Amazon’s stores hit a new low, Target invests in experience and how to tell you're old.
Whole Foods ends year with a bang
Four Whole Foods Market stores are slated to open in early November, capping the highest rate of growth since the grocer was acquired by Amazon in August 2017.
The store openings come as Amazon drops the $14.99 monthly fee associated with its Amazon Fresh delivery program. Grocery delivery is now free to those Prime members who live in zip codes in 2,000 cities where delivery is offered via Amazon Fresh or Whole Foods.
“Grocery delivery is one of the fastest growing businesses at Amazon, and we think this will be one of the most-loved Prime benefits,” said Stephenie Landry, Amazon’s VP of Grocery Delivery.
The move will put increased pressures on fulfillment costs while physical store expansion is surging. For example, the four new Whole Foods stores are set to open on November 6 and 7 in Parsippany, N.J.; Tempe, Ariz.; South Lake Tahoe, Nev.; and Houston. The locations, ranging in size from 28,500-sq-ft. to 40,000-sq.-ft, are in addition to 14 other stores that have opened this year and gave Whole Foods a total of 505 locations at the end of October. The 18 locations Whole Foods is opening this year is the most since the company was acquired in August 2017 when it operated 468 stores.
Despite the robust pace of expansion, Amazon’s financial results suggest its physical stores are the weakest aspect of its business. When Amazon reported results for the fourth quarter of 2017, the first reporting period to reflect a full quarter of Whole Foods results, it disclosed sales at physical stores were $4.52 billion. Amazon’s physical stores sales have been spotty ever since and hit a new quarterly low of $4.2 billion in the most recent third quarter.
The $300 million decline over seven quarters is huge considering Amazon has added book stores, Amazon Go stores and its newest creation, 4-Star stores, where only products rate four stars and above are sold. It’s also grown the base of Whole Foods locations to 505 units, 37 more locations than when the deal closed on August 28, 2017.
So what’s going on?
Whole Foods was not performing well when Amazon acquired the company, so weak sales reported at physical stores could suggest a further deterioration. Another explanation has to do with the manner in which the company reports results. Physical store sales are disclosed on the last page of the quarterly press release in a section called, “supplemental financial information and business metrics.” It’s here where a footnote reveals that physical store sales are naturally sales where customers physically select items in a store. However, in contrast to the rest of the retail industry, sales from customers who order goods online for delivery or pickup at physical stores are included in the online stores category.
This financial reporting decision, obscures the true performance of Whole Foods, because Amazon has been sinking billions into fulfillment methods with a portion of those investments leveraging Whole Foods stores as grocery pick-up and delivery hubs. Those sales would show up in a revenue bucket Amazon calls “online store sales.” It’s a category which includes all sorts of other sales fulfilled by the company’s vast distribution network as well as physical locations. Online store sales increased by 21% to $35 billion in the third quarter, according to the company.
Amazon’s physical store sales are likely to show further weakness in the quarters ahead based purely on how the company reports results. That because Amazon spent more than $800 million in each of the last two quarters to expand its free one-day delivery program and it is planning to spend another $1.5 billion during the fourth quarter. In addition, Amazon rolled out its Prime Now online grocery delivery and pickup program to more Whole Foods stores in the third quarter. The service is now available in 88 cities for delivery and in 30 cities for pickup. The popularity of the speedy delivery service helped the company exceed third quarter revenue estimates, but the sales won’t show up in Amazon’s reported results for physical stores.
How to tell your old
After expenses related to the roll out of next day fulfillment cause Amazon to miss analysts’ third quarter profit estimate, one digital pundit quipped, “who needs Cheetos that fast?” It’s a fair question, but not one a person who has only ever known a world with the internet and Amazon would ask. Digital natives as well as their parents want everything faster, Cheetos or otherwise. And they will want things faster tomorrow than they receive them today as expectations of speed are continually reset. Oftentimes it is Amazon doing the resetting with huge investments in its fulfillment infrastructure.
Target invests in omnichannel fulfillment
Target plans to invest nearly $50 million in payroll this holiday season to ensure it offers a high level of customer service and executes on its expanding portfolio of omnichannel fulfillment options. The retailer said it is doubling the number of employees dedicated to fulfillment following a 2018 holiday season that was its most successful in a decade. Target claims to offer the most comprehensive suite of options to satisfy shoppers’ needs, including Drive Up, Order Pickup and delivery with Shipt.
Bill Belichek’s advice to retailers this holiday
New England Patriots head coach and six-time Super Bowl winner Bill Belicheck is often heard on the sidelines imploring players to, “do your job.” It’s time for retailers to do their job in light of recent holiday survey showing shoppers plan to increase holiday spending by 4%. That was the finding of the National Retail Federation (NRF) which surveyed 7,782 adult consumers October 1-10. The 4% increase is based on what shoppers say they will spend, but what shoppers say and how they behave in store or online are often very different. Retailers who do their job this holiday season will be effective at growing sales with consumers are in very good shape, but naturally expressed reservations when asked about their spending intentions.
Putting some magic in the Magic Kingdom. What would Walt say?
MedMen Enterprises has opened cannabis stores in the heart of Orlando’s tourist area and Tallahassee, the state capital and home to Florida State University. MedMen now operates seven locations in Florida, plans to open five additional locations this year and is licensed for a total of 35 Florida locations. An amendment to the Florida constitution is expected to appear on the 2020 ballot that would legalize recreation use of marijuana after a similar ballot measure legalized medical use.
Another major store brand relaunch
Retailers keen to achieve differentiation and increase margins are all over the store brands trend. The latest example is the 352 unit Wakefern Food retailing cooperative. It plans to launch two new store brands next month, Bowl & Basket and Paperbird, to kick off a transformation of the retailer’s own brands program.
"With these pioneering launches we are truly elevating the ShopRite experience for each and every customer who walks through our doors," said EVP Chris Lane. "We are ready to deliver to the next generation of shoppers the products and store experience that will make ShopRite their market of choice for their family meals, foods on-the-go and grocery needs."
The new brands were announced in conjunction with the company shareholders meeting and the announcement that annual sales for the year ended Sept. 28 increased 0.7% to $16.6 billion.
INSIGHTS AND INNOVATION
Mastercard and Topco tackle food traceability
An interesting collaboration between Mastercard, Envisible and food retailer Topco Associates is designed to enhance visibility of food supply chains. Envisible’s Wholechain traceability system will be powered by Mastercard’s blockchain-based Provenance Solution and used by the Topco food cooperative to help its member-owners’ supermarkets trace and highlight the origin of seafood, beginning with salmon, cod and shrimp.
“Using Envisible Wholechain, powered by Mastercard, our grocers will be able to stock shelves with confidence and also be able to pinpoint issues in the food chain during any unfortunate events such as recalls,” added Dan Glei, executive vice president, Merchandising and Marketing, Food City.
Kraft Heinz invests in cannabis tech solution
Kraft Heinz probably won’t be infusing ketchup with THC anytime soon, but the CPG company’s innovation arm Evolv Ventures, has found a less risky way to participate in the industry’s growth. Evolv and a number of other investors funded a $23 million series A funding round for Flowhub, a SaaS solutions provider whose technology is built for the unique complexities of the cannabis industry.
With this investment, we will continue to automate the cannabis supply chain, retail and reporting processes and bring to market technology solutions that are not only shaping the cannabis retail business, but also driving forward the future of legalization and de-stigmatization,” said Kyle Sherman, Flowhubs founder and CEO.
Voice commerce gathers momentum
Household penetration of smart home devices will continue this holiday season, according to research from the Consumer Technology Association (CTA). The group’s 26th annual Consumer Technology Holiday Purchase Patterns Study revealed 186 million U.S. adults plan to purchase a technology gift this year. More than half (59%) of U.S. adults plan to purchase a smart home product such as a smart doorbell, camera or lightbulb as a gift. Smart speakers, such as the Amazon Echo and Google Home, top the category with 38% of U.S. adults planning to purchase one this season. CTA expects 11.3 million units to ship, but that’s actually a 42% decline from last year as more devices like TVs incorporate digital assistants.
Movista makes acquisition to advance retail execution
Retail execution and workforce management solutions provider Movista acquired Natural Insight, its largest competitor. The deal backed by private equity firm Level Equity brings together two of the largest domain leaders in retail execution technology to greatly consolidate the marketplace.
“Our technologies ensure the shopper finds what they want, when they want, where they want,” said Movista co-founder and CEO Stan Zylowski. “Together, we will lead the way to a more mobile, agile and collaborative retail environment that delivers tangible, measurable returns for our customers.”
Predictive analytics that will blow your mind
There are some amazing predictive analytics solutions in the market that help retailers and CPGs mine data sources to optimize all sorts of decisions. Now what if those same decisions could be made in less time than it took to read the last word in this sentence. Decisions that used to take weeks have been compressed to days and decisions that use to take days are further compressed to hours, but with quantum computing, hundreds of thousands of decisions that use to take hours will take a millisecond.
Quantum computing will change the world in profound ways, some positive and some scary. For a glimpse at the potential, check out a recent paper Google published on the topic and IBM’s reaction to Google’s quantum claims.
RETAIL LEADERS ON THE MOVE
A series of senior executive moves will take place early next year at Hormel Foods following the retirement of Tom Day, EVP of refrigerated foods, who spent 40 years with the company. Moving into Day’s role is Deanna Brady who currently serves as group VP of consumer product sales. Brady’s role will be filled by P.J. Connor who currently serves as SVP of consumer product sales. Connor’s position will be fill by Tony Hoffman, currently VP of business planning and support.
Hoffman’s move is noteworthy because he assumes the responsibilities Connor held since 2011 for leading Hormel’s Walmart team. Walmart is Hormel’s largest customer and accounted for 13.6% of sales of $9.55 billion in the most recently ended fiscal year compared to 14.4% of sales of $9.17 billion the prior year. Hormel CEO Jim Snee said Hoffman would move seamlessly into the Walmart team leader role.
Former Office Depot and CVS executive Mark Crosby was named CEO at The Michaels Companies after serving as interim CEO since February when former CEO Chuck Rubin left the nation’s largest arts and craft chain.
Dawn Stamper was named SVP of customer experience at Phillips Edison & Co., one of the nation’s largest owners and operators of grocery-anchored shopping centers with 336 properties.
“The retail industry continues to evolve at a rapid pace, and it is incumbent upon property owners to be customer-focused and solutions-oriented when it comes to offering an outstanding experience for our retailers,” said Bob Myers, the Company’s Chief Operating Officer. “This is a responsibility we continue to prioritize by anticipating tenants’ needs and providing products and services designed to produce mutually beneficial outcomes.
Ardent Mills, an ingredient supplier behind many retailers’ store brands programs, named Phoenix Dugger to the newly created role of corporate social responsibility manager. The flour-milling and ingredient company said Dugger will focus on research, planning, relationships with partners implementation of internal and external initiatives.
