are citing Member’s Mark products as a reason they renew their memberships."

    Published on: April 20, 2022

    •  Just as a matter of interest … the New York Times yesterday announced Joseph F. Kahn - a Pulitzer Prize-winning reporter who has been serving as the paper's managing editor - will be the new executive editor of the Times, succeeding the retiring Dean Baquet.

    Here was an interesting note his biography in the Times:  "Mr. Kahn grew up outside Boston, the eldest child of the entrepreneur Leo Kahn, a retailing pioneer who started supermarket chains in the Northeast and was a founder of Staples, the chain of office-supply superstores. Leo Kahn earned a journalism degree from Columbia University and worked briefly as a reporter before his success in business, and he often dissected newspaper coverage with his son."

    Leo Kahn's Times obit in 2011 noted that Kahn started "two chains of health food stores, Fresh Fields and Nation’s Heartland, which combined sharp attention to the demands of fitness-conscious consumers with price-conscious marketing … The bet paid off: Whole Foods bought both chains in the 1990s at a hefty profit for Mr. Kahn."

    Published on: April 20, 2022

    •  Wegmans announced yesterday that  Marty Gardner, senior vice president of merchandising, distribution, manufacturing, food safety and pharmacy, will retire in May 2022, following a 40-year-career with Wegmans:  "Throughout his career, Gardner’s teams have implemented many important initiatives that keep Wegmans on the leading edge of the industry. With every project he worked on, he always emphasized high standards while keeping two important thoughts in mind: how can we help our people and how can we benefit our customers."

    In a statement, Colleen Wegman, president/CEO of the company, said, "“Marty has made a significant impact through his passion for excellence across every area of our company.  He cares deeply about helping all of us be our best and inspires a strong sense of responsibility, ensuring we’ve thought everything through and are doing the right thing … Marty will be greatly missed, and his legacy of high standards and caring will be a part of us forever."

    •  Kroger announced that Teresa Dickerson, formerly corporate affairs manager for the organization's Delta (Memphis) division, will now lead corporate affairs, including internal and external/reputation communications and government and community relations for the Houston division.

    •  Tops Friendly Markets announced the promotion of Darren Robbins, the company's director of strategy and analytics, to Vice President, Finance.

    Published on: April 20, 2022

    Got the following email from an MNB reader about our continuing coverage and commentary about labor issues facing retailers:

    The dynamics in today's labor world are certainly interesting, especially the unionization movement. Along with that is the focus on CEO compensation, specifically how it dwarfs basic employee compensation. In the CNBC piece you mentioned, the fact that 85% of CEO comp derives from stock performance is important. I'm more or less OK with  CEO's being compensated by the increase in their company's stock price, because they're the ones driving that performance from the top.  Obviously the entire "team" has to contribute, and presumably many employees well below the executive suite also share in stock performance compensation.

    Tangentially, I've been reading recently about star baseball players' contract negotiations.  Several have recently turned down annual comp of $20mm, most if not all of which is guaranteed. I'm only guessing, but I'll bet  that number is about 254 percent greater than the average MLB team employee, like the locker room attendant, team nutritionist, groundskeepers,  etc.etc.  All of whom get a share of playoff and World Series money  when their team  does well. Fair? Not fair?  The star players, like the "star" CEO's, are the ones driving the success, right?

    I'd challenge your presumption that "many" employees well below the executive suite share in stock performance compensation.  I'm not sure that's true, and I certainly don't think that it is a standard part of their compensation packages.  But if you tell me that the ideal company is one in which the proceeds of an improved stock price are shared with all employees, I'm not going to argue.

    One thing, though.  A stock price is not necessarily indicative of how effective a company is in achieving long-term goals and implementing strategies and tactics.  It is indicative of how investors feel about the company, and their interests tend to be short-term (hence Jeff Bezos telling investors from the beginning that if they wanted a short-term profit, they should put their money elsewhere).  I like the approach that Costco's Jim Sinegal used to take - despite the entreaties of investors and analysts, he refused to raise margins and lower wages, figuring that neither would be good for the company long-term, and that he was leading for the stakeholders, not the shareholders.

    As for baseball players … I think that, relative to their contribution to society, they're generally way overpaid.  So are movie stars, for that matter.  I tend not to get as verklempt about it here because a) I'm writing mostly about retailers, and b) they're being paid their millions by people who have billions.  (That said, I generally was pro-player in the recent lockout, if forced to choose a side.)

    I'm also not sure that it is a completely fair comparison to retailing, since the players actually are ther ones on the front lines when it comes to professional sports - they're not the owners/CEOs.  But if your argument that support staff personnel needs to be paid more 

    From another MNB reader:

    Listened to your podcast about corporate disconnect, then strolled down to the CNBC piece about the CEO/Employee pay gap started to widen again. Hmmm.

    MNB reader Joe Axford had this reaction:

    All your key points today are so true, and I have to say that Hannaford is one company that gets it right. I feel like an important asset working there, and not a liability, like some other companies. I am proud to be a valued associate at Hannaford, and they deserve this shout out!

    Lucky you.

    Yesterday we posted an email from an MNB reader about the story focusing on the Dollar General store manager, Mary Gundel, who loved her job but was frustrated by working conditions and lack of support from leadership;  she decided to air her frustrations on TikTok, and promptly got fired.

    The MNB reader wrote, in part:

      Let's look honestly at the employee.  Accept the things one cannot change and change the things one can.  (Resign.)  What does it have to do with anything or anyone else?  Another person might have been practicing acceptance each and every day in the face of such challenges and worked towards ideals, never wavering in the face of such insurmountable odds.  Just because this person didn't like the working conditions doesn't mean the company is wrong or bad…

    Which prompted another MNB reader to write:

    The first commenter today on DG by the words she used it was obvious she was saying Mary Gundel should have applied the "Serenity Prayer", and everything would have been ok!

    I knew that the phrasing in the original email rang a bell … and you're right, it is remarkably similar to the Serenity Prayer, which starts out this way:

    God grant me the serenity to accept the things I cannot change, courage to change the things I can, and the wisdom to know the difference…

    The thing is, Mary Gundel did know the difference, and endeavored to create change.

    That said, the Serenity Prayer also suggests that a person should take the world … one day at a time; enjoying one moment at a time; taking this world as it is and not as I would have it; trusting that You will make all things right if I surrender to Your will; so that I may be reasonably happy in this life and supremely happy with You forever in the next.

    To be honest, I'm not big on surrendering to anyone's will.  I'm sort of more in line with the motto of The Christophers:

    "It's better to light one candle than to curse the darkness."

    Mary Gundel, in my view, tried to light a candle.  Good for her.

    The other day, I offered a hostile assessment of a proposed California law that would mandate a four-day work week.  In retrospect, I should've been clearer about something - that I'm totally okay with the idea of a four-day work week.  I just think that companies ought to offer it because they believe it will be good for their employees and productivity, not because it is foisted upon them.

    I also had an exchange with another MNB reader, who write:

    Congratulations Kevin, you are starting to sound like a true conservative. Welcome to the land of logical and level headed thinking.

    To which I responded:

    I am conservative about some things, liberal about others, and like to think that I actually relatively centrist and open-minded about most issues … But the only "true" thing I am is skeptical about anybody who thinks their way is the only logical and level-headed approach to anything.

    Another MNB reader reacted:

    Boom! Mic drop.

    But I missed an opportunity. I should've added what else I believe in … the soul, the small of a woman's back, the hanging curve ball, high fiber, good scotch, that the novels of Susan Sontag are self-indulgent, overrated crap. I believe Lee Harvey Oswald acted alone. I believe there ought to be a constitutional amendment outlawing Astroturf and the designated hitter. I believe in the sweet spot, opening your presents Christmas morning rather than Christmas Eve and I believe in long, slow, deep, soft, wet kisses that last three days. 

    But I don't believe in dogma.  Nobody's.