Friday, June 30, 2017

What will the grocery business look like in 5 years?

June 26, 2017; 00:01 am by Bill Bishop

Recent moves by Lidl, Aldi and Amazon are sending tremors through the food distribution/retailing business that will result in major changes over the next 5+ years, and the question on the minds of many is: What will the grocery business look like in 5 years? Here’s what we see happening.

The ominous wild card

Amazon and the growth of hard discounters are going to suck a lot of oxygen out of the grocery market in the next 5 years, but by far the biggest and most ominous wild card is Amazon. With its offer to purchase Whole Foods, Amazon’s market position shifts from “outsider competition” to “one of us,” raising a lot of uncomfortable questions.

Will Amazon invest in lowering prices to drive more business to Whole Foods?
What else does Amazon plan to do with Whole Foods?
How will brand manufacturers be impacted by Amazon’s purchase?

We’ll return to changes in the competitive landscape later in this piece, but first we’re going to tackle an even more crucial topic – how consumers are changing. Because, how well you pay attention to consumers’ changing needs will mean far more to your survival than focusing on your competition.

Emerging Consumer Segments

Three consumer segments are emerging from the fragmentation that’s been eroding the mass market for two decades. Here’s a look at those segments, what motivates them, and what percentage of market share we believe they will represent in markets served by the full range retail options in 5 years. (Local markets with limited options will differ.)

1. Savings Superfans: 12% in 5 years, growing to 15% longer term

These consumers are willing to make tradeoffs in return for spending significantly less on food and groceries, and they will be strongly attracted to hard discounters.
Already, hard discounters’ market share is approaching 15% in the UK, and in the US, growth in this segment will accelerate – driven by the combination of new, larger Lidl stores and Aldi’s major investment in new and remodeled stores. For two years Bill Bolton and I have been studying the progress of Aldi and Lidl in this country, and we estimate their combined sales will reach $50 to $65 billion by 2023.

2. Traditionalists: 55% in 5 years, 47% farther out

Traditionalists are generally satisfied with current grocery options, but they don’t want to overpay. They are strongly attracted by retailers that carry a mix of aggressively priced national brands and private label products.
Walmart will be the big dog in the middle market. We don’t believe it’s possible for Walmart to match hard discounter pricing, and as industry consolidation continues, they are likely to become the default choice for shoppers who want national brands but don’t want to overpay. Walmart is in a strong position: It currently serves about 15% of the total US grocery market, it has a large store network, and it’s making a significant investment in both the in-store and online shopping experience.

3. Service Seekers: 33% of market share in 5 years, 38% farther out

These consumers are focused on value received and are willing to pay (though not necessarily overpay) for that value. They seek out products that are curated to support their values (like organic), and/or services that deliver solutions (like meals vs. ingredients) or save time (like online ordering, click and collect, delivery, and subscriptions).
Service Seekers will be attracted to a range of innovative retailers – independents that have pivoted to selling more food than groceries, the Amazon/Whole Foods nexus, and retailers like Sprouts and Wegmans that have forged strong relationships with their core customers.

Now for the competitive landscape

Although consumers will step outside their segment to satisfy certain needs, overall, each segment will be attracted to certain types of retailing. Competition within each segment will be intense for retailers – but competition between segments will be less so. The hard discounters will have a natural monopoly with Savings Superfans; with their efficient, private label supply chains, they will be nearly impossible to beat on price. Among Traditionalists, Walmart is in a strong position to increase its share as weaker players with similar offers (mainly national brands plus some private-label) drop out.

The competition for Service Seekers, will be intense and fast-paced. Success will require three things.

strong relationships with customers
excellent use of data to track changing tastes and values
agility, i.e., planning timetables that enable fast response

What will Amazon do?

Amazon will focus on competing for share within the Service Seeker segment with whom its offer resonates most strongly. We expect Amazon will:

Invest in lowering prices at Whole Foods for both in-store and online purchases.
Leverage the Whole Foods brand to improve its reputation for fresh foods, and leverage Whole Foods’ refrigerated supply chain/retail infrastructure to deliver against that promise.
Move to integrate online and in-store purchases for a seamless experience that includes significantly more Amazon private label products.
Actively develop and bring innovative new products to market, especially in the hot, fast growing areas of natural and organic.

What should you do now?

First decide if you want to stay in the game. This is not a throwaway question, and it deserves serious consideration. Second, if you decide to stay in, then you need to commit to the segment whose needs you can serve.
Finally, no matter which customer segment you serve, all retailers and suppliers will need to become more agile and nimble. Everyone will need to use their data to build stronger relationships with customers and to develop planning systems that allow them to respond more quickly.

Retail Lives - At A Discount

Rebecca Lerner ,

2017 research from IHL Group about store closings.

Research from IHL Group detailing store closings in 2017.

It would be easy to proclaim the end of days for retail stores. But amid the decimation of household names like Sears and RadioShack, one retail sector is expanding: discount stores.
According to IHL Group, so far this year the closure of 5,321 stores has been announced, a 218% increase over 2016. The biggest losers have been RadioShack and Payless, with 1,000 and 512 closings, respectively. Other big chains shedding triple-digit numbers of locations include Gymboree, Rue 21, Sears and Kmart, and J.C. Penney.
Mall-based retailers have been struggling amid the expansion of online commerce, and it looks like the fight is nowhere near over. Earlier this month, Credit Suisse predicted that 20%-25% of American malls could close over the next five years.
“It’s an example of fundamental transformation and an example of what happens when retailers don’t stay in contact with their core customers,” says Jeff Roster, Vice President of Retail Strategy at IHL Group.

But hope remains – for some. Amid the quicker drumbeat of bankruptcy filings and closure announcements, store openings are rising as well this year. have been up 53% year to year, with Major chains have announced the opening of 3,262 locations since the start of 2017, according to IHL, a 53% increase over last year. Discounters dominate the top of the table, with Dollar General announcing the opening of 1,290 locations while Dollar Tree announced 650 openings.

Research from IHL Group detailing 2017 retail store openings.

Dollar General already had more stores across the country than any other retailer.
Food is the unifying theme for the expansion of dollar store discounters. The leading dollar store chains have thrived over the past few years by expanding their food selections, turning into more of a one-stop shop. With food at the forefront, customers have more of a reason to make more frequent visits.
Aldi, the discount German grocer specializing in private-label food staples and household items, is adding 400 stores by the end of 2018 to its current count of 1,600. With its German arch-competitor Lidl opening up its first U.S. locations earlier this month, Aldi announced a $3.4 billion plan to open another 500 stores by the end of 2022, on top of a $1.6 billion effort unveiled in February to remodel and expand about 1,300 of its existing stores with a more upscale look to enable it to better compete higher up the food chain with the likes of Whole Foods.
Elsewhere in the discount realm, TJX has been an anomaly in the apparel retail sector, with 111 new store openings announced this year and robust net income of $2.3 billion for 2016.
The owner of T.J. Maxx and Marshalls has thrived by rapidly refreshing a limited assortment with prices 20% to 60% lower than other retailers. At a time when department store chains are struggling to define to shoppers why they should come to the store rather than shop online, TJX makes the vast majority of its profits at its approximately 3,800 physical locations, with same-store sales rising for 33 straight quarters, according to the Wall Street Journal.

“Power is increasingly in the hands of the brands,” writes Christian Buss, director of softlines and retail analyst at Credit Suisse, in his initiation note on the sector. “We believe brand differentiation will help set apart (retailers) who are looking to attract consumers.”

Is your culture what you think it is?

Ron Williams ,

Shutterstock

In my career, there have been many things I am fortunate enough to be proud of. Yet one of the things I feel most strongly about is the culture we created during the ten years I was at Aetna, and its enduring impact. In my experience, it is the leader – the CEO – who plays the crucial role in creating and “owning” an organization’s culture, setting the tone, and executing on that consistently. We know a culture doesn’t just happen; it is the result of what you do every day.
I believe in the power of a positive, high-performance culture, which begins with strong ethical values at the core. When I was at Aetna, we worked to create the culture and values with input from our then ~40,000 employees. We felt having employee insights early and often in the process was critical to our long-term success.

The single most important business reason to create a positive high-performance culture is the level and value of information leaders obtain when people are willing to discuss issues and problems. We know failures happen. When they occur, the leader needs to know what happened and what to do. In a negative culture people may try to cover mistakes and problems, and that undermines any real shot at performance improvement. In a positive and supportive culture, people will be more open to having fact-based discussions about problems, thereby allowing leaders to address those issues head on. As I have said many times, people are much more interested in meeting expectations than demands.
Your corporate culture: is it what you think it is?
I was at Aetna during a time of massive change. We were losing $1 million per day on average, and rapidly losing the confidence of members, customers, brokers and investors. Doctors were furious with us. We had also lost the support of our employees. We soon learned that they were demoralized and beaten down because of the poor performance of the company, the strained relationships with our constituents and the constant negativity in the media. Many of our employees were embarrassed to work for Aetna. We could not be successful in rebuilding the company without employees who were engaged and committed to the company’s success. Employees were our most important assets on our path to rebuilding. My job, and the job of the entire leadership team, was to re-engage the employees. Part of that came from working to fix the company so that we could see performance improvements. But we also needed to understand what led to this dysfunctional state.

Something I realized early on in my career: if you ask a leadership team what the culture of a company is, you will get an answer. But the real answer is how the company’s employees answer that question. The CEO’s responsibility is to get alignment between those two answers.
We began a series of activities to communicate with employees, including educating them on the reality of our business and its substantial challenges. We also asked for their input. Working with an outside firm, we developed a survey that was distributed to the entire employee population. And we found that our employees had a lot to say. The first year we conducted the voluntary survey we achieved close to a 90% response rate. We also talked to our employees through focus groups and we took what they told us and created company values, which reflected the beliefs of employees at all levels of the company. We reinforced the legitimacy of the values by using them every single day, but also by incorporating survey action items within our business plans each year. Over time, our management team members were held accountable for improvement on survey action items, and their compensation was tied to their performance related to these survey action items.
We probed a number of areas in the survey, but as just one example, we asked whether employees believed that the company was acting in accordance with its values, and whether in fact their own department and their own leader was. We placed a high value on leadership capability, and for performance evaluations of leaders, it was weighted as important as their business results.
The surveys, among other programs, became a regular part of how we communicated about culture and values, as well as a marker for how and whether our employees felt the same as we did about our culture.
Setting the right tone at the top is key. Consistency makes it work.
Much of a leader’s responsibility in creating a positive high-performance culture is setting the right tone, and acting on it consistently. That day-to-day execution – the tenor and tone – really makes the difference. With one deviation – one exasperating meeting – the CEO can legitimize bad behavior.

A way to reinforce the tone at the top is for the CEO to be clear on his or her expectations of their leadership team. While the CEO drives the culture, they can’t do it alone. The leadership team needs to be actively engaged in and supporting the culture, and the employees need to believe that their leaders are committed to the culture.
Another critical element in setting the tone is handling performance management. However the CEO models and communicates his or her expectations is how people will be held accountable. When conducting a business review in a setting with other executives watching, if results clearly committed to were not achieved, how does the CEO react and respond?

The CEO’s challenge is to signal that failure to achieve business goals is a serious offense for which people will be held responsible, but not at the expense of the person’s character. An example might be, “You missed the goal, you’re not a bad person but you didn’t do what you said. Let’s talk about what we could have done differently, or what we need to do differently going forward.” These are teachable moments, and not just for the person or team most closely involved. Everyone listening will learn both more about the specific issue at hand, but also what accountability means at their company, and how it will be handled when things don’t go as planned.
Understanding the role of the Board in leading from the top.
Since the responsibility for fostering a positive high-performance culture is the CEO’s, that creates a critical responsibility for the Board: to identify a CEO candidate with the right skills, values, and “touch,” and to work with the incumbent to make sure that all those qualities are appropriately deployed. Directors should be mindful of the elements of CEO performance that bear on culture.
The challenge for the Board is that Directors do not spend time with the executive in a routine operating environment – it’s not their job. Yet they must figure out whether the CEO is behaving consistently with the company’s values and its espoused culture, and whether he or she is doing so consistently.
In my experience, there are a few ways for the Board to develop those necessary insights. One is through interaction with other senior leaders rather than solely with the CEO. A second, and in my mind critical element is getting access to metrics. A well-conceived and well-constructed employee survey can be extremely valuable. It can open a window on employees’ cultural and emotional health, and reveal their perspective on the values of the organization. The survey allows Directors to determine whether what they think they see in the CEO and leadership team matches what the organization is experiencing. There may be times for the Board to act on this information – whether by articulating goals, making clear demands, or making a change, to ensure the long-term success of the enterprise.

Ultimately, a high-performance culture is about accountability, and performance is the focus. There may be consequences and breakage, and some people will be let go. In a positive, high-performance culture there should be clarity about what is important for success among all involved, from leaders to the front line. In the best cases, there also is a shared understanding of values and behavior. A positive culture is a high-information culture, and that is a good recipe for strong company performance and employee success.

JUNE 29, 2017

From Boston to Los Angeles, “mixed use” development, combining residential and commercial properties, is on the rise. The benefits that have been cited for colocating housing and retail establishments include reduced travel distances, more-pedestrian-friendly neighborhoods, and stronger local character. Recent research suggests another important potential benefit: Retail establishments may play an important role in crime prevention.
In our research, we examined the effect on crime of temporarily shuttering two types of retail businesses: medical marijuana dispensaries (MMDs) and restaurants. Why study dispensaries? In 2010 Los Angeles initiated a mass closing of two-thirds of the dispensaries in the city. The fact that the closings were based on a very arbitrary registration process that took place several years prior allowed us to use the closings as a natural experiment to estimate the causal impact of MMDs on crime.
Surprisingly, we discovered that the closures were associated with a significant increase in crime in the blocks immediately surrounding a closed dispensary, compared with the blocks around dispensaries allowed to remain open. Our results demonstrated that the dispensaries were not the crime magnets that they were often described as, but instead reduced crime in their immediate vicinity. And when breaking down the effect by types of crime, we found that the increases in crime after dispensary closures were driven by the types of crime most plausibly deterred by bystanders: property crime and theft from vehicles.
But our interest was in the effect of retail businesses on crime in general, not just in what happens when MMDs closed. We wondered: Would we observe the same dynamic in another retail context?
We then examined the impact of temporary restaurant closures by the Los Angeles County Department of Public Health for public health code violations. When a health inspector finds a violation that poses an imminent health hazard, the inspector immediately shuts down the restaurant. The restaurant must remain closed until a subsequent follow-up inspection confirms that the situation has been resolved. When we examined crime patterns around these closures, we found essentially the same pattern as we did with MMDs: The area immediately around a closed restaurant experienced an increase in property crime and theft from vehicles, relative to areas around restaurants that were either recently reopened or about to be closed. Furthermore, this increase in crime disappeared as soon as the restaurant reopened.
Given the differences in the nature of these establishments and the reason for and timing of their closures, we were left wondering what common factor might drive the similarity in results. One key factor common to retail establishments, whether MMDs or restaurants, is that they generate foot traffic. And with foot traffic comes informal surveillance.
As Jane Jacobs described in her groundbreaking 1961 work, The Death and Life of Great American Cities, people provide a natural form of incidental surveillance that can increase public safety. This idea, which Jacobs called “eyes upon the street,” has proven enormously influential, and is now a cornerstone of modern urban planning. But while it seems intuitive that criminals may be less likely to commit some forms of dark-alley crimes in front of an audience, the relationship between retail businesses and crime is more complex. Not only are retail customers (and the shops they frequent) potential crime targets, but they may also be perpetrators of crime. For that reason, the impact of retail business on crime is theoretically ambiguous — it could go either way — and until now there’s been virtually no rigorous empirical evidence.
We were able to probe this relationship in the context of restaurant and dispensary closures, offering new insights into the received wisdom. Specifically, to test whether a reduction in eyes upon the street could be the common crime-generating mechanism behind our results, we collected “walk scores” for each establishment in our sample. Walk scores are a measure of an area’s walkability as determined by the number of nearby restaurants, coffee shops, grocery stores, and other features that generate foot traffic. A business with a high walk score is located near many other businesses. Thus the closure of a business in a high-walk-score area should have a very limited impact on local foot traffic. On the other hand, the closure of a business in a low-walk-score area should have a proportionally large impact on total foot traffic. If our results were driven by eyes upon the street, we should find that, all else equal, crime is negatively related to walk scores. This is indeed the pattern we found: The increase in crime associated with business closures was stronger in neighborhoods with less walkability and fewer other businesses around.
A quick, back-of-the-envelope cost calculation using our results and crime costs from a 2010 study suggests that an open retail business provides over $30,000 a year in social benefit just in terms of larcenies prevented — something to keep in mind the next time you are deciding how much to tip at your favorite local restaurant, coffee shop, or bakery. It’s something urban planners should keep in mind as well when zoning neighborhoods. Retail businesses draw customers, and in doing so, lower crime.

Tom Y. Chang is an Assistant professor of Finance and Business Economics, USC Marshall School of Business.

Mireille Jacobson is an associate professor and the Director of the Center for Health Care Management and Policy at the Paul Merage School of Business, University of California Irvine.

Grocery Loyalty Program Memberships Continue Decline

M&A activity responsible, but situation can be remedied

June 29, 2017, 04:01 pm

Although growth of loyalty program membership has continued, reaching 3.8 billion, this year’s edition of Colloquy’s Loyalty Census shows that it slowed 11 points to 15 percent since the 2015 edition. And while several factors have been at play, grocery program memberships have contributed to this, dropping to 142 million from 88 million in 2015, continuing a downward trend in three consecutive reports.

The findings, presented by Toronto-based loyalty program and analytics firm LoyaltyOne, show that the 24 percent decrease in grocery program memberships is actually due in part to the many mergers and acquisitions in the sector. It also shows a need to continue offering enticing reasons for consumers to become members.

“The membership growth slowdown signals the U.S. loyalty market is maturing and retailers need to up their game on how to attract and retain members within their loyalty programs,” said Melissa Fruend, LoyaltyOne global solutions partner and author of the Colloquy Census, put out by LoyaltyOne’s independently operated Colloquy arm. “In order to improve loyalty marketing, brands must optimize the overall experience by creating more personalized and relevant experiences for their best customers.”

When looking at attributes that best keep consumers happy with and participating in a loyalty program, the 2017 research shows that 53 percent cite “easy to use” as the main one, even greater than “gives me discounts” (39 percent) and “easy to understand” (37 percent), both of which should also be considered by grocers, among other reasons. Conversely, grocers should take note of the greatest barrier to sticking with a program: “It took too long to earn points or miles” is the top reason for abandoning, with 57 percent of respondents citing that issue.

Additionally, the Colloquy Census shows that trust might not be as low as some think: Just more than half (51 percent) of Americans still trust loyalty programs with their personal information.

Amazon’s New Echo Show Has A Decent Chance Of Taking Over Your Kitchen Counter

The $230 device adds a visual element to the Alexa. In the kitchen that matters a lot.

[Photo: couresty of Amazon]

BY MARK SULLIVAN3 MINUTE READ

I have an Alexa Echo in my kitchen, but I’ve found it to be of limited use because it’s non-visual–it can hear and make sounds, but it can’t see and display images.

Amazon’s new Echo Show device (see our full review here) gives the Alexa brain both audio and visual senses. The device, which goes on sale for $230 Wednesday, does pretty much everything an Echo does, skills-wise—but for $50 more adds a camera and a 7-inch display.
While Amazon envisions the Show being used in your bedroom and living room, make no mistake: it’s optimized for your kitchen counter, where that 7-inch display is likely to be a crucial assistant in helping prepare meals and stock your fridge and cupboards.
“Say you use your voice to set a timer; now you can see how much time is left,” says GlobalData analyst Avi Greengart. “You might ask Alexa how many cups are in a gallon; now you can reference it (on the screen) a few seconds later, after you’ve forgotten the answer.”

Many of us have turned to online videos to learn how to make new things in the kitchen, and the Show will be perfect for that, especially if there’s a skill that lets you back up or pause the video using voice commands. Right now the Show is mainly a front end for Amazon’s Prime video, but the video selection will grow as third parties create new skills.
Many people have a TV in the kitchen because they like to watch the news while they cook. The Show might eventually make the TV unnecessary, Greengart points out. Echo owners are used to requesting news briefings, based on news outlets they select in the Alexa app. Those flash briefings might now become video playlists instead of just audio clips.
Amazon is set to release new developer tools to video doorbell companies so that the image caught by the front door cam can display on the Show in the kitchen.

The Show will work well for family communications that are better seen than heard—things like notes, to-do lists, shopping lists, or the family “chore wheel.”
Although this isn’t available yet, the Show’s screen might be easier to use than voice for controlling connected home devices, too, Greengart says. That’s because the verbal commands for controlling Alexa-connected devices can get to be a mouthful, like “Alexa, turn on light number 7B in the living room north wall.” It might be simpler to just tap a button on the Show’s screen.

The Show’s camera both detects people in the room (and wakes up) and is used for video chat with people on cellphones using the Alexa app. It can also be used as a sort of home intercom system, Amazon says, communicating with other Echos and Echo Shows around the house.
The kitchen is crucial—it’s where people tend to spend a lot of time and make plenty of purchasing decisions. Greengart says PC makers and others have for years tried to win a spot on the kitchen counter with various kinds of devices, without much success. Those devices had screens but didn’t have the Echo’s and Echo Show’s capability of hearing and understanding a voice command from across the room. That may set the Show apart.
Providing a kitchen counter device might be a good role for Amazon, Greengart points out, as opposed to one of the big platform players like Microsoft, Google, or Apple. Each of those companies is competing to get consumers to adopt their productivity services (calendar, email, etc.), so each may be less inclined to integrate of the other. Amazon, on the other hand, isn’t a platform play in that sense, so it might be more inclined to integrate with all of them.
There’s still a lot of things the Show can’t do. Right now the visual presentation of skills that have long been audio-only is limited. But expect Amazon and third-party developers to enhance the aesthetic quality and usefulness of the visual content.

And, of course, Amazon will make sure the Show offers many ways of purchasing products from Amazon.com. The Show, for example, is perfectly positioned as the front part of a system that lets consumers order groceries as needed at the kitchen counter to have it later delivered to the front door.

Thursday, June 29, 2017

Has CVS gone too far with its health kick?

11 EXPERT COMMENTS

DISCUSSION

Has CVS gone too far with its health kick?

Photo: CVS Health

Jun 29, 2017

by George Anderson

Three years after removing tobacco and the sales that go with it from its stores, CVS continues to make changes at its pharmacies intended to reinforce its strategic focus on health. The latest steps, according to a Wall Street Journal report, involve repositioning the candy aisle within its stores, delisting sunscreen products with SPF numbers below 15, and delisting foods that contain artificial trans-fats.

Earlier this year, the drugstore chain announced plans to remodel stores with an expanded selection of healthy food options, more informational signage, and “discovery zones” within its stores to help shoppers explore new products and health solutions.

In April, Judy Sansone, chief merchant at CVS, said the remodels were being driven by the chain’s research, which found consumers are “taking a more proactive approach to staying well.”

To date, CVS has remodeled four stores, according to the Journal’s reporting. It plans to have “several hundred” out of 9,700 complete by 2018.

Same-store sales at CVS pharmacies fell 4.7 percent in the first quarter as the drugstore chain sold more generics and filled fewer prescriptions overall. Front-end sales at stores open for more than a year declined 4.9 percent during the same period.

When CVS made the decision to get out of the tobacco retailing business in 2014, management predicted that the company would to take a $2 billion hit. At the time, CEO Larry Merlo said the chain had made the decision because “the sale of tobacco products is inconsistent with our purpose.”

Research released in 2015 by CVS found its anti-tobacco efforts had some positive effects as cigarette smoking decreased slightly in states where it operated. The company also reported an increase in the sale of nicotine patches while the number of visits to its in-store clinics for smoking cessation nearly doubled.

Rival Walgreens has continued selling tobacco products despite pressure from health advocates to follow the lead of CVS. Walgreens announced this morning that it was no longer pursuing its acquisition of Rite Aid. Instead, it has offered $5.2 billion to buy nearly 2,200 stores and other assets from Rite Aid.

The Rise of the Sharing Economy

Impact on the transportation space; In a world of shared assets, changing economics and customer preferences are increasingly driving transportation players not to go it alone. By Ted Choe

June 29, 2017

In only a few short years, the sharing economy has become a ubiquitous concept.
While still in its infancy, the sharing economy has disrupted a number of industries with lightning speed.
Any industry could potentially benefit from, or be disrupted by, the rise of collaborative consumption and the proliferation of asset-sharing models.
However, due to its natural fragmentation and asset intensity, the sharing economy is especially relevant to core transportation companies as well as to heavy users of transportation services.
Changing economics and customer preferences are driving transportation players to not to go it alone
The momentum of the sharing economy is unlikely to dissipate anytime soon.
As a result, core transportation companies and heavy users of transportation services need to learn how to play in a world of shared assets.
The bad news is that mobile technologies and digital platforms are eroding the traditional barrier to entry (i.e., asset ownership) and opening the core transportation industry to a spate of new competitors.
The good news, however, is that these same technologies are also creating new opportunities for forward-thinking incumbents to leverage a shared platform to grow their businesses and enhance their margins.
Core providers connect
Core transportation providers could leverage a network of shared services and assets with a goal of delivering higher value services to companies, while increasing profitability.
These providers could gain greater efficiency and provide better customer service by incorporating a shared platform into their business models. Traditionally, core providers, such as truck leasing companies, either dedicate assets to specific customer accounts or carry planned loads at pre-negotiated rates.
However by utilizing a shared platform, a truck leasing company or other core transportation provider could more effectively market excess capacity across its own customer base or with a broader network. In either case, customers would only lease the base capacity needed to fulfill core demand, while peak demand would be fulfilled by a shared fleet.
Heavy users get "asset right"
Heavy users of transportation services could shift to a shared platform to fulfill certain types of demand, potentially freeing up cash, minimizing vendor lock-in, and keeping prices aligned with the marketplace.
Heavy users of transportation services could become “asset right” by focusing on the core business while effectively using the excess capacity in the broader transportation system.
At present, retailers and other heavy users of transportation services typically invest in transportation assets (e.g., trucks or rail cars) or hire a third-party logistics (3PL) provider to fulfill key needs.
However in the sharing economy, a retailer, or another heavy user of transportation services, could choose to own only those assets that are needed to fulfill core product demand. It would then leverage a shared transportation platform to handle marginal demand. This shift would allow it to divest transportation assets that are used to fulfill seasonal spikes.
Signs of a changing landscape
A scan of the marketplace indicates the transportation ecosystem is evolving and new collaborative opportunities are emerging:
Technology-enabled coordination for regional parcel carriers

One regional carrier could leverage the assets of others to deliver outside of its normal coverage area, effectively employing a shared model
Regional parcel carriers already coordinate to provide a wider coverage area, but as coordination increases through technology-enabled capabilities, this could begin to look like a seamless, national, or even global network

Real-time marketplace for long-haul trucking

A transparent real-time platform for long-haul trucking that seamlessly interfaces with logistics management software could be used to leverage additional truck capacity, especially for less-than-truckload shipments
This idea is already being mobilized by start-ups such as uShip, and as the technology matures it may become a larger part of the transportation portfolio

Application of multimodal technology to the crowd

The reach of the crowd could be extended by coordinating handoffs between carriers at intermediate way points. This could effectively create a multi-regional or national network using a point-to-point delivery model
Coordination of warehouse space would be needed to establish the waypoints and reduce friction in the handoff process

Crowdsourced assets in the core supply chain

Retailers are increasingly turning to the crowd to fulfill deliveries from stores, but as they become more comfortable with the sharing model, they could leverage it to move goods between stores or from distribution centers to store

BREAKING: Walgreens pulls the plug on Rite Aid deal

AUTHOR

Daphne Howland @daphnehowland

PUBLISHED

June 29, 2017

Dive Brief:

Walgreens Boots Alliance on Thursday said it has thrown in the towel on the $6.84 billion effort to acquire rival Rite Aid. Walgreens has agreed to pay Rite Aid a termination fee in the amount of $325 million in cash, and the pull-back means the termination of the rivals' divestiture agreement with regional pharmacy Fred's, according to press releases from the companies.
Instead, Walgreens announced a new definitive agreement with Rite Aid under which Walgreens Boots Alliance will purchase 2,186 stores, three distribution centers and related inventory for $5.175 billion in cash, according to a statement. In that deal, Walgreens Boots Alliance will assume related store leases and certain limited store-related liabilities. Rite Aid will have the option, through May 2019 and subject to certain conditions, to become a member of Walgreens Boots Alliance’s group purchasing organization.
Walgreens expects the new transaction to be modestly accretive to its adjusted diluted net earnings per share in the first full year after the initial closing of the new transaction, and expects to realize synergies from the new transaction in excess of $400 million. Most of that will accrue over three years, according to GlobalData Retail Managing Director Neil Saunders.

Dive Insight:

From the beginning, starting in October 2015 when the merger plan was first announced, Walgreens Boots Alliance CEO Stefano Pessina has been adamant about making the deal happen, and the companies have been sweetening the pot in recent months to move along the process. Speaking to analysts in January, Pessina said the company had "no plan B” if the merger were to be scuttled. Later that month, at Walgreens' shareholders meeting, he said the organization was “actively engaged in dialogue with the FTC” and declared, “We’ll do anything we can to support their work.”
Today, “plan B” it is. The acquisition faced intense scrutiny by antitrust officials, and earlier this month it became increasingly clear that one solution from the drugstore rivals — a spinoff of Rite Aid stores to Fred’s — wouldn’t pass muster with them. That deal with Fred’s came as a surprise to some analysts because it wasn’t clear how the smaller pharmacy chain would raise the funds. Without the viability of that deal, there wasn't likely to be enough competition in the drugstore space to ease the FTC's concerns.
Fred’s on Thursday said that, though disappointing, the merger's failure wouldn’t interrupt its expansion strategy. “While the acquisition of additional stores was an opportunity for growth, we always viewed it as a potential outcome that would accelerate our transformation, not define it,” Fred’s CEO Michael Bloom said. “We are as confident as ever that we have a strong team and the right strategy in place to drive long-term growth and profitability, and to enhance value for our shareholders. We are excited about what we have accomplished and are optimistic about the future.”
Rite Aid also sought to emphasize that it will do well by the new agreement. "While we believe that pursuing the merger with WBA was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets," Rite Aid CEO and Chairman John Standley said in a statement. "The transaction offers clear solutions to assist us in addressing our pharmacy margin challenges and allows us to significantly reduce debt, resulting in a strong balance sheet and improved financial flexibility moving forward."
The new deal with Rite Aid will mean a lot less debt for Walgreens, Moody’s Investors Service noted on Thursday in an email to Retail Dive.
“The new asset purchase agreement to buy 2,186 Rite Aid stores and three Rite Aid distribution centers for $5.175 billion and the $325 million termination fee paid to Rite Aid will not require Walgreens to issue any incremental debt as it has sufficient cash balances to finance the transaction and continues to generate healthy free cash flow,” Moody’s Vice President Mickey Chadha said in an email to Retail Dive. ”Rite Aid intends to use majority of the proceeds to reduce its debt burden and provided the companies gets FTC approval for the new transaction we expect the asset purchases to be consummated over a period of time and completed over a six-month period.”
But GlobalData Retail managing director Neil Saunders slammed the FTC’s involvement in an email to Retail Dive as indicative of “the government's complete lack of understanding of how the retail market works in practice” and the drawn-out process as “a colossal waste of resources and effort.”
“Walgreens has to pay out a $325 million termination fee to Rite Aid, and all parties — including Fred's, which was due to acquire some Rite Aid stores — have invested time and money with very little to show for it,” Saunders said in the email. “When it comes to retail matters, we believe [the FTC] to be both inefficient and ineffective. Its previous decisions, such as the instance that Dollar Tree disposes of Family Dollar stores during acquisition, and that Albertsons-Safeway sells off stores during their merger, have resulted in failure. In both cases, the spin-offs, designed to provide more choice to consumers, went bankrupt and ended up back in the hands of larger players.”
But rival CVS Health, which was set to be dethroned as the nation’s largest drugstore retailer if the merger had proceeded, had reportedly warned the FTC that the Safeway deal actually served as a cautionary tale here.
Financially, the deal is good for Rite Aid, Saunders noted. But it's now a question how the retailer will fare as a much smaller entity. " After the deal, the group will have 2,337 stores, around half the number it has now," he said. "This will be punishing on economies of scale, especially for a company that is already struggling to turn a profit even before interest payments are taken into account. The answer lies in the agreement with Walgreens, which will allow Rite Aid to become a member of Walgreens Boots Alliance's group purchasing organization. In our view, this will be highly beneficial and will allow Rite Aid to improve pharmacy margins drastically."
Walgreens will also make out well under the new tie-up, which, Saunders notes, also will face antitrust scrutiny. "For Walgreens, the deal allows it to boost both the top and bottom lines at a time when growth is harder to come by," he said. "While the deal is not the deal of choice for either Walgreens or Rite Aid it is a good compromise that brings benefits to both parties. Ironically, it is also one that means Rite Aid will effectively become a part of Walgreens network, albeit with a degree of operational and managerial independence. Of course, all of this remains subject to approval and all eyes now turn to the FTC for its decision on this latest move."

Focus On New Ways Of Shopping Keeps Biggest Retailers Big

Posted by Kristen Cloud

Date: June 27, 2017

in: Corporate Store News, Home Page Latest News, National, Operations

Rank	Company	2016 retail sales (000)	Headquarters/U.S. Headquarters	2016 stores
1	Wal-Mart Stores	$362,815,000	Bentonville, Ark.	5284
2	The Kroger Co.	$110,215,000	Cincinnati	3825
3	Costco	$85,778,000	Issaquah, Wash.	497
4	The Home Depot	$85,086,000	Atlanta	1965
5	CVS Caremark	$81,482,000	Woonsocket, R.I.	9769
6	Walgreens Boots Alliance	$79,283,000	Deerfield, Ill.	8053
7	Amazon.com	$77,024,000	Seattle	3
8	Target	$69,495,000	Minneapolis	1802
9	Lowe's Companies	$60,409,000	Mooresville, N.C.	1831
10	Albertsons Companies	$58,696,000	Boise, Idaho	2392

Wednesday, June 28, 2017

Infarm wants to put a farm in every grocery store

Posted yesterday by Steve O'Hear (@sohear)

Imagine a future where you go into a grocery store to buy some fresh basil, and, as you traverse the aisle, instead of polythene bags containing mass-produced snippets of the herb that have been flown in from thousands of miles away, in front of you are a stack of illuminated containers, each housing a mini basil farm.

The plants themselves are being monitored by multiple sensors and fed by an internet-controlled irrigation and nutrition system. Growing out from the centre, the basil is at ascending stages of its life, with the most outer positioned leaves ready for you, the customer, to harvest.

Now imagine no more, because, to paraphrase science fiction writer William Gibson, the farm of the future is already here, it’s just not evenly distributed.

When we presented our idea three or four years ago, people looked at us and thought we [had] lost our mind

— Infarm co-founder Erez Galonska

Infarm, a 40-plus person startup based in Berlin is developing an “indoor vertical farming” system capable of growing anything from herbs, lettuce and other vegetables, and even fruit. The concept might not be entirely new — Japan has been an early pioneer in vertical farming, where the lack of space for farming and very high demand from a large population has encouraged innovation — but what potentially sets Infarm apart, including from other startups, is the modular approach and go-to-market strategy it is taking.This means that the company can do vertical farming on a small but infinitely expandable scale, and is seeing Infarm place farms not in offsite warehouses but in customer-facing city locations, such as grocery stores, restaurants, shopping malls, and schools, enabling the end-customer to actually pick the produce themselves.
“When we presented our idea three or four years ago, people looked at us as though we [had] lost our mind,” says Infarm co-founder Erez Galonska. “We are the first company in the world that has put vertical farming in a supermarket. We did it last year with Metro Group, which is one of the biggest wholesalers in Europe, and now we are facing very big demand from other supermarkets that want to do the same”.

Each farming unit is its own individual ecosystem, creating the exact environment our plants need to flourish

— Infarm co-founder Osnat Michaeli

That demand — which has also seen Infarm recently partner with EDEKA, Germany’s largest supermarket corporation — is driven by a change in consumer behaviour in which “people are seeking more fresh produce, more sustainable produce,” says Osnat Michaeli, another of Infarm’s three founders (the other is Guy Galonska, brother to Erez). More generally, she says, the food industry is looking to technology that can help solve inefficiencies in the supply chain and reduce waste.“Our eating habits have created a demand for produce that is available 365 days a year, even though some varieties may only be seasonal and/or produced on the other side of the globe… The food that does survive the long journey is not fresh, lacks vital nutrients, and in most cases is covered in pesticides and herbicides”.
“Behind our farms is a robust hardware and software platform for precision farming,” explains Michaeli. “Each farming unit is its own individual ecosystem, creating the exact environment our plants need to flourish. We are able to develop growing recipes that tailor the light spectrums, temperature, pH, and nutrients to ensure the maximum natural expression of each plant in terms of flavor, colour, and nutritional quality. Weather that be an arugula from Provence, Mexican tarragon or Moroccan mint”.
The Infarm vertical farming system has been designed to enable a “perpetual daily harvest”. Taking inspiration from the petal  constellation of the sunflower, the growing trays move plants from the centre to the outer perimeter according to their size and growth. Replenishing the plant food is as simple as changing a cartridge and water supply can also be automated.

In addition, a matrix of sensors collect and record data from each farm so that Infarm’s plant experts and tech team can remotely monitor crops and optimise the plants’ growth in real-time or troubleshoot any peculiarities, such as a change in atmosphere.
“The system is smart. It can guide you where to harvest and can notify you when the produce needs to be harvested, and this is your part in the game,” says Galonska. “Machine learning can help us understand and predict future problems”.
When a new type of herb or plant is introduced, Infarm’s plant experts and engineers create a recipe or algorithm for the produce type, factoring in nutrition, humidity, temperature, light intensity and spectrum, which is different from system to system depending on what is grown.
The resulting combination of IoT, Big Data and cloud analytics is akin to “Farming-as-a-Service,” whilst , space permitting, Infarm’s modular approach affords the ability to keep adding more farming capacity in a not entirely dissimilar way to how cloud computing can be ramped up at the push of a button.
This makes Infarm potentially scalable, both in terms of biodiversity and supply: from a small number of units in-store, where customers can get up close to the produce, to additional capacity at the back of a supermarket, to a large online retailer that may require 1000s of units and grow 100s of varieties.
None of which has gone unnoticed by investors.
The startup has just closed a €4 million funding round led by Berlin’s Cherry Ventures. Impact investor Quadia, London’s LocalGlobe, Atlantic Food Labs, design consultant Ideo, Demand Analytics, and various business angels also participated.

Christian Meermann, Founding Partner at Cherry Ventures, says the distributed nature of Infarm’s system is one of the things that made the startup stand out from other vertical farming companies the VC firm looked at. This, he says, is seeing Infarm create a network of farms that are centrally controlled and monitored from the cloud and do not require the startup to build huge farming warehouses of its own.
Meermann also talked up the machine learning behind Infarm, which he says is enabling it to figure out the most optimum recipe for different plant types to not only significantly enhance flavour but also let crops grow in parts of the world they otherwise wouldn’t be able to.
“When we started out, we were looked at as ‘idealistic dreamers’. In part, this might have been because we were self-taught and not many believed that we had the necessary expertise needed to invent a new agricultural solution,” adds Michaeli.
“The challenge [now] is in finding the right partners. Our initial focus is on supermarket chains, online food retailers, wholesalers, hotels, and other food-related businesses, for whom the superior quality and range of produce — with no fluctuation in costs — makes Infarm an attractive partner. In return, we can reintroduce the joy of growing to the urban population”.

Southern California's grocery battle heats up with the spread of discounter Aldi

James F. Peltz and Rachel SpacekContact Reporter

Ralphs was the supermarket of choice for Inglewood hairdresser Elise Santos — until grocery chain Aldi arrived in Southern California last year.
Aldi, a German-based discount grocer, opened its first U.S. store in 1976 but reached California only last year. It’s now rapidly expanding and quickly has become Santos’ go-to market.
“I prefer Aldi because it is smaller than grocery stores like Ralphs,” she said, and “the employees are friendlier and more helpful.”
With 38 stores in Southern California, Aldi is just getting a toehold in the local grocery industry. But with the region already one of the most competitive in the nation, Aldi is adding to the pressure on Ralphs, Albertsons, Wal-Mart and other big chains — as well as smaller grocers such as Sprouts — to keep loyal shoppers and avoid losing market share.
“The market is intense already, and when you put another horse in the race the field gets very crowded,” said Ron Johnston, who publishes the industry-tracking Shelby Report.
A few would-be rivals have already flamed out in the cutthroat Southland market. Fresh & Easy and Haggen Inc. both closed their stores in the region after failing to gain a steady following, due in part to operational and pricing missteps.
Undeterred, Aldi – which mostly sells its private-label groceries at low prices – plans to open at least 20 additional stores in Southern California in the next 12 months, said Liz Ruggles, Aldi’s marketing director.
It’s part of the company’s plan to spend $3.4 billion for an additional 900 stores nationwide by the end of 2022 on top of the 1,600 it already operates in the United States. The chain also plans to spend another $1.6 billion to remodel 1,300 of its existing U.S. stores by 2020.
That will further raise the stakes for competitors in Southern California, whose $45 billion in annual grocery sales makes it the largest U.S. grocery market, according to Johnston.
Besides Ralphs, the other players include Albertsons, which also owns Vons and Pavilions; Stater Bros.; Trader Joe’s; and big-box retailers such as Wal-Mart Stores Inc., Costco Wholesale Corp. and Target Corp. that have aggressively expanded their grocery aisles in recent years.
Although Aldi is a newcomer to the area, the family behind the chain already has grocery ties to Southern California: Aldi is controlled by the Albrecht family in Germany; through a family trust, the Albrechts also own Monrovia-based Trader Joe's.
Albertsons is the biggest operator in Southern California with 20.6% of the market, according to the Shelby Report. Kroger, which also owns Food4Less, is second with 18.7%.
Albertsons said it was prepared to fend off Aldi and any other rivals, including Amazon and others who are trying to expand grocery deliveries.
“Competition in the grocery industry is expected,” Albertsons said in a statement. “Our focus is, and will continue to be, to run great stores throughout Southern California.” Ralphs did not respond to a request for comment.
All grocers battle over price, convenience, service and selection, with prices especially crucial in an industry where the companies scratch out only a penny or two of profit for every dollar of sales.
Indeed, Kroger said this month that lower prices were cutting into its profit margins and said its national same-store sales – that is, sales of stores open at least a year and excluding gasoline – fell for the second straight quarter.
Asked why Aldi would fare better than Fresh & Easy or Haggen in Southern California, Ruggles said “we have four decades of experience in the U.S. and what we’re doing has proven to be a model that’s working.”
And another German-based discount grocer, Lidl, is coming right behind Aldi. Lidl on June 15 opened its first 20 U.S. stores in three Eastern states, and “it’s entirely possible” that Lidl could invade Southern California one day, Johnston said.
Another Inglewood resident, Patricia Foster, said she’s sold on Aldi because “the prices are half of what you would pay at Trader Joe’s, Ralphs or Target.”
Aldi’s stores are smaller and carry fewer items than conventional supermarkets, and they rely on more customer interaction to keep overhead costs down. For instance, customers bag their own groceries and it costs a quarter to use a shopping cart (with the quarter returned when the cart is returned).
The downside is that means it’s sometimes not a one-stop shop.
“I buy everything I can here but they have a limited selection, and I often have to go to another place to buy specific items,” Santos said.
Another shopper, retired schoolteacher Jennifer Baugher, said she didn’t buy produce at the Aldi Inglewood store because “I can get better quality at Trader Joe’s or Ralphs and I’m willing to pay more for that.” But she said Aldi “is very cheap compared to prices at [other] grocery stores in L.A.”
Ruggles said Aldi offers the “majority” of what customers are looking for and that it’s been aggressively expanding its offerings of produce, fresh meat and organic products.
The research firm IBISWorld recently noted that smaller-store formats, such as those operated by Aldi, Trader Joe’s and others, appeal to many consumers because they “allow shoppers to choose between a select number of high-quality products rather than thousands of brand names.”
“More supermarkets will follow this trend in order to appeal to a growing millennial demographic” ages 18 to 34 that prizes “premium private-label brands” in convenient store formats, especially foods aimed at the health-conscious, IBISWorld said.
Whole Foods is aware of that trend and plans at least six smaller stores, called 365 by Whole Foods, in Southern California that are aimed toward millennials. The first one opened in Silver Lake a year ago.

Johnston cautioned that “people are going to try [Aldi] out just out of curiosity and after that, in 60 to 90 days, you find out who your real customers are.” He said to “never discount the loyalty factor” many shoppers have with their longtime supermarkets.
“I would hold my breath before I made any predictions about how successful they’re going to be,” Johnston said of Aldi in Southern California.
For now, Ruggles said, Aldi is confident it can garner a bigger slice of the region’s grocery business, putting Albertsons, Ralphs, Whole Foods and others on notice.
“It’s working in California for us,” she said.