Friday, February 23, 2018

Costco or Amazon Prime? More shoppers are choosing both. How about you?

Originally published February 20, 2018 at 10:15 am Updated February 20, 2018 at 4:54 pm

This Jan. 31, 2018, photo shows a Costco in Homestead, Pa. (Gene J. Puskar / The Associated Press)

Seattle Times business reporterThe number of people who both pay to shop at Costco and pay for free shipping from Amazon has grown rapidly in the last five years.Fifty-seven percent of Costco members also pay for Amazon Prime, up from 13 percent in 2013, according to a survey of 2,500 consumers conducted last month for boutique research firm MoffettNathanson.The membership overlap underscores the increasing cross-town competition between two of the world’s largest retailers.

But so far, Amazon Prime, which charges $99 a year for free two-day shipping and a suite of digital services, isn’t convincing people to cancel their Costco memberships, which cost $60 a year for individuals after last June’s $5 increase.

“Over those five years, as membership overlap exploded, Costco has shown steady revenue and membership growth,” write MoffettNathanson analysts in a research note. They add, “Americans appear to be buying into the concept of owning two ‘shopping’ memberships as the value proposition is fundamentally different.”Walmart, battling both companies, recently announced that its warehouse club unit, Sam’s Club, will offer free shipping to its Sam’s Plus members, who pay $100 a year for membership. Walmart began to offer free two-day shipping for online orders of $35 or more last year.

MoffettNathanson estimates there were 80 million people in the U.S. and Canada with access to Amazon Prime in 2017, 62 million Costco cardholders, 64 million at Sam’s Club, and 15 million at BJs.Oliver Wintermantel, a MoffettNathanson retail analyst, is one of the millions of Americans with a Prime subscription and a Costco membership.

“These are probably the two retailers I go to most,” he said.

He regularly tracks his purchases on Amazon, an enlightening exercise he suggests everyone try. “People are always very surprised, how much they spent, how many products they got,” he adds.Wintermantel says he likes his Costco membership for the “shocking value” he finds on products that are sold at very low or no markup – Costco makes most of its profits from membership fees, which are a fundamental part of its business model – and the serendipitous discoveries he makes shopping there.

MoffettNathanson, which conducts these surveys periodically, has also found that more current Costco and Amazon Prime members intend to renew than did in 2016. At Costco that was true at all income levels, and for people age 35 and older. But fewer Amazon Prime members with incomes below $45,000 a year said they were likely to renew their memberships in 2017 than did in 2016 – although the renewal intention rate is for this group remained above 90 percent. (The Washington Post’s technology columnist recently questioned the value of a Prime membership.)

For both Costco and Amazon, renewal intention was down from 2016 to 2017 for one key age group: millennials. The declines were small, and the vast majority of people 18 to 34 still told survey takers they plan to renew.But it was enough to catch the attention of the MoffettNathanson analysts. Costco, in particular, is under pressure to show how it is attracting younger members. At the company’s annual shareholder meeting last month, CEO J. Craig Jelinek said more than 40 percent of Costco’s new members are millennials.

The analysts offer a couple of potential explanations for the dip in millennial renewal rates: “Maybe millennials are just less loyal than their parents when it comes to retailers, or perhaps more of them joined on a limited trial basis (i.e. Living Social promotions). It’s a trend that we haven’t seen in our surveys before so worth watching, especially as the stickiness of membership is such a critical attribute of the model.”

First Thoughts Dan Gilmore Editor Supply Chain Digest

Feb. 15, 2018

Supply Chain Comment: Is Amazon Really Building its Own Parcel Network?

New Shipping with Amazon Program Says Yes, but How Far Can it Take It?

I had planned to wrap up my supply chain predictions series this week with some additional prognostications from the analyst at Gartner and IDC, but the major news late last week about Amazon’s apparent real entry into the parcel delivery market has caused me to delay that planned column in favor of this more pressing development.

In early 2016, I wrote a column title Amazon – The Most Audacious Logistics Plan in History? that was based on a series of reports that seemed to indicate Amazon’s interest in developing an end-to-end global logistics capability.

That column came after news that Amazon had just leased 20 cargo planes for unclear purposes, as it was testing some cargo flights out of the old Airborne Express terminal in Wilmington, OH.

Bloomberg had also reported that “A 2013 report to Amazon’s senior management team proposed an aggressive global expansion of the company’s Fulfillment by Amazon (FBA) service, which provides storage, packing and shipping for independent merchants selling products on the company’s website,” Bloomberg reported. “The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London.”

The project’s name: Dragon Boat – and it was said then to be proceeding apace.

“Amazon wants to bypass these brokers, amassing inventory from thousands of merchants around the world and then buying space on trucks, planes and ships at reduced rates,” Bloomberg said. “Merchants will be able to book cargo space on-line or via mobile devices, creating what Amazon described as a ‘one click-ship for seamless international trade and shipping.'”

Around the same time, Amazon received a license to act as a wholesaler for ocean container shipping from the US Federal Maritime Commission and a similar license from the Chinese Ministry of Commerce.

Consistent with that, as a I reported at the time, a senior executive at a major freight forwarder told me at a Fall 2017 retail industry conference that Amazon already brings in about 60-80,000 containers from offshore into the US right now, and that this number could grow to some 250,000 in five years, likely pushing Amazon past Walmart as the largest container importer.

Many of Amazon’s recent moves, he said, are simply due to its insatiable search for more capacity, as it is strained almost everywhere with its still mid-20 percentage growth in merchandise sales.

That executive did not expect, however, that Amazon will actually get into the global logistics business directly, because the returns on such an investment would be very low compared to what Amazon can get from say building more fulfillment and sorting centers around the globe.

But what he does expect is that Amazon will put together a complete, end-to-end global logistics service that manufacturers and merchants around the globe will be able to leverage to ship goods cheaply and quickly from their locations to consumers in the US and Europe. So, it would indeed be an offshoot of Fulfilled by Amazon, in an “asset light” model.

But Amazon may have a more direct strategy for US parcel shipping. Early last year, it announced of plans for a major $1.5-2.0 billion air shipping hub at the Cincinnati airport, with more than 200 flight departures and landings per day to be scheduled. Amazon then denied it plans to enter parcel in a big way, saying facility was being built just to help meet peak demand requirements.

My reaction: who on earth would spend $2 billion on a facility and still more on planes, etc., that would only be used occasionally, in peak periods. My answer: no one, even spend-happy Amazon.

So last Friday, the Wall Street Journal reports that in a few weeks, starting with the Los Angeles area, Amazon will launch new program called Shipping with Amazon (SWA), in which Amazon will take direct control of shipping for its Marketplace sellers in the area, in which it will pick-up packages at those company’s facilities, get them into its network, and in some cases take those parcels all the way to consumers’ homes.

It is similar to, but different from, another service Amazon announced in 2017 called FBA Onsite. With this, Amazon will again take shipments from its third-party Marketplace sellers into its network, but only to leverage its volumes and scale using traditional carriers such as FedEx, UPS and the USPS for last mile delivery. The theory was that scale gives Amazon more options for the shipper in terms of cost and delivery times, and enable more Marketplace orders to participate in the Amazon Prime program that offers free two-day shipping for a set fee per year.

The SWA program takes that program ever further, with Amazon not just taking the shipment into its network, but taking care of final deliveries where it can. It turns out that Amazon already performs some last mile delivery in close to 40 markets. It is assumed it will take care of last-mile delivery in those areas, filling up its trucks and providing higher delivery “density,” the key factor in cost per delivery.

In other markets, it appears Amazon will often get packages close, say via truckload carriers or air, and then use the traditional carriers for the last mile.

Now, of course, the purpose of the hub under construction in northern Kentucky makes a lot more sense.

The Wall Street Journal reported that while the program is being piloted with the company’s third-party sellers, Amazon envisions eventually accommodating other businesses and that Amazon plans to undercut UPS and FedEx on pricing,

Wow. There are two key questions: (1) Can it work?; and (2) What does it mean if it can?

As always in such situations, I turned to our friend Jerry Hempstead, a former DHL executive and now parcel shipping consultant, for his insights.

“I don’t think it’s a threat to FedEx or UPS,” Hemptead told me. “The parcel world does not revolve around nor depend on the deliveries of sweaters to your favorite nephew or niece.”

He says that while Amazon is a huge fulfillment business it’s just a fraction of the world that UPS and FedEx operate in, noting that the core business of the carriers is actually B2B, not B2C, and by a large margin.

“My take on what Amazon is up to is to gain greater routing control over transactions coming from its suppliers and to reduce handling costs and a leg of transit when orders can originate from a supplier rather than transiting from an Amazon DC,” Hempstead adds. “The shipments will appear as if they come from Amazon but will actually drop ship directly from the supplier.”

This is “surgical” and “not some threat on the vast amorphous market served by FedEx and UPS,” Hempstead says, adding “The articles last week are way ahead of reality and the press (and Wall Street) made way too much of this.”

As UPS and FedEx have been saying for years, Amazon’s ability to one day haul and deliver packages for other retailers and consumers at a national scale would require tens of billions of dollars, requiring thousands of trucks, hundreds of planes and to build many sorting centers to handle millions of packages a day.

I agree generally, but have a slightly different take. While B2B may dwarf B2C at the moment, B2C is growing 15% per year, far faster than B2B. It inevitably will become a bigger factor in the mix.

Second, Amazon is taking the long view – a building options.

Third, the obvious strategy to me is for Amazon to take over the highest volume lanes – and let UPS/FedEx/UPSPS handle last mile in say Montana.

This point was also made earlier this year by our friend John Larkin of Stifel, who wrote that the fear on the part of carriers is that the company Amazon will skim off the base load volume and leave the end of week, end of month, end of quarter, and/or holiday surges to its outside service providers – who are investing heavily in their own networks on the premise that “base load volume will cover fixed costs and that the surges will afford the opportunity to make a profit.”

How this plays out should be fascinating and high stakes for Amazon and the carriers. I think it is great for Amazon to continue to compete on logistics – which many thought had become a commodity function before ecommerce and Amazon.

Thursday, February 22, 2018

Here Are The Top 10 Breakthrough Technologies For 2018

Bernard Marr , CONTRIBUTOR Opinions expressed by Forbes Contributors are their own.

MIT Technology Review unveils its breakthrough technology list for 2018 – a rundown of 10 awe-inspiring scientific and technological advances that have the potential to change our lives in dramatic ways.

I spoke to editor David Rotman about why these particular breakthroughs made the cuts, what makes them exciting – and why some of them raise important ethical concerns that will need to be addressed in the near future.

He told me “We select the list by asking each of our journalists what are the most important new technologies they wrote about this year? And which will have a long-term impact. We’re looking for fundamentally new advances in technology that will have widespread consequences.”

Technology Trends 2018 (Source: Shutterstock)

1. 3D Metal Printing

We’ve all become used to 3D plastic printing over the last few years, and the ease it has brought to design and prototyping. Advances in the technology mean that instant metal fabrication is quickly becoming a reality, which clearly opens a new world of possibilities.

The ability to create large, intricate metal structures on demand could revolutionize manufacturing.

“3D metal printing gives manufacturers the ability to make a single or small number of metal parts much more cheaply than using existing mass-production techniques,” Rotman says.

“Instead of keeping a large inventory of parts, the company can simply print a part when the customer needs it. Additionally, it can make complex shapes not possible with any other method. That can mean lighter or higher performance parts.”

2. Artificial Embryos

For the first time, researchers have made embryo-like structures from stem cells alone, without using egg or sperm cells. This will open new possibilities for understanding how life comes into existence – but clearly also raises vital ethical and even philosophical problems.

Rotman told me “Artificial embryos could provide an invaluable scientific tool in understanding how life develops. But they could eventually make it possible to create life simply from a stem cell taken from another embryo. No sperm, no eggs. It would be an unnatural creation of life placed in the hands of laboratory researchers.”

3. Sensing City

At Toronto’s Waterfront district, Google’s parent company, Alphabet, are implementing sensors and analytics in order to rethink how cities are built, run, and lived in. The aim is to integrate urban design with cutting edge technology in order to make “smart cities” more affordable, liveable and environmentally sustainable.

Rotman says “Although it won’t be completed for a few years, it could be the start on smart cities that are cleaner and safer.”

4. Cloud-based AI services

Key players here include Amazon, Google, IBM and Microsoft, which are all working on increasing access to machine learning and artificial neural network technology, in order to make it more affordable and easy to use. Rotman told me “The availability of artificial intelligence tools in the cloud will mean that advanced machine learning is widely accessible to many different businesses. That will change everything from manufacturing to logistics, making AI far cheaper and easier for businesses to deploy.”

5. Duelling Neural Networks

This breakthrough promises to bestow AI systems with “imagination”, through allowing them to essentially “spar” with each other. Work at Google Brain, Deep Mind and Nvidia is focused on enabling systems that will create ultra-realistic, computer generated images or sounds, beyond what is currently possible.

“Dueling Neural Networks describes a breakthrough in artificial intelligence that allows AI to create images of things it has never seen. It gives AI a sense of imagination,” says Rotman.

However, he also urges caution, as it raises the possibility of computers becoming alarmingly capable tools for digital fakery and fraud.

6. Babel Fish earbuds

Named for the science-fiction comedy concept introduced by Douglas Adams in The Hitchhiker’s Guide To The Galaxy, these are earbuds utilizing instant online translation technology, effectively letting humans understand each other while communicating in different languages, in near real-time.

Rotman says “Google’s Pixel Buds mean that people can easily carry out a natural conversation with someone speaking a different language.”

Although the ear buds themselves are still at an early stage and, reportedly, do not yet function too well, anyone can access the underlying technology today through Google’s voice-activated translation services on computers and mobile devices.

7. Zero-carbon Natural Gas

New engineering methods make it possible to capture carbon released during the burning of natural gas, avoiding greenhouse emissions and opening up new possibilities for creating clean energy. Currently, 32% of electricity used in the US is produced by burning natural gas – a process which accounts for around 30% of carbon emissions from the power sector. 8 Rivers Capital, Exelon Generation and CB&I are highlighted as key players here.

“The clean natural gas technology holds the promise for generating electricity from a cheap and readily available fossil fuel in a way that doesn’t generate carbon emissions,” Rotman says.

8. Perfecting Online Privacy

Blockchain-based privacy systems make it possible for digital transactions to be recorded and validated while protecting the privacy of the information and identities underlying the exchange of information. This means it is easier to disclose information without risking privacy or exposure to threats such as fraud or identity theft.

9. Genetic Fortune Telling

Huge advances are being made in predictive analytics using genomic data by players including Helix, 23andMe, Myriad Genetics, BK Biobank and the Broad Institute. This is making is possible to predict chances of diseases such as cancer, or even IQ, by analyzing genetic data. This promises to be the next quantum leap in public health protection, but also raises huge ethical concerns, including the risk of genetic discrimination.

“Nothing like this has been possible before,” says Rotman.

“Genetic fortune telling will make it possible to predict the chances that you’ll be smart or below average in intelligence. It will also make it possible to predict behavior traits. But how will we use that information? Will it change how we educate children and judge their potential?”

10. Materials’ Quantum Leap

Using a seven-qubit quantum computer designed by IBM, researchers at Harvard have created the most complete simulation of a simple molecule.

The molecule – beryllium hydride – is the biggest yet simulated by quantum computing.

Rotman says “The promise is that scientists could use quantum computers to design new types of materials and precisely tailor their properties. This could make it possible to design all sorts of miracle materials, such as more efficient solar cells, better catalysts to make clean fuels, and proteins that act as far more effective drugs.

MIT Technology Review’s full report on the list of breakthrough advances can be seen here.

Tops Files for Chapter 11

Heavy debt, pension dispute cited; company eyes quick restructureBy Jon Springer on Feb. 21, 2018

Tops Markets LLC on Wednesday filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to undertake a balance sheet restructuring and renegotiate contracts including collective bargaining agreements and pension obligations to union workers.

The Williamsville, N.Y.-based company, which operates 169 stores under the Tops and Orchard Fresh banners, said its debt holders have provided $125 million in debtor-in-possession financing as well as a $140 million DIP facility from Bank of America. Tops said it would use the new loan from lenders to pay off pre-petition revolving credit, and that the $140 million Bank of America facility would provide liquidity during its stay in Chapter 11.

The company in a statement said it expects to conduct “business as usual” during an anticipated six-month stay in Chapter 11 and that it intends to fully pay its vendors under normal terms. C&S Wholesale Grocers, Tops’ major grocery procurer, has extended the company an extra week of trade terms in exchange for Tops paying a portion of C&S’s prepetition claims.

Tops listed assets of $977 million and debts of $1.18 billion as of the end of its fiscal year Dec. 30. The company lost $80 million on sales of $2.5 billion for the year.

In the filing before Judge Robert Drain in the Southern District of New York, Tops characterized its business as relatively healthy, but said obligations of its heavy debt load had constrained its ability to invest and put it at a disadvantage against both gourmet and discount competitors.

“Tops has built strong market share and our stores continue to distinguish themselves by offering quality products at affordable prices with superior customer service,” Frank Curci, CEO of Tops, said in a statement. “We believe the financing that we received from our noteholders is a vote of confidence in our business. Our operations are strong and we have an outstanding network of stores and a talented team to support them. We are now undertaking a financial restructuring, through which we expect to substantially reduce our debt and achieve long-term financial flexibility. This will enable us to invest further in our stores, create an even more exceptional shopping experience for our customers and compete more effectively in today’s highly competitive and evolving market.”

Tops is owned by six senior executives who purchased the company from Morgan Stanley Private Equity in 2013, along with five representatives of its debtors. In a declaration filed in court, Michael Buenzow, a senior manager with FTI Consulting, said the previous owner “saddled the company with an unsustainable amount of debt on its balance sheet.” FTI was engaged by Tops in December to assist efforts to renegotiate terms with a committee of its debt holders. Buenzow was subsequently named chief restructuring officer.

Tops currently has approximately $715 million of pre-petition funded indebtedness, including $560 million of senior secured notes due in 2022 and an asset-based revolving credit facility from Bank of America with $68 million outstanding. Tops also has $34 million in letters of credit and a $10 million first-in last-out term loan, for a total outstanding amount due Bank of America of approximately $112 million.

Morgan Stanley acquired Tops from Ahold in 2003 for approximately $300 million and borrowed against it several times, often to pay itself a dividend. In 2009, the company issued $275 million in notes, from which Morgan Stanley took a $105 million dividend. An additional $75 million in debt was issued in 2010 to fund an acquisition of Penn Traffic. New notes totaling $460 million were issued in 2012, which redeemed previous debt and paid another $100 million dividend; and in 2013, a $150 million debt issue was used nearly entirely for a $142 million Morgan Stanley dividend.

Tops has also been embroiled in a longstanding dispute with the Teamsters union concerning a withdrawal liability of in excess of $180 million arising from Tops’ acquisition of Erie Logistics LLC from C&S in December 2013, and is party to pension funds with the Teamsters and the United Food & Commercial Workers that are underfunded by approximately $393 million.

Tops said it would endeavor to use tools in Chapter 11 to address its pension obligations and resolve the Teamsters arbitration dispute. Around 80% of Tops’ 14,000 workers are represented by unions.

Alibaba, Not Amazon, Shows Us Grocery's True Future

By Randy Hofbauer - 02/21/2018

It’s been less than two months since Amazon debuted its Amazon Go cashierless store concept to the public, following 10 months of tweaking the location’s “just walk out” system, which uses driverless car technology to detect and charge a person for a product when it’s removed from the shelf and the store. What some retailers might not know, however, is that Amazon founder and CEO Jeff Bezos isn’t the first retail visionary to execute such a concept.

Hema stores power everything via mobile: After downloading an app, shoppers scan items — all of which have barcodes — to learn more about products and recommended items, and to pay for them.

Jack Ma, founder and executive chairman of China-based retailer and technology company Alibaba Group Holding Ltd., already has a similar concept operating in a number of small-format stores. China’s BingoBox stores rely on RFID technology to detect what a person is walking out with and charge them while the items are being scanned upon exit. Although not the same technology that Amazon Go employs, it serves the same purpose — and, according to Technode, may be replaced by cameras with image-recognition technology that can scan and charge.

For those who may know the company only by name, Alibaba Group currently operates as the world’s largest retailer and one of its largest internet companies. While its businesses are diverse, it’s arguably best known for its three major ecommerce platforms: Taobao, a consumer-to-consumer website similar to eBay; Tmall, a business-to-consumer website for local Chinese and international businesses to sell branded products to consumers; and Alibaba.com, the world’s largest online business-to-business trading platform for small businesses.

But it’s also making its mark in brick-and-mortar, especially with groceries. And while BingoBox is quite the forward-thinking concept, it’s a chain of supermarkets that’s enabling Alibaba to really show the world what the future of retail looks like — and from which U.S. grocers can take inspiration.

HERE COMES HEMA

Hema — not to be confused with the Dutch retail chain of the same name — supermarkets are said to be the “purest manifestation of Alibaba’s ambitions to marry online with offline,” offering shoppers a “more efficient and flexible” shopping experience, according to Alibaba’s news site. Using technology and data to provide a seamless and more efficient shopping experience, Hema powers everything via mobile: After downloading an app, shoppers scan items — all of which have barcodes — to learn more about products and recommended items, and to pay for them.

Key Takeaways

Alibaba’s Hema supermarket chain in China marries online with offline in a way that should make U.S. grocers take notice.
Mobile needs to become the main way that customers interact with U.S. grocers.
U.S. grocers should team up with large digital-format companies, seeking out opportunities to collaborate with them in areas such as voice ordering and fulfillment of online orders.
U.S. grocers should also focus on location, and bear in mind technology’s costs and inefficiencies.

Additionally, a dining area allows patrons to eat as they shop, letting them hand-pick fresh food, including live seafood from a large aquarium. To save hassle, the in-store kitchen can cook food for eating on the spot.

For those who prefer to shop online, stores also serve as fulfillment centers, with each one serving a mile-and-a-half radius and delivering thousands of orders per day, each within 30 minutes. Customers order via the app, and orders are gathered by employees with scanners and bags sporting unique barcodes before being dropped off for delivery. Roughly 50 percent of Hema’s store revenue is through these app orders that are delivered from stores, says Jack Chuang, partner in global firm OC&C Strategy Consultants.

LEARNING FROM HEMA

Hema supermarkets arguably are the ultimate example of seamlessly blending online and offline shopping experiences, Alibaba Group CEO Daniel Zhang has said. And blending online and offline shopping experiences is exactly what U.S. grocers have made progress toward but not fully arrived at yet.

So if Hema is setting the standard, what must U.S. grocers do to seamlessly integrate the physical and digital?

MAKE APPS CENTRAL TO THE EXPERIENCE

Creating a full picture of the customer based on his offline and online activity isn’t easy. Early on, however, Alibaba invested in Alipay, an online payment account that also can be used for offline payments, particularly in grocery. “They found a way to make loyalty not just a discount-based thing, but a benefit — a convenience,” says Tom Gehani, director of client strategy and research at New York-based business intelligence company L2 Inc.

Before shopping a Hema store, consumers download a mobile app that links to Alipay. Whether they’re ordering online from home for delivery within 30 minutes or scanning barcodes in-store for product information, the customer is empowered by the app and uses it for all points of interaction with the store, products and transactions.

And across all points of interaction, the app gives information that helps paint a full picture of the shopper, both online and offline. Data collected from transactions are used to personalize recommendations, while geographic data help plan the most efficient delivery routes, Alibaba says on its site.

“U.S. grocers need to do a lot more with mobile than just having a series of apps,” notes Bill Bishop, chief architect with Barrington, Ill.-based retail consultancy Brick Meets Click.“Mobile needs to become the main way their customers interact with them. Mobile payment is probably the biggest gap in the U.S. today; nevertheless, there’s a lot more to do to fully integrate mobile into the path to purchase.”

TEST AND PARTNER

Hema is one of Alibaba’s bigger retail tests, and its careful rollout and expansion are proof that food retailers can develop some of their most innovative ideas as small, quiet trials.

“You need to have a couple different pilots occurring at the same time,” affirms Scott Webb, president of Chicago-based digital solutions provider Avionos.

Although there have always been some rigid points of entry in grocery, the ways that people are changing their shopping habits and grocers are adjusting show the need for pilots, he notes. Even when a grocer can’t afford 18 months to introduce a new integrated POS system or develop and launch a shop-by-phone app, it can have a number of smaller pilots happening at once. This is where working with a partner can be beneficial.

Hema points to its parent company’s forward-thinking approach to the digital retail landscape, and U.S. grocers could stand to benefit from this. Amazon is a secretive and real threat, but Alibaba appears open to discussions — it’s already playing a role in helping some brick-and-mortar retailers make the digital transformation.

Although some consumers prefer to shop from home, amenities such as an in-store aquarium that lets patrons hand-pick seafood for home, or on-site preparation and consumption, further bring together the physical and digital.

“Many of these retailers would be unable to achieve this transition on their own,” Bishop observes. “U.S. grocery retailers need to be open to partnering with large digital-format companies, but they also need to search out new opportunities to collaborate with them in areas like voice ordering and fulfillment of online orders.”

U.S. retailers have taken note: In January, the New York Post reported that senior executives at the Cincinnati-based Kroger Co. held meetings with counterparts at Alibaba Group about a potential partnership to “speed up the integration of online and offline sales.”

THINK ABOUT LOCATION

It’s been said that 90 percent of the U.S. population lives within 10 miles of a Walmart store, so pickup is a good option for many of the retailer’s customers. On a similar note, Alibaba’s Hema stores are strongly location-focused for customer convenience — built for those living within a 1.5-mile radius of them.

“And they’ve been building these in very densely populated parts of Shanghai and Beijing,” L2’s Gehani says. “I think that’s something grocers in general are going to have to think through: What is a highly urban-density format going to look like versus [one for] a rural area?”

BE AWARE OF COSTS, INEFFICIENCIES

Hema’s model has many merits, but they bring additional costs. Alibaba has been challenged to make Hema profitable, given the stores’ massive size and many hirings for managing delivery and inventory fulfillment. Of course, this is to be expected, as, just like in any market, expanding in grocery will bring growing pains, points out Gina Ashe, CEO of Boston-based retail intelligence platform ThirdChannel.

“Hema’s challenges should serve as a lesson for grocery stores to test out new concepts and formats in stages without biting off too much, too fast,” she notes.

Sure, shoppers will love having the freedom to skip checkout lines and place orders for pickup minutes before they arrive, Ashe notes. But they won’t love arriving at a store if their order isn’t ready on time, or running into technical glitches if the technology isn’t yet ready for scale.

“It is more important for the U.S. grocer to think through an ecommerce mindset,” says OC&C’s Chuang, such as “what drives traffic, how to collect data, how to use customer data to drive better assortment and conversion, and what excites customers in-store.”