BJ’s CeO Chris BaldWiN ON BeiNg the Best p.8
NielseN CeO Chris MOrley Measures What Matters p.24
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CEo todd Vasos’
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Don Stohrer, Jr. CEO and President Arla Foods USA
Who is Arla? Based in Viby, Denmark, Arla is a global dairy cooperative owned by 12,700 farmers with a revenue of more than $12 billion worldwide. The company, which has 100 years of experience in the dairy industry, produces a variety of products across several categories and is the fourth largest dairy cooperative and seventh largest dairy business in the world, according to Rabobank’s 2016 Global Dairy Top 20. Arla’s brands include the Arla® brand, Castello® cheeses and Lurpak® butter and spreads. Arla began to expand its presence beyond Europe and into the U.S. dairy aisle in late 2015. The U.S. is a key focus of Arla’s growth strategy; Arla is working to create power brands and build awareness and sales across several dairy categories in America. Arla’s U.S. headquarters is in Basking Ridge, N.J., and the company operates a 110,000-square-foot cheesemaking plant in Hollandtown, Wis.
Question: Why is Arla different than other dairy companies, and well positioned to, in fact, become a leading brand in the U.S. market? Don Stohrer, Jr.: Arla occupies a truly unique space within the U.S. dairy category: our products are great-tasting as well as free from artificial flavors, preservatives and added hormones. Those attributes are pivotal to today’s consumers, who are looking for dairy solutions they can trust, which deliver on greattasting, clean-label needs they require for their families. Those qualities set Arla apart, since many competitive products are either great tasting but not really clean label or clean label but really lack the taste consumers demand. In addition, given that Arla is a cooperative we control the entire value chain – we are truly farmto-fridge. The products consumers buy from Arla begin with Arla milk, which is produced with strict adherence to industry-leading environmental, animal welfare and sustainability standards.
Based on Arla’s DNA as a cooperative, we’re able to give consumers what they’re looking for because we use only simple, recognizable ingredients and because we are the manufacturer. That truly distinguishes Arla from competition in the U.S. Arla’s Original Cream Cheese, for example, has only four ingredients. Q: As you expand in the U.S., what are some other ways that Arla is working on to grow the category? DS: Innovation is key to growth, and that includes wholesome, inventive dairy products that also happen to be clean label. One area of innovation for Arla is providing unique flavors and convenient formats, with growthdriving cheese types such as Havarti and Gouda cheese slices and all-natural Strawberry cream cheese and Mediterranean Garden cream cheese, which is infused with authentic flavors of that region. Packaging is focus of innovation at Arla. With consumers looking for on-the-go solutions and continuing
to snack throughout the day, we’ve recently launched a range of snack cheeses that provide consumers with delicious, nutritious snack options, available in Havarti, Gouda and Cheddar. Later this year, we’ll be launching a squeezable cream cheese tube, perfect for families looking for a fun, unique way to add Arla cream cheese to their bagels and toast. Q: In addition to product innovations, what are some other aspects of building the Arla name and expanding the category presence? DS: New users are important to the future success of any product and category. Thanks to the unique cheese types and cream cheese flavors we’ve launched, data shows that Arla is bringing incremental users into the category. Quite simply at the outset, the consumer has begun to get to know Arla purely by picking up our products in-store. The bottom line is that today’s parents are much more aware and vigilant regarding foods that they bring into their homes, and that’s created momentum for us since Arla is seen as a trusted solution for their needs. Until now, those clean label, truly kid-appealing dairy products were harder to find. From a business perspective, our entry is mutually beneficial for Arla and our customers, as we’ve seen incrementality since our entry. Twenty percent of Arla Cheese sales from a particular customer, for instance, drove 80 percent of the incremental revenue to that natural cheeses category. That kind of growth brings life to a category and shows that Arla products are what today’s consumers demand.
DS: We have really taken a multi-faceted approach to establishing ourselves in the U.S. market, to fulfill Arla’s global “Good Growth” strategy of creating the future of dairy by bringing health and inspiration to the world, naturally. In addition to bringing a certain “newness” to the dairy aisle with our variety of products, we’ve embarked on a journey to break through a category that has been somewhat static for a while, with a unique marketing campaign that rolled out in April. This began with a $30 million media investment across more than 20 national cable networks, broadcast and video on demand, as well as digital, social media, print and in-store retail support. The campaign, called “Live Unprocessed”, sheds light on ingredients that many competitors use in their products, and aren’t in Arla’s products. It’s a fresh, fun campaign that features the unprocessed minds of kids’ and their animated interpretations of “weird” sounding ingredients like xanthan gum and rBST found in other dairy products. Those commercials tested extremely well among consumers with strong purchase intent — especially with moms — and the campaign features flights in the spring and key back-to-school season, to share that message and drive Arla sales. In a more general way, Arla’s brand is built around the inherent product attributes, in providing the combination of better-for-you ingredients and great taste. Consumers also like to learn about the authenticity of products, and the fact that our 12,700 farmers are truly farm-to-table producers whose core values are rooted in environmental responsibility, animal welfare, sustainability and doing things the right way really resonates with them. Ultimately, in expanding our presence and categories, we hope to create the future of dairy by bringing health and inspiration across the world and right to people and their families. n
Q: Given the fact that you’re in your third year of a more significant presence in the U.S., how is Arla working on building its name and brand awareness among retailers and consumers alike? SPONSORED CONTENT
Retail Leader MAY JUNE 2017 VOL. 7, NO. 3
6 LETTER FROM THE EDITOR
DAY 1 FOR CPG RETAILERS. Good ideas can be found in any corner of the business world, but two companies stand out as sources of inspiration.
8 GROWTH AND BUSINESS DEVELOPMENT
IN FOCUS: BJ’S WHOLESALE CLUB. The retailer has positioned itself for growth with the backing of private equity owners and the leadership of CEO Chris Baldwin.
18 HUMAN CAPITAL
WORKPLACE IMPROVEMENTS. Retailers are giving an inch to get a lot in return from happier workers.
24 FINANCE AND CAPITAL MANAGEMENT
SOLVING THE PHYSICAL/DIGITAL RIDDLE. Nielsen President Chris Morley discusses global trends, changes in the U.S. retail landscape and how to make sense of it all.
THE NEW TRADE MARKETING MODEL. Changing shopper behaviors and a challenging growth environment have ushered in a new era for trade marketing.
30 COVER STORY
DOLLAR GENERAL. CEO Todd Vasos’ formula for growth.
38 SUPPLY CHAIN
SURVIVING TRUMP. America’s retailers are no fans of regulations, like the president, except when it comes to food safety and their reputation.
44 EVENT EXCLUSIVE
EXPECTING THE UNEXPECTED. Retail Leader gathered industry executives in Washington, D.C., for a first-of-its-kind roundtable luncheon around President Trump’s 100th day in office.
50 TECHNOLOGY AND INNOVATION
IBM’S ANSWER MAN. Darin Archer talks innovation, artificial intelligence, cognitive technologies and what’s new with IBM’s Watson.
58 WHAT’S NEXT
THE DIGITAL FIRST FUTURE. Two technology trends will revolutionize grocery shopping during the next five years.
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letter from the
Day 1 for CPG Retailers Good ideas can be found in any corner of the business world, but two companies stand out as sources of inspiration. Apple and Amazon are among the world’s most admired companies and rightly so. Their innovative products, services and business models have fostered customer passion and loyalty and made them two of the world’s most valuable companies. What the success of Apple and Amazon has to do with food and consumable retailing relates to their approach to innovation, re-invention and customer focus considering food and consumable retailers are grappling with unprecedented change, with much of that change driven by Apple’s product lineup and Amazon’s overall business model. Consider Apple’s global network of about 500 stores, more than 250 of which are located in the U.S. The stores represent some of the most productive selling space in the retail industry and in cases where those stores are located in malls the Apple stores are key drivers of traffic. Despite this success, Apple is in the process of reimagining its retail experience in new ways that are reflective of how its customers use Apple products. It even wants to get away from referring to the physical spaces as stores, according to Apple’s SVP of Retail Angela Ahrendts. She spoke recently at the Global Retail Conference organized by University of Arizona’s Terry J. Lundgren Center for Retailing and shed light on how Apple is transforming its retail footprint to be more reflective of how people use Apple products. For example, she noted that half of Apple’s stores were opened prior to 2007, which is the year the iPhone debuted. The iPhone now accounts for 63 percent of the company’s annual sales of $216 billion and the manner in which the product is used has change dramatically during the past decades. Photo and video now dominate so Apple is adding positions called “creative pros” to stores. Visually speaking, the stores will maintain their simplicity and minimalism but décor changes will lend the spaces a warmer and more residential feeling. About 30 to 35 stores will be remodeled annually as Apple looks to improve the relevance of its physical spaces rather than waiting until fading customer traffic indicated there was a problem. Amazon applies a similar “change before it needs to philosophy” that isn’t dependent on consumer research because consumers don’t always know what they want until a visionary shows them the way. This is one of the reasons why anyone connected to the retail industry owes it to themselves to read Jeff Bezos’ annual letter to shareholders. It is filled with interesting nuggets about specific Amazon businesses, but, more important, pearls of wisdom regarding Bezos’ management philosophy and the perennial topic of how it is still Day 1 at Amazon. That’s a reference to his first shareholders letter 20 years ago that spoke to the abundant opportunity that lay ahead for the company. In a turn, this year’s letter sought to answer the question of what Day 2 looks like and offered a somber answer. “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1,” according to Bezos. “To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.” To make sure it stays Day 1 at Amazon, Bezos offered a few defense mechanisms. Topping the list is customer obsession, an Amazon favorite, followed by a skeptical view of proxies, meaning don’t become a slave to process or allow market research to be a proxy for intuition when it comes to decision-making. The eager adoption of external trends and highvelocity decision making are other elements of the Bezos credo. These are challenging times for food and consumable retailers and CPG companies when it comes to driving growth and Bezos and Amazon are big contributors to the challenge. So why not borrow some of the company’s philosophies as it appears Apple and apply to your own business. RL
MIKE TROY Editor-In-Chief firstname.lastname@example.org
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> GROWTH AND BUSINESS DEVELOPMENT
BJ’s Wholesale Club
AMERICA’S MOST MISUNDERSTOOD RETAILER HAS POSITIONED ITSELF FOR PHYSICAL AND DIGITAL GROWTH WITH THE BACKING OF PRIVATE EQUITY OWNERS AND THE LEADERSHIP OF PRESIDENT AND CEO CHRIS BALDWIN. > By Mike Troy
BJ’s Wholesale Club has always defied neat classification. Even with the words “wholesale” and “club” in its name, it has never fit the mold of Costco or Sam’s Club. All three charge a fee to shop their warehouse style stores with limited assortments, but there are noteworthy differences in how BJ’s goes to market that make it a hybrid between a warehouse club, supermarket and convenience store.
“We are trying to be the best BJ’s Wholesale Club we can be versus trying to chase somebody else who does something similar to what we do,” BJ’s president and CEO Chris Baldwin said when asked about similarities to club competitors. Being the best BJ’s means operating a network of 214 clubs in 14 states along the east coast of the United States, where the primary focus is on helping families save money — especially on their grocery bills. “Our members tell us fresh food is the differentiating factor. We sell about 50 percent more fresh food per member per year than our club store competitors,” Baldwin said, noting that only about 15 percent to 20 percent of BJ’s approximately 5 million members have a membership with another club. “While we certainly price to our club store competitors, the reality is as consumer behavior plays out we trade trips more with grocery stores than we do with other club stores and that is why you see us talking about our value proposition relative to grocery versus other club competitors.” BJ’s takes aim at supermarket retailers in advertising, which characterizes the reaction shoppers have Chris Baldwin, President and CEO
Retail Leader.com MAY/JUNE 2017
upon looking at their receipt from the supermarket as, “grocery store receipt cringe face.” “We sell groceries at 25 percent less than grocery stores on average in our markets and we validate that every week,” Baldwin said. “Fresh food is what drives the frequency of visit and is a key reason why consumers pay to shop our clubs. We have almost one million members who shop us more than 50 times a year.” BJ’s also offer supermarket-like products and services that differentiate it from Costco and Sam’s Club. Although its clubs range in size from 70,000-sq.-ft. to 130,000-sq.ft — smaller than competitors’ buildings with upwards of 130,000-sq.-ft. — BJ’s assortment of roughly 7,000 items is double that of club competitors. BJ’s also accepts coupons, offers somewhat smaller pack sizes and operates a deli with freshly sliced meats. “Our value proposition is also very evident when you look at our fuel business. We sell at a penny or two below the best price in the market and are equal to other club store operators,” Baldwin said. However, a key distinction is that BJ’s credit card holders receive an additional 10 cent a gallon discount. “That kind of value proposition really matters.” The combination has resulted in a very loyal member base with a renewal rate of 85.5 percent. That’s not as good as Costco, typically in the low 90 percent range, but is believed to be better than Sam’s Club, which has never disclosed its renewal rate.
THE NEW BJ’S Baldwin joined BJ’s in September 2015 as president and COO after previously serving as CEO of the nearly 1,400 unit convenience store operation of Hess Corporation. Three months after joining BJ’s, Baldwin was elevated to the role of CEO when longtime BJ’s executive Laura Sen relinquished the CEO position but remained as chairman. Last May, Lee Delany joined BJ’s as EVP and Chief Growth Officer (see page 16) after previously leading the consumer practice at Bain & Company. The duo have positioned BJ’s for growth in existing and new markets, refined and experimented with new merchandise categories, and upgraded digital capabilities with their efforts guided by a philosophy to help members live generously.
“We proudly serve middle America. Our core member makes $75,000 to $90,000 a year. The opportunity we give them with a membership to save a significant amount of money is something we take very seriously,” Baldwin said. “We are living in a time where for the first time in a very long time median incomes have not grown in the United States. Our target consumer is one we lovingly refer to as ‘the smart saving family.’ They tend to be a mom and dad who both work with a couple children the club membership is a big part of their ability to afford what they want for their family and our ability to save them money every day we consider a very humbling responsibility.” As BJ’s applies that philosophy to its business it is leveraging member purchase history along with data from its propriety credit card to better understand members needs and wants. As a result, BJ’s is limiting its jewelry business and expanding into new categories. “We are working really hard to make sure our assortment is relevant and one of the things we hear from our members is a desire for us to be in home categories,” Baldwin said. “We will still be in the jewelry business, but it won’t get anywhere near the space it has in the past. We will use that space for home. We are beginning to launch appliance and we are entering the tool business for the first time in our history.” BJ’s has also streamlined its offering of own brands, going from 13 a few years ago to only two. The Wellsley Farms brand encompasses food and beverages and Berkley Jensen is apparel and general merchandise. The simplified approach worked, with own brand sales up 10 percent last year with a high teen penetration rate of total sales, Baldwin said. “We are working hard on our e-commerce business and you will see us rapidly expand a variety of capabilities in our e-commerce business that we believe are strategically sound and really reflective of what our members are looking for from us,” Baldwin said. For example, BJ’s lets members make appointments online for tire install and rotation service whereas its club competitors do not. Last year it began a service called “Pick Up and Pay,” and is looking at curbside pickup and scan and go payment options. BJ’s has also begun using its clubs as appliance showrooms. Transactions are consummated online and members schedule delivery, installation and removal. The Pick Up and Pay service is currently available for all nonfood products but Baldwin said the service will be expanded this year for reasons that have been well-documented by other retailers. “When members come to the club to pick up and pay they buy more stuff,” Baldwin said. “The basket is about double what they reserved online.”
THE PRIVATE EQUITY ADVANTAGE BJ’s financial results were headed in the wrong direction in 2011. Sales were growing due to the addition of new clubs, but same store sales were decelerating and BJ’s ended its fiscal year January 29, 2011 with total sales of $10.6 billion and profits of $95 million that were the lowest in four years. The private equity firm Leonard Green and Partners had entered the picture the prior year when it acquired a nearly 10
BJ’s has grown its store count to 214 units from 190 units under private equity ownership.
percent stake in the company. By early 2011, BJ’s acknowledged it was exploring strategic alternatives and then in September 2011 Leonard Green and CVC Capital Partners acquired the company for $51.25 a share in a deal valued at $2.8 billion. “Private equity has been great for our company,” Baldwin said. “In 2011, BJ’s had a pretty significant technology debt, but over the course of last several years our sponsors have been extremely supportive and made a very significant investment in improving the company’s technology infrastructure, most notably a full and successful install of SAP.” As a public company, such an investment would have been more challenging due to the expense involved and the fact that large scale ERP system installs don’t always go smoothly, leading to supply chain disruptions. “BJ’s now has a much stronger technology base, our investment profile is great and we are performing very, very well,” Baldwin said. “Another benefit is we have access to so many experts given (Leonard Green and CVC’s) long track record of successful investing in retail and other businesses.” The BJ’s nine member board includes chairman Laura Sen, Rob Steele, the former Vice Chairman of Procter & Gamble and Ken Parent, president of Pilot Flying J, who joined through private equity connections. They serve alongside three representative each from BJ’s two private equity owners. Beyond investments, talent acquisition and board leadership other beneficial aspects of private equity ownership speaks to longer term growth potential. At the time BJ’s was acquired it operated 190 units, but during nearly six years as a private company that figure has grown to 214 locations. A 215th location set to open June 1 marks BJ’s entry into South Carolina and Baldwin hints at BJ’s potential in dense markets where it already has experience operating. MAY/JUNE 2017 Retail Leader.com
> GROWTH AND BUSINESS DEVELOPMENT “In our core markets, particularly in the Northeast, those markets are not easy to penetrate. We have been extremely encouraged by our smaller footprint, particularly in inner cities,” Baldwin said, referencing locations in the Bronx and the Newark suburb of Kearney. “Our value proposition in those cities is even better than the 25 percent (grocery savings) we have across our company. We believe that value priced fresh food and club store offerings are extremely relevant in a world that is increasingly urban and in many cases Hispanic and we feel great about our proposition in those markets and we’ll do more and more of it going forward.” Other than the new location in South Carolina, BJ’s doesn’t have plans for additional units this year and Baldwin declined to share
a number when asked about future openings. However, it is clear he sees greater growth in BJ’s future given the company’s unique positioning and improving analytics and digital capabilities. “We will continue to expand and we feel great about a couple things. Over the past couple years we have delivered some of the best performance in the company’s history. We think businesses that can grow at the intersection of value and fresh can be very successful and we believe we deliver both well,” Baldwin said. “There are significant opportunities for us to continue to expand in our core markets and in new markets. As we get clearer and clearer about who our target is and how we can serve them better we feel very good about our right to win in the space we occupy.” RL
IMPROVING SUPPLIERS’ UNDERSTANDING OF BJ’S When Lee Delaney joined BJ’s Wholesale Club in May 2016 as Executive Vice President and Chief Growth Officer it seemed at the time to be an unconventional move. Delaney had spent the previous two decades at private equity firm Bain & Company and now BJ’s was asking a private equity guy to lead two of its most important functions: supply chain and merchandising. Oftentimes retailers in need of those skills look to poach talent from elsewhere in the retail industry or elevate someone from within their own ranks. BJ’s President and CEO Chris Baldwin had a different idea. “I am a deep believer that the world is changing rapidly to one that is driven more by analytics and quantitative capabilities than the old world where someone had to grow up in the stores to become a merchant,” Baldwin said. “I work for a company that has perfect information with purchase history for five million members and our ability to effectively use that information is something that Lee is uniquely qualified to do.” That’s because even though Delaney never directly worked for a retailer during his tenure at Bain & Company he did lead the firm’s consumer products practice. In that role he was focused on the retail industry and regularly interacted with and helped improve the performance of consumer goods companies, many of whom are BJ’s suppliers. “Lee has deep and rich experience with our suppliers and an ability to interact with CPGs at a level that many of our competitors can’t. He has been a big part of reframing how our suppliers should be thinking about BJ’s.” A key aspect of that reframing is to help suppliers better understand the potential that exists with BJ’s network of 214 clubs in 14 Eastern and Mid-Atlantic states and its emerging digital business. “What we have tried to do is help suppliers understand that in a limited assortment environment like ours if they help bring consumers into our clubs they are more likely to win in our clubs than they are in a store environment where there are 40,000 skus or 100,000 skus in a mass merchandiser environment,” Baldwin said. The typical BJ’s offers about 7,000 products, which is roughly double the assortment found in Costco or Sam’s Club but well below what is found in a typical supermarket
Retail Leader.com MAY/JUNE 2017
and dramatically less than what Walmart or Target offer. The growth potential argument resonates with suppliers, according to Baldwin, who are coming to appreciate BJ’s differentiated approach, loyal member base and deep insights capabilities. “Companies like Procter & Gamble have been particularly Lee Delaney, Executive thoughtful in giving us better Vice President and Chief resources in terms of the talent Growth Officer they put up against our business,” Baldwin said. “Given that we are membership club, we have perfect information and more and more of our work with them is how do we use that information to our collective advantage to better serve our members. The response to our challenge to suppliers broadly has been wonderful.” Using information is something BJ’s has been better able to do since the successful implementation of an SAP enterprise resource planning system. The supply chain and merchandising organizations under Delaney’s leadership are building capabilities to leverage member purchase history and develop strategies that encourage members to shop clubs more broadly depending on how long they have been a BJ’s member. Another area related to leveraging data stems from the fact that Delaney and Baldwin have strong CPG backgrounds. Delaney was at Bain & Company and Balwin was at Procter & Gamble and Nabisco before he served as CEO of Hess Retail Corp. immediately prior to joining BJ’s. Because of their CPG backgrounds the science of pricing is an area of intense focus for the merchandising organization. “We are making investments in pricing capabilities that will allow us to be more and more competitive going forward in all of our markets,” Baldwin said. “We are also dramatically improving our ability to localize our assortments. Our ability to manage assortments club by club is something that is dramatically improving every day.” RL
Talking T Talking T With… With…
David D David D Brennan Brennan G G General General Manager Manager Achievers Achievers A A
The The Achievers Achievers employee employee recognition recognition and and engagement engagement platform platform for retail for retail is is a comprehensive a comprehensive engagement engagement solution solution thatthat provides provides real-time real-time engagement engagement measurement measurement and and insights. insights. Through Through the the Achievers Achievers program, program, retailers retailers can can reinforce reinforce company company values, values, capture capture employee employee feedback, feedback, promote promote recognition recognition frequency frequency and and drive drive business business outcomes. outcomes. Achievers Achievers Corp. Corp. is Blackhawk is Blackhawk Network Network company. company.
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Additionally, Additionally, manymany of of our customers our customers are tying are tying recognition recognition directly directly to keytobusiness key business DB: IfDB: you’re If you’re not already not already doingdoing it, theit,time the time is now is now initiatives initiatives and measuring and measuring the resulting the resulting value value on investment on investment to begin to begin thinking thinking aboutabout how to how link toyour link your R&R R&R of thisofspecific this specific and strategic and strategic recognition recognition campaigns. campaigns. We are We are program program to your to your company’s company’s key strategic key strategic goals. goals. also seeing also seeing some some very interesting very interesting developments developments with regards with regards If you’re If you’re not using not using R&R R&R to move to move the needle the needle in in to people to people analytics analytics and how andsome how some of ourofmost our forwardmost forwardthosethose areasareas that are thatmost are most important important to your to your thinking thinking customers customers are using are using recognition recognition data to data inform to inform business, business, you’re you’re not getting not getting the kind the kind of ROI of that ROI that important important HR decisions HR decisions and give andthem give them incredibly incredibly granular granular you should. you should. 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So if you So ifare you a retailer are a retailer and you’re and you’re programs programs up front. up front. n n S P O NSSPOORNESDO C RO ED N TCEONNT T E N T
> GROWTH AND BUSINESS DEVELOPMENT
FAST, FRESH, EASY FRESHDIRECT HAS A PROFITABLE GROCERY HOME DELIVERY BUSINESS, INCREASED FUNDING AND SOON NEW DISTRIBUTION CAPACITY TO HELP IT SCALE. > By Mike Troy
Slow and steady does win the race, or so it seems with FreshDirect. The grocery home delivery company founded in the aftermath of the dot come bubble to serve residents of Manhattan has since expanded to nearby geographies, refined its value proposition and given shoppers new ways to interact with its brand all while dealing with increased competition. The result, according to the 15 year old company, is annual revenues that last year exceeded $600 million, profitability since 2010 and the leading online market share in the New York and Philadelphia metro areas.
Now FreshDirect is looking to replicate its success in the Washington, D.C., market. Service in the nation’s capital
FreshDirect entered the Washington, D.C., market in April and has plans to expand its service area beyond the initial Zip codes.
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was introduced to 60 Zip codes in April, with plans to expand to nearby areas in Northern Virginia and Southern Maryland. “Competition has exploded in the food delivery space the past few years, but unlike many of the new entrants, at FreshDirect food is in our DNA. We are a food tech company whose focus PJ Oleksak, SVP Business has always been on fresh,” Expansion, FreshDirect said PJ Oleksak, FreshDirect’s Senior Vice President of Business Expansion. “Based on the research we have done we think that while there is a player in the market there is an opportunity for a company like ours who can provide great high quality food, be a one stop shop and convenient delivery to your home.” D.C.’s proximity to FreshDirect’s other major markets ensured some familiarity with the brand, but FreshDirect went all out to promote awareness and generate trial. “We viewed it as very much a new market for us and an opportunity to really introduce a new market to our brand. We used broad marketing tactics such as out of home, direct mail and more targeted outreach via influencers, social media and local community partnerships.” The entry into the D.C. market was made possible in part by a $189 million cash infusion the company received in September 2016 from J.P. Morgan Asset Management, W Capital Partners and the AARP (yes, that AARP) Innovation Fund. As a result of the investment, Larry Unrein, head of J.P. Morgan Asset Management’s private equity group, and Ashmi Mehrotra, Managing Director of the private equity group, gained seats on the FreshDirect board. FreshDirect arrives in D.C. as the supermarket industry overall is in the early stages of what is widely considered to be the most transformative period in a half century. Operators nationwide are scrambling to roll out digital offerings, either outsourced home delivery or order online pick up at
> GROWTH AND BUSINESS DEVELOPMENT Known for its offering of high quality fresh food, FreshDirect’s assortment includes non-food items as well.
“We are excited to expand in the state-of-the-art facility which will really enable us to amp up our growth and reach.”
store services. There has also been a proliferation of meal kit providers and Amazon Fresh continues to expand in urban areas. In D.C., FreshDirect is taking the battle to larger rival Peapod, owned by Ahold Delhaize, and hoping to reshape food shoppers’ expectations around quality. “FreshDirect was really founded on the idea of making great food easy to get and over the years we’ve evolved that vision into a commitment to source the freshest and best tasting meat, fish, produce and other specialty items through direct relationships with suppliers, growers, —PJ OLEKSAK, farms and people that we call friends,” SVP Business Expansion, FreshDirect. Oleksak said. “We’ve evolved the idea of easy to get to encompass much more than grocery delivery. Easy today means allowing customers to get food on their terms which could include ordering on a mobile app, Facebook bots in the future, who knows, or same day delivery.” Same day delivery is an area where FreshDirect has become more aggressive with the launch of its FoodKick app in January 2016. While the traditional FreshDirect model involves ordering food for delivery the following day or up to a week in advance, the FoodKick model appeals to the “I want it right now” shopper segment. “Because we are a solutions oriented food company and people who love food, care about food and want to eat to eat great food ourselves and want to feed our families great food, we ask ourselves how do we do that easier and make it better. We are constantly thinking along those lines,” Oleksak said. “With FoodKick, we are trying to offer customers a curated assortment of great food that is easy to get. Our customer spend only an average of 19 minutes shopping a week. These are busy people who want to get some time back to do something else.” To make the mobile experience appealing and
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inspiring, the content on the app changes four times a day with information about how to cook, features on new farmers or partners and a “Today’s Picks” section that features hot items. “Everything we have is great, but with Today’s Picks we are going to tell you what is the absolute must try,” Oleksak said, adding that products are delivered in as little as an hour from mini-fulfillment centers strategically located in the New York area. “The whole shopping experience around FoodKick was really built so the on-demand, on-the-go consumer can get the food they need very quickly. We’ve been really excited about the reception in the market,” Oleksak said. To execute the FoodKick promise of speeding delivery FreshDirect operates facilities ranging in size from 15,000-sq.-ft. to 25,000-sq.ft that are located in and around Manhattan with deliveries handled by a courier network. Conversely, the company’s new distribution facility slated to open later this year in the south Bronx measures 650,000-sq.-ft. and uses FreshDirect vehicles. “We are excited to expand in the state-of-the-art facility which will really enable us to amp up our growth and reach,” said Oleksak, a financial analysts turned foodie who joined FreshDirect in 2012. Her first exposure to the company came in 2005 when the firm she worked at, PineBridge Investments, was an early investor in FreshDirect. “Super cool and interesting,” is how Oleksak described her experience with the company prior to joining because FreshDirect was a real innovator in the food world yet approach it growth in a responsible way. “Perfecting the last mile takes rigor, patience and focus to make the unit economics work,” Oleksak said. The unit economic appear to be working well now and will likely work even better in the future as the company brings its massive new fulfillment facility online. The added capacity will presumably facilitate FreshDirect’s entry into new trading areas where its “easy to get” philosophy has a unique appeal with urban residents who lack the convenience of nearby stores and plentiful parking that is more common in suburban areas and makes grocery shopping less of an undertaking. Oleksak is a suburban resident but firmly in the camp that regards grocery shopping as a chore, despite the efforts of highly regarded operators such as Wegmans, Whole Foods and Eataly to make food shopping more experiential. “As a suburban mom myself I can’t imagine my life without FreshDirect,” Oleksak said. “Going to the grocery store on a Saturday is more of a nightmare to me. I can’t imagine wanting to do that. I know some people do and that’s okay.” RL
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> GROWTH AND BUSINESS DEVELOPMENT
DRIVING SALES WITH BIG DATA HAS PEPSICO NORTH AMERICA CEO AL CAREY MORE EXCITED THAN EVER. > By Mike Troy
Al Carey’s 40-year CPG career began in the mid-’70s at Procter & Gamble followed by 35 years with PepsiCo. Such tenure gives Carey a unique perspective on how the industry has evolved to deal with emerging threats and capitalize on new opportunities. Consider the advent of club stores in the 1980s and the channel’s subsequent growth. The efficiency driven operating model powered low prices and gave other retail channels fits.
In response to the pressure, a new collaboration initiative dubbed Efficient Consumer Response (ECR) was born that focused supermarket operators on reducing supply chain costs to improve their competitive position. Carey was among those involved in refining the concept and uncovering new efficiencies to improve profits. One such initiative involved usage of advanced shipping notices or ASNs, that resulted in huge savings for a company like PepsiCo since an entire truckload could be checked in at one time rather than a delivery driver having to scan each individual item. ASNs and other supply chain efficiencies born out of the ECR movement are taken for granted today, but Carey believes the industry is ready to have an ECR-like moment when it comes to big data usage. “Maybe this big data opportunity can be the next Efficient Consumer Response. Maybe we can use big data collaboration to drive sales like we drove efficiency in the supply chain back in the ECR days,” Carey pondered recently during a presentation at IRI’s annual Growth Summit. PepsiCo is thinking differently about how it uses big data, the structure of its insights organization and how insights are shared with customers to power better marketing and assortment decisions. “I don’t want to develop a bunch of data tools Al Carey, PepsiCo North America CEO
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that overwhelm our organization and give us so much data we don’t know what to do with it. I want to drive sales, real volume increases, using big data.” To make that happen, PepsiCo had to rethink its organizational structure and create a new foundation for leveraging information. It established a unified insights team as a separate function in the company just like manufacturing, marketing, sales or research and development. Having a unified organization also meant PepsiCo could avoid a situation Carey said he encountered many times during his career when separate insights teams from the PepsiCo, Frito-Lay, and Quaker teams would present conflicting information about consumer behavior. “We now have one insights organization for PepsiCo with 200 people that is doing the work and really making a big difference,” Carey said. “The organization can really be an asset to (retail) customers to drive consumer demand and drive sales and that’s what it is all about.” One key example he shared related to the 2017 launch of the Lemon Lemon brand, a lower calorie sparkling product designed to appeal to younger consumers. By leveraging PepsiCo’s massive first party database with information on nearly 106 million households with extensive third party information provided by IRI plans were developed to spend marketing dollars in ways designed to reach consumers most likely to purchase while also optimizing assortments by retailer and neighborhood. Leveraging big data is essential in a media landscape that has become very fragmented and created new challenges for connecting with consumers. Likewise, PepsiCo wanted to make sure the new brand was in stores and prominently displayed in locations where it was most likely to be purchased. Carey said assortment optimization has been a goal throughout his career, but the advent of actionable big data has made it more of a reality. The use case for big data when it comes to new product launches is strong because it enables a level of precision that was lacking as recent as a decade ago not to mention much earlier in Carey’s career when mass marketing, standardize assortments and in-store sampling were relied upon. Now, PepsiCo is able to spend trade marketing dollars more efficiently and leverage its direct store delivery infrastructure to provide specialized merchandising at optimal locations. Carey is convinced that big data will help PepsiCo overcome some persistent industry headwinds that have hindered CPG growth in recent years and that is why the new insights organization has been named Demand Accelerator. “We want consumer demand generated from the work this group does,” Carey said. RL
> HUMAN CAPITAL
IMPROVEMENTS RETAILERS GIVE AN INCH TO GET A LOT IN RETURN FROM HAPPIER WORKERS. > By Ann Meyer
Increased pay is only part of the equation for retailers to minimize turnover, increase productivity and improve
customer service now that unemployment back to pre-recession levels.
Kroger, which hired more than 12,000 new store associates in 2016, recently announced about 1,300 non-store workers are expected to take its voluntary retirement offer, which it extended as it strives to control administrative costs in a period of price deflation. The workforce reduction was announced after the company reported its first quarterly decline in comparable store sales in 50 quarters and said same-store supermarket sales would likely range from flat to 1 percent growth in 2017. With growing uncertainty from advances in e-commerce, new competition from nontraditional players, and a slow-growing economy, many retailers are re-evaluating their labor allocation as they seek to manage costs while still catering to consumers’ differing desires for how to shop and what to buy. But retailers also are paying attention to management styles and how workers perceive them. In part, the heightened attention on workplace issues stems from legislation at the state and local level, including wage, hour and schedul“Overall, employees ing regulations. “We’re going to see are just disgruntled, more actual legislation, a lot that kind of bleeds over to the workplace just flat out flexibility (piece),” says Kelly Hughes, attorney and co-chair of the retail disgruntled.” industry group at Ogletree Deakins, a Charlotte, N.C. specializing in —KELLY HUGHES, Ogletree Deakins. labor and employment. “Overall, 18
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employees are just disgruntled, just flat out disgruntled.” Retailers face growing hostility from low-wage workers and lawmakers taking the workers’ side. Complaints about low wages have fueled protests in many cities and contributed to Walmart, McDonald’s and other “Labor costs are large corporations decisions in recent years to going up.” hike wages. Giving an inch can be a strategic —JOSHUA OSTREGA, move over the long COO and co-founder, WorkJam. term. A small increase in wages can be offset by increased productivity and improved service, while below-market wages are certain to boost turnover over time. With turnover comes higher costs for recruiting, onboarding and training. “There’s definitely a lot of trends that we see forcing retailers to look at how they manage their labor and the business as a whole,” says Joshua Ostrega, chief operating officer and co-founder of WorkJam in Montreal. “Labor costs are going up.” That was evident at the start of the year. Nineteen states raised their minimum wages because of ballot measures or legislation passed in 2016 or before, according to the Economic Policy Institute. It computed the economic gains at about $4.2 billion in additional wages for a total of 4.3 million workers in 2017. “Our industry as a whole has done a lot of growing up about doing the right thing for the employee,” says Lauren Johnson, CEO of Newport Avenue Market, an employee-owned retailer in Bend, Ore., where minimum wage is going up 50 cents a year until it reaches $15 an hour. Newport Avenue Market currently pays above the
current $12 an hour minimum, except for students who serve as “box kids.” But wages alone won’t satisfy a retail workforce increasingly comprised of Millennials. Retailers are heeding employees’ expectations in a variety of ways from transparency about schedules and new avenues for advancement. Fast growing player in the food retailing industry, such as Sprouts, are expanding and emphasizing their worker-friendly workplaces. Sprouts, which has announced plans to open 32 new stores in 2017 and about 30 stores per year for the next several years, says it will be hiring about 100 workers per new location. The company ended last year with 253 stores. With efficiency an important factor in the success of the new locations, Sprouts will use scheduling technology and invest in employee training, CEO Amin Maredia told investors during the company’s fourth quarter conference call. “We will continue to focus on our team members, their training and strengthening their road map for career success so that we can scale with great leadership in our stores,” Maredia said. Improved scheduling has become a focus for many retailers, thanks to new technology designed to provide more transparency and improved communication among employees and managers. Ceridian’s technology platforms aim to help retailers manage scheduling, payroll and other workforce management tasks — before retailers are given a government mandate to change the way they do business. “If retailers don’t act on their own, (changes) will be legislated,” says John Orr, senior vice president of retail at Ceridian, a provider of human resources software and services. Seattle and San Francisco have passed new scheduling laws that address the way retailers manage labor by requiring employers to provide workers with more advanced notice of work schedules or compensate them for last-minute changes. In Seattle, companies also must offer part-time workers more hours before making additional hires and they must pay part-timers at the same rate as full-time workers. But the laws have resulted in new complaints about less flexibility for workers. Technology companies say their solu-
tions can alleviate the issues without legislation. For example, last-minute schedule changes wreak havoc on workers’ personal or family plans, but they also cost retailers money when they pull managers away from other more productive tasks to handle staffing issues. PSK Supermarkets has held the line on overtime compensation by monitoring workers’ hours more closely. The retailer, which operates 66 Foodtown stores in New York, New Jersey and Pennsylvania, now relies on “Our industry as a Dayforce HCM scheduling and paywhole has done a roll technology to add transparency and automate what previously was a lot of growing up headache for many managers. “With the technology, managers can see about doing the their payroll dollars spent, midweek, right thing for the in real time. If someone works beyond their schedule, we know about employee.” it right away, before the workweek ends,” Noah Katz, co-president of PSK —LAUREN JOHNSON, Supermarkets said. CEO, Newport Avenue Market. Before adding the system, the company’s payroll reports weren’t in real time. Managers didn’t know what they had spent on payroll until about five days after the week ended, Katz said. By then, it was too late to correct the problem. With Dayforce HCM, managers can check their spending every day, and Katz asks them to stick with the payroll amount they agreed to spend. By adding transparency, the scheduling technology can remove the guesswork and some of the last-minute reshuffling that can take a toll on workers and managers alike. New scheduling apps, available from many providers, offer various options for automating workforce scheduling. Most can be accessed from smartphones, so workers can check their schedules in real time whenever they want, says of Ostrega of WorkJam. The return on investment of Ceridian’s scheduling technology stems from more precise staffing levels, increases in sales and transaction size due to the appropriate staffing, and reduced payroll costs, including the amount of time required to file payroll, says Orr. Managers also can see their labor budgets in real time, he says. Perhaps more importantly, workers like having their
“We will continue to focus on our team members, their training and strengthening their road map for career success so that we can scale with great leadership in our stores.” —AMIN MAREDIA, CEO, Sprouts.
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> HUMAN CAPITAL “If retailers don’t act on their own, (changes) will be legislated.” —JOHN ORR, SVP retail, Ceridian.
schedules at their fingertips and being able to communicate schedule requests instantly. They are more engaged in their work, and retention improves as a result. Employee productivity can increase up to 20 percent annually, thanks to the technology, Orr says. In the end, improved productivity and fewer worker complaints should translate to satisfied customers, experts say. “How the customer experience is being delivered is what really matters,” Ostrega says. At Newport Avenue Market, workers receive their schedules by email but also can access them on their phones using the Orbital Shift app, Johnson says. While the company tries to accommodate workers’ requests for days off, Johnson says, “We write our schedule to the business.” When conflicts arise, employees can send out a request on Orbital Shift for another worker to cover their shift.”That’s
been a really nice tool,” says Joe Anzaldo, general manager. “A lot of stores they transfer the problem to the department head. Then the department head has to deal with the shift-changing. It’s all on them. It’s one of the more frustrating things.” The system also manages payroll and computes gross profit history by department, so department level heads can see it. “They can see their profits and what they’re putting in week by week and quarter by quarter,” Anzaldo says. “It’s really rare for department heads to know this much information.” Automated scheduling and electronic communication with
“These workers want to be able to make extra money.”
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> HUMAN CAPITAL
workers are designed to eliminate the type of workforce management issues that can be frustrating, such as being short staffed, but they don’t always solve the problem of finding enough workers for a busy weekend — a more pressing issue now that the U.S. economy is at a sub-five percent unemployment rate. Apps like Shiftgig strive to make it easier for retailers to hire additional contractors when their schedules demand it. In a model similar to Uber, the mobile platform connects available workers “How do you with employers on an as-needed attract people basis. It currently offers 16,000 pre-vetted “specialist” workers who with ways that earn on average $12.50 an hour, and it serves 1,700 corporate cusare not just with tomers in the retail and hospitality dollars, but with industries. “They’re coming to us because they’re short staffed. If they advancement?” can’t get products on their shelves... if they can’t provide customer —TINA SYRING, Partner, service, customers are going to go Barnes & Thornburg. to another dollar store or another grocery store,” says Eddie Lou, Shiftgig’s CEO and co-founder. For workers, Shiftgig simplifies the process of finding a temporary shift. “These workers want to be able to make extra money,” Lou says. “These are people who are underemployed, or they’re very employable but want to work 60 hours a week.” But increased reliance on technology also brings new risks. Retailers could be on the hook for extra hours if they expect employees to check their smartphones during off hours for schedule changes or messages from their supervisors, says Kelly Hughes, the attorney at Ogletree Deakins. “If you require your nonexempt employees to check their emails and voicemails when they are not expected to work, that can be a problem,” Hughes says. “I would encourage employers to be very, very careful any time they are using tech to communicate with their workers when they are not clocked in.” At any given time in the current environment, experts say slightly more than half of workers are actively looking for a new job or keeping an eye on career development opportunities so they can make a move in the future. One reason
is a lack of engagement. According to WorkJam’s study on “Factoring People into the P&L Equation: Retail Managers Reveal the Drivers and Dividends of Hourly Employee Engagement,” about 17% of retail managers said employees were very motivated and engaged, while 89% of managers said keeping workers happy was a challenge. “Engagement tends to drop the longer people are with an organization,” says Jim Harter, chief scientist for workplace and wellbeing at Gallup. Disengagement often leads workers to pursue new opportunities at other companies. “The really progressive organizations have fixed that problem. They have longer tenured employees who are just as engaged as others.” Often a manager can set the tone for an engaged workforce and can affect the company’s performance. The most effective managers inspire workers by taking an interest in them and working with their strengths, instead of focusing on their weaknesses, Gallup research suggests. “You have to move from an annual review to more conversations,” Harter says. Offering a change in position can keep employees motivated because they will be learning a new set of skills or tasks. As retailers expand their e-commerce services, such as click-and-collect or home delivery options, many are creating new positions and often eliminating some existing jobs. When changes in the retail operation affect job duties, companies should proactively explain what’s going on. “The key is communication to the employee, and ensuring the individual understands the job is changing,” Hughes says. Retailers should post the new position, she says, then explain to affected workers: “Your position is going away. This is a new position we’re creating.” Companies have the right to make changes to their business, but they should think about the best way to present the change to workers to avoid any potential discriminatory impact, says Tina Syring, a labor and employment partner at law firm Barnes & Thornburg LLP in Minneapolis. Retailers should “work with their legal to make sure there is no disparate impact on the protected classes,” Syring says. For example, transferring only women, minorities or older workers to what could be considered a lower-status job could raise a flag. Instead, Syring says, retailers should consider, “How do you attract people with ways that are not just with dollars, but with advancement?” When feasible, consider structuring a new assignment as a promotional opportunity and offer training as part of the move. RL
“If someone works beyond their schedule, we know about it right away, before the work week ends,” —NOAH KATZ, co-President, PSK Supermarkets.
Retail Leader.com MAY/JUNE 2017
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> FINANCE AND CAPITAL MANAGEMENT
Chris Morley has spent more than two decades in the retail and consumer goods industry and worked on three different continents. Last year the CPG veteran arrived stateside to
serve as President, U.S. Buy, for Nielsen, leading an organization that helps clients drive growth through a deeper understanding of shopper behavior. Morley spoke with Retail Leader about global trends, changes in the U.S. landscape and how Nielsen is helping clients make sense of it all. Retail Leader: You’ve been in your current role for about a year, but it was quite a journey with Nielsen before that, including stops in Australia, Vietnam, China and then western Europe. What are your thoughts on the U.S. market now that you’ve been immersed for a while.
providing more granular analytics to help understand the change that has happened, what decisions should be made. We are measuring that fragmentation and providing our clients with better tools to decide what to do next.
Chris Morley: The U.S. is recognized, and deservedly so, for having one of the most developed and fastest moving of the consumer packaged goods industries. But the pace at which things are changing has accelerated and is being led by the consumer who lives in a very omnichannel environment. They consume media differently and they shop differently, which creates challenges for how the marketplace is measured. There are also many more opportunities to understand the consumer because more data and analytics are available than ever before. As exciting as it is, it is also more challenging for our clients, retailers and suppliers to make decisions.
judging from the research Nielsen and FMI (Food Marketing Institute) released earlier this year. The research projects that food sales will reach $100 billion by 2025. Is the pace of change happening so fast that that number needs updating already?
RL: There’s more to measure but it’s more challenging to measure?
CM: In an omnichannel environment combined with the growth and entry of discounters actually measuring what’s happened in the marketplace becomes increasingly important and arguably more difficult as the industries fragment or there are more channels and more options. This is occurring alongside the need to keep pace with 24
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RL: A lot of change is coming in the food retailing world
CM: It is too soon to revise that number, but it is important for us to illustrate just how large and impactful we expect this change to be even though it is difficult to forecast that far out with precision. The work we did with FMI was necessary, to listen to consumers, look at the trends and put a stake in the ground about the size of the opportunity. I think that forecast, which is part of a multi-year project, is probably a lot bigger than other commentators had come out with previously. RL: Either way, the industry is in for a huge shift, which underscores some of the challenges you described around measurement and gleaning actionable insights from new data sources. CM: Two big points to your question. The first is the growing role that everyday analytics will play in how companies navigate the shifting landscape. Our clients have always valued advanced analytics to guide their annual strategic planning, but, true to the times — actionable insights on a daily basis is what’s needed to keep up with the constantly changing, daily conditions of today’s fragmented marketplace. The second big piece is e-commerce. We have started to release our e-commerce measurements in the U.S. There’s probably six or seven markets across the world where we
think it’s most important to have that measurement up and running as soon as possible. The U.S. is one of them. We are gradually releasing category level detail throughout 2017, which gives us the ability to zoom into certain categories or segments of the shopping experience and look at different growth rates.
trying to decode that at a very granular level. Different colorants, different ingredients may be called many different things. And there may be a number of things in the store that fit a health and wellness profile but maybe don’t say that on the pack. And so we are able to code all of those attributes in a very consistent manner.
RL: What are you seeing so far?
RL: Many retailers are in uncharted territory now. Whether it’s
CM: If you take what we define as grocery and all of the categories that go into food and beverage, around 20% of the growth overall in 2016 is from products sold online. Now a lot of the products in food and beverage are those in the perimeter of the store, and fresh items and stuff like that. Those categories that are less developed online. So when you start to look at others, you see much more impressive growth rates coming from e-commerce. For example, in household products, more than 40 percent of the growth of those categories is attributable to e-commerce, compared to 50 percent in personal care and nearly 80 percent in pet care. RL: Those are substantial contributions coming from e-commerce even if the overall business is growing slowly.
CM: The total growth rate for grocery last year was about 2 percent with about 1.5 percent of that coming from brick and mortar. In center store categories, those that we predicted or said would be influenced by e-commerce, we are already starting to see large proportions of overall growth coming from e-commerce based on the early reads that we are getting from our online measurement. RL: If center store business is migrating online, that presumably gives retailers an opportunity to redeploy space. Are you seeing that? CM: Understanding what the assortment should be in-store versus what it should be on the e-commerce platform has becomes increasingly important. There will be pressure on the space which is why it is so important to have a deeper omnichannel understanding of assortment and pricing decisions. For example, we are doing a lot of work to help retailers and brands understand health and wellness trends to determine assortment and on pack messaging to customers and how that is shared in an online environment. RL: Is that where your relationship with Label Insight comes in? CM: Yes, In today’s consumption climate, there is an appetite to gain a more in depth understanding into what ingredients and nutrients products contain, beyond the marketing claims on the packaging. Nielsen’s robust market measurement and Homescan Consumer Panel data are combined with Label Insight’s cloud-based product attributes. Together this brings an unmatched level of data granularity to food manufacturers and retailers, designed to transform on-pack nutrient and food ingredient labels into quantifiable attribute. Traditionally Nielsen would have coded and collected information about a product by taking a photograph of the pack and coding everything that was on there, plus the physical attributes. What we are doing with Label Insight is taking the ingredient list as well as the information and
how to deploy stores, doing more with digital. When you talk to clients, what are the one or two problems they are asking you to help them solve most often?
CM: The number on thing is how to fully decode and understand the marketplace in a broader perspective and understand how e-commerce interacts with brick and mortar. RL: Revisiting the $100 billion figure from the Nielsen and FMI study, even with better measurement, doesn’t it become harder to attribute a sale to a specific channel?
CM: It becomes more difficult because there’s an enormous amount of data and expertise in that area to stitch together. There’s consumer-based measurements with traditional POS data or consumer panels that enable you to track what’s happening, although when you do that approach you don’t necessarily get the granularity and accuracy. We have the capability now to use person-level data sets to connect someone’s media consumption and other behaviors to their spend activity. And while that may not be totally representative of the entire industry, it’s extremely granular and enables almost real time decision making. RL: Explain what that means please. CM: By reducing the time, cost and resource demands of traditional analytics, coupled with simple and intuitive tools, our Everyday Analytics will make sophisticated analytics more accessible for everyday decisions across all FMCG growth drivers, including price and promotion, advertising and innovation. To explain this further, traditionally you would run a marketing mix model using store data and it could take a month or two to be able to understand all the different drivers of the marketing mix. We are now able to do that almost in real time and refresh the model every time the data refreshes. That person level data allows you to understand consumer behavior. The secret sauce is often how you connect these data sets on a person level. RL: The notion of big data not being better data is interesting. What are your thoughts on AI and machine learning, two of the hottest topics in retail right now?
CM: Clearly AI, machine learning are important. They are buzzwords to the extent that you could argue the word AI is often used when perhaps machine learning should be, in terms of whether something is artificial intelligence or just a clever algorithm. Just to give an example, the coding of these millions of items from ecommerce, consumer captured receipts, is not something that can be done manually. So you need to have machines that learn how to code those products. RL MAY/JUNE 2017 Retail Leader.com
Trade Marketing Model
CHANGING SHOPPER BEHAVIORS, NEW BUSINESS MODELS, EXPENSE PRESSURES AND A CHALLENGING GROWTH ENVIRONMENT HAVE USHERED IN A NEW ERA FOR TRADE MARKETING. > Nigel Stokes
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As dramatic shopper-driven changes unfold throughout the retail industry, traditional approaches to trade marketing are being turned on their head. Suppliers and retailers look-
ing to more effectively serve a mutual customer are thinking differently and evolving trade marketing practices to reflect new competitive realities.
To achieve trade marketing success that capitalizes on current and anticipated marketplace dynamics, means shifting from the classic four “P” approach of product, place, price and promotion to a new four “E” approach. The 4Es represent where the shopper is today, but more important, where she is headed in the future, and include experience, everyplace, exchange and evangelism.
Before putting the 4Es in action it is important to first recognize that in today’s dynamic environment, rehashing the well-worn four P framework will not result in success. Likewise, recognize that the makings of a great trade marketing team require elevation of trade marketing to a top level strategic role capable of providing clear ownership of the discipline and effective cross functional integration. For example, the best trade marketing teams constantly find ways to bring the traditionally disparate departments of sales and marketing together. They refuse to be constrained by the excuse, “We just don’t have anything to do with that,” and relentlessly push both sales and marketing to consider how their decisions affect one another. Moreover, truly extraordinary trade marketing teams take ownership. They feel personally responsible for the profit and loss of their business. Unafraid of complex analysis, they dive into the details of demand planning. Cognizant of the effects of costs on the bottom line, they actively engage in improving logistics and supply chains. In sum, this entails taking direct ownership for the commercial strategy underpinning the business. The effective trade marketing team takes as its responsibility a plethora of steps, ranging from the product sold at check-out to the origin of the supply chain. Such a team starts by thinking “consumer first” and ends by thinking “selling,” but never neglects to consider every element in between. Understanding each of those elements, and where the 4Es factor in, requires parsing out dedicated roles and responsibilities in the trade marketing team. For instance, once a marketing team understands how to deliver against unmet consumer needs, the challenge remains to understand and leverage how shoppers in a given category behave. To accomplish this,
“The effective trade marketing team takes as its responsibility a plethora of steps, ranging from the product sold at check-out to the origin of the supply chain. …” trade marketing teams need to carve out dedicated roles — essentially, “shopper marketing teams” — focused on identifying and understanding consumption opportunities, which are in turn determined by the consumer marketing team. From here, the trade marketing team can frame an answer to the core question, “Who is the shopper?” Only through this understanding can the team leverage analytics to deliver against penetration, frequency, or trade-up opportunities.
FROM RECOGNITION TO REALIZATION To illustrate this point, consider an example of how a trade marketing team would transform an opportunity recognized into an opportunity realized using the 4E instead of the 4P framework. Imagine a scenario where a team wants to drive brand penetration amongst 20-35-year old women in the hair color category. The team would employ a three-step process. As always, the first step would be to “understand your consumer” — traditionally the role of brand marketers, whose work is ultimately to deliver against unmet consumer needs. Next would be channel prioritization — where and how to find the target shoppers (who may or may not be the end consumer). For some CPG companies, this is easy. Coca-Cola, for example, only has to put their product within arm’s reach; it is as simple as being everywhere, all the time. But consumer beauty has no such luxury. Facing a complex and shifting mix of shopper targets and categories, a beauty manufacturer will have to incorporate detailed analytics into its channel prioritization to understand who is shopping where, for what, and for what occasion. The third step involves crafting a compelling narrative with which the manufacturer will navigate the complexities of the target shopper, industry trends, and retailer strategies. For example, selling to the 20-35-year old segment would require a narrative that takes into account the current trend for wash-out hair artistry in the hair color category. But it would also require a more logistical mindset — that is, a recognition that for a host of reasons, including store opening hours and locations, the target shopper could be likely purchasing products outside of the traditional grocery and drugstore settings.
THE 4ES EXPLAINED This is where the shift to the 4Es from the 4Ps comes in as trade marketers need to answer several key questions. For example, how does the trade marketer set strategies to bring a proposition to life, giving the shopper a product experience rooted in their needs? Moreover, how does that proposition relate to the shopper’s environment, even if that environment is the ubiquitous digital realm? Traditionally, trade marketing professionals have thought that shoppers make decisions as the 4Ps would have us believe. Not anymore. Trade marketers need to expand their thinking to embrace a more holistic vision of the shopping experience. It goes beyond the immediate
decision of “Brand A or Brand B,” and is instead about linking each product to a clear value proposition. PRODUCT
Let’s take a closer look at what the each of the 4Es mean: Experience: Today’s consumers demand products that fit in seamlessly with their lives. This necessitates that trade marketer set strategies to bring a proposition to life, giving the shopper a product experience rooted in their needs. Everyplace: Shopping now happens in more places than just the beauty aisle as evidenced by the proliferation of blogs focused on beauty products. This forces manufacturers to ask how their products — and those products’ marketing and display — relate to the shopper’s environment, even if that environment is the ubiquitous digital realm. Exchange: Traditionally, trade marketing professionals have thought that shoppers make decisions as the 4Ps (product, place, price, promotion) would have us believe. Today, there is a need to embrace a more holistic vision of the shopping experience. Purchasing a product is really about an exchange of value — it takes shopping beyond the immediate decision of Brand A or Brand B, and is instead about linking each product to a clear value proposition. The way this comes to life in the beauty category is to recognize that shoppers demand a value proposition that resonates with a vision of being their best self, not an unobtainable vision of beauty. Evangelism: Think of classic promotion more in terms of evangelism. Only with an experience that inspires can manufacturers hope for consumers to engage with the brand and spread the word to friends and family. In an increasingly digital world, this prerogative will become only more critical. Importantly, though, a trade marketing team cannot be expected to accomplish all of this overnight. A retail supplier cannot expect to be successful if they suddenly rebrand existing teams as “trade marketing” and leave it at that. Rather, they need to recruit and train individuals with experience across sales and marketing. Manufacturers should seek out individuals with strong analytical skills and, equally important, that intangible sixth sense of what retail customers and shoppers are looking for. MAY/JUNE 2017 Retail Leader.com
> STRATEGY IMPLEMENTATION ESSENTIALS
REALLOCATION OF RESOURCES
we leverage our existing capabilities? At the same time, managers frequently overlook the importance of the details. Without a five-year profit and loss projection by brand, strategic discussions are ephemeral, grounded not in facts but intuitions. The answers to these questions, informed by robust analysis, determine where you will play and how you will win. A firm’s position in the market — from how a brand portfolio stacks up, to a brand’s ability to address the needs of consumers in growing channels, to a manufacturer’s competitiveness with niche players — depends on a thorough understanding of not just what a brand is, but what is aspires to be. The pursuit of a brand’s aspiration is where the reallocation of resources and construction of the appropriate commercial capabilities comes into play because at the core of any strategy is the ability to make tradeoffs. This is precisely what large manufacturers must do as they pursue growth plans and establish priorities. For example, immediate success will require shifting resources of time, money, and people to better serve high-growth customers. Lasting success will require building capabilities ready to capture future growth, even if it comes from unexpected quarters. Successful firms have done this by seamlessly integrating trend observation and strategy formulation, with sales reps sending reports of new competitive activity to the trade marketing team in real time. But tradeoffs must do more than respond to growth: They must seek to challenge the status quo. At present, most CPG companies are designed to serve customers who supply chains are designed to move full pallets to large distribution centers. Sales organizations are designed around large accounts with traditional volume-based KPIs. And, perhaps most importantly, traditional brand marketing teams are built and resourced for a ‘one size fits all’ model. The result? Sluggishness in responding to rapidlyshifting trends. In a dynamic retail landscape, CPGs need flexibility to meet the needs of an increasinglyvaried customer base, the ability to react to trends, and the capacity to evolve their strategies to align with the retailers they serve. This means developing new capabilities to serve new customers — supply chains that accommodate multi-brand, multiproduct pallets; light-touch sales organizations that rely extensively on technology; new sales models that allow for greater cross-functional teaming. They also need a new trade marketing approach, one with the 4Es at its core, that is designed for future success. RL
To do so, as is always the case in business, mean make hard choices about priorities and future opportunities. Too often, managers fail to ask the most fundamental questions about their businesses: What is the future potential? What are the investments and resources required to reach that potential? How can
Nigel Stokes is Vice President for Global Sales with Coty, Inc., the world’s third largest beauty company. Coty’s 2016 acquisition of Procter & Gamble’s beauty business gave it a portfolio of brands that includes Clairol, COVERGIRL, Max Factor, Rimmel, Sally Hansen and Wella.
Good ideas and a new trade marketing framework are worth little unless properly implemented and ingrained in a suppliers’ go-to-market culture. Execution is always key and with trade marketing it is incumbent on the team to take responsibility for ensuring the relevance of the brand strategy, both to the consumer and the channel in which that consumer buys. In this effort, the whole will be more than the sum of the parts. Failure to take into account just one element — forgetting format and channel strategy in favor of formula innovation, for instance — can sink an entire strategy. But, if a trade marketing team can leverage the 4E framework and balance the long list of priorities with which they will inevitably be tasked, “The pursuit of a growth becomes more attainable. It is an approach at once bold and meabrand’s aspiration sured, autious — an approach that will is where the reallo- withstand even the most challenging of environments, which is certainly the curcation of resources rent situation. In many CPG categories growth has and construction been hard to come by and what growth there is tends to be driven by second or of the appropriate third tier companies. Bigger brands have commercial capa- been caught off guard by the relative ease which upstart competitors are able bilities comes into with to generate brand awareness, trial and replay because at the peat purchase through online only distribution methods and shoestring budgets core of any strat- that effectively leverage social media. If large suppliers hope to compete egy is the ability to in the new and evolving retail environmake tradeoffs. …” ment they will need to take a page — or several — from the playbook of smaller brands who are driving much of the CPG world’s growth. They will need to stop playing catch-up and innovate before the innovators. They will need to foster ownership and innovation amongst their employees. And they will need to do so while building loyalty with consumers who have more choices than ever. They must hold their ground and reignite growth with traditional retail channels without overinvesting. They must strategically shift resources to win in new growth channels, especially digital. Playing catch-up will never work: positioning themselves as the go-to players in these growing channels is the only option.
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2 A T RETA IL
WAYS TO WIN
Mitigate Investment Risk
Get To Market Faster Business Situation With the introduction of a new brand strategy, a manufacturer sought to create tailored shelf recommendations for their top 10 key customers to make a big splash in-market. However, the success of their strategy required speed to market, and they faced challenging time and budget constraints.
Business Situation A client planned to order 25,000 displays for their Back to School campaign. Historically, timelines and budget have prevented the testing of major promotional events. They wanted to maximize their promotional marketing investments by learning whether or not a complex display concept—assumed to be the most effective—was the right choice. Business Functions • Shopper Marketing • Merchandising • Sales
“Saved $40 per display for total savings of $1M”
ShopperMX™ Approach With ShopperMX™ Indicators the client was able to test three separate design concepts with shoppers before placing the order. Each concept’s sales impact, likability and brand equity were tested to determine the optimal display. A movie was then created to demonstrate the winning concept to distribute to field teams, accelerate activation and drive compliance. Business Impact Contrary to the initial hypothesis, the Indicator report found the simple execution performed best. By investing in the simple instead of the complex design, the client saved $40 per display for total savings of $1M. The client quickly executed the winning concept in stores using video materials for sales teams, maximized speed to market and captured topline growth from the display investment.
Business Functions • Brand Marketing • Shopper & Trade Marketing • Category Management
“Cut 6-8 weeks of time… saving over $200,000”
ShopperMX™ Approach The client virtually developed shelf arrangements and signage programs customized to each retailer in ShopperMX™. In a matter of days they were able to capture and send images of the new arrangement to buyers, using their VR simulations as a ‘pre-read’ of the new concept. In collaborative work sessions with their customers, the client conducted virtual store walk-throughs in ShopperMX™, allowing the client to solicit feedback and iterate on the concepts live, so all parties could agree on the end state. Business Impact The speed of creating v visualizations in ShopperMX™ and the elimination of follow-up meetings cut 6-8 weeks of time with each customer. Further, the client saved over $200,000 when customizing concepts for each retailer, compared to their traditional approach of setting up a mock store. Bottom line: A tailored customer approach would not have been possible in the physical
world due to timelines and budgets, and would have cost our client more than $1M in lost opportunity.
For even more real-life examples or to learn more about how our enterprise VR platform, ShopperMX™, is transforming the way decisions are made at retail, visit www.incontextsolutions.com or call 312.462.4198
> COVER STORY
INCREASED PAY, A NEW FORMAT, DIGITAL INITIATIVES, EXPANDED FRESH DEPARTMENTS AND A LOT MORE STORES IS DOLLAR GENERAL CEO TODD VASOS’ FORMULA FOR GROWTH. > By Mike Troy
Dollar General CEO Todd Vasos leads an army of more than 120,000 employees tasked with executing the company’s strategy of serving others at a network of stores that will surpass 14,000 locations in 2017.
It’s not easy being Dollar General. Its core customers tend to be on fixed incomes or low wage earners. Their real incomes haven’t risen in more than a decade even as expenses for such things as health care and rental housing have risen steadily. Meanwhile, recent years have seen the federal government reduce nutrition assistance funding from a peak of about $76 billion in 2013 to $66.6 billion last year.
Dollar General serves a customer that even in favorable economic conditions tends to be under duress, which is why more than 80 percent of the approximately 11,000 items found in its stores sell for less than $5. Attempting to grow sales by selling more stuff to people of limited means is a challenging proposition made even more so several years of flat to declining prices in the
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food and consumables category, which accounts for three fourths of Dollar General’s sales. Then there is the issue of competition. Walmart has been on a two-year roll of reporting traffic increases to its stores as cash-strapped shoppers benefitting from low gas prices have been willing to drive a bit further to shop at their local Walmart. Catering to the same lower income shopper are Aldi and Family Dollar and Dollar Tree, which merged two years ago. No wonder then that 2016 was a challenging year for Dollar General and the company has offered a restrained view of the current year performance due to some self-imposed expense pressures. Sales last year increased 7.9 percent to nearly $22 billion and net income rose 7.4 percent to $1.25 billion but those figures were aided by the inclusion of a 53rd week in the fiscal year and driven almost entirely by the addition of 900 stores. A meager same store increase of 0.9 percent helped the company keep alive its streak of 27 consecutive years of comp store growth. The repurchase of nearly $1 billion worth of stock contributed
20 cents a share to full year earnings of $4.43 cents, a 12.2 percent increase from prior year earnings per share of $3.95. During the current year, a forecast of four percent to six percent sales growth will be driven largely by the addition of selling space with Dollar General continuing to raise the bar on what is possible with new store openings. The company plans to add an astonishing 1,000 units but put the upper limit of same store sales growth at two percent. Earnings per share may actually decline from last year’s $4.43 based on the $4.25 to $4.50 range of possibilities the company envisions. One of the key reasons Dollar General the potential for a profit decline exists this year involves a $70 million investment in store manager training and compensation that will create an earnings per share headwind of 16 cents. “Being an old operator as I am, the store manager is the key linchpin to everything that happens at retail; always has been and at least probably in my lifetime as a retailer always will be,” Vasos said during the company’s fourth quarter earnings call in March. The store manager role is especially critical at Dollar General given that store managers perform a wider range of operational tasks than their peers at larger retail operations due to the structure of the Dollar General store operations team. The typical Dollar General is staffed by a store manager, one or more assistant store managers and three or more sales associates. Dollar General places a great reliance on the small army of managers who operate its network of more than 14,000 locations, which is why increased pay and training is expected to yield better customer experience scores, increase sales, reduce inventory shrinkage and further reduce turnover, which the company says is already at a four-year low. The pay hike comes as Dollar General is in the midst of its most aggressive hiring effort in the company’s 78 year history with 10,000 new position to be filled this year. Dollar General needs higher caliber employees because of the direction the company appears to be taking with merchandising, introducing new complexities to store operations as it looks to become a bigger play in fresh categories and traditional drug store categories. “Based on the lessons learned from the conversions of our recently-acquired Walmart Express locations to our Dollar General Plus format that include fresh meat and produce, we’re remodeling about 300 traditional stores to include 34 cooler doors, an increase of about 160% from the existing cooler footprint in these locations,” according to Vasos. “This allows for a much greater perishable assortment which helps drive trips and basket size. Additionally, across about one-third of these locations, we’re testing an assortment of fresh produce.” In Dollar General’s oldest stores the company is also adding more refrigerated space which requires adherence to cold chain compliance procedures vastly different than replenishing dry grocery or household chemicals. “We have a focus on stores that have fewer than 10 cooler doors which in relative terms are expected to drive the highest returns. By the end of 2017, we anticipate that across our store base we will have an average of 17 cooler doors, up from 10 in 2012,” Vasos said.
THE DG DECADE AT-A-GLANCE:
Same store sales have deteriorated as Dollar General store openings have accelerated. QUARTER
SAME STORE SALES -1 0 1 2 3 4 5 6 7
1% -0.1% 0.7%
2.3% 2.8% 3.7%
2.1% 1.5% 1.3% 4.4%
8 9 10 11 12 13 14
Q1 Q4 2007
-1 0 1 2 3 4 5 6 7
8 9 10 11 12 13 14
SOURCE: Company Reports
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> COVER STORY
Dollar General’s value message is communicated extensively to shoppers throughout stores.
Another key merchandising initiative relates to expansion of the health and beauty area. Much of Vasos’ career was spent in the chain drug industry and several members of the retailer’s board have extensive drug store experience so the move seems overdue. “Health and beauty represents large and growing department at Dollar General. These products remain a significant opportunity for us to increase our share of wallet with our customers as we have only about half of the share with our customers in these areas as compared to other consumables like paper and cleaning,” according to Vasos.
UNBRIDLED EXPANSION Dollar General plans to open 1,000 stores this year, which is simply astonishing in the broader context of the retail industry. Store closings are at record levels due in large part to department stores and specialty retailers rationalizing their operations but other successful retailers are still moderating their physical aspirations to allocate greater resources to bolster technology and supply chain capabilities to better serve consumers’ desires for a seamless physical and digital experience. Dollar General has enjoyed some digital success, most notably with digital coupons that were launched about three years ago. The company said its digital coupon enrollment increased by 200 percent last year and that the average transaction that involves digital coupons runs twice the company average. The company also offers a subsrcription service branded as DG AutoDeliver. Despite such digital initiatives, Dollar General is all about stores. The 1,000 new stores it plans to open this year are on top of 900 last year. In addition, Dollar General is expanding with acquisitions. It bought 42 former Walmart Express small format stores last year and more recently the Federal Trade Commission approved Sycamore Partners’ application to sell to Dollar General 323 former Family Dollar stores it acquired from Dollar Tree two years ago as a condition of Dollar Tree’s acquisition of Family Dollar. Between openings and the acquisitions, Dollar General’s store count will swell by roughly 1,300 units this year. That makes the company an extreme outlier in the retail industry, but its physical obsession is rooted in some solid fundamentals. It costs Dollar General only about $250,000 to open a store. This year, about 45 percent of capital spending expected to range from $650 million to $700 million will go toward new stores, relocations and remodel32
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ing activity. The company’s average store does about $1.6 million in annual volume and generates sales per square foot of about $226. “We continue to be pleased with the return on investment and performance of our real estate program, as our new stores overall are yielding returns of approximately 20%, according to Vasos. Why wouldn’t Dollar General open more stores? The company’s value proposition embodied by the slogan, “Save time. Save money. Every day!” has at its heart proximity to the customer along with low prices. Historically that has meant targeting smaller more rural communities, which is why roughly 70 percent of the company’s stores are located in towns with fewer than 20,000 people. While expansion opportunities continue to exist in those areas, Dollar General is more aggressively probing urban areas with a smaller format store that measures less than 6,000-sq.-ft. compared to the standard store size of 7,400-sq.-ft. “Given our success over the last two years with the results of our smaller box that is less than 6,000 square feet used in certain metro and rural locations, we anticipate opening an additional 160 locations this year, bringing the total smaller box store count to about 250 by the end of 2017,” Vasos said.
SUPPLY CHAIN EXPANSION The rapid expansion of Dollar General’s store network is made possible by equally aggressive investments to add supply chain capacity. The company opened a new distribution in San Antonio last year and then in January its 14th distribution center came online in Janesville, Wis., strategically located 100 miles northwest of Chicago. By this fall, Dollar General’s 15th distribution facility is set to open about an hour south of Atlanta in the town of Jackson.
The addition of refrigerated space to many stores has made fresh food an increasingly important part of the Dollar General value proposition.
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> COVER STORY Both facilities illustrate how the company is optimizing its supply chain infrastructure to shorten the distance trucks travel to more efficiently replenish stores and potentially support greater growth in urban areas. For example, at the end of last year Dollar General operated 481 stores in Illinois and 133 in Wisconsin, but relatively few of those units were located in Chicago or nearby Milwaukee, both of which are easily serviceable from the new Janesville facility. The same is true of the new facility coming online this fall near Atlanta. Dollar General’s 758 stores in Georgia are currently served by distribution centers in the contiguous states of Florida, South Carolina and Alabama, so the new facility will make it easier to support Atlanta area growth. Dollar General is also adding capacity to support its expansion in underpenetrated markets in the Northeast. After the Jackson facility opens the retailer’s next big supply chain project is in the town of Amsterdam in upstate New York. Dollar General ended last year with 358 locations in New York, which isn’t a lot considering the state has nearly 20 million residents. Expected to open in 2018, the new facility will support existing New York stores and presumably a bunch more as well as expansion in nearby Vermont, New Hampshire and Maine, where Dollar General operated 84 stores at the end of last year. The Amsterdam facility will relieve pressure on a distribution center in the eastern Pennsylvania town of Bethel that opened in 2014. Dollar General has not announced any additional supply chain projects, however it is apparent that additional capacity will eventually be needed in the Western U.S. if Dollar General hopes to
Every day low prices are key to Dollar General’s success, but true to its name an offering of single price point items are key to the assortment.
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Striking black endcaps loaded with value priced impulse items serve as a gateway to expanded beauty departments.
realize penetration rates closer to what it enjoys in some of its more mature Southeastern markets. For example, Dollar General serves the nearly 4.9 million resident of Alabama with 688 stores. By comparison, there are only 185 stores in California supported by a 600,000-sq.-ft. distribution center — Dollar General’s smallest — which opened in 2012 when the company entered the state. If Dollar General were to apply an Alabama-like penetration rate to California the state would have 5,500 stores.
SERVING OTHERS As unlikely as that seems it also seemed unlikely that Dollar General would be in its current position a decade ago. The company mustered a profit of $138 million on sales of $9.2 billion the year before Kohlberg Kravis Roberts & Co. acquired the company for $22 a share deal in a deal valued at $6.9 billion. Private equity was good for Dollar General as the new owners brought in new management, did away with outdated practices such as packing away unsold seasonal inventory to resell the following year. KKR also hit the reset button on store growth, closing 400 stores and establishing new site selection processes that would fuel the company’s subsequent expansion. Vasos joined Dollar General as chief merchandising officer shortly after the company was acquired by KKR. He had spent the prior seven years with Longs Drug Stores, an operator of larger format stores along the West Coast and prior to that held leadership roles at Phar-Mor, a deep discount drug store concept and Eckerd Corp, a drug chain that was sold to CVS and Canada’s Jean Coutu Group. Dollar General went public again in the fall of 2009, Vasos was named COO in November 2013 and by the following month KKR had sold its stake in the company. Elevated to the role of CEO about two years ago, Vasos leads a company whose growth is rooted in the longstanding mission of “serving others” that is one of the key variables in the company growth formula. Visitors to the company’s home office are reminded of this mission in the Hall of Values adjacent to reception area and employees are reminded of the mission also in a code of conduct they sign annually. “Serving Others means providing our customers convenience, quality, and great prices, our employees respect and opportunity, our shareholders a superior return and our communities a better life. As CEO, I pledge to uphold both the letter and the spirit of our code. As a fellow team member, I expect you to do the same,” Vasos explains in the code. RL
> COVER STORY
THE NEW DGX SMALL FORMAT CONCEPT INCREASES DOLLAR GENERAL’S EXPANSION POTENTIAL, BUT THE COMPANY WILL HAVE TO DO MORE THAN PUT A CLEVER NAME ON A SMALLER BOX TO WIN OVER URBAN MILLENNIALS. > By Mike Troy
Retailers of all types are eyeing urban markets for growth and Dollar General is no exception. The company operates nearly 14,000 stores that are easy to spot throughout nearly all of America thanks to distinctive yellow and black signs. However, venture very far into major cities or densely populated suburbs and Dollar General stores are few
Specially designed carts help customers navigate narrow aisles at DGX Nashville.
Retail Leader.com MAY/JUNE 2017
and far between. The company would like to change that and give With locations in Nashville and itself a potential new Raleigh, N.C., already open, two more DGX locations are planned for this year. growth vehicle, which is why an important experiment underway with the DGX format is being closely watched. The first two of Dollar General’s DGX stores opened earlier this year in downtown Nashville and Raleigh, N.C. Two more DGX stores are expected to open later this year at locations yet to be disclosed. “The DGX format is geared to meet the needs of our Millennial shoppers, which are an emerging and important part of our customer base and will help us broaden our appeal to attract a new segment of urban customers who put a high premium on value and convenience,” Dollar General CEO Todd Vasos told investors in March during the company’s fourth quarter earnings call. There are several obvious differences between a DGX store and a typical Dollar General. The first, obviously, is the DGX name as Dollar General has given the concept a unique identity. The words Dollar General don’t appear anywhere inside the Nashville DGX location, although savvy shoppers may make the connection to the parent company because of the black and yellow color scheme and use of some similar fixture such as PepsiCo and Coca-Cola refrigerated endcaps and the new “Beauty My Way” presentation. The decision to create a unique identity is noteworthy and suggests that Dollar General is aware that if it wanted to appeal to urban Millennials in needed to create some distance from the core Dollar General brand where expense pressures and limited staffing are known to create execution challenges which detract from the store experience and perceptions of Dollar General’s quality. The second obvious difference relates to the size. DGX is about 3,600-sq.-ft. compared to the typical Dollar General that measures about 7,300-sq.-ft. The company also has been experimenting with a smaller store that is less than 6,000-sq.-ft. and plans to have about
Prepared foods such as sandwiches and salads (above) are offered to appeal to on-the-go urban shoppers and are merchandised within the clearly identified DGX Snack Center (right).
250 of those locations in operation by year end. However those locations still carry the Dollar General banner and are fairly indistinguishable from the slightly larger stores. The third obvious difference involves the product assortment. DGX offers a familiar assortment of Dollar General staple categories such as frozen and refrigerated foods, a wide range of consumables and health and beauty products. However, there are a few big distinctions. One is the prominently positioned “Snack Center,” which featured a bullnose style refrigerated endcap branded as “Grab & Go,” that offers fresh sandwiches and salads and convenience store staples such as coffee and a soda fountain. The second distinction is the absence of an apparel offering, which wouldn’t make sense in such a small store and urban Millennials wouldn’t be likely to purchase at DGX anyway. The DGX concept’s differentiation from a traditional Dollar General has positives and negatives that will play out this year and next as the concept is refined. One potential negative is some of the products and services DGX offers are not within Dollar General’s core competency. For example, offering fresh salads and sandwiches requires special training or the use of third party to ensure inventory freshness. Even something seemingly as simple as providing coffee and a soda fountain adds new operational complexities that while not insurmountable are unfamiliar to Dollar General. Then there is the issue of real estate. Urban locations don’t come cheap — the Nashville DGX shares an intersection with Ruth’s Chris steakhouse and the entrance to
Vanderbilt University — so the smaller stores need to have a high level of productivity. The high productivity in turns creates replenishment challenges as more frequent deliveries are required and more labor is needed to keep shelves fully stocked and customers happy. “We are excited about our new smaller store concept and the opportunity to serve busy, city-dwellers with everyday low prices on the essentials they need in a convenient, easy-toshop format,” Vasos said when the DGX opened in Nashville. Vasos should be excited. DGX is an interesting concept with intriguing potential and Dollar General is wise to experiment beyond its comfort zone. However, the retail industry is littered with prototype stores that didn’t resonate with shoppers, failed to meet financial return rates or no longer fit with a company’s strategic direction. Dollar General benefitted from the latter last year when Walmart abandoned its smallest store concept known as Walmart Express and sold 41 of the units to Dollar General. It is premature to speculate about the future contributions of DGX, but if Dollar General can find the balance between expense control while offering a differentiated and desirable store experience, it could have a source of new growth for years to come. That’s a big if. RL MAY/JUNE 2017 Retail Leader.com
> SUPPLY CHAIN
Surviving TRUMP AMERICA’S RETAILERS, LIKE THE PRESIDENT, ARE NO FANS OF REGULATIONS, EXCEPT WHEN IT COMES TO FOOD SAFETY AND THEIR REPUTATION. > Gina Acosta
At the turn of the century, delivering milk to customer doorsteps was the norm. Then, as grocery stores
tive customers, on the hunt for local products, are drinking it up. Every day, Oberweis trucks pick up milk from family farms and deliver it to the company’s bottling plant near its home office. There, the milk is tested and modern appliances took off, milk was and pasteurized. It is then bottled immediately in mostly purchased at retailers. But today, as glass bottles and loaded on trucks for home delivery, consumers demand to know more than they so families often receive their milk 48 hours or less ever did before about what’s in their food, after it comes from the cow. “Our competitive strength is taste and sourcing. how it was made, and where it’s been, the And our business model is resonating with today’s milk man is not only back, he’s thriving. consumer,” Bedford said. “We also take food safety as “The number one driver for our business is the seriously as we take taste. It takes just one bad story, quality of our products,” said Bruce Bedford, Vice one bad situation to negatively affect the brand. Our President of Marketing Analytics and Consumer customers are very vocal, if they don’t like something, Insights for Oberweis Dairy. Oberweis is a familythey let us know.” run dairy based on the far western edge of Chicago Bedford said the company’s promise of taste and that operates 40 dairy stores, with two more planned transparency has been so successful that Oberweis to open later this year and more planned to open in is expanding home delivery to North Carolina and 2018. Oberweis also delivers milk in glass bottles to Virginia this summer. “Our home delivery segment is homes across the Midwest. “Our customers love that thriving. We eventually plan to also expand our retail our milk is 48 hours farm to table,” Bedford said. business,” Bedford said. 48 hours? Yes. And today’s increasingly selecThe Oberweis Dairy story is just one example of the escalating supply chain pressures on manufacturers and retailers when it comes to food quality and safety. Today’s food industry is more local than ever before but also more global. The industry is dealing with an unprecedented number of food safety outbreaks and recalls, which erode consumer trust and threaten brand reputations. While it’s virtually impossible for companies to eliminate all food safety issues — especially considering the variable of in-home preparation — there are three pressing challenges that must be managed: stricter consumer demands regarding quality and sourcing (transparency), changing rules on food handling (traceability) and an increasingly digital supply chain (technology). Today’s consumers want to know Food industry leaders from more than 60 countries gathered at the Global Food Safety Institute’s conference in Houston in February. The next GFSI food safety conference will be held in Tokyo in March. what’s in their food and how it will
Retail Leader.com MAY/JUNE 2017
“The food industry is really being transformed by the Big Data revolution. You can now access, manage and interpret huge quantities of data, so you can prevent and maybe even predict potential food safety problems.” — BRIAN ROUFA, Chief Marketing Officer and SVP Sales Operations for ICIX.
impact their health. It’s a new day in which transparency is no longer optional — it’s expected — and it will be retailers and manufacturers who will be held responsible when there’s a problem in the supply chain. In 2016 Oracle Retail surveyed 13,267 respondents across 12 countries and found that consumers ranked quality assurance as their highest priority when shopping, in front of value and product availability (The Power and the Money, 2016). In fact, more than 42% of the global respondents routinely demand to know where products are sourced from. These consumers believe the information should be pervasive through digital means, in-store and on products. They even expect store associates to have the information on hand. At least 29% of the respondents indicated more information would drive their loyalty to the retailer. “In the last year, 48 percent of food recalls were caused by mislabeling,” said Paul Woodward, Senior Director of Strategy, Retail Supply Chain Business, Oracle. “So for many companies, somewhere in the process information is being missed, is not being collected, the wrong packaging is being used with the wrong product, etc. So that’s why it’s important for these companies to put in a rigid process, or solution, to stop these products from being mislabeled. That would be a significant, significant cost savings for the industry.” Many companies are investing in training and education efforts to help their employees get up to speed on new food safety rules to improve visibility. And new technology is hitting the market at a rapid pace to help suppliers and retailers deal with all of these issues. “We are listening to the consumer all the time, we are in constant contact with our customers. When it comes to these food safety issues, we are always doing our utmost to ensure the highest standards,” said Gillian Kelleher, VP of Food Safety & QA at Wegmans Food Markets. “One area where we’re constantly focusing our effort is on store food safety. There’s high risk due to the amount of food preparation we do in our stores. We have a strong emphasis on employee coaching and education, making sure people handling food understand the ‘whys’ behind our in-store food safety practices and the importance of what we do when it comes to safe food handling.” In the short term, Wegmans and others will have to comply with new food safety rules, which
are poised to change substantially how the retail and food industries do business. The Food Safety Modernization Act, or FSMA, is the most sweeping reform of U.S. food safety laws in more than 70 years. It was signed into law by former President Obama in January 2011, but it took many years and considerable industry involvement to promulgate a wide range of rules, the first of which went into effect late last year. The majority of the new rules under FSMA will go into effect this year, and big deadlines in May and September. One FSMA rule impacting suppliers and retailers is the Foreign Supplier Verification rule, which goes into effect on May 30. This regulation for the first time puts a giant magnifying glass on all imported foods brought into the United States, whether it’s a high- or low-end product. “The FDA and other regulatory agencies have always had control over domestic foods. But under FSMA and the foreign supplier rule, now food brought from other countries will have to be shown to be safe. It was never part of the food rules before,” said Karil Kochenderfer, GFSI North America Representative for the Consumer Goods Forum. “The reality is that there’s limited resources, whether it’s companies, the government or consumers, everyone is stretched. And we have an increasingly global, dynamic food supply. The only way to prevent problems is through public-private collaboration.” And collaboration was the big theme at this year’s Global Food Safety Conference in Houston, which attracted more than 1,200 attendees. The fact that those attendees came from 54 countries underscores just how global food supply chains have become and the large number of attendees highlights the degree of attention the issue receives. Trust and transparency were recurring topics, as well as listeria control, traceability and food safety innovation. A recurring theme among those in attendance is that the biggest problem upfront for retailers and manufacturers will be
“The more you move food, the more likely a food safety problem will arise.” — KARIL KOCHENDERFER, GFSI North America Representative for the Consumer Goods Forum.
MAY/JUNE 2017 Retail Leader.com
CHAIN OF COMMAND: Viewpoints on Challenges and Innovations in the Global Cold Supply Chain As the links in the global supply chain get tighter, creating an infrastructure that is innovative and technologically advanced as well as compliant and controlled, is important in strengthening links from producer to consumer. Approaches vary, but common priorities for those providing safe perishable foods and beverages to consumers across North America, include anticipating and addressing challenges and driving improvements. Here are two perspectives on global food safety and the next generation cold supply chain.
Q and A with Girish Nair Cold Supply Chain Expert - CN Spanning three coasts, CN is the only transcontinental railroad in North America offering a unique network reach. CN, along with its operating railway subsidiaries, is North America’s true supply chain enabler, taking pride in building for the future of customers, employees, partners, community and shareholders. For more information, visit the company’s website at www.cn.ca
Q: What are the challenges you foresee within the cold supply chain in next few years?
GN: There are a few challenges, and some of them are good problems to have. Increased regulatory compliance is definitely one of them. With the Food Safety Modernization Act in the U.S., and Canada emulating the same with the Safe Food for Canadians Act, there will be increased focus on food security not only for importers/exporters or producers but also for carrier and transportation companies. It will be critical that all carriers build preventive controls and post audit capability within their supply chain to promote food security. This actually takes us to the second challenge of incorporating more technological innovation, telematics and remote monitoring capability within the supply
chain. Finally, we have some carriers pushing the boundaries of cold supply chain with new sophisticated equipment such as CMA’s Aquaviva. It is critical that all supply chain partners are able to integrate and leverage this new capability within their respective multimodal moves. The operational viability of any new equipment or technology should be seamless across all modes.
Q: What initiatives does CN have in place to address those challenges? GN: CN has invested over $20 million in the last few years to develop remote monitoring capability in order to build supply chain visibility and post audit capability. Food security is core to our program and we wanted to ensure that preventive controls are in place before the regulation kicked in. Food is a very valuable commodity and while our producers work hard to produce the best quality protein globally, as supply chain partners the least we can do is ensure that the food quality and integrity is maintained within the entire supply chain. With consumer awareness increasing in the emerging economies, it is critical that we deliver quality products to these growing markets in order to sustain economic growth and prosperity for Canadian producers. Listening, learning and collaborating with supply chain partners is also the first step towards innovation. This enables us to create an ecosystem where all supply chain partners work towards achieving a common objective – FOOD SECURITY.
> SUPPLY CHAIN “We are listening to the consumer all the time, we are in constant contact with our customers. When it comes to these food safety issues, we are always doing our utmost to ensure the highest standards.” — GILLIAN KELLEHER, VP of Food Safety & QA at Wegmans Food Markets.
the initial investments required — including money, time, labor and legal resources — to implement a fully FSMAcompliant food safety plan. “The more you move food, the more likely a food safety problem will arise,” Kochenderfer added. “In an exceedingly mobile society, manufacturers and retailers must realize that A, we have a mobile, global public. B, we can detect substances that we cannot even begin to understand, and it takes time to learn the science. And C, scientists need to be respected. They are the gatekeepers and they need to guide our discussions on food safety.” With worldwide sourcing and complex supply chains that stretch to places with diverse cultural practices, rules and attitudes toward food safety, it is difficult for many companies to get a handle on their own suppliers and their suppliers’ suppliers. Such traceability issues are being address by advances in technology comes in, to help retailers, food manufacturers and distributors understand and manage their own suppliers and trading partners for greater compliance visibility. “The food industry is really being transformed by the Big Data revolution. You can now access, manage and interpret huge quantities of data, so you can prevent and maybe even predict potential food safety problems,” said Brian Roufa, Chief Marketing Officer and SVP Sales Operations for ICIX, a provider of compliance solutions. “For example, Walmart told us they collect about 2.5 petabytes of data every hour of every day — and they need sane ways to manage it, use it to spot changes and problems, and to make sure that most of their food safety and compliance is automated with standard operating procedure, so they only have to handle a small number of exceptions and problems. Complex supply chains also require more transparency and “The number one more collaboration among trading partners than ever before, to reduce driver for our the odds that something bad slips business is the through.” Roufa says many companies are quality of our starting to take the compliance data they have and use it for other things products.” outside of food safety and compliance. For example, if procurement — Bruce Bedford, can access compliance data, they Vice President of can tell who has a good compliance Marketing Analytics track record, and who responds and Consumer Insights quickly in the event of a question for Oberweis Dairy. 42
Retail Leader.com MAY/JUNE 2017
or problem, so they can establish a preferred list of trusted trading partners. Or, companies might be able to use compliance information in marketing and sales, to help consumers develop brand preferences. “Automation and smart data analysis are improving safety, but what we’re seeing is that food safety regulation is now considered a low bar in the industry, and what everyone really wants to do is move beyond a safety focus to a quality focus,” Roufa said. “We were at the Global Food Safety Conference in Houston recently, and most of the audience applauded wildly for one of the food manufacturers on a panel who said, ‘We don’t compete on safety, because consumers expect their food to be safe. We compete on quality instead.’” Smart retailers and manufacturers should be in regular communication and collaboration with trading partners, so they can know quickly if there’s a problem and can respond quickly, Roufa said. So when a trading partner logs into the compliance system, it’s easy to see which suppliers are in compliance, which ones owe documentation or test results, and which ones regularly respond, according to Roufa. Not only does this help in day-to-day management, but it helps develop a trusted set of trading partners that can be counted on to do the right things, on time. This cuts down on the probability that there will be a problem, or that one will get out of hand. While the food and retail industries were deeply involved in creating the current regulatory environment for food safety, another recurring theme from the Global Food Safety Conference is that retailers and suppliers are expending tremendous energy to comply with the new rules. Further complicating things, or at least creating potential uncertainty, is President Trump’s views on regulations. He has alluded to the possibility of tighter restrictions on foreign foods as a way to gain an advantage during trade negotiations and also expressed a dim view of regulations overall which could have an impact on FSMA regulations not yet implemented. Trump’s choice to lead the lead the Food and Drug Administration, Dr. Scott Gottlieb, is also seen as a fan of deregulation and previously held senior positions at FDA during the George W. Bush administration. Regardless of party affiliation, food safety is the ultimate bipartisan issue. Retailers and their suppliers need a proactive food safety strategy and supply chain transparency — whether mandated by the government or not — to maintain trust with consumers. RL
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> EVENT EXCLUSIVE
Retailers and consumer goods companies are spending more time than ever in the nation’s capital and the trade associations that represent their interests have never been busier. The heightened interest and flurry of activity began on Nov. 9, 2016, when the nation awoke
to the reality that Donald Trump was elected president of the United States. His election surprised many, as did the haste with which he has sought to make good on campaign promises around health care and tax reform, reprioritize federal spending and pursuit of an America first agenda. In so doing, all manner of new and pressing challenges have joined the litany of familiar challenges facing retail and consumer goods companies.
THE SOURCE AT NEWSEUM SERVED AS AN APPROPRIATE VENUE FOR THE D.C. DIFFERENCE MAKERS LUNCHEON. > By Mike Troy
To explore these challenges, Retail Leader hosted a first-of-its-kind roundtable luncheon around the time of President Trump’s first 100 days in office. The event was made possible with support from Chicago-based Market Track, a leading provider of market intelligence, and was designed to facilitate a dialogue on topics of mutual interest to trade association executives who represent retailers, consumer goods companies and the American consumer. CEOs, presidents and other top executives from eight leading organizations shared their perspective during a two-hour invitation-only luncheon conversation moderated by Retail Leader Editor-inChief Mike Troy. Participating organizations included the Grocery Manufacturers Association (GMA), the Food Marketing Institute (FMI), the National Grocers Association (NGA), the International Council of Shopping Centers (ICSC), the National Association of Chain Drug Stores (NACDS),the Retail Industry Leaders Association (RILA), the International Housewares Association (IHA) and American Humane, an organization involved in food certification standards. The conversation was wide-ranging, but among the key topics discuss were:
The Source restaurant at the Newseum served as an appropriate venue for the D.C. Difference Makers luncheon.
Retail Leader.com MAY/JUNE 2017
Collaboration and regulatory reform with a focus on the challenge of representing industry and consumer interests during a period of escalating partisanship.
The twin forces of transparency and trust that are driving consumer behavior and influencing priorities for retailers, suppliers and trade associations. Tax policy and the outlook for passage of a border adjustment tax, the marketplace fairness tax and comprehensive tax reform. The consumer and how shifting behaviors are impacting purchasing patterns, retail development and innovation efforts. Economic issues such as minimum wage, wage growth, health care reform and the role of retail and retail pharmacies in reducing costs. Many of the participants were veterans of the Washington, D.C., world of politics with a deep understanding of how things get done or don’t get done at the federal level. Several acknowledged seeing a lot of things during their careers, but nothing like what has gone on since Nov. 9. As one participant noted, if Hillary Clinton had won the election the status quo would have remained intact and life would have been simpler. Conversely, with Trump in the White House organizations have had to do a 180-degree turn in key areas and fight battles they did not foresee. The most obvious of these is the Border Adjustment Tax (BAT) that is widely reviled in the retail industry and has galvanized opposition among trade organizations. The concept is so deeply flawed and detrimental to consumers and businesses it isn’t expected to become law, but nonetheless ensuring
its defeat is requiring resources when that time and energy could be better expended elsewhere. The BAT issues underscores one of the top challenges facing all trade associations in the current climate, which is figuring out how to serve the interests of members during a period of profound change. Not only is there profound change, or the talk of it anyway, but there is tremendous noise and vitriol emanating from Washington, D.C. Partisanship didn’t begin with the arrival of the Trump administration, but it has certainly become heightened. Fearmongering and the 24-hour news cycle have contributed. As one attendee noted, the media landscape has changed with Americans’ ability to choose sources of information and “news” that support views they already hold and that feeds a reinforcement loop. Media consumption behaviors have reinforced a sense of tribalism, according to another attendee. The discussion of media and the impact on political agendas was highly appropriate considering the venue for the luncheon: The Source restaurant adjacent to the Newseum, located at 555 Pennsylvania Avenue NW, less than a mile either direction from the White House and the United States Capitol. Another attendee decried the loss of civility in Washington and attributed it to a reality that doesn’t get much attention. Most members of Congress no longer relocate to D.C. with their families and their children don’t attend local schools, factors which in the past helped curtail nastiness. Partisanship, a recurring theme at the luncheon, is not a new phenomenon, it existed in the 1970s and 1980s, one attendee noted, but things still got done. Conversely, recent years have seen the situation devolve to the point where Congress only acts when it must. Despite this situation, the notion of “getting things done”
can also mean preventing bad legislation from becoming law. The fight over BAT is the obvious example, but last year a coalition of trade groups were successful when, guided by the beacon of ensuring a consistent national regulatory framework, they blocked an onerous Vermont law relating to GMO labeling in favor a national standard. While logic is often at the root of such victories, common sense doesn’t always prevail in Washington, D.C. That helps explain why level playing field type legislation such as the Marketplace Fairness Act, which requires online only retailers to collect sales taxes, still hasn’t become law after roughly a decade of effort. A level playing field, fewer regulations and a more consistent national regulatory framework have long guided trade associations’ efforts on the legislative front and that is unlikely to change. In fact, there is a sense that important victories are at hand as the new administration decries regulations. Several executives indicated they are bullish about the outlook for the economy with that view supported by the absence of eight years of anti-business rhetoric. The jury is still out on the future direction and global geopolitical issues are always a wild card, which caused luncheon participants to express an outlook that blended anxiety and optimism. The rhetoric will need to turn to action soon and as is always the case, questions need to be answered about how the priorities of the new administration are funded. Given the wide-ranging conversation around the long list of retail and consumer goods industry challenges and opportunities, one of the self-evident truths to emerge from the gathering was this: in an increasingly fractious political landscape and competing viewpoints the role of trade associations continues to gain importance when it comes to representing the interests of the retail industry and American consumers. RL
Participating in the inaugural D.C. Difference Makers luncheon were, from left to right, event sponsors Trevor Martin, Vice President of Client Development and Tracie Gregorski, Senior Vice President of Marketing with Market Track, Jennifer Platt, Vice President, Federal Operations, International Council of Shopping Centers, Brian Dodge, Executive Vice President, Retail Industry Leaders Association, Steve Anderson, President and CEO, National Association of Chain Drug Stores, Janet Helms, Director, National Farm Program, American Humane, Pam Bailey, President and CEO, Grocery Manufacturers Association, Peter Larkin, President and CEO, National Grocers Association, Leslie Sarasin, President and CEO, Food Marketing Institute, Mike Troy, Editor-in-Chief, Retail Leader and Pamela Sederholm, President and CEO, Sederholm Public Affairs/International Housewares Association.
MAY/JUNE 2017 Retail Leader.com
the heartbeat of the marketplace
We Are What We Eat Benefits positioning is a key growth driver for food and beverage manufacturers.
top-selling food and beverage launches. uccessful food and beverage prodIRI’s 2016 food and beverage New Product ucts today must bring solutions to Pacesetters illustrate the escalating integration of demanding consumers. Beyond servfood and beverage into consumers’ overall healthy ing a simple human need to fuel our living plans. With exceptional first-year CPG sales bodies and nourish our families, food success for newly launched products, this year’s today contributes in a substantial way to conPacesetters deliver on consumer interest in proacsumers’ efforts to live healthy lifestyles. People tive measures to protect or improve their health. want convenient, prepared, packaged goods, but This has driven innovation in healthier-for-you they also want the attributes and benefits most solutions that also offer the sought-after benefits commonly associated with pure, clean, fresh eatof convenience and taste experiences. ing. Simply stated, consumers’ food and beverage SuSan ViamaRi, IRI Vice Of 100 food and beverage brands that needs are complex, and manufacturers that can President, Thought Leadership achieved 2016 Pacesetter status, 47 tout healthprovide quick and easy meal and snack-time ier-for-you attributes. With DairyPure® milk’s solutions will win in the marketplace. substantial contribution, these brands account for 67 percent As a result, new product introductions must take a cauof food and beverage Pacesetter dollars — still an impressive tious, measured approach, with considerations more complex 48 percent if DairyPure sales are excluded. than ever before. New products must fit everyday lifestyles and Further, 57 percent of food and beverage categories that goals, and with so many options, consumers do not need to introduced healthier NPP solutions grew faster than the sector settle for less. Many CPG manufacturers have delivered on that average, with some outperforming by a wide margin. demand, thus, personalization is a huge theme across 2016’s
Food and Beverage Products are the Scaffolding for Building a Healthy Lifestyle
of consumers say FOOD is just as powerful as MEDICATION
Better for You
Natural & Organic
Removal of Less Desirable Ingredients
Retail Leader.com May/June 2017
Protein Fruits & Vegetables Superfoods
Prevention: The First Line of Defense
Non-food items have naturally been a big part of people’s preventative care — from vitamins to skin care, the CPG industry churns products to treat and manage simple ailments and chronic conditions. The food and beverage market has shifted its attention to these goals in recent years, as the market for inside-out prevention and management of wellness-related issues is escalating. CPG food and beverage items that embrace healthier ingredients and eliminate less desirable and/ or not easily understood ingredients are hitting the mark with shoppers. Weigh the Benefits
Benefits positioning is a key growth strategy, wellrepresented in food and beverage Pacesetters. More than two-thirds of consumers recognize that the food and beverages they consume play an important role in supporting their health. Nonetheless, some consumers are more diet-conscious than others and, dietary mindset significantly impacts the new
Data & Insight Provided By
Factors Influencing New Product Consideration Set — Percent of Consumers
Wellness Matters, But Make Room for Indulgence
Healthier Eater 52%
Free Eater 57%
Is fresh/not processed
Satisfies my appetite
Is low in sugar
Is quick and easy to prepare
Helps me address nutritional goals
Has low price point
Appeals to many people in my household
Has easy-to-understand ingredients
Has easy-to-understand ingredients
Satisfies my appetite
CPG products delivering clean, simple and fresh are winning, but that’s not because people have eschewed indulgent items. Transparency is sought after — better-for-you, natural and organic, healthful ingredients — but the desire for indulgences (on occasion) still is strong. Restaurant-inspired items, meal solutions that are complex but easy to prepare and convenient, as well as sweet snacks have seen a boon. This year’s food and beverage New Product Pacesetters teach a lot about how consumers spend, what is important to them and what will make an impact on them — and on the market. Food and beverage solutions that tap more targeted consumer preferences — and strike a balance between wellness and indulgence — win with shoppers. IRI’s Rising Stars — the market’s newest entrants that are poised to earn 2017 Pacesetter status — continue to reflect this movement as they deliver quick and easy, full-flavor solutions to meet the lifestyle needs of today’s healthminded, but still occasionally indulgent, population. RL
Food & Beverage Consumers Make Room for Treats
Note: Healthy Eater follows a strict diet or is conscientious about eating behaviors 80 percent of the time and allows for indulgences the other 20 percent; Free Eater eats with little consideration of nutritional or caloric intake.
product purchase consideration set, with different segments of people seeking different product benefits. From fresh/ not processed to sugar content and the purity of ingredients, many factors influence new product purchases. Consumers carefully consider their purchases, weighing the value-added benefits and the contribution these purchases will make in supporting their current and desired lifestyle.
37% splurge about half the time 26% make room in their diet for occasional treats 22% eat with little or no consideration of nutritional or caloric intake
IRI 2016 New Product Pacesetters 1
Oscar Mayer™ Natural™
Not Your Father’s Root Beer®
Beer/Ale/ Alcoholic Cider
Dunkin’ Donuts® K-Cup Pods®
Fresh Bread & Rolls
Sargento® Balanced Breaks®
Henry’s Hard Soda®
Beer/Ale/ Alcoholic Cider
Source: IRI Market Advantage™, new products that completed their first year in calendar 2016.
May/June 2017 Retail Leader.com
APPEL EXECUTIVE INSIGHTS ANDREW PRESIDENT, CHIEF EXECUTIVE OFFICER
A glimpse at the minds and personalities of IRI’s thought leaders. Chicago-based IRI is a technology-driven big data and analytics company at the forefront of the consumer buying revolution. IRI delivers the world’s largest set of market, consumer purchase and integrated media data to CPG, retail and OTC healthcare companies around the globe. As a result, its clientele reaps the benefits – growing their businesses and in turn further growing a giant and alwaysevolving industry.
Here we have insights from IRI’s President and Chief Executive Officer Andrew Appel, who is sharing highlights from his keynote speech, “Collaboration and Personalization: Now. New. Next,” from the 2017 IRI Growth Summit that recently took place in Nashville, Tenn.
Q. What is the next big challenge for the manufacturing, retail and media industries? A. The next five years will be about mastering big data — the intelligence, the actions, artificial intelligence and machine learning. This will be no easy feat, because there will be a 43-fold increase in annual data generated over the next four years. Big data is morphing into artificial intelligence and machine learning, and will make a massive impact on productivity. Voice will be the next interface alongside mobile. Today, it’s focused on home automation but imagine a world where voice is reshaping how we access information. Voice as a platform will have a big impact. Q. What is the current state of media and advertising? A. Media is rapidly shifting toward digital and personalization. People are spending more than 10 hours per day consuming content — up from eight hours in 2013. Digital advertising was up by 20 percent in 2015 to a record $60 billion, and addressable TV will rise from 42 percent to 74 percent by 2020. The challenge here is that half of the ads are never seen, according to Google. Marketers need to have a better understanding of how an ad actually impacted a consumer’s behavior. Did it drive a purchase? Did it drive a shopping trip? Q. What is IRI’s strategy for helping clients tackle challenges and find new growth? A. IRI is laser-focused on helping our clients deliver growth through improved collaboration and personalization on the only technology platform that can do both: IRI Liquid Data®. The platform supports business-to-business collaboration by allowing users to access shared views of trends and leverage tools to unlock joint growth. Our goal is to make all consumer activation personalized, precisely targeted and measured. We do that through integrated consumer data and ecosystem on the consumer’s total path to purchase, the precise activation of every impression and interaction, and real-time accurate sales measurement. This goal is obtainable because Liquid Data offers the largest integrated data set in the industry; it is accessible from anywhere and features best-in-class visualization capabilities; it’s completely open with an always-on connected ecosystem; and it’s simply wicked fast. Q. What are some new innovations that IRI is bringing to the market? A. For our manufacturing partners, we are building off of our e-commerce measurement platform and launching a full e-POS Tracking Service. We also are deepening our relationship with SPINS by integrating 35 of the most demanded health and wellness attributes on Liquid Data, and we are rolling out the CPG Private Cloud, because Liquid Data is a fantastic alternative to building it yourself. On the retail side, we have spent the past four years building a retail value proposition that is second to none, and we’re investing even more to enhance our supply chain, CRM and advanced collaboration tools for retailers and manufacturers. Q. Is IRI also rolling out new technology innovations in 2017? A. You really can’t rest for one second in this high-speed world, so this year’s new releases will focus on new visualizations that are business issue and opportunity specific. New to Liquid Data’s Unify visualization capabilities is mapping consumers and targeting groups to understand specific shopping habits. Users also will be able to traverse entire product categories and drill down to the individual SKU level as well as create their own API on the fly. This is really just a very small sample of what we have in store for clients. Stay tuned for more exciting technology launches this summer!
> TECHNOLOGY AND INNOVATION
The retail industry is awash with tech industry buzzwords that no one wants to admit they don’t understand. That’s okay, IBM’s Darin Archer is here to help. The former Adobe and Intel exec with the curious sounding title (Director, Offer Management, Commerce & Merchandising, IBM Watson Customer Engagement) leads the tech giant’s digital commerce and customer analytics offerings. He spoke with Retail Leader about innovation, artificial intelligence, cognitive technologies and what’s new with Watson. Retail Leader: Your bio says you are “redefining what e-commerce means.” That’s a tall order. How should retailers be thinking about digital and trying to manage their e-commerce business? Darin Archer: I don’t think they should be thinking about e-commerce, at all. It’s just commerce. In a lot of organizations, the org chart influences a lot of what we do, how we operate, how we see customers, etc. If you go to Google or LinkedIn and search for the title of “chief digital officer” at retailers, that’s the trend I have been watching. How many retailers have been moving past traditional roles and org charts and naming CDOs or even chief customer officers? RL: Quite a few, but structural challenges persist.
DA: Customers do not think of retailers as having separate store and e-commerce teams. It tends to be retailers that think that way. It’s amazing how many companies still have these silos. We have a long ways to go. Look at click and collect. A lot of retailers now have these special “buy online, pick-up in store” sections in the store. Those confuse customers. Customers don’t understand, for example, why something purchased online has to be picked up or even returned in a special part of the store. A lot of retailers just have to get past this. Some of these new CDO titles and roles are helping with that. They are getting with their teams and telling them, “The customer journey flows across many channels.” RL: When you talk about the customer journey flowing across many channels, that’s having a huge impact on supply chains.
Retail Leader.com MAY/JUNE 2017
DA: We have to focus on understanding and mapping the customer journey. Retailers need to understand where customers inform themselves about products, where they make decisions, how they decide to purchase in that moment. Once they get that good baseline of, “Here’s what’s really happening,” then retailers will get a better handle on supply chain efficiency. IBM introduced a product about a year ago called Journey Analytics. This is a tool that was developed to fix these exact supply chain problems. We realized that no one is really collecting and analyzing the data: where those touch points are, the journeys, the paths, and how one influences the other. So IBM took some digital analytics and behavior analytics and mapped them out in terms of the customer journey perspective, to tell that retailer: “Here’s your priorities. This customer shopped in-store, but also went to your Facebook page. And that’s a common path, so maybe you should invest there.” A lot of retailers are doing all this stuff: e-mail marketing, geofencing, social media, promotions, etc. And they really don’t know whether it’s working. Now retailers can step back and definitively know what’s working. Another thing that’s possible with Journey Analytics is testing hypotheses. Retailers can test what they think will work. RL: Artificial intelligence was a recurring theme at IBM’s Amplify event earlier this year, but there’s so much confusion about AI. How do you define it and how can retailers leverage it to drive growth?
DA: AI is a crucial technology that helps retailers provide stellar customer experiences. AI and cognitive technologies can look at incredible amounts of data, and make sense of it, far quicker than we can alone. However, rather than replicating human intelligence (artificial intelligence), we are leveraging AI to enhance and scale human expertise (augmented intelligence), which helps people make better decisions that solve today’s most important challenges.
RL: So what is a practical application of AI in a retail environment?
RL: Do you think apps still play a role in this “nurturing” of the customer?
DA: With AI, retailers can work from real-time, data-driven insights to craft really engaging and personalized experiences for current and prospective customers. This data is coming from social media, apps, and even in-store experiences. By having the cognitive tools to quickly analyze those data points, it’s easier to connect the dots, make more personalized connections and ultimately build brand loyalty. Turning to cognitive technologies is a journey — but it isn’t an intimidating one. The benefits of cognitive tools produce competitive advantage, and it’s surprisingly easy to get started, even for companies who don’t consider themselves data-driven right now.
DA: I love apps. Websites are clunky and slow, and no matter how hard we try to make them responsive, they are not designed for smartphones. When a customer pulls out a retail app, he or she knows they will be able to perform all manner of tasks within that space. Whether looking at loyalty points or past orders or searching for merchandise. Apps make the customer experience so much easier, and they are not going away. None of the web browsers can come close to what an app can do for a customer and for the customer experience. I also don’t think social media can replace apps either, in terms of having a rich customer experience. Social media is just a billboard.
RL: A lot of retailers are eager to capitalize on jumping on the personalization trend. What does a personalized retail experience powered by AI look like to you?
RL: Are there any other retailers you can single out as doing a good job of bridging the online-physical gap?
DA: Retailers can redefine what a personalized customer experience because of AI. When a retailer is drawing insights from data and uses cognitive technology to analyze it, more customized interactions occur. And I don’t just mean interactions the customer has with the brand — like recent purchases. Companies can also use AI to analyze outside information like the weather or shopping trends. Personalized retail experiences in the AI era means that every interaction is human and ubiquitous across all channels and devices. For example, we worked with 1-800-Flowers to create a Watson-power concierge called Gwyn. Customers can chat with Gwyn and tell her what they’re looking for, like a Mother’s Day gift, and Gwyn will ask a number of relevant questions to help her recommend an appropriate gift based on those specific responses. Despite never stepping foot in store or speaking with a sales associate, customers are still getting an experienced tailored to their individual needs. RL: What else are your retail customers telling you when it comes to new consumer behaviors?
DA: The data show that there’s a lot more engagement postsale than I think a lot of retailers know about. Retailers all design their conversion goals for the sale. Whether it’s online or in-store. But when you look at the analytics data related to the customer journey, there’s tremendous engagement afterwards. A lot of the engagement is product-specific, whether it’s electronics or apparel. But even in categories like beauty, there’s tremendous post-sale engagement. Sephora gets it: Not only do they want to get the customer excited about products upfront, but they also understand that customers will go back to the website or the store to get a sort of “refresher” on how to use the product. And so they actually focus on nurturing the customer way after the sale. Very few retailers are doing a good job of nurturing the customer after the sale. They may have the data, but they don’t know the “why.” Sephora knows that eventually the customer will run out of the product and by nurturing them after the sale, the customer will more than likely buy again from them.
DA: Target is doing a great job with their multi-app strategy. Not only have they not given up on apps, they have doubled down on apps and invested in several apps. Target customers love how the Cartwheel app allows you to input a shopping list and then spits out a route of the quickest way to shop for your items. Cartwheel also has a gamification component in there as well, allowing customers to earn discounts for navigating certain aisles and buying certain products. This is how Target gets a customer to walk into an aisle they might not have otherwise walked in to, and Target gets an unplanned purchase. RL: Any other examples?
DA: Lowe’s is another great example. They have taken a Pokemon Go approach with their app, in which a customer points their smartphone camera at a place in the store and a map of the store pops up with blue dots. The blue dots are superimposed, with machine vision. It’s the retailers like Lowe’s that are thinking beyond the cart with their apps that will be successful. RL: AI has a role to play in helping retail cope with exponential growth of data and Watson is a leader in the space. Talk about some of Watson’s use cases or emerging applications.
DA: We were one of the first companies to enable the omnichannel use cases for click and collect. So many retail CEOs said they wanted to offer that, and they committed. And then they found out that, oh, they don’t know what their inventory is, they have no idea where the inventory is. There were all these systems for order processing (POS, e-commerce, etc.) but nothing that put everything together. There was suddenly a demand for a centralized system that shows the entire lifecycle of an order. Then we also added mobile app capabilities so that store associates could have access to it. So that’s how pick and pack is all mobile-enabled. Watson comes into play with: where is the product, how fast can we get to it, where should it be picked up. We are looking at a lot of optimization techniques, where you should source from, fulfill, etc. RL MAY/JUNE 2017 Retail Leader.com
> TECHNOLOGY AND INNOVATION
Innovation 2.0 IT’S TIME FOR RETAILERS TO START THINKING BEYOND TECHNOLOGY LABS. > By Gina Acosta
The retail industry has been getting one stark message for years now: “Innovate or die.” And in fact, the age of digital disruption has left innovation laggards at risk of extinction. So it’s no wonder that innovation is all anyone talks about at retail shows, and is an all-consuming topic in board rooms and the C-suite.
Some retailers are navigating the era of digital disruption with great success, but unfortunately many others are struggling. As these companies face seemingly insurmountable challenges, there’s an obvious question that demands an answer. Why have some retailers lagged on innovation? The answer, of course, is complicated, but it begins with retailers not recognizing that innovation is a culture that must be fostered, and that walling off a select group of disruptors in a faraway technology hub is not a cure-all. “Innovation is more a cultural issue than it is a behavioral one,” said Jill Dyche, Vice President of Best Practices at SAS. “Having a lab somewhere is not going to make you more innovative. Every board of directors wants their company to be innovative. Unfortunately for a lot of retailers, what that means is putting together a lab with couches and bean bag chairs and white boards. But in fact, there really does need to be a sanctioned set of innovation programs that are enculturated into the business.” As retailers have grappled with the question of how to innovate, many have invested heavily in innovation labs. The notion of innovation labs proliferated over the last decade as retailer after retailer felt compelled to launch a technology division. Target opened the Target Technology Innovation Center in San Francisco; Staples had a Velocity Lab in Cambridge, Mass.; and Home Depot set up an Innovation Lab in Austin, Texas. Best Buy, Sears,
Retail Leader.com MAY/JUNE 2017
Nordstrom, Walgreens — all of these retailers have invested millions in innovation labs. And to their credit, a few of these projects have been successful. Years after launching its innovation lab, Lowe’s seems to be at the forefront of tech in the industry. The home improvement giant is launching a virtual reality experience in one of its stores to give customers hands-on practice with a home improvement project. Lowe’s says it may eventually create more VR tutorials and roll them out to more locations. The retailer has also created an augmented reality app that helps consumers navigate stores and has launched AI for customer assistance in-store. But Lowe’s didn’t just open an innovation lab. It also fostered a culture of innovation within the company. It’s a formula that other retailers seem to be struggling with. Target broke ranks from the lab movement earlier this year when it opted to shut down its “Store of the Future” and “Goldfish” projects. The retailer has also looked for outside investors to take over its food innovation lab in Massachusetts. Target is likely in the process of re-focusing how it uses innovation to drive sales. And that’s exactly what competitor Walmart seems to be doing a good job of as of late. With nearly half-a-trillion dollars in annual sales and 4,700 U.S. stores, Walmart, under the guidance of Jet.com founder Marc Lore, who now serves as President and CEO of Walmart E-Commerce U.S, has been buying online retailers, slashing shipping rates and rolling out new ways for in-store customers to do more of their shopping at Walmart.com and its other websites. When the retailer rolled out discounts last month for in-store pickup, Amazon’s Jeff Bezos may have lost a lot of sleep. It’s the kind of innovative thinking that’s needed at more retailers — no innovation lab required. A lot of retailers already have the technology and mindset to be innovative. But do they have the culture? And are they incorporating that culture into their business processes? The retailers that are being successful right now, not only are they leveraging an innovative culture, but they are also institutionalizing it into the business so that the mindset spreads throughout the company. For most retailers, this strategy will be the only way forward in the age of disruption. RL
A Letter from the President and CEO Leslie G. Sarasin
For the past several years, FMI’s research has identified a number of significant shifts in customer shopping habits that are challenging our longstanding industry vocabulary and forcing us to rethink the way we talk about traditional industry measurements.
Watching Your Language
atch your language!” Chances are the last time you heard that admonition; it came from the lips of an older relative urging some restraint after you had tested the limits of socially acceptable dialogue with some newly discovered vocabulary. In that context, watching your language had to do with what we in the south referred to as not cussing, but in the conversations swirling in today’s food retail circles, the invitation to ‘watch your language’ has some new implications. For the past several years, FMI’s research has identified a number of significant shifts in customer shopping habits that are challenging our longstanding industry vocabulary and forcing us to rethink the way we talk about traditional industry measurements. Food retail’s channel fragmentation, which is a fancy way of saying the increased number of places people shop for food, has challenged our longheld understanding of what it means to be a primary store. The increase in male shoppers and the sharp uptick in the number of households in which the grocery shopping duties are shared have expanded the volume of people involved in grocery shopping, making that long-cherished moniker of “primary shopper” a reference to put in the file with “groovy” and “cool cat.” These trends are deepening and this phenomenon provides strong indicators of areas where we must watch our language — lest we come across as insensitive and unaware of the new directions our shoppers are taking us. When I present the findings of the 2017 edition of U.S. Grocery Shopper Trends at the Future Leaders eXperience in June, we will continue to plot the trend developments and seek to establish the new industry vocabulary. However, there is another area in which the challenge to “watch our language” has relevance for the industry. Again, this is an area of focus for this year’s Trends research. As I share our 2017 Trends findings with the
Future Leaders of our industry, I especially look forward to engaging them on the not-sotransparent topic of transparency. Our 2017 research took a long and disciplined look at the expectations of the new consumer and dove into exactly what shoppers are looking for when it comes to information regarding the food they wish to purchase. What we have learned is that transparency is yet another area where we need to watch our language. While some consumers might not even call it transparency, their interest is in honesty and a clear communication of company values. Shoppers want what they want from someone they trust. When it comes to health and social responsibility issues, consumers hold manufacturers and retailers to different standards, but still expect their food retailers to not only have the information, but be able to communicate it clearly. This has profound implications for our trading partner relationships and the level of collaboration, trust, and communication that must take place. Food retailers know that communicating stances on social issues — whether labor relations, animal welfare standards or environmental concerns — can easily become a field of land mines. Again, this is an area in which we need to watch our language. There is a fine line between saying something in a way others can hear and just saying what you think they want to hear. Positioning something where it can be better received and possibly heard is a way of showing customer care and building trust. But beware of crossing the line into the territory of just throwing a bunch of words you think they want to hear that are not backed with reliable action. Honestly conveying how you have explored, studied and even struggled to shape your position is appreciated much more than spin. Honesty builds trust; uncovered spin destroys it. You will find the 2017 U.S. Grocery Shopper Trends teeming with relevant, applicable and thought-provoking information. It will certainly challenge your company to watch its language! FMI May/June 2017 Retail Leader.com
What the Tax on Imports
Means for Your Business By Andrew Harig, senior director, sustainability, tax and trade, FMI
he Trump administration is now past the “first 100 days” and looking to engage on longer-term issues. Congressional Republicans and the President have identified tax reform as one of their top priorities and are beginning to firm up plans for how to proceed. While discussions Speaker of the House have been buzzing in WashingPaul Ryan (R-WI) ton, D.C., questions remain as to whether lawmakers and the White House can agree on who will control the process or what a reformed tax code should look like. Then-candidate Trump released two detailed tax reform plans during the campaign and his staff is working on a third. The Senate has been drafting its own proposal for almost two years now, but seems content for the time being to sit back and respond to what others are putting forward. So, observers looking to get a jumpstart on planning what tax reform might actually look like have to turn to the House for insight. Speaker of the House Paul Ryan (R-WI) and U.S. House of Representatives Ways and Means Committee Chairman Kevin Brady (R-TX) have presented House Republicans’ views on tax reform as part of the “Better Way” legislative agenda. The plan is comparatively detailed, but leaves many questions about how proposals will get converted into legislative language. The blueprint is a very traditional “lower rates, broaden the base” approach to reform — it drops the corporate rate from 35 percent to 20 percent and creates a special 25 percent rate for pass-through companies, eliminating a host of deductions along the way. There is, however, one new and unusual twist to the House plan — Chairman Brady stated he plans to move forward with implementing a borderadjustment tax (BAT) to encourage U.S.-based production. Generally, the BAT would limit or eliminate the deductibility of imported products from the calculation of gross receipts. Under this new tax, only domestic products would be deductible as cost of goods sold (COGS). Even with the steep drop in top
Retail Leader.com May/june 2017
marginal rates, retailers are likely to face sharply higher tax bills under this system. This new “tax on imports” is being proposed to help pay not only for lower rates, but also for exports. The downside of the BAT is obvious: an increase in importers’ tax bills will almost certainly have to be passed along to consumers. There is simply no room for retailers to absorb these new costs. In effect, American consumers are being asked to foot the bill for tax-free exports made by companies. Early estimates indicate that, if the BAT is passed, the cost to consumers will amount to more than $1,700 annually. This increase would obviously put a strain on most families, particularly in hard-working, middle-class America. As the nation’s largest private-sector employer, retail would be tremendously affected by this tax. Many retailers could be forced to downsize or even eliminate jobs, harming the economy and communities. With much uncertainty surrounding this issue, I highly encourage you to contact your member of Congress and voice your concerns. With a proposal this extreme and potentially expensive, legislators need to hear your voice. It is also beneficial for you to share specific company numbers with legislators, so they can hear how this would affect Americans in their district. FMI
FOUR FMI EVENTS IN CHICAGO OFFERING CRITICAL THINKING FOR CRITICAL ISSUES
Sunday - Tuesday, June 11-13, 2017 www.fmi.org/futureleaders
Being Strategically Savvy Tuesday, June 13, 2017 www.fmi.org
FRESH FOODS LEADERSHIP COUNCIL MEETING Technology Enabling Path to Modern Retailing
Tuesday - Wednesday, June 13-14, 2017 www.fmi.org/pulse
Wednesday - Thursday, June 14-15, 2017 www.fmi.org
Investing in Talent By Carol Abel, vice president, education program development, FMI
s industry leaders, you face enormous challenges, and next to the financial burdens associated with running your businesses effectively and efficiently, you tell us that providing health care to your employees is paramount. The second-biggest anxiety among food retailers that’s expected to dominate attention remains the job market. Staffing, hiring, retention and wages are ranked second in the 2016 FMI U.S. Food Retailing Industry Speaks “Worry Index,” while competition from traditional and non-traditional food retailers came in third. Financials, stiff competition and job market woes generated unfavorable headlines in April for the greater retail industry, as evidenced by one Wall Street Journal blogger’s post on April 7: “More jobs were lost in the beleaguered retail industry than any other over the past two months, prompting economists to warn that the number of jobs available at brick-and-mortar stores may have peaked.” Furthermore, analysts have suggested that the deflationary environment’s impact on food retail margins isn’t giving traditional grocers much cover. I’m confident food retailers will maintain their resilience in the face of environmental and economic forces, arguably since they have some control over the job market when it comes to retention. So how do you quantify the value of your employees? In terms of professional development, we’ve challenged our FMI Future Leaders planning committee to help us create a program in June that will bring our community together 56
Retail Leader.com May/June 2017
and cement leadership skills. As leaders, you’ll be the ones to determine what types of benefits you offer that go beyond traditional health care; how you reward your employees for performance and loyalty; and ultimately who will drive your business further and foster the next generation of talent. FMI’s CEO recently addressed congressional staffers at a March 29 briefing on a foster youth jobs program saying, “We simply can’t afford to leave anyone behind or any resource untapped. Too many miss amazing opportunities simply because we can’t find a way to get our foot in the door or aren’t being guided to the right door to stick our foot in. The grocery industry feels a responsibility to not only offer that open door, but to seek out that next generation of leaders, whoever they may be.” It’s true that many executives on FMI’s board of directors started out as baggers and stockers. For these reasons, FMI is refocusing and redoubling its energy on its Future Leaders eXperience program. The event is designed as a learning laboratory to offer crossfunctional, cross-company and cross-industry interactions. The unique format cements networking opportunities and aims to create long-lasting relationships. While participants hone management skills and digest valuable industry content, they will develop the collaborative tools they’ll need to take on the responsibilities and opportunities of industry leaders in the 21st century. Our industry is an incubator for mentoring opportunities, which is why FMI continues to invest in the power of storytelling via its awards and thought leadership. In particular, FMI recognizes store managers who are championing company and store goals; advising and motivating associates; investing in in-store programs that improve customer service; and improving community relations. These stars in our industry reflect the spirit of the 3.4 million people we employ. In the near term, FMI will be evaluating ways in which it approaches on-demand, online training and also offering more intimate events for food retailers to meet specific goals in order to stay relevant and challenged in their field. We have an opportunity together to prove the naysayers wrong and invest in the talent that will build our future. FMI
The RL ReseaRch RepoRT Top ten trip drivers during a non-holiday week
GETTING PEOPLE IN THE STORE:
Driving trips—week to week variability with all of the new technology available to consumers enabling online shopping, how do you continue to drive store traffic and purchases? Brands and retailers need to consider the role trip drivers play in their overall strategy. Trip drivers are frequently based around key events and vary seasonally, but they can also switch as often as week-to-week. Market Track’s Shopper Insight Series survey asked 1,200 consumers which products would bring them to the store if they were promoted or on sale, both on a typical week and during holidays. In spite of increased focus on digital, circular promotions still have a significant impact on consumers—82% of shoppers said that they look at print circulars for deals on groceries at least once a week.
Top ten trip drivers for summer holidays (Memorial Day, Fourth of July, Labor Day)
1. Ketchup/Barbecue Sauce
2. Fresh Fruit
3. Fresh Vegetables
3. Hot Dogs
4. Toilet Paper
6. Bottled Water
7. Ground Beef
9. Hot Sauce/Other Sauce
10. Paper Towels
10. Ground Beef
Driving traffic on a normal week: The top figure on the right shows the top ten trip drivers during a non-holiday week. respondents indicated which categories out of 115 would cause them to make a trip to the store if they saw the category on promotion. Compare that to the bottom representation of trip drivers for the summer holidays—there is only one category that is the same on a regular week versus the holiday week.
Honing in on holiday opportunity: Consider the frequency your competitors are promoting holiday trip drivers as well as the average price points and ad placement. Capturing the attention of deal savvy shoppers through well timed promotions can be the difference between winning and losing larger holiday shopping trips to the store.
Fresh Vegetable Promotions 2015 vs. 2016
Page placement matters: while promoting trip drivers is important, where they are placed in the circular is also key. Nearly 80% of shoppers indicated they would not look beyond the front page if the offers were not compelling. Consider the example in the figure on the right, which analyzes the page positioning of competitive circular promotions for fresh vegetables. The figure highlights increased front page presence compared to the previous year for select vegetables, indicating a shift to more front page exposure.
2016 2015 0%
May/June 2017 Retail Leader.com
> WHAT’S NEXT...
TWO TECHNOLOGY TRENDS WILL REVOLUTIONIZE GROCERY SHOPPING DURING THE NEXT FIVE YEARS.
The accelerating pace of technology driven change continues to heighten consumer expectations. In our on-demand
economy, services like UberX, Amazon Prime and Starbucks Order Ahead, have redefined what “convenience” means to shoppers. The next five years will see the pace of technology driven change intensify with two major trends impacting the retail and grocery sectors. These trends will unfold in waves, with the first impacting the market over the next one to two years followed by the second impacting the market in the three to five year time frame.
Automating the moment of inspiration is the first of these trends. “The moment of inspiration,” is that instant when a consumer realizes they are out of milk, cereal or toilet paper and need to replenish on their next store visit. Unfortunately, we so often forget to jot it down or note it into our phones, only to realize we still don’t have those items when we return home from the store. Until recently, capturing this moment has been an out-ofreach opportunity for retailers. But that began to change in 2014 when Amazon launched the Amazon Dash Wand, a fridge magnet with a barcode scanner and voice recognition technology. With a single click of the device, shoppers can scan a product or dictate an item, and the product or spoken word instantly ends up on their Amazon shopping list. Amazon rightfully identified that shoppers and their purchases could be lured through an easier, more convenient experience. And as a side benefit, this would allow Amazon to know their shoppers’ purchase intents, track conversion, and communicate accordingly. Amazon didn’t stop there. Rather, this was the start of a new “convenience” movement. They subsequently released the Amazon Echo — a hands-free, voice-controlled speaker, with the ability to capture that moment of inspiration in the simplest possible way — through a spoken sentence: “Alexa, add toilet paper to my shopping list”. Voice assistants like Alexa, Google Home and the rumored future response from Apple are designed to connect with 3rd party devices and services like a digital thermostat, a smartlock or Uber account to serve as a personal assistant that can auto-
Retail Leader.com MAY/JUNE 2017
> By Chris Bryson
mate almost every aspect of a consumer’s life. Soon, everything will only be a request away. The next digital frontier beyond the mobile phone is not the watch — it’s a natural conversation. Thanks to new machine learning technologies, retailers will be able to create their own voice-based “bots” that will connect with these devices and provide services to shoppers. In the grocery sector, a consumer could ask about products on sale at their local supermarket and be met with a reply, “yes, brand X is on sale for $2.99; shall I add it to your shopping list?” In the slightly longer, three to five year time frame, we will see a phenomenon called “mixed reality.” MR is the merging of real and virtual worlds, whereby digital objects are overlaid onto the physical world via glasses (and one day, contact lenses!) in order to create a new combined experience. Major tech titans including Microsoft, Facebook and Google are investing in this space. Microsoft is building their HoloLens to transform the entire living room into a gaming space, while Google was a lead investor in Magic Leap, one of the most heavily funded startups of all time with more than $1 billion raised. Retailers are beginning to test out the possibilities of MR via their mobile apps. Lowe’s is using MR technology to enhance the in-store experience with Lowe’s Vision, their app that guides customers through the store by overlaying a yellow pathway onto the real world store to help customers find items faster. For grocery, MR will provide the shopper with a deeper, more helpful experience that keeps them connected across the entire path to purchase — from shopping, to purchasing, to consumption. Some in store examples include, providing a heads-up display of the shopping list and guiding shoppers through aisles based on listed items, overlaying products on shelves with personalized dietary information or coupons or helping shoppers identify which products are needed for a recipe. At home, the possibilities of MR include looking heads up displays which show product reviews, recipes and cooking instructions. There is a wealth of opportunity and change lying in the years ahead for the grocery industry, thanks to technologies including voice assistants, chatbots and mixed reality. To set yourself up for success, keep an eye on the horizon while ensuring that you are building a solid technology foundation, as the shopping experience of tomorrow will be digital-first. RL Chris Bryson is CEO of Toronto-based Unata, a company he founded in 2011 to transform grocery shopping by streamlining in-store and online experience.
AmaZING Sweetener Sales.
The Secret to
Organic. Perfect sweetness. Born Sweet Zing Organic Stevia Sweetener is a victory for alternative sweetener shoppers who seek a zero calorie sweetener made with only real ingredients – nothing artiﬁcial – and a delicious, clean sweet taste. Stock shelves and let customers experience the taste of amaZING! ™
Expanding the Category
Offering Innovative Products
Meeting Consumer Trends