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    Published on: June 1, 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.

    Tom and KC today focus on two innovations being tested by numerous retailers - retail marketplaces and retail media networks.  They focus on how retailers are using these tools to grow sales, margins and profits, but also look at how it can be a mistake if the concepts are not integrated into a retailer's core value proposition.  At the core is retailer intent, and the degree to which businesses are transactional and/or relational in their approach.

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

    Published on: June 1, 2022

    The Wall Street Journal this morning has a piece about how "supermarkets and distributors are pushing back on higher prices from food makers, as escalating inflation drives more consumers to rethink their spending.

    "Kroger Co. and other grocery chains said they are asking brands to prove why higher prices are necessary before accepting them, and warning manufacturers that they will stop carrying products if food companies won’t negotiate prices. Some companies said they are switching to new meat suppliers with cheaper products, and are delaying price changes for items like canned goods."

    The story makes the point that while retailers largely have passed along the price increases that suppliers have imposed in recent months without seeing any real erosion in demand, the sense is that this is changing;  shopper resistance is likely to grow, they believe, as inflation persists and the nation considers the possibility of recession.  

    And so, retailers are pushing back - "checking prices of every commodity, as well as packaging costs, to make sure suppliers’ price increases are warranted, and … devoting more resources to run pricing analyses - looking for suppliers to negotiate increases and being willing to delist SKUs if manufacturers are unwilling to deal.

    In the words of Stuart Aitken, chief merchant and marketing officer at Kroger:  "We want a justification for it, and what we then do is validate."

    KC's View:

    In other words … trust, but verify.

    Retailers are entirely justified in taking this approach.  This is the kind of environment in which both retail and packaged brands can lose market share, as some players may be better positioned - sometimes in terms of perception, sometimes in reality - to take advantage of tough economic times.  Think dollar stores and limited assortment stores.  And so, retailers and manufacturers may need to reduce their margins in some areas as a way of preserving relationships with their longterm shoppers.

    At the end of the day, it is really important for retailers to figure out ways to give consumers wins wherever and whenever they can.  Relationships with shoppers aren't just to be pursued during the good times.  In fact, they are even more important during tough times, which can be an opportunity for retailers to demonstrate to their customers that they are on their side.

    As it happens, the Wall Street Journal also has a story about how "many of the companies whose mission is to know the U.S. consumer are bracing for a shift in spending as inflation rises and stocks wobble. They are bringing back more bargains, cheaper store brands and rewards programs for shoppers who want to save where they can even as some continue to spend robustly on everything from apparel to pet food … The new product selections, prices and marketing from some of the country’s biggest consumer brands and retailers are the latest signs of how the pace of inflation and the Federal Reserve’s recent decision to raise interest rates are upending daily life for many Americans."

    Published on: June 1, 2022

    From Bloomberg this morning:

    "Big retailers rushed to build up inventories last year amid soaring consumer demand and transportation bottlenecks -- going so far in some cases as to rent their own cargo ships. Now, they’re trying to figure out how to sell all their stuff. 

    "Inventories rose $44.8 billion for companies on S&P consumer indexes with a market value of at least $1 billion that reported earnings over the last two weeks, according to data compiled by Bloomberg. That’s up 26% from this time last year. The glut dented profits at some retailers, with Walmart Inc. paying more for storage and Target Corp. and Gap Inc. cutting prices on key goods.

    "It’s far from clear what comes next. In the past, ballooning retail inventories have signaled economic slowdowns or recessions as shoppers bought less. But consumer spending in April climbed at the quickest pace in three months after adjusting for inflation, the Commerce Department said Friday. As long as Americans keep shopping, well-stocked warehouses could buoy retailers if port congestion worsens this summer."

    One example:  "Costco Wholesale Corp. said its 26% jump in inventory was fueled in part by a decision to replenish its stockpile after high demand last year, and as insurance in case supply-chain disruptions get worse. The company expects to sell through it 'without really a lot of heartburn,' said Bob Nelson, senior vice president of finance. Some of the extra inventory consists of holiday goods that will still be good this year."

    KC's View:

    There is an irony to the idea that retailers, who were suffering from shortages not that long ago, suddenly have too much stuff.

    I suspect that it won't be a problem for too long.  Folks I talk to seem to think it is a virtual certainty that port congestion is likely to worsen this summer as labor issues persist.  If that happens, all those crowded warehouses may start to empty out pretty quickly.

    The one exception may be fashion items - if there are pants or sweaters that consumers don't want to wear, product shortages won't matter much.

    Published on: June 1, 2022

    We got an email yesterday from Alison Weick, the president of e-commerce company Boxed, in which she used plain talk about inflationary pressures to make what is an admittedly self-serving pitch for why people should shop at Boxed:

    It’s a tough time for many people right now. Inflation, gas prices, and inventory issues have made it a lot harder to stock up on groceries for your family. How do you make tradeoffs when it comes to your loved ones?

    I face the same issues when I shop for my family. As the President of Boxed, I work with our teams from merchandising to supply chain to marketing to ensure that your experience is as promised: quick, easy, and full of value.

    I want to share a few initiatives that our team is working on to help during these challenging times.

    •  Inflation Busters: We strive to keep prices as low as possible where we can. Watch out for Inflation Buster messages highlighting new price reductions, value offerings, and daily deals.

    •  Fewer Out-of-Stocks: We are adding more inventory of the items you shop to make sure we always have what you need. We’re also adding more brands and products into each category so you have more variety and choices!

    •  More Convenience: We are adding delivery 7 days of the week for all customers to make it more convenient for you to shop and get your items quickly.

    I look forward to bringing more improvements your way. We are committed to helping our customers during this difficult time as the destination for Inflation Busters. Please reach out with anything we can do to make Boxed better for you.

    Yours in bulk,

    Alison Weick

    KC's View:

    First, of all … "Yours in bulk"?  I love it.

    Second … let's stipulate that this email doesn't reinvent the wheel.  But it doesn't need to.  The email is a simple, non-product oriented effort to establish common ground between the store and the shopper, and lay out how Boxed is working to be the agent for the consumer.

    It may not move the needle a lot.  But it is  likely to move the needle at least a little, and that's important in times like these.

    Simple question for MNB readers:  Has your company written a similar email to your customers?

    If not, someone else may have … and may be filling a vacuum that you created.

    Published on: June 1, 2022

    Interesting story from Reuters about Amazon is "lambasting" a bill before the US Senate that would prevent "tech giants from giving preference to their own businesses on their websites."

    Amazon's position is that the bill - that rare piece bipartisan piece of legislation that is called the American Innovation and Choice Online Act - "jeopardizes two of the things American consumers love most about Amazon: the vast selection and low prices made possible by opening our store to third-party selling partners, and the promise of fast, free shipping through Amazon Prime."

    But even more than that, Amazon says, the bill excludes companies like Walmart and Target that are comparable in size but with smaller online sales.

    In addition, Reuters writes, "Amazon argued the bill could harm the hundreds of thousands of small businesses that sell goods on its website as its large fines for violations 'would make it difficult to justify the risk of Amazon offering a marketplace in which selling partners can participate'."

    The story notes that Senators Amy Klobuchar (D-Minnesota) and Chuck Grassley (R-Iowa), "who co-sponsored the measure called the American Innovation and Choice Online Act, say the measure is necessary to protect small businesses. The bill has received the backing of small business groups such as the Main Street Alliance and Small Business Rising."

    KC's View:

    I continue to maintain that if Amazon cannot give preference to its own products online, then bricks-and-mortar retailers ought to be prevented from giving their private label items preferred positioning on store shelves.  What's good for the goose…

    Published on: June 1, 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 current US Covid-19 coronavirus numbers:  85,901,797 total cases … 1,031,613 deaths … and 82,239,607 reported recoveries.

    The global numbers:  532,956,591 total cases … 6,314,063 fatalities … and 504,043,665 reported recoveries.  (Source.)

    •  The Centers for Disease Control and Prevention (CDC) says that 77.9 percent of the total US population has received at least one dose of vaccine … 66.7 percent are fully vaccinated … 46.7 percent of fully vaccinated people have received a vaccine booster dose … 22.1 percent of the fully vaccinated US population has received a second vaccine booster dose … and just 28.2 percent of the US population age 65 and older has received the second booster shot.

    •  From the New York Times:

    "Despite strong levels of vaccination among older people, Covid killed them at vastly higher rates during this winter’s Omicron wave than it did last year, preying on long delays since their last shots and the variant’s ability to skirt immune defenses.

    "This winter’s wave of deaths in older people belied the Omicron variant’s relative mildness. Almost as many Americans 65 and older died in four months of the Omicron surge as did in six months of the Delta wave, even though the Delta variant, for any one person, tended to cause more severe illness.

    "While overall per capita Covid death rates have fallen, older people still account for an overwhelming share of them.

    "'This is not simply a pandemic of the unvaccinated,' said Andrew Stokes, an assistant professor in global health at Boston University who studies age patterns of Covid deaths. 'There’s still exceptionally high risk among older adults, even those with primary vaccine series'."

    The Times goes on:

    "Covid deaths, though always concentrated in older people, have in 2022 skewed toward older people more than they did at any point since vaccines became widely available.

    "That swing in the pandemic has intensified pressure on the Biden administration to protect older Americans, with health officials in recent weeks encouraging everyone 50 and older to get a second booster and introducing new models of distributing antiviral pills.

    "In much of the country, though, the booster campaign remains listless and disorganized, older people and their doctors said. Patients, many of whom struggle to drive or get online, have to maneuver through an often labyrinthine health care system to receive potentially lifesaving antivirals."

    Speaking as an "older American" - though I certainly don't feel like one - I must say that I felt it was my responsibility to get vaccinated as soon as I could, to get both my booster shots as soon as I could, and to continue to wear a mask whenever it feels prudent to do so.  Just as I feel like it will be my responsibility to get another booster if it is recommended, to get a flu shot in the fall, and to get new shingles and pneumonia vaccines whenever my doctor recommends them (I've already had both).

    But it concerns me that older people less ambulatory and autonomous than I are not getting the protections they need … especially since, while the fatality numbers are not growing very fast, they seem to be a larger percentage of the whole.  No excuse, in my view, for a booster campaign being "listless and disorganized."

    Published on: June 1, 2022

    •  Western New York-based Tops Friendly Markets (which, together with Price Chopper/Market 32, make up Northeast Grocery, Inc.) announced that it is expanding the use of its  Shop + Scan app, which allows shoppers to scan product codes with their smart phones while shopping, bag them in the shopping cart and then quickly check out with a generated bar code when existing the store.

    The technology currently is available in 19 Tops stores, and is being expanded to five more.

    •  The Boston Globe this morning has a story about how local online retailers are opening physical locations around the city, looking for find new ways to connect with their shoppers.

    Familiar Boston-area brand names such as Wayfair (for its AllModern line), luxury mattress manufacturer Saatva, and framing startup Framebridge all have opened stores that they believe will attract both online customers and walk-ins, burnishing their brands and giving them greater insights into consumer behavior.

    Published on: June 1, 2022

    •  Reuters reports that "US consumer confidence eased modestly in May as persistently high inflation and rising interest rates force Americans to become more cautious about buying big ticket items, including motor vehicles and houses, which could curtail economic growth … The Conference Board's consumer confidence index slipped to a reading of 106.4 this month. Data for April was revised higher to show the index at 108.6 instead of the previously reported reading of 107.3. The index remains above its pandemic lows.

    "It has fared much better than the University of Michigan's survey, where the consumer sentiment index is at an 11-year low. The Conference Board survey puts more emphasis on the labor market.

    "The survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, fell to 39.3 this month from a reading of 44.7 in April. That was the first time in a year that this measure, which correlates to the unemployment rate from the Labor Department, was below 40.  About 12.5% of consumers viewed jobs as 'hard to get,' up from 10.1% in April. On face value it suggests that the jobless probably ticked up from a two-year low of 3.6% in April."

    •  The National Grocers Association (NGA) said yesterday that it has presented NGA’s Spirit of America Award to Ray Sprinkle, president and CEO of URM Foods, and Mike McShane, URM’s VP of procurement and profit centers.  

    The award is given "to individuals who provide leadership in the areas of community service and government relations and are committed to a free and independent food distribution system" and was presented at the Washington Food Industry Association’s Connect! Meeting in Tacoma, WA.

    Published on: June 1, 2022

    •  Walmart announced that as part of its new corporate campus in Bentonville, Arkansas, it has "signed a franchise agreement with Marriott International to brand the campus hotel as an AC Hotel by Marriott. With plans to open in Summer 2024, AC Hotels’ approach to intentionally refine and craft enhanced guest experiences with a balance of form and function naturally aligns to the guiding principles we have used to design of campus — create a winning work environment, be true to who we are and offer an enhanced experience for associates and the surrounding community.

    "AC Hotel by Marriott Bentonville will be located in the Northwest neighborhood of campus, on the Razorback Greenway. Anchoring to the urban corner of 8th Street and J Street, the hotel sits on a primary corridor, with convenient access to office buildings, campus amenities, retail environment and a network of walking and biking paths. The purposeful location of the hotel is yet another example of the Walmart campus integrating with the community. Just minutes (via walking, biking or car) to local attractions including 8th Street Market, The Momentary, Crystal Bridges Museum of American Art, and Downtown Bentonville which is home to the Walmart Museum."

    The hotel will offer "153 sophisticated, modern guestrooms featuring sleek furnishings and tech-enabled amenities creating an elevated experience for guests. The hotel will also include a combined 6,000 square feet of flexible meeting and event space on the main lobby floor as well as a rooftop lounge with indoor and outdoor seating."

    Published on: June 1, 2022

    Yesterday I had a couple of emails from MNB readers challenging some of the assertions made in the Tufts Observer, a student magazine at Tufts University, by an impressive young writer named Meghan Smith.  She argued that the benchmarks traditionally used in a capitalist society may not be appropriate or sufficient when grappling with climate change.

    Not to be dismissive of dissenting views, but to me, these emails sounded like a capitalism-is-the-best-system-but-cannot-be-changed defense - not allowing for the possibility that fresh benchmarks need to be established to deal with changing realities (like an existential threat to the human species).

    Another MNB reader, Craig Espelien, sent me a note linking to a short piece on the subject that he posted on LinkedIn … and I thought it was an interesting perspective that would move the discussion along.  So here it is … Craig Espelien's view:

    I have been a bit too busy to publish over the past couple of weeks as a new client has landed right in the middle of my mission to change the world. The client is Phood Solutions and they (we) are focused on helping clients eliminate food waste from their stores, restaurants, hotels, casinos, colleges, universities or any other place where food is regularly and alarmingly thrown out. I am not talking about the "feel good" solution of yesterday - turning trash into compost - which is a good thing but when you think about it it is taking trash and making it better trash. It is sort of like hiding the problem without really dealing with the root cause - the fact that the food is headed towards the trash at all.

    This musing is not really about Phood Solutions or even food waste but about an economic concept that I have been researching over the past couple of years - the concept of Externalities. An Externality is when one party produces something that creates a problem and another group (too often the consumer or the taxpayer) has to deal with the problem at a later date. Two "Externalities" that have received a lot of attention:

    Greenhouse Gases - let's stick to something familiar as there are a lot of creators of greenhouse gases but transportation pollution (car, bus, plane, etc.) is a large contributor. Oil and gas are produced from a natural resource and the burning of these fossil fuels creates the pollution that negatively impacts our total carbon footprint. The oil company does not cover the full cost of this pollution and neither do the car companies. Quite frankly, the consumer does not either leaving it up to those probably least capable (the government) to step in and try and make things better.

    Bottled Water - while not an externality itself, the vessel this product is sold in - plastic bottles - creates an alarming externality. Plastic in general is a problem but the vast number of bottles thrown away by bottled water drinkers creates a problem that someone besides the person consuming the water or someone who bottles the water has to deal with.

    These are both externalities - and there is no easy solution to solving them as there is no one to point to and scream "you're to blame!!!". This means we all get to deal with it - and the cost comes from something other than the value chain where the raw product makes its way to the end user, is consumed and the result (pollution, greenhouse gases, bottles, etc.) are too often left for someone else to deal with.

    As a society, we seem hell bent on refusing to take accountability for the outcomes we create. Both NFP's (not-for-profits) and government are so very focused on intent that they often fail to connect outcomes to their efforts if it is different from their intent. I believe a lot in personal accountability - an unpopular position today as there seems to be a large majority of folks who want to blame someone else for their challenges. If we all took personal accountability seriously (and in all facets of our lives) those around us would probably be happier and we certainly would be.

    That's it for the brief lesson on Externalities - I recommend you take a look around you and see where your actions are creating externalities and find ways to own those yourself rather than waiting for someone else to clean up after you. Remember, your Mother is no longer responsible for cleaning up after you - you need to be responsible for your own actions and your own outcomes.