business news in context, analysis with attitude

Published on: January 30, 2023

Some thoughts this morning about the challenges that have hit Marc Lore's new food delivery startup, Wonder, and the pivots he is making to give the business a path to survival.

Published on: January 30, 2023

Amazon Fresh says that it raising the minimums for free deliveries of grocery products, saying that shoppers now will have to spend more that $150 to get free delivery.

From The Information:

"Beginning Feb. 28, Amazon will charge a $9.95 service fee on two-hour Amazon Fresh deliveries under $50, a $6.95 fee for orders between $50 and $100 and a $3.95 fee for deliveries between $100 and $150 … The company also said it will let customers receive deliveries within a six-hour window for a reduced fee, though it did not provide details … Currently, Amazon charges a $4.99 fee on two-hour Fresh orders under $35 or $50, depending on the market. For deliveries from Whole Foods Market, Amazon charges a $9.95 service fee regardless of order size."

The Information also provides this context:

"The fee increase comes after Amazon last week laid off employees in its retail division, including some who worked on Amazon Fresh, as part of 18,000 company-wide cuts. The company has also put openings of new Fresh physical stores on hold in the U.S. since September, The Information previously reported."

From Bloomberg:

"Groceries are the most frequent shopping trip for most households. Amazon has long been working to crack that market, following in the footsteps of rival Walmart Inc., which grew into the largest U.S. retailer in part by adding groceries to its supercenters.

Amazon started selling groceries online in 2007. A decade later, it bought Whole Foods to jump-start its efforts.

"Amazon tacked on home delivery from Whole Foods shelves, but the partnership has delivered mixed results to date. The company also operates the chain of Amazon Fresh-branded grocers, opening dozens of stores around the U.S.

"Amazon and Whole Foods together account for about 4% of the U.S. grocery market, analysts with UBS said in a research note this week, making the company the nation’s fifth-largest food retailer, behind Walmart, Kroger Co., Costco Wholesale Corp. and Albertsons Cos. Walmart accounts for 22% of the market, the UBS analysts estimate."

Engadget writes that a company spokesperson said that it is 'introducing a service fee on some Amazon Fresh delivery orders to help keep prices low in [its] online and physical grocery stores as [it] better cover[s] grocery delivery costs and continue to enable offering a consistent, fast, and high-quality delivery experience.' The spokesperson continued: 'We will continue to offer convenient two-hour delivery windows for all orders, and customers in some areas will be able to select a longer delivery window for a reduced fee.'

"Based on that statement, Amazon could jack up grocery prices if it doesn't charge delivery fees. But as it is, customers will end up paying more anyway — a lot of people can't afford its $150 minimum requirement these days, and those who can may not be able to consume everything they bought before they go bad or are no longer, well, fresh. Amazon has started notifying customers via email about the new service fees, and some social media users are pointing out how outrageous the price jump is to get free delivery.

"Customers have come to rely on Amazon Fresh for grocery deliveries when the pandemic started, including folks on the government's Supplemental Nutrition Assistance Program (SNAP) program. People who have SNAP Electronic Benefits Transfer (EBT) debit cards can order via Fresh even without a Prime subscription, making it a good (and in some cases, the only) option for people with disabilities. But now they'd have to pay extra on top of their purchase. According to Amazon's website, they can't even use their EBT cards to pay for the shipping fee and will have to provide another form of payment."

Published on: January 30, 2023

The 2023 Brick Meets Click/Mercatus 5-Year Grocery Sales Forecast is out this morning, suggesting that "U.S. online grocery sales are forecast to grow at a compound average growth rate (CAGR) of 11.7% over the next five years, increasing online’s share of overall grocery spending from 11.2% in 2022 to 13.6% in 2027 … Persistent price inflation, ongoing concerns about illnesses such as COVID, RSV, and the flu, and a maturing online segment are factors contributing to the outlook."

The forecast continues:

"Total grocery sales, i.e., combined online and in-store sales, excluding the impact of price inflation, are projected to grow at a 2.5% CAGR over the next 5 years, driven by an approximately 1.7% increase in household spending and 0.8% gain in the number of households. An aging population and declining household size are weighing down both measures.

"Persistent grocery-related inflation is expected to continue at a 5-year CAGR of 4.8%, starting from 2022’s rate of 10.9% versus the prior year and tapering down to 2.8% by 2027. The impact of this ongoing price inflation is not evenly distributed. Inflation fuels nearly three-quarters of the projected gains for in-store sales but accounts for less than half of the gains expected for online sales.

"Health concerns drive the demand for online grocery to some degree, and this is likely to continue. Concerns about contracting COVID-19 motivate around 10% of online grocery’s monthly active users (MAUs), according to the October 2022 Brick Meets Click/Mercatus Grocery Shopping Survey. The recent rise of other respiratory illnesses, such as RSV and the seasonal flu, is also motivating customers to shop online for groceries.

"In terms of online grocery segments, Pickup sales are expected to grow at a 5-year nominal CAGR of 13.6% compared to 10.8% for Delivery and 8.0% for Ship-to-Home."

Published on: January 30, 2023

The Wall Street Journal reports that CVS and Walmart "are cutting pharmacy hours in the midst of a pharmacist shortage that has plagued the nation’s biggest drugstore chains throughout the Covid-19 pandemic.

"CVS, the largest U.S. drugstore chain by revenue, plans in March to cut or shift hours at about two-thirds of its roughly 9,000 U.S. locations. Walmart plans to reduce pharmacy hours by closing at 7 p.m. instead of 9 p.m. at most of its roughly 4,600 stores by March.

"Walgreens Boots Alliance Inc. previously said it was operating thousands of stores on reduced hours because of staffing shortages. Combined, the three chains operate some 24,000 retail pharmacies across the U.S."

The story goes on:

"CVS said in a statement it periodically reviews pharmacy operating hours as part of the normal course of business to ensure stores are open during high-demand times. 'By adjusting hours in select stores this spring, we ensure our pharmacy teams are available to serve patients when they’re most needed,' the company said, adding that customers who encounter a closed pharmacy can seek help at a nearby location. 

"At Walmart, the shorter hours offer pharmacy workers a better work-life balance and best serve customers in the hours they are most likely to visit the pharmacy, said a company spokeswoman."

The Journal also notes that "CVS and Walgreens are closing hundreds of U.S. stores and launching new healthcare offerings as they try to transform themselves into providers of a range of medical services, from diagnostic testing to primary care."

Published on: January 30, 2023

The Wall Street Journal has a story saying that "America’s biggest restaurant companies made a bet during the pandemic that you would rather eat the food cooked on their premises someplace else. Now they are gambling you will want to do so for years to come.

"The strategy from these giant chains is to orient their operations around drive-throughs and online ordering while testing new restaurant concepts that only serve food to go. They say these designs will make them more profitable and efficient since restaurants that bring fewer customers inside cost less to build, maintain and staff.

"The challenge these companies face is to make such changes without sacrificing hospitality. Their risk is that consumer behavior accelerated by the pandemic becomes fleeting, as happened with exercise bikes, streaming of movies and shopping from home."

The Journal notes that "demand for takeout is still strong even after dropping from peaks reached during the first year of the pandemic. Of all orders placed at U.S. fast-food restaurants in 2022, 85% were taken to go, according to market research firm the NPD Group. That is down from a high of 90% during 2020 but up from roughly 76% in the years leading up to the pandemic. Among full-service restaurants, 33% of orders were to go in 2022—nearly double prepandemic rates."

The Journal also cites examples of what the chains believe will be an ongoing TREND - McDonald's "has a new restaurant outside Fort Worth, Texas, with no tables or seats for customers and a conveyor belt that routes food to drivers who order ahead. Chipotle Mexican Grill Inc. also offers no place for customers to sit inside an Ohio restaurant that only takes digital orders. Taco Bell is evaluating a new design that features four drive-through lanes, double the typical two."

Published on: January 30, 2023

•  The Buffalo News reports that Tops Markets is going to start using its own employees, rather than Instacart employees, for instore picking at all of its stores that offer curbside pickup.

Kathleen Sautter, Tops' spokesperson, says that the retailer is "actively hiring in-store shoppers for all 58 locations and looking to recruit the current Instacart in-store shoppers who will no longer have a position with Instacart come April."

The News writes that "Instacart workers will continue to enter stores and shop the orders they deliver. Those workers are not employed by Instacart but are considered independent contractors."

Published on: January 30, 2023

•  From the New York Times:

"For more than a year now, the U.S. economy has faced two fundamental, interwoven challenges: Consumers wouldn’t stop spending, and prices wouldn’t stop rising.

Both trends are now showing early signs of reversing.

"Consumer spending fell in both November and December, the Commerce Department said on Friday, as shoppers pulled back amid rising prices, dwindling savings and warnings of a looming recession.

"Inflation is also easing: Consumer prices rose 5 percent in the year through December, according to the Federal Reserve’s preferred measure. While still much more rapid than normal, that was the slowest pace in more than a year.

"Taken together, the figures paint a picture of an economy that is, at long last, coming off the boil. From the Fed’s perspective, that is good news: The central bank has spent the past year aggressively raising interest rates in an effort to force consumers and businesses alike to pull back their spending, which should result in slower price increases. Now there is mounting evidence those efforts are bearing fruit."

•  Good Food Holdings-owned Metropolitan Market said last week that it is partnering with Focal Systems, deploying its operating system "to digitize and automate the Pacific Northwest grocery chain through optimized ordering, inventory management, merchandising, and in-store labor to completely transform the overall customer experience … This pilot will involve deploying hundreds of tiny, inexpensive shelf cameras that digitize shelves hourly with the most accurate computer vision on the market. Then, FocalOS will use that data to automate many in-store processes, enabling accurate just-in-time ordering, replacing the manual daily out-of-stock scan with automated hourly scans, improving product availability for customers by increasing the productivity of replenishment staff, reducing food waste with better produce ordering, and more."

Published on: January 30, 2023

Executive Suite is sponsored by Robin Russell Executive Search.

•  The St. Louis Business Journal reports that Schnuck Markets "announced it has hired Jada Reese as its new chief people officer, effective Jan. 30.

"Reese most recently was senior vice president of human resources at Enterprise Bank & Trust, a 47-branch commercial bank and subsidiary of Clayton-based Enterprise Financial Services Corp. (Nasdaq: EFSC).  She succeeds Laura Freeman, who had held the post at Schnucks since 2016 and left the company in December to join Tennessee-based hardware distributor Orgill Inc. in an executive human resources post."

•  The Wall Street Journal reports that Unilever "has appointed Hein Schumacher as its new chief executive, tapping the head of a European dairy cooperative to lead its effort to reinvigorate growth and navigate economic challenges," succeeding Alan Jope, who is slated to retire later this year.

According to the Journal, "The CEO change comes as Unilever looks to boost sales across its sprawling portfolio, while grappling with rising input costs, changing consumer trends and economic uncertainty.

"Mr. Schumacher, 51, is currently CEO of Royal FrieslandCampina, a dairy and nutrition business based in the Netherlands that operates in more than 40 countries. He joined Unilever’s board as a nonexecutive director in October."

Published on: January 30, 2023

Last week I referenced New Coke, saying that it was launched in 1990 … but my old friend Tom Gillpatrick of Portland State University pointed out to me that, in fact, it was introduced in 1985.

Mea culpa, mea culpa, mea maxima culpa.

Published on: January 30, 2023

Ted Bell, who spent decades developing a reputation as a legend in the advertising business before turning to a second career as a writer of thrillers and adventure stories, has passed away.  He was 76, and the cause of death was listed as an intracerebral hemorrhage.

Published on: January 30, 2023

We took note last week of a Boston Globe story about Addie's, a new independent pickup-only grocery store that has opened in Norwood, Massachusetts, about 20 miles south of Boston.  Addie's goal is to open 2,000 stores in 10 years, which led me toi comment:

I would suggest that McQuade check out a company called J. Bildner & Sons, a Boston-based retail chain that was way ahead of its time during the eighties when it came to fresh food marketing that catered to what then were called "yuppies."  It was a terrific format, and I really liked Jim Bildner … but they expanded beyond their ability to deliver on their value proposition, and the company eventually folded.

I could be wrong about this, and maybe it is too early to make such a prediction, but I'd bet dollars to doughnuts that if the software is as good as McQuade says it is, he'll either end up licensing it to other companies or will sell the concept to someone with deep pockets and a strategic mindset.

One MNB reader responded:

Two observations from reading this article:

1. Expansion strategy of that speed/magnitude/physical locations has never succeeded in retail nor in foodservice ( those of us with 30+ years retail/ foodservice experience read similar announcements and see failure looming)

2. Retail now has data that e-commerce orders do not deliver comparable profit as in store and in many instances deliver no profit…….so he will need to find another source of revenue….membership fees, advertising $ from manufacturers, etc.

MNB reader Howard Schneider had a thought about a New York Times piece suggesting that many retailers are going into a "defensive crouch" for the post-pandemic era:

The best “defense” is to make customer engagement, loyalty, and retention a priority every day. Building customer loyalty – which actually means a brand being loyal to its customers, not the other way round – isn’t a “program.” It should be a business strategy.

We had a story last week about how the increasingly troubled  "Bed Bath & Beyond doesn’t have the funds to repay its banks after they determined the retailer has defaulted on its credit lines," making it even more likely that the company will declare bankruptcy.  One MNB reader responded:

Sounds like a great investment opportunity for Fast Eddie Lampert!  Maybe open some new Sears or Kmart combinations!

Ha!

Published on: January 30, 2023

•  In the National Football League Conference Championships, the Philadelphia Eagles defeated the San Francisco 49ers 31-7, while the Kansas City Chiefs beat the Cincinnati Bengals 23-20.

The Chiefs and the Eagles will face off in the Super Bowl on Sunday, February 12.

•  In the Australian Open men's singles finals, Novak Djokovic defeated Stefanos Tsitsipas 6-3, 7-6 (4), 7-6 (5) to win his 10th title and 22nd Grand Slam overall, which ties him with Rafael Nadal for the all-time lead.

In the women's singles finals, Aryna Sabalenka won her first Grand Slam singles title, defeating Elena Rybakina 4-6, 6-3, 6-4.