Monday, June 1, 2015

Amazon Prime and Uber Are Changing the Map of Your City
Apps don’t just affect how we transport things and people. They shape where we choose to live, work, and play.
By Benjamin Freed | May 31, 2015Illustration by Alli Arnold..
Consider a few seemingly unrelated news events in and around Washington this past year:
  • Last July, Metro’s Silver Line opened, offering four new stops at Tysons Corner, including one that delivers riders to the region’s premier mall.
  • That same month, several dozen protesters showed up in front of the Washington Post building to express outrage over a Metro-section column that slammed bicyclists.
  • The month before, the District government approved a 45-unit apartment building—despite the fact that it had just 16 parking spaces.
  • Throughout the second half of 2014, hundreds of residents of Northern Virginia and DC pestered their local governments about the once-obscure topic of taxicab regulations—in this case, ones that might crack down on the car-hailing services Uber and Lyft.
  • In September, Yellow Cab, Washington’s largest taxi company, said its revenues had dropped by 30 percent from 2013.
  • In October, the US Postal Service began delivering packages on Sundays in DC to customers who shop on Amazon.
At first blush, these happenings don’t look like more than the small-potatoes stories they were—retail innovations, changing commercial fortunes, local political battles. But look again. Each has to do, in one way or another, with matters of transportation. And each is part of a related trend. When some savvy historian from the future reads up on the region as it is today, these may well add up to something much more interesting, something the area hasn’t fully digested: Washington is in the midst of a transportation revolution that’s substantially changing the ways residents get around—and, just as important, the way goods and services get to residents...
Take a look at the big picture: Car-hailing apps such as Uber, car-sharing outfits like Zipcar, new transit routes, and the proliferation of bike lanes have made it easier to avoid driving. Delivery services including Amazon Prime and Peapod (which plans to roll out a pilot project with Metrorail in which people can pick up preordered groceries at the station on their way home) leave even car owners with less need to make a trip. Zoning rules are being reconsidered, with fewer demands for parking spaces—a change that would affect the economics of what can be built and where. And increased construction can alter the bottom line for retail, potentially tempting more businesses to move in.
When it has been noticed at all, the new transportation landscape has been portrayed as a twentysomething phenomenon, a tale of carefree millennials who hype whatever supposedly disruptive new liquor-delivery app just hit the market and who make a lifestyle fetish out of using Capital Bikeshare to go home to their hip new neighborhoods. That interpretation has some truth. Young professionals—12,583 millennials arrived in Washington between 2010 and 2012—are the ones whose lives have been most shaped by the change.
But it’s a mistake to assume it will stay that way. Behind the scenes, changes in the logistics infrastructure are reconfiguring our mental maps of the region and are likely to affect the way all sorts of locals live, work, and play. Here’s the story of this new world.
Ditto Residential, a DC development firm, is putting up a 45-unit apartment building at 1326 Florida Avenue, Northeast. The Trinidad neighborhood, just north of the buzzy H Street corridor, is experiencing rapid redevelopment and an influx of many of the nearly 1,000 new residents DC has been taking on every month. There’s okay bus coverage, and the city government insists neighbors will get utility out of the new streetcar—it’s still delayed—but the nearest Metro station is more than a mile away.
Not long ago, that fact alone would have killed the idea. Lack of Metro access would have either scared off new residents or meant that they demanded parking, which in turn would have boosted prices above what people would pay in a marginal neighborhood, even one where homicides fell by 50 percent between 2011 and 2014. Even if would-be tenants weren’t insisting on parking spaces, city regulators would be operating off a zoning code written in 1958 that says developments in Trinidad have to include at least one parking space for every two housing units. This formula would have required Ditto to dig two levels of underground parking, exploding the project’s cost—a $636,000 difference that the firm says would have forced it to increase annual rents by more than $2,000.
Ditto won an exception after proving that people moving into buildings such as 1326 Florida are less likely than ever to be car owners. The city, however, attached some conditions: Ditto has to give free car-share or bike-share memberships to its tenants for five years, and it has to put up an electronic billboard in its lobby that shows arrival and availability information for nearby forms of transportation, in real time. This wasn’t the wholesale zoning change that walkable-city advocates wanted, but it was a neat illustration of the way 21st-century ideas about transportation are beginning to reshape the city.
Apps like Drizly are making it so we don’t even need to leave our homes to buy booze. Illustration by Alli Arnold.
That process works like this: First, it gets easier not to have a car. In recent years, things such as improved public transit and 69 miles of new bike lanes in the District alone have made Washington an easier place to navigate without driving.
Next, new digital businesses—Uber, Instacart, Car2Go—capitalize on this market. (Google has even made noise with a far-fetched idea to roll out a ride service featuring driverless cars.) One of the things these services collectively do is make up for some of the things you lose—say, access to a wonderfully big, suburban-style grocery store—by not driving.
Then the rate of car ownership tumbles: For the 18-to-34 demographic across the region, the share of people who drove to work fell by 7 percentage points between 2000 and 2013, according to the US Census. The District alone gained 12,612 car-free households between 2010 and 2012.
Finally, as a result, lawmakers and regulators have no choice but to catch up—which means even more bike lanes, liberalized transit rules, and denser neighborhoods whose residents make appealing customer bases for bike sharing, and cars by the hour, and novel delivery options for economy-size packs of toilet paper. It’s a cycle that reinforces itself.
A lot of this is a national phenomenon, championed by Silicon Valley disrupter types. But it’s taking particular hold in Washington. A decrepit, little-loved taxicab industry made ours an especially welcoming market for Uber, which was also poised to take advantage of the hassles that come with ferrying riders among jurisdictions. (As DC residents and Virginians did, Marylanders revolted when local pols threatened to get in the way of the business.) Uber’s business has lately been the subject of scathing criticism over less wonky things like labor relations, privacy, and safety, but even if the high-profile controversies curdle into a public backlash against the firm—or lead to changes in its practices—app-fueled rides are here to stay.
Likewise, bike sharing quickly became much more popular here than in similar-size cities. Members of Boston’s bike-sharing program, much of which is offered only seasonally, logged 1.7 million miles between 2011 and 2013. Capital Bikeshare recorded nearly 5.1 million miles over that span and another 4.3 million in 2014, with 80 percent of that mileage generated by locals with monthly or annual memberships.
The effects of this evolution shape possibilities for pedestrians as well as people who drive everywhere: After all, the vibrancy created by apartments like 1326 Florida has the potential to be manifested in commercial activities, not to mention tax dollars, that are available to anyone. People who don’t own cars may provide a particularly motivated market for Peapod or Lyft, but the transportation shakeup affects other people’s lives, too. The nightlife zones people avoid for fear of not finding a parking space become easier to visit. The marginal neighborhoods where people worry about being able to hail a cab to get to an early-morning flight become viable options. (Uber says a quarter of its DC trips begin or end in Northeast, which includes gentrifying neighborhoods like Brookland and Carver-Langston.) Our mental map of the region—of what’s convenient and what’s not, what’s close and what’s not—subtly changes.
The shift isn’t limited to the District. Suburban planners are remodeling communities around walking and transit. All you need to do to see this effect is ride the Silver Line out to Tysons, where the advent of Metro is expected to bring 45 million square feet of new residential and commercial construction over the next several decades. Late last year, Fairfax County adopted a master plan that calls for more than 1,000 miles of signed bike paths to be installed over the next three decades, up from 353 miles today. This isn’t a gift to weekend fitness buffs: The utopian plan envisions a population that walks or bikes every trip of less than three miles.
Yes, that sounds implausible now, but today’s teenagers are more likely to put off getting their driver’s licenses the minute they turn 16. A 2013 study by AAA found that nationally, only 44 percent of teens are getting their licenses within 12 months of that milestone birthday, and just 54 percent within a year of turning 18. Only 6,717 Maryland 16-year-olds got their licenses in 2013, and while that number is actually up from 2012, it’s less than one-third the number of 16-year-olds who got a license in 1995.
In Maryland, Montgomery County is aggressively converting the zone between Bethesda and Rockville known as White Flint into a hub of spiffy developments that blend apartments and condos with shopping, office space, and a nudge toward car-free living. The county’s long-term vision is a clump of “transit-oriented developments” around the White Flint Metro station and a conversion of Rockville Pike from a limited-access, high-speed byway to a multi-modal corridor with dedicated lanes for bikes, cars, and rapid-transit buses—and, if all goes as planned, a new market for digital businesses that facilitate the work of moving people and things.
“We like to think of transportation as its own little world, but it’s really about land use and mixed use,” says Gabe Klein, who was DC’s transportation chief under Mayor Adrian Fenty and is now an adviser to Bridj, a Boston start-up that engineers crowd-sourced commuter van lines and just launched in DC. “Suburbs are urbanizing, which is a good thing, particularly here. What used to be suburbs were empty car lots that are now high-density developments.”
I needed a new shirt. I could have gone to Nordstrom Rack near Washingtonian’s office, or to one of the upscale menswear brands that ring Farragut Square. More likely, I would have waited until the weekend to go to some Metro-accessible suburban mall. But, in the interest of this article, I outsourced the job to Postmates, an app that connects users with couriers who will pick up anything you want—a shirt, a meal from Chef Geoff’s, a home appliance from Target—and deliver it within an hour.
Thirty minutes after telling the app I wanted a new blue oxford button-down, I got a text message from an unfamiliar number saying, “Did you liked [sic] it?,” accompanied by a photo of the garment.
“Yeah, that’s good,” I replied. Exactly 14 minutes later, a man named Yoseph was standing by his car outside my office building waiting for me to sign for a light-blue Michael Kors shirt. It fit. The whole transaction took just 44 minutes, in downtown midday traffic. It cost me $69.30, including almost $21 in service charges and tip.
Two kinds of infrastructure are shaping the way we use the region. The type that dominated the 20th century was the heavy kind—freeways, railways, subways. As is clear to anyone who has watched the excitement over the Silver Line, or the handwringing over the fate of Maryland’s Purple Line, those things remain hugely important. Yoseph was an example of the second type of infrastructure, the lighter, private-sector, digital variety that popped up without anyone really regulating it or pondering its effects on the region at large.
Consider the retail world’s biggest player. Items ordered through Amazon are now delivered every day of the week, including Sunday, thanks to the deal the company struck with the Postal Service. That doesn’t just mean quick deliveries of obscure books. Think huge crates of diapers—a necessity for new parents, and one that until recently required a schlep by car. Now everyone, with or without a car, can skip that particular inconvenience.
Multiple apps are offering grocery delivery services. Illustration by Alli Arnold.
Same for grocery shopping and even sundries. While Uber and Lyft made inroads as taxi replacements, both have been described as aspiring logistics providers in a consumer economy. To compete with the likes of Postmates, Uber spent five months testing a service to deliver convenience-store sundries in DC. (The program ended in late January, and the company won’t say what’s next.) Google is getting in on the game, too, with an Amazon-like membership service offering same-day delivery of items from big-box retailers like Staples and Barnes & Noble.
“I would grocery-shop and I’d have all these bags in the car,” says Logan Circle resident Kate Zola. “At the time we lived on the circle, you couldn’t double-park. So it was calling my husband, saying, ‘Come down—I’ll get the groceries out of the car.’ And he’d get in and drive around to park. With grocery services, you can call it in and someone will bring it up the stairs for you.”
Still, while the new infrastructure may be celebrated most energetically by urbanist types, the effects are tough to predict. The possibility of easy transportation and quick access to stuff could just as easily enable living farther from the crowds of Zola’s Logan Circle neighborhood.
And as with any moment of capitalist innovation, a lot—perhaps most—of the new ideas won’t make it. Aba Kwawu, a publicist who lives in Rockville, used to tap a locally run company called My Kids Ride to ferry her children, then ages three and five, to school. The firm has since scaled back. But the comfort with the idea—and the possibility that someone will make a viable service that harried parents can rely on to organize their lives—remains. While Kwawu isn’t about to put her kids in the back seat of an Uber or Lyft car, she’s open to doing so someday. “If they had truly safe transportation and they were a little older, I could consider it,” she says. “For preteens or teenagers who are not driving age or not driving cars, why not?”
As for Postmates’ effect on the commercial landscape, restaurants say they’re seeing a bit more business thanks to the app, but thus far it’s no game changer. “I wouldn’t say it’s a big component today, but we like to look down the road and tailor our business plan to those things,” says Tony Velazquez, owner of Baked & Wired, a Georgetown bakery and coffee shop. “I don’t know if their business model is going to prevail. But we’ve just become an impatient society that wants things and doesn’t want to go anywhere. That’s how it’s going to be.”
If there’s a new transportation network that’s boosting sales at Baked & Wired—which is in a Metro desert—Velazquez says it’s Car2Go, a fleet of tiny Smart cars that allows members to park anywhere in the city. “Sometimes there’s 12 of them lined up on our street,” Velazquez says. “They come in the morning, they park on [Thomas Jefferson Street], come into our place, then go to work.” (Indeed, Car2Go says Georgetown is among the top three neighborhoods for usage.)
Specific business models are bound to fizzle—think of Kozmo, the spectacularly failed delivery service from the 1990s-era first internet bubble—and the politics of the new light infrastructure, like the heavy kind, are not guaranteed, either.
In Maryland, Larry Hogan campaigned against the $2.5-billion price tag on Maryland’s planned Purple Line en route to winning last year’s gubernatorial election. “My priority is building roads,” he told the Post in December, prompting transit advocates and local chambers of commerce to freak out. It’s too simplistic to paint Hogan’s reluctance as a “Republicans hate trains” thing. Even deep-blue DC has a large percentage of residents who resent the profusion of bike lanes and want government to ensure ample parking. Car ownership has been ingrained as an essential component of American life for generations, and not just in the suburbs.
For all the immediacy that these new apps and other services claim to offer, big infrastructural shifts need a long time to take effect. Even if all the region’s planned transit upgrades pan out by 2040, the Metropolitan Washington Council of Governments still expects 57 percent of commuters to be driving to work alone rather than carpooling.
What’s changed, though, is that the light, private-sector infrastructure is now a driver, too. Small things, we’ve learned, can alter neighborhood dynamics in a big way. And with every resident—car-owning or not—who comes to rely on a newfangled transportation service, or stops expecting there to be parking outside her home, or leads a life in which a bike lane or new streetcar is essential for getting to work, the politics change a bit. So does the business environment, where these residents are a market for still more unimagined ways of getting around and getting stuff.
“I know this,” says Kate Zola. “I will never own a car in my life again.”

Summary

  • We are quickly approaching a pivotal moment in Apple's history as technology and mobile are on a collision course with the automobile.
  • The themes we see playing out over the next 10 years in the automobile industry will serve as the foundation for the next 100 years of personal transport.
  • This likely means that Apple has no choice but to enter the automobile industry.
We are quickly approaching a pivotal moment in Apple's (NASDAQ:AAPL) history as technology and mobile are on a collision course with the automobile. While most would conclude Elon Musk's Tesla (NASDAQ:TSLA) and a few of the strongest automakers are the leading contenders of this new automobile era, Apple and Uber are the two companies best positioned to rule the new era of the automobile.

The Auto Industry Is Ripe for Change

Timing is everything. A few years too early and even the best product will fail to catch on with the consumer, while a few years too late and the best product will likely have already shipped. We are quickly moving towards a period where the auto industry is positioned for change.
Many are still not convinced Apple will enter the automobile industry because of doubt Apple can come up with a product that leapfrogs the best-ranked vehicle on the road today: Tesla's Model S. The problem with that thinking is that "better," when thinking about the future automobile, won't be defined by performance such as battery range, speed or acceleration. Instead, the primary innovation that will hit the auto industry will be shifting dynamics in which power moves from traditional auto manufacturers and car dealerships to technology companies that empower the consumer. Convenience and personalization will outweigh traditional performance metrics.
To rethink the automobile, one has to attack the current industry structure. Apple has had prior success with rethinking the way industries operate. The iPod, despite a revolutionary input method, did not become a mass-market success until Apple convinced the music industry to move to a $0.99 per song download model for long-term survival. The iPhone's biggest innovation may have been shifting the balance of power in the mobile phone industry from the carriers to Apple, something few analysts and pundits thought was possible. At the end of the day, Apple was able to position its products as the catalysts of change. This same type of "breakthrough" moment will occur in the automobile industry. Owning the manufacturing infrastructure capable of producing millions of cars will shift from a source of power to a liability. Instead, the power in the automobile industry will be found by the company owning the mobile ecosystem that empowers the consumer.
While many think Tesla is pushing the envelope in terms of altering the automobile industry, a closer analysis would reveal that Tesla is actually largely residing within the same structure, facing identical limitations to any other automaker, especially in terms of capital requirements and growth. Instead, companies like Uber are not only positioned to wreck havoc in the auto industry, but they are already causing much change. Uber isn't just a ridesharing app, but an aggregated demand phenomenon. Said another way, Uber is using the smartphone to match demand and supply for automobiles efficiently and cheaply. Uber is not alone as Lyft, its closest competitor, has seen some levels of success as well.
Many assume Uber will be the best taxi service in the world, but there are more important underlying trends taking place in the auto market. The automobile's value proposition is changing and few current automakers will be able to respond and remain relevant. Apple's ability to build experiences around style and a thriving ecosystem and Uber's ability to shift power back to the consumer represent the changes that will shake up the auto market the most since the Model T's introduction in the early 1900s.

Using the Model T to Determine the Future

Henry Ford had a very simple goal with the Model T: set the world free. Up to then, personal transportation was for the rich and privileged, which severely limited society's potential. The Model T was cheap, reliable, and utilitarian. These attributes were seen just by looking at the vehicle and its high-quality parts and high ground clearance to navigate a world with very few paved roads. Ford (NYSE:F) sold the Model T for the equivalent of what is around $5,000-$10,000 in today's dollars (the average price for a new car today is $33,000), a byproduct of pricing the automobile low to stoke demand, thereby making it cheaper to produce through economies of scale.
At the high point in 1923, Ford was selling 2 million Model Ts a year, representing approximately 50% of the vehicles on the road. The automobile was a tool for getting from Point A to Point B. Ford nailed the value proposition, and it seemed that the future was in his hands. However, there was one thing that he did not expect to happen.
Chevrolet introduced something that ultimately marked the end of Ford's dominance: different car styles. The automobile moved beyond just a utilitarian vehicle as people were buying new automobiles according to how they looked. Over the next 80 years this trend has only intensified. We now have an auto industry hungry for sales, segmenting the market according to not just style, but also performance and price. We went from a world where one model accounted for a majority of the cars on the road to one where buyers can spend months finding cars that best suit them.

Changing Value Proposition

The primary reason technology will alter the the automobile industry's power structure is that the automobile's value proposition will shift. We already see signs of this shift taking shape. The New York Times highlighted how teenagers can't wait until they turn 16 so that can have their own Uber. The way we value the automobile is changing. People who have never owned or driven a car may indeed hold the purest form of vehicles: tools to get us from Point A to Point B. Car ownership has likely corrupted those that have a car in the driveway, leading us to ignore the negatives and instead focus on the "positives" such as having a car at our disposal. Uber is beginning to expose those "positives" as thin attempts at finding purpose behind a large monthly expenditure.
There are outliers to this dynamic, such as high-end performance cars, but they aren't for the masses and don't represent the overall trend that is occurring across the world.
We are soon entering a period where a car's primary value will resemble that of the Model T, utility. People are once again starting to look at cars as devices that move them from Point A to Point B. However, technology has made it possible to improve on Ford's concept. The smartphone and software will make it possible to position convenience and personalization as the primary value attributes of personal transport.

Convenience

Uber is currently at the forefront of offering convenient personal transport. Using a smartphone (or Watch) to indicate demand for an automobile and then track the approaching vehicle on a map in real-time goes a long way in turning the vehicle into a commodity. Uber begins to question whether car ownership is the most convenient way of getting from Point A to Point B. The frustration with parking, maintenance, and the actual act of driving has its limitations.
This is bad news for automakers as the idea of ridesharing causes consumers to think beyond factors and attributes that automakers have spent decades building and marketing as reasons to buy their product. This shock to the system has similarities to the cell phone market when the iPhone altered what people expect and want out of a smartphone. One can now make the argument that the same thing is happening in the luxury watch market following the launch of Apple Watch. I'm convinced many other industries will follow a similar path as technology and software upend the status quo.

Personalization

There is one thing that Apple has the potential to excel at with an automobile: using hardware, software and services to personalize the driving experience. The ability to have the driver and passenger compartment adapt to one's lifestyle and personality is something that the world has never seen or even thought about.
Every subsequent technological breakthrough found in an Apple product has included a move towards becoming more personal. That trend will continue with the automobile.
Having a car be able to adapt to whoever is sitting in it, which makes more sense in a world where car ownership is on the decline, will be one of the most revolutionary developments the automobile has ever experienced. We are used to a certain level of customization in automobiles such as different seat positions, but personalization will add much more in the way of software to customization to produce an entirely new experience. A family with four kids and luggage has different needs than a commuter headed to work. Having a car that can adapt to both of these users in terms of seating, amenities, and not to mention technological needs and luxuries will be much more important than having a car that has fast acceleration or longer driving range.

Succeeding in Land of Disdain

If Uber's success and popularity aren't enough evidence that the world is ready for a new way of personal transport, consider the complete destruction of car culture in the U.S., where most of today's car loyalists still look at the 1950s and 1960s as the pinnacle of car fandom. Today people buy vehicles because they need to. There is now a certain level of disdain in the automobile buying market.
I have little confidence that the current fleet of automakers will be able to compete in an industry built on a different value proposition. Companies born in a mobile era such as Uber and Lyft are best positioned because they can extract value from a sea of commodity, where all of the cars are the same in and out. Mobile companies wouldn't be limited by car manufacturing which will represent a ball and chain. This is the primary reason why I fear Tesla, a pioneer in electric vehicles, may remain a pioneer because of its manufacturing facility.
Apple. The company that excels at selling experiences will rely on pages from previous playbooks with the automobile. Design will play a crucial element of any product from Apple with Jony Ive, Marc Newson, and the industrial design team playing a role in every piece that goes into the vehicle. Apple will rely on third-party contract manufacturers to assemble the actual electric vehicle. Mapping and other telemetrics will combine with a revolutionary personalization system to position the car to handle additional autonomous features including accident avoidance. I haven't even mentioned the innovation in terms of materials. In a sea of commodity, Apple knows how to build a pretty cool-looking vessel.
Uber. While a network effect has given Uber an increasingly valuable proposition for drivers (and users), I would expect the company to continue moving towards controlling key technologies that play a role in the Uber experience, such as mapping technology and navigation. The risk for Uber is being locked out of smartphones or operating systems in the future, the same fears held by Amazon and Facebook. This dynamic is made that much more interesting in an era where the entire automobile will controlled by an operating system. Uber's response may include eventually producing the entire automobile, relying on strong cash flow from ride-sharing to contract with a third-party to produce pretty generic commoditized vehicles.

Why Not Tesla?

Tesla's approach is largely confined within a legacy industry which represents its biggest challenge. While Tesla clearly has a lead in terms of software compared to other automakers, there are doubts that the company has enough resources to truly move beyond just performance-based metrics and begin to create an overall personal transportation experience.

Self-Driving Cars and Car Ownership

The automobile's value proposition will change regardless of self-driving cars. While there is strong evidence that truly autonomous cars are still many years off, the much more important aspect is that convenience and personalization (the new value drivers for the automobile industry) can be achieved in stages. A growing number of people already consider Uber as more convenient than owning a car, and this is in a world with no autonomous cars.
If self-driving cars do become a reality, then car ownership trends and the overall auto industry and will undergo such change in short order, it is difficult to truly conceptualize how many existing companies will lose relevancy overnight.

What About CarPlay?

Many people still think Apple's primary ambitions in the automobile industry are related to an expanded CarPlay where our iPhones will sync with a car's dashboard and infotainment system. On the surface, that plan sounds a lot easier than rethinking the entire car. However, there are several issues that are not being addressed. Putting CarPlay in a car not built by Apple is the equivalent of Apple putting iTunes on a Motorola phone in 2004. There are fundamental issues with not controlling the entire experience as the car manufacturer has a different value proposition than Apple.
Car manufacturers have not shown any willingness to lose major aspects of their vehicles dashboards and diagnostics to technology companies. Much of this is moot anyways because the overall auto industry structure is not altered one bit by just controlling the dashboard. To truly change the world, which is the only thing Apple would be focused on doing by entering the automobile, they need to embrace convenience and personalization and alter the way value is extracted from the automobile industry. That is only possible by owning the entire automobile including contracting out manufacturing to a third-party and owning the retail distribution.

The Next 10 Years Will Determine the Next 100 Years

The themes we see playing out over the next 10 years in the automobile industry will serve as the foundation for the next 100 years of personal transport. This likely means that Apple has no choice but to enter the automobile industry. The change that the auto market will undergo will have a number of important implications including the way cities are laid out, how we function as society, and how the car is just the beginning of how technology can impact our lives. Simply put, having technology companies control personal transport will be the start of controlling the home and other large portions of our lives.

The Importance of Food Traceability

OPINION
(This article was originally published in Food Safety Magazine on March 17, 2015, and is reposted here with permission.)
So what is driving all the discussion about food traceability? And why is traceability suddenly so important?
Traceability is most relevant when it comes to public health. Whether we are talking about food safety or food defense, emergency planning can be broken into four phases:
http://www.dreamstime.com/stock-photo-pears-bar-code-non-existing-product-image17955001. Preparedness: When planning for an emergency situation, traceability provides greater visibility into a supply chain, thereby helping to be better prepared if something goes wrong.
2. Response: In case something goes wrong, traceability improves the agility of the response by all stakeholders.
3. Recovery: During the recovery phase, traceability allows the industry and regulators to maintain or rebuild trust with consumers into the safety and resiliency of the food system.
4. Prevention: Traceability allows for the determination of causality of the problem through root cause analysis, thereby preventing future issues.
Let’s first take a look at who the key stakeholders are. They can be divided into government (such as the U.S. Food and Drug Administration, U.S. Department of Agriculture, U.S. Centers for Disease Control and Prevention, U.S. Department of Homeland Security, U.S. Environmental Protection Agency, not to forget state and local regulators); the food industry (including farmers, ingredient suppliers, processors, distributors, wholesalers, foodservice, retailers); academia (education, research, extension, Centers of Excellence), and consumers.
Traceability has become increasingly important. The global food supply chain today has evolved into a tangled web as companies seek to enhance their capabilities to feed the world’s growing population. While food safety problems remain rare, when they do occur, time is the enemy as public health and lives are at stake, as well as the livelihoods of industries, companies and employees.
The Global Food Traceability Center is intended to assist companies to better understand and implement ways to track and trace the paths of products through the food chain, to improve food safety and security, and to avoid or mitigate devastating public health and economic impacts. However, we want to emphasize that food traceability is about more than recalls. Being able to ascertain the origin of products, ingredients and their attributes, from the farm through food processing to retail, foodservice and the consumer, is growing in importance. Increasingly, public health concerns are demanding traceability, but it will be the business economic drivers that will sustain it. For example, according to the Grocery Manufacturers Association, the financial impact of a recall in the U.S. is quite significant: 52 percent of all recalls cost more than $10 million and 23 percent cost more than $30 million.
The food supply chain today is truly a maze that is global, dynamic and complex in nature. Key challenging issues include globalization of the food supply chain, changing industry processes, and consumer preferences for fresh and minimally processed foods. The maze begins at agriculture, followed by food processing, storage and distribution. During the transportation of food products, varied domestic and international regulations and standards are applied, not to mention variable enforcement, and inconsistent (and sometimes contradictory) scientific rationales for such regulations are encountered. Exiting the maze, one finds a cacophony of consumer trends and changing habits, health drivers and new threats, which include misinformation spread in the mass media. Thus, concerns about both the safety and quality of food continue to escalate.
Such concerns include the following:
• More foodborne illness: high visibility cases of E. coli, Listeria, Salmonella, etc.
• Higher number and visibility of recalls
• Rise in fraudulent activities in the food chain and counterfeit products
• More products coming from countries with lower health and safety standards
• Higher risk of contamination or spoilage due to long, complex supply chains
• Increased threat of terrorism
The impact of all this is considerable and significant, including:
• Economic loss from the negative impact of recalls
• Rising distrust of the food supply and fragile consumer confidence
• Greater demands for proof of food product claims
• Increased demands for regulation and guidelines
• Increased business costs to comply with regulations
Why is traceability so important? The reason really depends on whom you talk to.
For public safety, it’s about reducing incidences of food fraud, as well as unintentional or intentional adulteration, disease management, and environmental emergencies.
For businesses, it’s all about risk management and mitigation — lowering the impact of recalls and lowering liability costs.
For the supply chain, efficiencies relate to productivity, cash flow improvements, innovation, and reducing waste.
And, for consumers, it’s about access to markets and specialty foods and enhancing or strengthening brand confidence.
But, regardless of the specific reason, traceability is critical to all stakeholders.

Mariano's and Price Chopper: The Future Of The American Grocery Store?

Price Chopper, the New York State-based grocery chain, has gone all in on all things fresh. Chicago-based Mariano’s Fresh Market is pushing the envelope of premium in the fresh perimeter and throughout the center store. These players could be the tipping point of a quiet disruption within the upmarket (premium quality) end of the retail continuum that could spill over into the mid- and downmarket (low price-driven) sectors of the supermarket industry.
What disruption are we talking about?
It is the emergence of a next generation, upmarket-leaning, full-service grocery store that integrates both natural and conventional packaged products throughout the store while emphasizing very high-quality fresh perishables and fresh prepared foods as more than 50 percent of its total selling space.
In an evaluation of the American midmarket grocery landscape, we concluded that fresh foods were the one unique driver of the average grocery store in the U.S. Fresh foods have been the categories that have held their own or grown share in the face of relentless onslaught of Walmart, convenience operators, drug chains and hard discounters likeAldi, Bottom Dollar and Winco.
Image: The Hartman Group, Inc.
Image: The Hartman Group, Inc.

Fresh food is also well insulated from online grocery sales—at least for now. When America’s food shoppers want fresh perishables they have always headed to their local grocery store. But now, they also want to buy prepared foods, baked goods, fresh olives, marinated meats and more. The world of fresh has become broader and skews highly upmarket in American food culture.
Why are Mariano’s and Price Chopper stores percolating disruption? For the better part of the past decade specialty grocers like Whole Foods Market and the broader natural foods channel has defined the “upmarket” retail space, often overshadowing the growth of smaller, upmarket grocery disruptors traditionally lumped together by distributors as the “specialty” channel.
What industry analysts have overlooked to this point is the critical design and experience dichotomy between natural and health foods stores, on the one hand, which screen out legacy brands and processed foods, and specialty stores, on the other hand, which generally sell the entire continuum of quality but strongly emphasize high-end, premium products and staff-intensive, freshly prepared foods.
The specialty format is far less alienating to ordinary middle-class shoppers who might want enhanced access to premium quality, upmarket food experiences.
Why?
Because it doesn’t demand that they abandon all their favorite brands to fill their shopping cart. There is simply no hint of ideology to create a barrier to entry. Today, trading up to premium is a sincere, sensory and cultural desire for the highest-quality food experiences possible, but only as far as the shopper wants to take it.
Unlike many specialty chains, Mariano’s is taking over ordinary suburban grocery locations, not exclusively super-affluent, urban zip codes. Its ongoing performance may finally unlock a secret that specialty retailers learned long ago: getting trade-up shoppers in your door is not about eliminating all their prior brand choices for them and imposing your own corporate standards of quality but it is about emphasizing the highest-quality food available in every category and letting local shoppers choose how far they want to trade up within a broadly merchandised quality continuum.
Mariano’s may convince other conventional chains to accelerate their integration of organic and natural foods and to enhance their fresh perimeter departments. While this may seem obvious, many midmarket supermarket chains business models are still tied to the center of store. They just can’t seem to figure out how to convert square footage to expand the super-fresh perimeter where all the growth and action is.

By going big on fresh, like Price Chopper is doing, food-forward retailers are able to focus on making the perimeter of the store the epicenter of their business. A tight focus on fresh enables retailers to upsell local shoppers with food experiences that discount retailers will never attempt to reproduce.
There is something essentially intimate about selling fresh perishables and foods: it’s a theater in which consumers’ highest standards of quality are invoked. And the payoff is increasingly big. Price Chopper and Mariano’s knows this and are betting on it to lead them into the future.