Drones are for real, Costco keeps rolling and the most arrogant thing a CEO can say
Why shoppers will want drone delivery
Like the advent of barcodes and scanning in the 70’s, retail historians will look back at this decade as the one when drones entered the mainstream as an integral component of the supply chain. And a seminal moment, much like the pack of Wrigley’s gum first scanned in 1974, will be the first-of-its-kind certification UPS received on Sept. 27 from the Federal Aviation Administration. FAA granted the UPS subsidiary UPS Flight Forward Inc., what’s known as a Part 135 Standard certification on Sept. 27. The certificate permits the company to fly an unlimited number of drones with an unlimited number of remote operators in command who do not need to maintain line of site with the drone. The Part 135 Standard also permits the drone and cargo to total 55 pounds and fly at night, previous restrictions governing earlier UPS flights.
The 55 pound weight limit is considerable and addresses a key limitation that made drones impractical for the delivery of a larger orders. However, a UPS drone could now conceivably deliver a grocery order of several dozen items including a bag of pet food and a jug of laundry detergent.
“This is history in the making, and we aren’t done yet,” said David Abney, UPS CEO. “Our technology is opening doors for UPS and solving problems in unique ways for our customers. We will soon announce other steps to build out our infrastructure, expand services for healthcare customers and put drones to new uses in the future.”
For now, most retailers are busy rolling out and refining processes related to home delivery and click and collect. However, it’s conceivable that retailers someday will need to modify store designs, supply chains, training and staffing to accommodate drone arrivals and departures, recharging, maintenance, storage and operations. It’s conceivable because customers demand convenience, the technology exists to fulfill their desires faster than ever and regulators are establishing rules to govern drone flights - even if the economics are horrible of doing so in low margin categories.
Costco continues to sparkle, grocery growing online
Costco CFO Richard Galanti is always good for some colorful nuggets when the company reports quarterly results and that was the case again with last week’s reveal of fourth quarter results. The company sold a total of 200,000 carats of diamonds last year, including a rock worth $220,000 in Q4, it opened a new chicken plants that can process two million birds a week at capacity and its recently opened first warehouse in China already has 20,000 members, about one third that of a mature warehouse in the U.S.
Costco’s simple retail formula of limited assortment (3,800 items) warehouses and a growing online presence fueled a U.S. same store sales increase of 5.2% in the fourth quarter while full year sales increased 7.9% to $149. 4 billion. The membership renewal rate increased to 90.9% and 20 net new warehouses were added giving Costco a year ended total of 783 locations. E-commerce is always an area of focus with Costco because the company concedes it was slower than others to the digital game. However, e-commerce did increase 21.9% in Q4 and online grocery continues to grow at what Galanti called a “healthy clip.”
Target to get Disney bump in Q4
The magic of Disney has arrived at 25 Target stores and online in time to have a magical effect on fourth quarter sales. In store 750-sq.-ft. Disney shops should provide a nice boost to those locations’ fourth quarter same store sales while online sales will also benefit from the offering of licensed merchandise from some of Disney’s hottest properties. The deal solidifies Target’s credentials as a trend-right retailer and was described as “revolutionary,” by Ken Potrock, Disney’s president of consumer products commercialization. While that’s overstating things, the program does include 450 products, more than 100 of which were previously only available at Disney stores. Plans call for the Disney departments to expand to an undisclosed number of locations in the coming year.
H-E-B’s on-demand Favor service delivers for competitor
C-store operator Circle K expanded delivery service to its 600 locations throughout Texas with crowdsourced provider Favor, the company H-E-B acquired in Feb. 2018. Circle K, a division of Alimentation Couche-Tard, launched delivery with Favor in July at 160 locations in the Houston area. “We are thrilled to continue expanding Favor’s partnerships across the state to offer Texans the most convenient service on the widest selection possible, whether it is dinner from a local restaurant or now, their favorite beer, snacks and more from Circle K,” said Keith Duncan, chief revenue officer of Favor.
Tesco’s poor choice of words
The most arrogant thing any CEO can say is to declare a transformation has been completed, but that’s what we heard from Tesco recently. The company said its Group CEO Dave Lewis would step down next summer and be replaced by former Walgreens Boots Alliance executive Ken Murphy. The leadership transition was announced in conjunction with the release of first half 2019 results which showed Tesco’s continued performance improvement under Lewis’ leadership.
“Our turnaround is complete, we have delivered all the metrics we set for ourselves. The leadership team is very strong, our strategy is clear and it is delivering,” Lewis said.
The Tesco brand is stronger and customer satisfaction is the highest it has been for many years, giving the company a firm foundations with a competitive, sustainable growth strategy in place, according to Lewis.
Perhaps so, but is a transformation ever really complete? Of course not. Retail is dynamic and constantly changing because shoppers’ expectations are constantly changing and faster than ever. To suggest anything in retail is ever “complete,” goes against the grain of an industry where change is accelerating. In fact, change happens so fast that Tesco may regret asserting its transformation is complete if some of its assumptions don’t materialize. Tesco’s may have made progress under Lewis, but its work is just beginning.
A better approach to transformation is exemplified by what Emily Sheetz, AVP of Strategy at her family’s chain of 585 convenience stores opened, had to say a few weeks ago when it opened a new technology and innovation hub in Pittsburgh. She said, “Our mission at Sheetz is to create a business that puts the Sheetz as we know it today, out of business,” said Emily Sheetz, AVP of Strategy.
Why holiday sales forecasts are irrelevant
Every retailer knows three things heading into the holiday season. Unemployment just hit a 50 year low of 3.5%, gas is cheap and food price inflation is in check. These are things that affect peoples’ lives every day and directly impact how much they are able to spend during the holiday season, a period which extends from October through January. However, the tendency among forecasters is to qualify their projections clustered around a 4% growth rate with references to economic uncertainty, tariffs, political turmoil, whether the Fed will cut by a quarter point, blah, blah, blah.
Here’s the Retail Leader holiday forecast: Americans will tune out the noise and spend more than the experts think across a holiday season that extends beyond the bounds of the traditional November and December time period on which forecasts are based. They will also spend on merchandise categories forecasters exclude from projections, namely auto and restaurants. But why? People buy cars and eat out during the holidays, especially shoppers who are said to value experiences more than stuff. And money spent on a new Lexus or Mercedes and dining out is money that isn’t spent in retail stores.
The bottom lines is this; no one doesn’t spend money on Christmas because talking heads are debating the merits of a whistleblower complaints or China’s GDP, especially on their way to or from work after filling up their car with gas that’s nearing $2 a gallon and buying affordably priced food.
Insights and Innovation…..
Before anyone eats anything, data transfer happens
It may be the least sexy aspect of food retailing, but it’s also where the most innovation is happening. The IBM Food Trust initiative is a good example, with members such as Walmart, Kroger, Albertsons, Carrefour and major CPG companies, enticed by benefits related to food safety, freshness and traceability. The Food Trust ecosystem, according to IBM, is the only network of its kind to connect participants in food supply chains through a permissioned, permanent and shared record of food system data.
To enable sharing of data with IBM Food Trust, Silicon Valley company Procurent has launched ProcurantConnect, which the company bills as a first-of-its-kind solution to provide a single connection point for sending and receiving a variety of files.
“Trading partners in the food supply chain share a lot of information with each other, but variations in the way each company handles data leads to custom integration projects that can be expensive and time-consuming to set up and maintain,” said Ray Connelly, Vice President Supplier Strategy, Procurant. “We now have a simple and cost-effective solution for food suppliers that are being asked to share new kinds of data in new formats with multiple trading partners.”
PepsiCo’s converting snack plant to climate lab
PepsiCo is transforming a Modesto, Calif. manufacturing site, one of its largest in the U.S., into a showcase for environmentally sustainable manufacturing, warehousing and distribution. To do so, the company plans to replace all of its existing diesel-powered freight equipment with zero or low emission technologies at the 500,000-sq.-ft. facility. The $30.8 million project is slated for completion by 2021 and will integrate commercially available and prototype technologies in applications such as fleet vehicles and supporting infrastructure, on-site renewable energy generation and energy storage systems.
The project is a partnership with the San Joaquin Valley Air Pollution Control District (SJVAPCD), which received a grant from California Climate Investments that were matched by investments from Frito-Lay and American Natural Gas (ANG), as well as in-kind contributions from Café Coop.
Around the corner
Want to know how to tell that peak CBD has arrived? When the product appears on the front-page of a closeout retailer’s fall promotion alongside a chain saw and recliner. The wonders of CBD know no bounds and products containing ingredient have appeared in countless categories and on the shelves of retailers looking to capitalize on the trend. The latest example is Ollie’s Bargain Outlet, a closeout retailer known for its quirky marketing, that went public four years ago and now operates 332 stores. A recent Ollie’s fall seasonal promotion featured a three ounce tube of CBD containing lotion for $15.99, alongside a $229 recliner, $39 weighted blanket and a $99 chainsaw.