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Retail Leader JULY/AUGUST 2017 VOL. 7, NO. 5


WHAT’S WRONG WITH STORES? Operators of physical stores only have themselves to blame for new attacks from retail’s disruptor class.


THE NEW BEAUTY LEADERS. The beauty category is hot and three companies are leading the way. RL profiles Ulta, Sephora and Bluemercury.


HOW TO BE A CEO. A landmark study highlights the essential traits required of senior executives with corner office aspirations.


OMNICHANNEL APPREHENSION. Executing an omnichannel strategy is costly, challenging and mission critical — and no one has perfected the process.


ENABLING THE FUTURE OF FULFILLMENT. Retailers and suppliers have new allies in innovative packaging.

SVP, Group Brand Director Katie Brennan kbrennan@ensembleiq.com 917-859-3619

EDITORIAL Editor-In-Chief Mike Troy mtroy@ensembleiq.com 813-857-6512 Managing Editor Gina Acosta gacosta@ensembleiq.com 813-417-4149

22 FINANCE AND CAPITAL MANAGEMENT MAXIMIZING VALUE. The breakneck pace of change is creating an M&A dynamic.


DISRUPTING THE DINOSAURS. Two CPG startups with unconventional business models show why retailers and big brands have more to worry about than Amazon and Lidl.


ALIBABA’s JACK MA. Alibaba founder Jack Ma is a brand builder and free trade advocate eager to help U.S. retailers and suppliers grow.

ADVERTISING SALES & BUSINESS Associate Brand Director Mike Shaw mshaw@ensembleiq.com Office 201-855-7631 Cell 201-281-9100 Senior Sales Manager Judy Hayes jhayes@ensembleiq.com 925-785-9665 Senior Sales Manager Theresa Kossack tkossack@ensembleiq.com 214.226.6468 Account Executive Matt Kavney mkavney@ensembleiq.com Office 443-203-6379 Cell 202-607-5368

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WINNING THE STORE. AB InBev has a new JBP process and category management approach to help retailers win with beer.


BEYOND CATEGORY MANAGEMENT. Positioning your organization for the shopper of the future.

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ART/PRODUCTION Director of Production Kathryn Homenick khomenick@ensembleiq.com Production Manager Anngail Norris anorris@ensembleiq.com Advertising/Production Manager Roz Gilman rgilman@ensembleiq.com Art Director Bill Antkowiak bantkowiak@ensembleiq.com Art Director Regina Loncala rloncala@gmail.com Subscriber Service/Single-Copy Purchases EnsembleIQ@e-circ.net

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Retail Leader is published eight times yearly by EnsembleIQ: 570 Lake Cook Road, Suite 310, Deerfield, IL 60015; Phone 224-632-8200 Fax: 224-632-8266. www.retailleader.com For address changes, send to Deerfield, IL address or e-mail spatton@ensembleiq.com.

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6/29/17 9:01 AM

letter from the


What’s Wrong With Stores? The disruptor class in retail has capitalized on an aversion to physical stores that many operators brought on themselves. Shopping in physical stores has become a horrible experience to be avoided at all costs — if advertising for some online retailers and subscription services is to be believed. Entire business models are founded on the belief that store avoidance will continue to gain traction as a lifestyle choice because smart shoppers are those who don’t waste time going to stores. That sort of messaging resonates with many folks because who hasn’t had a bad experience, or two or three, shopping at a store. A surly employee here and dirty bathroom there, out of stocks, a return problem, trash in shopping carts, being overcharged for a product. The list of things with the potential to annoy shoppers on any given day in a physical store is long. No wonder then that startups, who pride themselves on solving problems, have had a field day desconstructing the path to purchase, uncovering shoppers’ pain points and motivations, and developing new business models along the way. Legacy retailers have not helped their cause either by changing too slowly or changing incrementally in ways that never fully addressed their experience shortcomings. The latter is a key reason why some shoppers are receptive to the “avoid the store” message. The grass on the digital side of the fence tends to appear greener when operators of physical stores allow their grass to wither. A good example of this phenomenon is the evolution of the checkout experience. Retailers have long sought to align the labor expense of cashiers with peak sales volumes, but judgement calls always had to be made about customers’ tolerance for wait times. Retailers don’t want to pay cashiers to stand around, but if labor hours are squeezed too tight lines get long and customers revolt. They become receptive to other payment methods that allow them to exit the store more quickly, even if it means checking themselves out. There are plenty of shoppers who love self checkout now, but it’s only because retailers made the conventional checkout experience terrible. Customers already select their own products and now scan and bag their own merchandise too! Is this really an experience any shopper asked for? Shoppers might be more receptive to shoulder more of the retailer’s labor burden if there was something in it for them. Walmart now offers a discount to shoppers willing to pick up online orders in stores, essentially sharing reduced online fulfillment costs with customers who are likely to spend more money if Walmart can get them in the store. Smart. Why not offer a similar positive experience for self checkout rather than a negative alternative of choosing a staffed checkout lane? Regardless of one’s view of self checkout, what’s not smart is for operators of physical stores to provide digital competitors ammunition to attack their business. Think about it, when was the last time you were surprised and delighted in a retail store, one of your own or a competitor’s? It still happens, usually as a result of a great customer service encounter with a human that is hard to replicate online. Retailers in denial about their experience shortcomings will point to isolated cases of online retailers opening stores to support the view that things aren’t that bad. Meanwhile, Amazon’s acquisition of Whole Foods was seen as the ultimate vindication that the future of physical retail is bright. It is, as long as operators of physical stores are honest with themselves and address fundamental experience deficiencies that give shoppers a reason to stay home and wait for the UPS or FedEx driver to drop off a package. RL

MIKE TROY Editor-In-Chief mtroy@ensembleiq.com


Retail Leader.com JULY/AUGUST 2017

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To understand the transformation going on in the beauty world, one must first understand the viral popularity of the “anti-haul” video. These 10 to 20 minute rants that appear mostly on YouTube are not the typical kind of online content one might expect when it comes to beauty. There is no un-boxing of products, no tutorials, no time-lapse nail art, no skin care hacks. Anti-haul videos, which have millions of views online and are produced by a variety of beauty vloggers, tell the consumer which beauty products to avoid. In one popular anti-haul video on YouTube, a beauty vlogger, who goes by the name Kimberly Clark, appears with a pink backdrop, smiley and excited to speak to her fans. She is wearing a blonde wig, a black tank top and heavy makeup. Clark starts talking, and goes on to spend 28 minutes going through a list of beauty products that she recommends her fans never buy because she believes they’re bad products. Clark does not discriminate. She bashes prestige, mass, natural and every beauty brand in between. These videos are just one part of the tectonic change going on in the beauty category. Social media, brand disloyalty, indie startups, niche brands, health trends, price shifts, demographics and e-commerce are converging to create a perfect storm in






SOURCE: Euromonitor International Beauty and Personal Care 2016


Retail Leader.com JULY/AUGUST 2017

the sector. This is a category in which multicultural and generational shifts are driving growth, social media has replaced sales assistants in educating consumers, a big chunk of shoppers are migrating online, and legacy brands are being outsold by indie darlings such as Too Faced and Dermalogica. So, what do all of these developments mean for retailers and how can they weather the storm in beauty? For now, the beauty category has been extremely resilient and in fact one of the bright spots in retail. Last year, the prestige beauty category grew by 6%, adding $1 billion in sales to bring in some $17 billion total for the year, according to a 2017 report from the NPD Group. The report shows that prestige beauty beat the mass channel thanks to makeup, which saw 12% sales growth and contributed 82% of the industry’s total gains, and skin care, which saw 2% sales growth. Mass beauty’s sales gains, which were about 2% in 2016, were driven by makeup and skin care equally, with skin care in mass showing greater gains than in prestige. Fragrance sales were down in mass for 2016. Retailers have an opportunity to drive even more of the growth in beauty by leveraging four trends in the sector, according to Hana Ben-Shabat, a partner in the retail practice of A.T. Kearney, a global strategy and management consulting firm: Product trends. Korean beauty, two-in-one products, and niche products. Health and wellness trends especially are driving sales as consumers seek products that make them look and feel good. Channel trends. E-commerce has a 7% penetration in beauty in general, and it’s 14% or 15% in luxury beauty. Disruptive trends. One of the biggest beauty trends is the emergence of indie brands with a very crystallized value proposition that is appealing to large numbers of consumers, according to Ben-Shabat. Marketing trends. Internet influencers are becoming the go-to experts when it comes to beauty, says Ben-Shabat. Retailers and brands might ask themselves: How does this product translate online? “You have to connect the channels and have them reinforce each other,” Ben-Shabat said. “Ulta has the differentiation with the salon services. With Sephora, people like to both go to their stores and shop their website. People are shopping omnichannel, they are shopping everywhere. If beauty retailers are able to embrace that omnichannel attitude and react appropriately, there is no reason for cannibalization of physical store sales.” RL






As shoppers enter the Ulta Beauty store in Citrus Park, Fla., the latest Justin Bieber hit “Despacito” is playing from the speakers. The lighting is bright, but not too bright. There are prestige brands on the right, and the kind of beauty merchandise found at Walgreens and Walmart on the left side of the store. In the back, there’s a middle-aged woman sitting in a salon chair having her hair colored. She is telling the hairstylist that she wants “ombre hair”: a mix of purple and grey strands, “like the style my daughter is always putting on Instagram.” A few rows nearby, tween girls are trying on the new Too Faced brand lip creams, with names such as “Sugar Daddy” and “Nude Beach”. At Ulta, there are no salespeople pressuring shoppers. Employees are scattered and mostly work the cash registers or in the salon. There is no fancy lighting, no big celebrity signage, nothing really all that special about the store layout or the experience. And that is by design. Ulta is supposed to be the opposite of fancy. Ulta is where the average beauty shopper can find everything beauty in the most inclusive way possible. It’s a value proposition that has paid off for the Midwestern chain, which has become virtually immune to competitors or the economic climate. In fact, Ulta has found a way to sustainably capitalize on the Instagram era, in which looking good online is more important than ever, with a unique business model: Allowing shoppers to buy both mass and prestige beauty products, as well as get salon services, all in one place. No other retailer offers that mix in an easy-to-shop, 10,000 square foot box.


Headquarters: Bolingbrook, Ill. Chief Executive Officer: Mary Dillon Number of Stores: 1,000 Annual Sales: $4.8 billion Year Founded: 1990 10

Retail Leader.com JULY/AUGUST 2017

Because Ulta sells beauty brands at all price points, it has the ability to capture market share from all over the place, including grocery, drugstore and upscale stores. Ulta’s business model has helped it become the biggest specialty beauty retailer in the U.S., with a 27 percent market share, according to Euromonitor International. Ulta has quadrupled its revenue since going public in 2007, to Mary Dillon $4.8 billion. And the company’s winning formula of higher customer traffic, bigger average tickets and increased e-commerce conversions has produced strong comparable sales growth for nearly a decade. “Our differentiated and compelling assortment, the experience and nature of our stores, the strength of our loyalty program … help us drive traffic and manage promotional activity with greater precision,” Ulta Beauty CEO Mary Dillon said during the company’s first quarter earnings call. “The supply chain investment we’ve made to support the acceleration of our e-commerce channel. All of these assets are contributing to our exceptional growth.” That formula for growth is key, because for many retailers, e-commerce has become cannibalistic. But not at Ulta, where the company has data to show that e-commerce users are spending more at physical stores than ever before. “We continue to find ways to connect with beauty enthusiasts,” Dillon said. “We are very optimistic about her long-term engagement. In fact every indicator we have shows that she is just getting more engaged and that’s largely due to the relatively new online tools that she has at her disposal through social media and the ability to learn more, to share more, to be more engaged in makeup and hair trends and skin trends.” In fact, Ulta’s e-commerce sales grew 63.4% on top of 44.2% growth last year, contributing 380 basis points to total company comps. This revenue growth was driven almost entirely by increased transactions. While total traffic growth was up almost 63%, mobile traffic rose more than 90%, driven by


Same store sales have accelerated as Ulta has expanded its physical and digital footprint.


growth in digital marketing paid channels including search, affiliates, display and Facebook. For the first quarter ended April 29, the company said e-commerce sales grew 70.9% to $104.3 million from $61 million in the first quarter of fiscal 2016, representing 340 basis points of the total company comparable sales increase of 14.3%. “Our performance puts us in a unique position in the beauty industry and within the broader retail landscape to take advantage of the many opportunities before us to invest to drive the business for the longterm,” Dillon said. How is Ulta managing to post double-digit growth in comparable and e-commerce sales? The company is focused on a five-pronged strategy of (1) growing the store footprint, (2) adding new products to the assortment, (3) constantly improving the loyalty program, (4) broadening marketing reach to new customers, and (5) expanding the digital business. But Ulta is more than a beauty retailer with a successful strategy. It’s also a community. Beauty enthusiasts, as Ulta calls them, go to these stores to hang out, put on makeup, share selfies and enjoy a sense of comradery. These customers are flocking to physical stores and also to Ulta’s digital channel. And they are fiercely loyal, mostly due to Ulta’s Ultamate Rewards Program. “Loyalty program members are driving the majority of our sales,” Dillon said. “We’ve simplified the loyalty program. I think our communication about how the program works, how we communicate with that guest, how we convert new members and potential members in-store — are all components of what we’ve done that’s working well and driving great value and experience.” According to Ulta, 90 percent of its shoppers use the program. During the first quarter the retailer says it acquired $1.1 million net new loyalty members, bringing the Ultamate Rewards program to 24.5 million active members. This represents growth of 26% yearover-year. This means the company has an enormous amount of data on shoppers. “We use the information from our Ultamate Rewards Program to influence how we think about real estate, how we assess the effectiveness of our marketing strategy. We also use it to influence how

we think about our merchandise strategy and planning. Our brand partners also leverage this data,” said Dave Kimbell, Chief Merchandising and Marketing Officer at Ulta Beauty. While the company’s success has been extraordinary for various reasons, one thing is certain: Driving growth will become more difficult over the longer term as more business shifts to online, where sales tend to have lower profit margins. For now, Ulta is not giving up on its model. The company is leveraging big data to make assortment decisions, develop new service offerings and generally uncover opportunities to bring value to customers. It is also evolving its strategy to stay relevant with beauty enthusiasts by increasing its use of technology (social, artificial intelligence, virtual and augmented reality, etc.) to improve the online shopping experience and guide customers toward new brands, products and tools. There are now 1,000 Ulta Beauty stores in the United States as of June. The retailer plans to open 100 new stores a year over the next several years, with a goal of eventually having 1,700 locations. The retailer recently opened its sixth distribution center, in Fresno, Calif. The new DC will allow the company to more efficiently serve stores in California, where roughly 10 percent of Ulta stores are located (104 of 874 stores at end of last year were in California). In addition to adding beauty products, Ulta is also leveraging its customer engagement programs to drive sales at the salon. Salon comps in the first quarter grew 9.9%; salon sales increased 16.7% to $68.7 million from $58.9 million in the first quarter of fiscal 2016. “The salon is central to our overall strategy,” Kimbell said. “Our salon customer spends more money, comes more frequently, is high-loyalty. But most important, the salon allows us to elevate the overall store experience. It allows the customer to immerse herself in beauty.” RL

16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

16.6 16.7

Numbers Shown in Percentage

14.8 15 12.5 12.8





10.1 9.3

9.5 9.6


8.4 6.8

10.1 8.7


Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4

Q1 Q2 Q3 Q4






SOURCE: Company Reports


JULY/AUGUST 2017 Retail Leader.com






Inside the beauty oasis that is Sephora in Midtown Manhattan, there has been a lot of tapping going on lately. Not so much the kind of tapping one does with blush brushes or mascara wands, but tapping on high definition screens. That’s because when Sephora opened its largest store in North America in New York City this year, the beauty retailer christened a new format designed to appeal to today’s beauty shopper. At the new, larger version of Sephora — 12,000 square feet on 34th Street — the retailer installed dozens of sleek new iPads for shoppers to use. It put in a high-tech makeover station that complements Sephora’s mobile apps. And the retailer added a skin care studio with digital technology that measures moisture on skin. The new store concept — called Beauty TIP, which stands for Teach, Inspire, Play — is designed to leverage technology to create an in-store beauty playground for shoppers that is un-matched by any other retailer. “We are completely redesigning our store experience to reimagine it for our client today and into the future,” said Calvin McDonald, president and CEO of Sephora Americas. “By fusing hands-on service and technology, we’re creating a new experience that will teach and inspire, while allowing clients to play with beauty. And this is just the beginning. Even as we introduce this concept to new stores and renovations, we are continually making enhancements that will consistently make the Sephora beauty experience more fun and fulfilling for our clients than anything they will experience anywhere else.”

SEPHORA AT-A-GLANCE Headquarters: Paris Chief Executive Officer (U.S.): Calvin McDonald Number of Stores: 2,300 (incl. 600+ in U.S.) Annual Sales: $4 billion (est.) Year Founded: 1970


Retail Leader.com JULY/AUGUST 2017

With the popularization of apps, social media and selfies, it’s no surprise that technology has become a crucial consideration for beauty retailers. It’s also no surprise that Sephora is leading the way on that technology. Sephora has been a trailblazer in the beauty industry since the company was founded in Paris in the 1970s. Although it is focused on prestige Calvin McDonald beauty, the retailer knew early on that beauty lovers shopped across all brands and that shoppers wanted to try products before they bought them — without having to ask a salesperson at a counter. Sephora was among the first beauty retailers to organize each store assortment by product instead of brand, to launch an e-commerce platform, to create native mobile apps, to integrate with social media platforms, to use beacons instore, and to introduce mobile POS functionality. This culture of innovation is a big reason why Sephora, which has 2,300 stores (and more than 600 stores in the U.S., including JCPenney outlets), is the No. 1 specialty beauty retailer in the world, according to Euromonitor International, which tracks beauty sales. Over the years, Sephora has embraced the trend of indie makeup brands, which are exploding in popularity. The NPD Group reports that in the prestige space, smaller brands like Anastasia Beverly Hills, IT Cosmetics, Too Faced, NARS, and Tarte have all seen significant growth. Sephora parent LVMH says its specialty retail division, which includes Sephora, had a sales gain of 11% in its most recent quarter. Today, Sephora says it is focused on leveraging digital technologies toward a singular focus: to create an outstanding shopping experience for its customers, whether in-store or online. “We have a lot of exciting ideas about how we want to create experiential retail,” Calvin McDonald said. “We have over 20 million clients, or as we call them, beauty insiders. We focus on building an emotional relationship with clients, instead of discounts or promotions. This emotional relationship is what will drive loyalty long-term.”

McDonald says Sephora defines “experiential retail” as: Memorable, when something resonates with the customer. Sharable, when a moment is easy to capture so the customer can tell everyone about it. Repeatable, when the shopper says, “I can’t wait to do that again.” This idea of experiential retail is a natural fit for a beauty retailer with a tech-forward strategy like Sephora. The company’s U.S. headquarters are located in San Francisco, an ideal setting for proximity to the latest retail innovations and experiments. This location also gives the company access to strong tech talent. In 2015 the company launched the Sephora Innovation Lab, a digital think tank of sorts based in San Francisco that’s also designed to groom digital leaders within the company’s ranks. The new Beauty TIP store format, which Sephora executives call the “store of the future,” was born in that lab. “When a client comes in and experiences Teach, Inspire, Play, she’s going to experience it on her own, she’s going to experience it through cast members, and she’s going to experience it through technology,” McDonald said. “And that’s where we really see our differentiator being and how we’re going to continue to innovate.” The Beauty TIP stores contain such features as: The Beauty Workshop, billed as the “heart” of the store, where customers can watch tutorials and perform other tasks on iPad stations. Sephora Beauty Studios at the center of the store is a space for makeovers with senior artists. The Moisture Meter, which measures the moisture in one’s skin to make for better skin-care recommendations. The Skincare Studio, with a working sink, four stations and a touchscreen with access to the Skincare IQ diagnostic, facilitates education and offers services like mini facials. A Fragrance Studio uses sensory technology, InstaScent, to enable the exploration of 18 fragrance families. Interactive virtual experience, Tap and Try, facilitates the “trying on” of lipstick and eyelashes in-store using Sephora Virtual Artist’s Technology combined with RFID scanning. With one endcap dedicated to each, customers can “try on” any lip or lash product that instantly appears on their digital likeness. Another facet of Sephora’s experiential retail strategy has been fostering a sense of community among beauty shoppers. Sephora hosts an online community forum called BeauyTalk. The forum, which is accessible via a mobile phone or IPad app, features such discussions topics as “I hate my eyebrows and I

don’t know how to fix them!” The company also drives engagement with its “Beauty Insider” loyalty program. If a customer buys $350 of beauty products, she becomes a VIB (Very Important Beauty Insider) and receives special privileges. There’s also a VIB Rouge level after spending $1,000. Sephora has a strong and active presence online, where staffers respond to customer inquiries instantly on Facebook and other platforms. Sephora frequently collaborates with social influencers and famous YouTube gurus to maintain a prominent social media presence. It’s also a way for the company to introduce new products frequently. Sephora is also embracing new service ideas both in-store and online. The retailer has launched beauty classes that have become very popular with shoppers. “The connectivity of our beauty classes is reinforcing our focus on community and strengthening the connectivity of the brand,” McDondald said. The company’s Virtual Artist app allows consumers to play with beauty products. It’s a great example of a digital driven technology that is really delivering that experiential strategy. Consumers can, for example, try on more than 1,000 cheek colors using uploaded photos, augmented reality and artificial intelligence. Other initiatives include its Play! subscription box service and a new branded chat bot on Kik. “We’re thrilled to be one of the first brands to have built a branded chatbot on Kik, and even happier at the depth of engagement it’s driven. We have steadily infused our bot with newness — fresh content and first-to-market experiences — and will continue to do so,” said Bindu Shaw, VP of Digital Marketing and Media at Sephora. Sephora operates more 2,300 stores in 33 countries, although the company plans to open 100 more stores this fiscal year. In May, JCPenney announced it would expand its partnership with Sephora, bringing the total Sephora presence in JCPenney stores to 650 locations. According to JCPenney, its Sephora division is one of its best performers. Marvin Ellison, chairman and CEO of the department store chain, called the Sephora shops “one of our biggest advantages over the competition,” in a statement. The beauty consumer is clearly voting in favor of Sephora, online, in-store and even at JCPenney. Sephora’s digital first, customer first strategy has turned out to be an effective strategy for beauty retailing in the 21st century. RL JULY/AUGUST 2017 Retail Leader.com



Macy’s Has a



The department store sector faces some highly publicized challenges, but Macy’s has one thing going right. It acquired the 60 unit chain of Bluemercury branded beauty stores in March 2015 for $210 million. The company wasn’t well known at the time except to beauty enthusiasts who raved about the product offering, quality of proprietary brands and services offered in smallish stores in urban neighborhoods. “Macy’s realized that’s where the action is they wanted to get in on it and that is why they bought Bluemercury,” said Barry Beck, COO of the company he co-founded with his wife Marla. Department stores were losing share in the luxury beauty business, declining from 90 percent 15 years ago to about 60 percent in 2014, according to Beck, as spending shifted to smaller neighborhood stores and freestanding locations. Bluemercury was one of the reasons why, along with large rivals like Ulta and Sephora. The share losses also stemmed from what co-founder and CEO Marla Beck recalled as an unpleasant store experience. “Everything was still sold behind glass counters and I found the staff to be a little bit snobby, looking you up and down trying to determine if you were going to spend money before deciding whether to help you. As a young woman in my twenties it was intimidating.

BLUEMERCURY AT-A-GLANCE Headquarters: Washington, D.C. Chief Executive Officer: Marla Malcolm Beck Number of Stores: 130 (20 locations within Macy’s) Annual Sales: $228 million (est.) Year Founded: 1999


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Beauty innovators Barry and Marla Beck sold Bluemercury to Macy’s in March 2015 for $210 million.

Shopping for cosmetics was a problem that needed a solution,” according to Marla. The solution she and Barry developed was a retail concept billed as a friendly neighborhood cosmetics store that offers coveted luxury beauty products and expert, honest advice. That combination caught Macy’s attention and with the department store sector already showing signs of duress in the spring of 2015 the nation’s largest department store chain needed a new growth vehicle. “Our plan is to operate and significantly expand Bluemercury stores as a standalone business with an enhanced omnichannel component for a seamless customer experience across stores, online and mobile,” Macy’s noted at the time of the acquisition. The company has certainly delivered on that promise. From 60 units two years ago, Bluemercury now has about 130 locations including 20 store-within-a-store departments inside Macy’s stores.

“We are opening more stores than we’ve ever opened before,” said Barry Beck. “We will open between 37 and 40 freestanding stores this year and we are opening them in neighborhoods and embedding ourselves in the lives of customers.” An example of that strategy is the company’s plan to have 40 stores in Manhattan, up from 14 currently, in the next 24 months, as Beck has been evaluating real estate opportunities for years, looking for the optimal location. “We like to create a moat of convenience around customers and I probably look at 100 real estate deals a week,” Beck said. “I don’t swing at every pitch, but when I swing I swing for the fences.” A case in point is the company’s store in the lower Manhattan neighborhood of Tribeca near a high volume Whole Foods store and Target’s new Flex Format concept that opened last fall. “It took five years to get that corner in Tribeca but it is the best corner in lower Manhattan and one of the best performing stores in the country,” Beck said. The disciplined approach to site selection is paying off with strong sales and it doesn’t hurt that the company occupies one of the hottest sectors in retail serving core customer segments Beck describes as suburban power moms and urban super women. “We are probably one of the best performing retailers in the country right now. Our comparable sales are incredible. We are stunned by our performance this year,” Beck said, noting that he couldn’t share actual numbers because parent company Macy’s is publicly held. However, the strength of the company’s physical retail business prompted him to say that, “the reports of retail’s death are greatly exaggerated.” As for longer term growth, Beck believes Bluemercury’s strategy of being a neighborhood retailer has it positioned to capitalize on demographic trends and increasingly dense communities. “There is an opportunity for more than 300 Bluemercury stores,” Beck said, and when pressed he is quick to add, “there is probably an opportunity for even 500 stores.” The Becks weren’t always such big believers in physical stores. The original vision for the company was to sell cosmetics online and came about after Marla heard Amazon founder Jeff Bezos speak to her class at Harvard. He had founded Amazon just three years earlier and the first dot com boom was in full swing so she and Barry decided to sell cosmetics online. “I was always a beauty junky,” Marla said. The couple moved to Washington, D.C., and after raising $1 million in just two weeks built a Web site and hired a staff of 20 before logging their first sale. Bluemercury was up against larger, better capitalized online competitors and when the bubble burst in early 2000 venture funds stopped investing and Bluemercury was in trouble. The Becks were down to their last $150,000 and as their company continued to burn cash the end was in sight.

That’s when they decided to purchase a store in the Georgetown area followed by a second location in Dupont Circle. Both locations were in urban walkable communities that help generate foot traffic and sales. The turning point for the company was when the Becks sunk all of their cash into a third store in Philadelphia that Barry said was a smashing success. From there the company refined its store operating model, product assortment and services, attracted new investors, including AOL founder Steve Case, and continued to grow. By 2005, public companies and private equity firms were courting the company, but the Becks held out until Macy’s came calling in 2015. Despite Macy’s sales difficulties of late, the deal gave Bluemercury the resources and infrastructure to accelerate expansion while staying true to a key operating philosophy Marla contends is the company’s secret weapon. “We gave our staff full time year round work, benefits and a true career path. We gave them a place where they could develop and grow and they became part of the Bluemercury family,” Marla said. That was not the norm in the world of luxury cosmetics dominated by department stores. The majority of employees were part time workers and were only given 15 to 25 hours of work and no work during the low seasons of January and summer time, according to Marla. “We broke industry rules and created a better experience for our staff and therefore for our customers,” Marla said. RL

JULY/AUGUST 2017 Retail Leader.com



How to be a




The disruptive and transformative forces affecting the retail world have made the job of CEO more challenging than ever. Long range strategic plans now need to be revisited with greater frequency given the accelerating pace of change. While skating to where the puck is headed has never been harder, a massive research project based on a decade of data reveals what it takes to become CEO and the behaviors of those who are successful. The landmark research is the work of Kim Rosenkoetter Powell and Elena Lytkina Botelho with the professional services firm ghSMART. Powell is a principal and Botelho is a partner at ghSMART where they are co-leaders of the firm’s CEO Genome Project. However, the word “project” doesn’t do justice to the magnitude of the research the pair conducted. The CEO Genome research analyzed assessments of 17,000 C-suite executives gathered during a 10 year period, including more than 2,000 CEOs. The executives involved came from all major industry sectors and worked for companies ranging from the Fortune 100 down to those with revenues of $10 million. “We studied specifically CEOs and the research was exploratory in nature, not hypothesis driven,” said Powell. She makes the distinction to point out that the goal wasn’t to prove or disprove a point of view, but rather do a deep dive into a massive data set to understand behaviors that are essential to leadership, that makes executives CEO material and contribute to their success. The Scheduled for release in early 2018, “The CEO Next Door” is essential reading for those with corner office aspirations.


Retail Leader.com JULY/AUGUST 2017

data set included details on executives’ careers and education, patterns of behavior, business results and performance. The data was gathered during 4-to-5 hour interviews with every executive, often supplemented by interviews with their teams, board members, and business associates. The Genome Project enlisted a team of 14 researchers comprised of psychologists; economists led by Professor Steven N. Kaplan at the University of Chicago and Professor Morten Sorensen at Copenhagen Business School; statisticians and financial markets experts. To help make sense of it all, Powell and Botelho enlisted data scientists at SAS Inc. and NYU who looked for statistically significant patterns. “We had a lot of unique data, but it was unruly data contained in 40 page assessments. What SAS was able to do was apply their analytics model to the text based data,” Powell said. “We wouldn’t have been able to access these insights 10 years ago so we are very much the beneficiary of big data.” While the GEO Genome research looked broadly at executives across all industry, Powell said the four core essential behaviors uncovered are very applicable to the retail industry. Those behaviors were detailed recently in a Harvard Business Review cover story and form the basis of a book due out in early 2018 aptly named, “The CEO Next Door.” The title stems from a key research insight that pervasive stereotype CEO image of a well groomed, charismatic, Ivy league educated white male. That view is far from accurate when looking broadly at the entire universe of CEOs since only 7 percent went to an elite school and 8 percent didn’t graduate college. The CEO Genome research refutes many other assumptions about what makes a good CEO. For example, during their decades advising on the issue of leadership, Powell and Botehlo noted a fundamental disconnect between what boards think makes for an ideal CEO and traits that actually lead to high performance. Boards lean toward the charismatic extrovert, but introverts are actually more likely to surpass board and investor expectations, according to the research.

CEO’s aren’t perfect either, with nearly half making a major mistake that led to a job loss or proved costly to the business. Perhaps most interesting, where a person went to college had no correlation to performance. What does correlate to performance are four deceptively simple behaviors that Powell and Bothelo identified, including: Deciding with Speed and Conviction: CEO don’t always know what they are doing and a lot of times they make bad decisions. However, the best ones are decisive and make decisions earlier, faster, and with greater conviction than less successful CEOs. This behavior is exhibited consistently, amid ambiguity and unfamiliarity, according to CEO Genome research. A CEO who is smart as a whip means little if they act to slowly because they become a bottleneck for the organization. Decisive CEOs understand they can’t wait for perfect information before acting. Once a decision is made, the best performing CEO’s don’t waver, as such second guessing can result in a loss of faith among those they are responsible for leading. Engaging for Impact: Powell and Bothelo found that strong performers balance keen insight into their stakeholders’ priorities with an unrelenting focus on delivering business results. They start by developing an astute understanding of their stakeholders’ needs and motivations, and then get people on board by driving for performance and aligning them around the goal of value creation. Data showed that CEOs who deftly engaged stakeholders with a results orientation were 75 percent more successful in the role. Adapting Proactively: CEO’s are constantly faced with situations that aren’t in any playbook so those who register high on the adaptability scale are most likely to succeed. Adaptable CEOs spend as much as 50 percent of their time thinking about the long term which improves their ability to pick up on early signals emanating from broad information flow. Doing so enables them to find relevance in information that others may view as unrelated to their businesses. This feeds into adaptability as they are able to change and take strategic action sooner. Delivering Reliably: it may seem obvious, but the ability to reliably produce results could be considered the most powerful of the four essential CEO behaviors. The CEO Genome research shows that CEO candidates who scored high on reliability were twice as likely to be picked for the role and 15 times more likely to be successful. Boards and investors love a steady

Kim Rosenkoetter Powell and Elena Lytkina Botelho examined a decade’s worth of data from 17,000 executive interviews as part of the CEO Genome Project.

hand, and employees trust predictable leaders, Powell and Bothelo noted in the HBR article. Setting realistic expectations up front is key and for new CEO’s that mean avoiding the temptation to immediately jump into execution mode. Instead, they focus on budgets and plans, engaging with board members, employees, and customers to understand expectations. As important as what good CEOs do right is what less effective CEOs do wrong. Most notably, and it ties in with the concept of “delivering reliably,” is having the right team. The research showed that among first time CEOs, 60 percent of them did not get the right team in place fast enough. Rookie mistakes are understandable, especially when it comes to the issue of speed, because a natural tendency to avoid failure can lead to risk aversion. That makes the job of being CEO especially hard at a time when a willingness to fail has become essential for success in a role where there is a high failure rate. For example, Powell and Botelho cite research from the Conference Board that shows one fourth of the CEO departures from Fortune 500 companies were involuntary between 2000 and 2013. They also note that a 2014 PwC study of the world’s 2,500 largest companies showed that turnover at the top cost shareholders an estimated $112 billion in lost market value annually. The stakes for getting leadership right or wrong are high which explain why the subject has been studied so extensively. However, never so exhaustively as Powell and Botehlo have done with the CEO Genome Project, which is good news for boards faced with the challenging of selecting a CEO. RL JULY/AUGUST 2017 Retail Leader.com





Since the dawn of the e-commerce era, the aspiration of many retailers has been to integrate their physical and digital presence to offer a seamless shopper experience. The notion of omnichannel was seen as a way for traditional retailers to leverage their physical presence and in so doing provide shoppers with a best-of-both-worlds experience that would be preferable to online-only competitors. Pursuit of the omnichannel vision has proven costly and challenging for every function within a retail organization. However, nowhere are these challenges more evident than with the supply chain and store operations teams at the front lines of executing the omnichannel vision. Documenting the challenges for the past seven years has

RETAILER PRIORITIES EVOLVE 50 45 40 35 30 25 20 15 10 5 0




37% 29% 22%

21% 21% 13% 4%
















NONE 35%





45% 49% 49%

Percentages may not add up to 100%, as they are rounded to the nearest percent.

SOURCE: Center for Supply Chain Innovation


Retail Leader.com JULY/AUGUST 2017

been Brian Gibson, PhD., Executive Director of the Center for Supply Chain Innovation (SCCI) at Auburn University. Gibson and his team of researchers conduct an annual survey called, “The State of the Retail Supply Chain,” in partnership with the Brian Gibson Retail Industry Leaders Association (RILA). Despite the words “supply chain” being in the report’s name, the research skews heavily toward e-commerce and the fulfilment issues facing retailers as executing omnichannel has emerged as the industry’s top challenge. Retailers have made strategic choices to realign their supply chains to changing customer desires, according to Gibson, resulting in significant investments to enhance fulfillment processes, opening new and retrofitting existing facilities and acquiring state-of-art technology. “These are tacit acknowledgements of the value of omnichannel customers. Even though current online sales may not have reached the breakeven cost threshold for most retailers, they all believe that ignoring online customers would be detrimental to their retail enterprise,” according to Gibson. While no retailer would willingly ignore online customers, the omnichannel experience, even among retailers regarded as leaders, can leave much to be desired. Gibson’s research reveals several noteworthy shifts in retailers’ priorities as omnichannel remains a work in progress. Most notably, executing an omnichannel strategy is a costly undertaking that stresses a retail organization hoping to meet shoppers’ elevated expectations. That helps explain why among the 76 retail supply chain executives who participated in the SCCI research more than half reported that they are looking to better balance supply chain costs and service levels. “This focus contrasts with the notable declines in the pure customer service and revenue growth strategies. Among this year’s participants, there is a strong realization that supply chain costs cannot be ignored and margin erosion must be halted,” according to the report. “In line

Winning the Milk Run


t’s the end of the day, and Mom discovers there’s no milk in the house. She heads out to the grocery store for a milk run—just as other consumers do millions of times a year. Think about it: That’s a lot of trips, a lot of dollars and an opportunity worth paying attention to. The nearly $18 billion milk category1 cuts across all consumer segments: Nine in 10 Americans consume dairy milk at least occasionally,2 and milk makes its way into the basket on almost every type of trip mission, from pantry stock to quick trip. But milk is especially likely to be purchased on a mid-week fill-in run.3 In fact, no other grocery item is as frequently purchased as part of a fill-in trip, 4 so it’s crucial for retailers to get milk right if they want to be the go-to for this type of mission.

Milk is the top category for immediate/ fill-in trips. Source: Nielsen, “The Just-in-Time Consumer”


Let’s take a look at how winning the milk run can help you build bigger baskets, earn shopper loyalty, and grab a larger share of shoppers’ wallets.

The right milk for the right shopper Above all, fill-in missions like milk runs are goal-oriented. The shopper has only a few items on her list, and she expects each of them to be in stock. Having the right milk offerings on shelf can mean the difference between becoming her preferred fill-in stop and losing her to a competitor long term. One of the most critical factors for the milk run? The right brands. It may surprise you that 2 in 3 conventional white milk (CWM) buyers purchase brand name milk rather than private label at least some of the time. A dairy aisle stocked with both private label and national/regional brands, shelved appropriately for their dollar volume growth, is crucial to appealing to a broader shopper base. Leading with branded milk can also help boost store sales. If just 1 out of every 15 shoppers who currently purchase private label on their milk runs switched to branded milk, grocers would see an estimated sales increase of $100 million.5 What’s more, retailers would see sales increases storewide since branded milk attracts high-spending shoppers who typically buy higher-ring branded items across categories.6 DEAN FOODS


But private label also plays a key role in maximizing consumer reach and profitability, serving as a traffic driver for price-sensitive consumers. In fact, private label milk has the greatest household penetration among CWM products, with 82 percent of households stocking it in the fridge.7 Besides offering the right brands and a strong private label set, consider shifts in consumer preferences when curating a dairy assortment that will keep fill-in shoppers coming back for more. One shift is the growth in sales of whole milk, which currently represents 36 percent of total milk volume sales (by comparison, fat-free milk makes up just 10 percent of sales),8 reflecting a broader recognition of the benefits of dairy fat. To meet evolving consumer tastes, it’s important not only to stock all four fat types (whole, 2 percent, 1 percent, and fatfree), but also to offer a range of specialty products including flavored milks, organic milks, plant-based options such as soy and almond milks, and a variety of package sizes. In fact, depending upon the shopper’s trip mission, smaller sizes may be the on-the-go choice for fill-in. As shoppers are ever busy and doing more away from home, it’s important to have offerings that meet this active/on-the-go shopper. This is where single-serve can play a role while also maximizing profits.

Align milk share of space to AGMROII to improve productivity % OF ADJUSTED GROSS PROFIT IN MILK CASE


Conventional milk Dairy creamers


Non-dairy creamers


Plant-based milk


Lactose-free and reduced Flavored milk and single-serve


Milk’s unique pricing and promotional qualities can also help you make the most of your stores’ milk run shoppers. While milk traditionally has been considered a commodity, the category is less price-sensitive than it seems. That’s partly because shoppers don’t usually know exactly how much an average gallon is going for. In one study, consumers guessed that milk should cost between $3.50 and $3.99 per gallon, when it was actually priced at $2.49.9 Convenience, rarely price, determines the retail destination for a shopper’s emergency milk run.10 Additionally, because they are making a habitual purchase, milk drinkers tend to buy what they’re used to rather than what’s on sale. That’s why discounts don’t typically have as big an impact. Seven in 10 shoppers say they aren’t influenced by white milk price promotions, preferring to purchase the item they initially intended to buy no matter what else is on sale.11 This is equally true when it comes to brand name milk. Those who prefer branded milk tend to spend more overall, making them some of the most valuable shoppers in the store. Best-in-class retailers have picked up on this and adjusted their promotional strategies accordingly. These retailers price-promote milk 20 percent less often than their competitors do, yet they see greater lift from their efforts.12 They’ve discovered that milk promotions are most effective when executed strategically across all brands and package types. Promotions can then become a way to incite trials of higher-priced branded items across the store.

Milk performance and promotions









Source: Willard Bishop Super Study 2015; Seurat Group Audits 2016; IRI, multi-outlet, 52 weeks ending April 27, 2016


Smart milk pricing and promotion strategies


WEEKS OF ANY CWM PROMOTION $ ANY PROMOTION DEPENDENCE Source: 3-D Insights, Seurat Group Shop-alongs 2016; IRI, 52 weeks ending Feb. 28, 2016

* Top 20% of accounts based on sales growth and velocity SPONSORED CONTENT

Top % of conventional white milk trips % of CWM trips

Fresh bread

N Fresh eggs

N RTE cereal

Rfg. yogurt


N Natural shrd. cheese

Co-merchandising for storewide sales Co-merchandising with the right items is another highly effective strategy for turning routine milk runs into highring baskets. The CWM basket contains a wide variety of across-the-store staples. Fresh bread tops the list—31 percent of CWM baskets have a loaf sitting next to the milk—which means the bakery aisle is ground zero for dairy cross-promotions. Other categories with high cross-promotional potential include eggs, cereal, yogurt, cheese, chips and cookies.13 Because conventional white milk bolsters rather than cannibalizes the basket, it can also drive incrementality even among next-door neighbors in the dairy case. CWM is frequently purchased alongside flavored milks (44 percent of trips for conventional flavored milk will also have CWM in the basket)14 and cultured dairy products (19 percent of CWM baskets also contain yogurt; 13 percent include shredded cheese).15 Tapping into the many benefits of the milk run offers a prime opportunity for both sales and volume growth. By investing in a strategic assortment of milk products—both branded and private label—while optimizing cross-promotional opportunities, you’ll be poised to convert grab-and-go milk missions into bottom-line boosters.

2 in 3 conventional white milk

buyers purchase brand name milk. Source: IRI Panel, conventional white milk, total U.S.-all outlets, 52 weeks ending Nov. 27, 2016


Potato chips

Reg. soft drinks

Fresh-cut salad

All other crackers

Rfg. sliced lunchmeat

Tortilla/tostada chips

Ice cream

Trip Index

31.0% 302 22.8% 329 21.3% 322 19.0% 287 15.0% 230 13.3% 308 13.1% 236 12.9% 213 12.4% 239 12.1% 248 12.0% 302 9.6% 260 9.5% 255

Spaghetti/macaroni 9.1% pasta (no noodles) 284 N Rfg. orange juice

Natural chunks

8.6% 341 8.5% 287

Source: IRI Consumer Network, total U.S.-all outlets, 52 weeks ending Oct. 9, 2016



6 ways to win the milk run Allocate space based on milk’s higher turn rates and AGMROII to keep it in stock. Provide all four milk fat types (whole, 2 percent, 1 percent, and fat-free). Offer a wide range of specialty and alternative milk products in both take-home and single-serve sizes. Satisfy shoppers’ needs with a strong private label program combined with the right brand. Keep milk’s low price sensitivity in mind when discounting. Co-merchandise milk strategically with high affinity products throughout the store. Content of this article provided by Dean Foods Company. Dean Foods is a leading food and beverage company and the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States. Headquartered in Dallas, Texas, the Dean Foods portfolio includes DairyPure®, TruMoo®, and well-known regional dairy brands. Dean Foods also makes and distributes ice cream, cultured products, juices, teas and bottled water.

Mintel: http://www.mintel.com/press-centre/food-and-drink/us-sales-of-dairy-milkturn-sour-as-non-dairy-milk-sales-grow-9-in-2015 2 Mintel: http://www.mintel.com/press-centre/food-and-drink/us-sales-of-dairy-milkturn-sour-as-non-dairy-milk-sales-grow-9-in-2015 3 IRI Panel, total U.S.-all outlets, conventional white milk, 52 weeks ending March 19, 2017 4 Nielsen, “The Just-in-Time Consumer” 5 IRI Panel, total U.S. grocery, 52 weeks ending December 25, 2016 6 IRI Panel, total U.S.-all outlets, 52 weeks ending March 19, 2017 7 IRI Consumer & Shopper Insights, 52 weeks ending May 14, 2017 1



Contact: Dean Foods 2711 North Haskell Ave., Suite 3400 Dallas, TX 75204 (214) 303-3400 www.deanfoods.com IRI, total U.S. multi-outlet + convenience, conventional white milk by fat type–all sizes, gallon volume, 52 weeks ending March 26, 2017 3-D Insights, Seurat Group Shop-alongs 2016 10 3-D Insights, Seurat Group Shop-alongs 2016 11 3-D Insights, Seurat Group Shop-alongs 2016 12 3-D Insights, Seurat Group Shop-alongs 2016; IRI, 52 weeks ending Feb. 28, 2016 13 IRI Consumer Network, total U.S.-all outlets, 52 weeks ending Oct. 9, 2016 14 IRI Consumer Network, total U.S.-all outlets, 52 weeks ending Oct. 9, 2016 15 IRI Consumer Network, total U.S.-all outlets, 52 weeks ending Oct. 9, 2016 8



with the 2017 strategic priorities, retailers are making major investments in supply chain process improvement, omnichannel fulfillment capabilities, and technology. Leveraging the current and previous years’ investments in these key areas helps retailers provide the desired level of service without breaking the bank. This can lead to much needed omnichannel profits.” Profit is the name of the game, after all, and to get there the research shows that retailers are focused on key issues of: enhancing order fulfillment capabilities, incorporating an extensive use of stores for fulfillment, and end-to-end supply chain planning. Each of these front burner issues revolve around the ongoing digital transformation of the retail industry drive by the expectations of omnichannel customers. For example, Gibson’s research shows that despite making significant capital investments, many retailers are still converging their operations into a unified omnichannel supply chain. Early on, a separate direct-to-consumer distribution channel kept the potential disruptive elements of e-commerce away from their store operations. However, there is a broad consensus among this year’s interviewees that overcoming these disruptive elements and integrating all channels is the only way forward. When it comes to reliance on stores for online order fulfillment, the priority for supply chain executives is to improve store inventory accuracy and product flows. Gibson notes that retailers are investing in auto-ID technology, such as RFID tagging, and using robust cycle counting programs. They are also working to ensure that store inventory reflects not just what in-store customers want, but also to anticipate online demand that will be filled from the stores “The expanding order fulfillment role of stores also means that store replenishment will occur more often. Increased delivery frequency to stores can improve in-stock availability, generate sales lift, and facilitate last-mile delivery of online orders,” according to Gibson. The third area of focus, end-to-end supply chain planning, is arguably the most important and the key enabler of enhancing store fulfillment and inventory accuracy. Gibson notes that the supply chain is taking a broader role in end-to-end planning. It is the type of elevated roles that gives the supply chain team a more strategic role in international and domestic sourcing, demand forecasting, and merchandise allocation decisions, on top of their traditional responsibilities. “These additional responsibilities require the supply chain organizations to expand their crossfunctional interactions. They are now covering

territory that had been the playground of merchants and store operations,” according to Gibson. The importance of cross-functional collaboration within retail organizations has never been more critical given the complexities of executing an omnichannel strategy. In fact, collaboration permeates each of the best-in-class focus areas Gibson’s research highlighted, including omnichannel integration, supply chain analytics and monetizing fulfillment. While each has its unique set of challenges, the stakes for getting them right, and omnichannel overall, were neatly summarized by Gibson. “We believe that few retailers of any size will be able to thrive unless they have either already chosen to make omnichannel integration their new normal or are aggressively moving in that direction,” according to Gibson. RL





65% 29%





38% 50%








Percentages may not add up to 100%, as they are rounded to the nearest percent.

SOURCE: Center for Supply Chain Innovation

JULY/AUGUST 2017 Retail Leader.com



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Comprehensive Contractual Logistics

Freight Pay and Audit

Real-Time Tracking

3D Load Configuration Dock Scheduling

Dedicated Contract Transportation

Certified Brokerage Services

Value-Added Warehousing and Cross-Docking

WHEN IT ALL COMES TOGETHER, IT REALLY MOVES. Optimize your entire supply chain with Ruan. Don’t spin your wheels with an inefficient supply chain. Reduce costs when you optimize your supply chain with Ruan, an asset-based 3PL. From comprehensive Supply Chain Solutions to Dedicated Contract Transportation to Value-Added Warehousing, we work with you to design a solution that brings everything together, seamlessly and affordably.

Our people work side-by-side with your team to uncover savings and areas for improvement. Then, our processes streamline every step of your supply chain, from mode selection to dock scheduling to freight pay and audit. And our innovative technology tools make your freight-and your savings-visible. Now you’re moving in the right direction.






The supply chain upheaval caused by the growth of e-commerce has rocked the retail world and there is more to come. A recent example of where things are headed on the fulfillment front can be seen in the efforts of Parcel Pending, a four year old package management company that recently launched an outdoor refrigerated locker product for rental communities. Parcel Pending was founded by Lori Torres, a former real estate industry executive whose experience in the rental community world allowed her to recognize the growth of e-commerce was creating package management challenges for apartment complexes. The company’s new lockers are cooled to between 35 and 44 degrees so food stays fresher longer even when shipped with standard dry ice or gel packs used by online retailers. “When it comes to package delivery, we are in the problemsolving business,” Torres said. “Our new refrigerated lockers are the result of listening to our customers and seeing the need to store temperature-sensitive goods. These revolutionary new lockers allow property managers to focus on the resident, and not spoiled food and melting packages.” Those issues also are being addressed further upstream in the supply chain by packaging solutions and fulfillment providers. As retailers and brands reimagine their supply chains, UPS and packaging service provider Sealed Air have opened a first-of-its-kind Packaging Innovation Center. The 6,000-sq.-ft. facility is located in Louisville, Ky., at the UPS Supply Chain Solutions campus near the company’s massive Worldport global air facility. The center is designed to help solve the packaging and shipping challenges of e-commerce retailers, and companies in many other industries, by maximizing efficiency, minimizing waste, reducing shipping costs, and increasing brand affinity. “One of the biggest challenges UPS customers have with e-commerce, and across other industry segments, is that they struggle to create efficiencies and enhance profit margins while still improving consumers’ perception of their brand,” said Alan Gershenhorn, Executive Vice President and Chief Commercial Officer, UPS. “UPS customers don’t just need supply chain innovation. They also need packaging innovation.” Some of the innovation showcased at the center includes an automated system that eliminates the need for outer cartons, which can reduce dimensional weight by as much as 87 percent and an automated right-sizing system that eliminates empty void space in each box by as much as 60 percent. “The partnership between Sealed Air and UPS allows us to combine our decades of expertise and innovation to help our customers create those exceptional delivery experiences from the point of manufacturing all the way through to the last moment

of truth in front of the consumer,” according to Jerome Peribere, President and CEO of Sealed Air, a company best known for its Cryovac and Bubble Wrap brands. The Packaging Innovation Center is the latest step in a strategic partnership between UPS and Sealed Air that began last November. Initially, the partnership gave UPS customers access to package engineering expertise and services available at Sealed Air’s global network of 27 Packaging Application Centers. Those facilities provide design, testing, and packaging performance analysis. The arrangement also brought Sealed Air into the ecosystem of solution providers who participate in the UPS Customer Technology Program (CTP) that connects businesses vendors of hardware, software, peripherals and packaging. UPS also operates a Package Design and Test Lab where packages are tested before they ship to expose them to varying levels of temperature, air pressure, shock, compression and vibration. The lab can simulate moving a package throughout an entire supply chain, creating real world experiences that lead to custom-design solutions for specific packaging needs. The testing services are a compliment to the packaging options offered through the Sealed Air / UPS partnership. Brick-and-mortar supply chains designed to move in a linear fashion with standard-sized packaging sent from a supplier to a warehouse have been upended by e-commerce. In the model where products shipped from a warehouse to a store to be unboxed and place on a shelf, shoppers never see secondary or tertiary packaging. In the new e-commerce world, consumers now see, touch and need to dispose of packaging more often. As a result, what consumers think about a brand increasingly starts with their experience with a product’s packaging, whether that package lands on a doorstep, mail box or refrigerated locker. RL

Solving the packaging and shipping challenges of e-commerce retailers is why UPS and Sealed Air opened a 6,000-sq.-ft. innovation center in Louisville, Ky.

JULY/AUGUST 2017 Retail Leader.com




W Just showing profitability is not necessarily enough to attract the eye of an investor or potential company suitor.

Whether a company is a freshly minted startup or a more established middle-market operator, each and every e-commerce business faces the challenge of developing and proving its monetary value. These companies must learn to compete and thrive in a zero-sum world — where Wall Street’s precise valuation methodologies determine the worth and sustainability of a business and a host of relatively new performance metrics come into play. For e-commerce owners and mid-market companies looking to best position themselves to take advantage of the rapidly changing e-commerce landscape means defining profitability to best reflect the company’s future prospects, creating a distinctive growth story and establishing a clear trajectory for both profitability and growth. Profitability is the game changer in today’s e-commerce environment. For the late-stage investor, a business is not proven until it is profitable. Regardless of business model, if a company is not showing a profit — or at the very least showing a clear “path to profitability” — then it is perceived as higher risk. Investors want to limit additional capital injections post investment — and naturally they want to understand the risk they are taking on. Investors also want to hear a story from e-commerce companies about their path to profitability that is supported by detailed projection models. These models start with the past and project future performance based on detailed assumptions going forward. They clearly identify when a company will become profitable and what factors will affect that timing — including additional capital needs. In addition, how profitability is determined will vary based on the size and structure of the company.

METRICS THAT MATTER When evaluating profitability, the majority of 22

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investors work with the concept of EBITDA (earnings before interest, taxes, depreciation and amortization), which can be a good indicator of the true cash flow of a company and generally approximates operating income for most mid-market e-commerce companies. However, for smaller and high-growth companies, a better reflection of true operating performance is what’s known as, “adjusted EBITDA,” because it backs out some of the extraordinary costs that typically hamper young companies. These can include things such as one-time costs and private company expenses that would disappear under a new owner, such as excess salaries and bonuses paid to owners, software development costs, private cars, startup costs and new product launches one-time cost. When seeking a potential suitor for late-stage investment or a sale, owners generally market off of Adjusted EBITDA to present the company in the most favorable light and best reflect future earnings potential. Another reason why profitability is key is that valuation multiples are strongly correlated to size and profitability. It is just common sense: the larger and more profitable the business, the greater the multiple investors are willing to grant. However, just showing profitability is not necessarily enough to attract the eye of an investor or potential company suitor. To get those higher multiples, a company must also be able to demonstrate its distinctive growth story. This introduces a range of new and potentially unfamiliar metrics on which to evaluate performance.

DIFFERENTIATING GROWTH Strong growth in e-commerce is the price of admission. So today, the most-aggressive investors really want to see a differentiated growth trajectory. This can come in many shapes and sizes, but

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> FINANCE AND CAPITAL MANAGEMENT a key differentiator that has created a lot of traction of mark. Of course, several factors can influence those late with investors is the ratio of Cost Per Acquisition entry points — including underlying sector, growth, (CPA) for a new customer to the average Life Time market share, defensibility and strength of the brand. Value (LTV) of customers. In its simplest form, CPA THE COURTSHIP is the average money spent to identify, educate and The most successful investors use well-honed analysis to convert a prospect into a paying customer. This ratio determine valuations, and the most common methodol(CPA/LTV) is a strong indicator of the soundness of a ogy is ROI (Return on Investment). The actual modeling business plan — and its future prospects. Key drivers process can be quite exhaustive, but the goal is simply to include such fundamentals as a low cost to acquire and estimate the financial returns an investor would make on maintain a customer, high average order values and a any given opportunity. Typically, an investor has a prehigh percentage of repeat sales over time. conceived range of ROI they want to obtain. Armed with Investors are also now placing a higher value on custhis knowledge, the savvy owner should manage their tomer acquisitions through social media than traditional business in such a way as to ensure the company’s future PPC (pay per click) and SEO acquisitions. Social-mediaROI is high — in order to maximize valuation. The obvidriven sales are more efficient to acquire and target ous drivers of high ROI include an efficient capital strucspecific types of consumers with surgical precision. ture that requires minimum working capital Increasingly, e-commerce goods companies are to produce revenue; and well-defined future selling 100% through social media. They tend E-commerce growth opportunities — in which total costs to be faster growing and more profitable than companies and revenue can be accurately predicted other e-commerce companies. and “diligenced.” It is these future growth don’t face a TIME TO SELL? opportunities that make up the majority of a Once a company has defined its unique company’s valuation. level playing growth story and a path to profitability, many The world is full of opinions on valuafield when financial paths forward will emerge from tion of e-commerce companies. As a general investors and acquirers. The first optimal guideline buyers of mid-market e-commerce seeking out window to raise late-stage money opens to companies generally begin acquisition e-commerce businesses once revenue growth private equity conversations in the range of one to three trajectories and profitability are established. times revenues. A high growth e-commerce That’s because the method for driving revenue capital because company’s business plan is to drive revenue has been proven, there is greater visibility of expansion so a revenue multiple is a good the market is costs and the addressable market and a busireflection of that value being created. Large, ness’s competitive advantages are more clearly inefficient. well-established e-commerce companies defined. However, well before this stage arises, trade significantly higher because of their those looking to raise capital or make a sale will have leadership position and predictable growth. spent time establishing and monitoring their company’s EARLY AND OFTEN growth and profitability trajectory. Sophisticated invesThe road to late-stage investment or an exit transaction is tors like to see that a company understands and tracks often a long-term journey. For that journey to be successthe many variables that go into developing that trajecful relationships in the financial world are important. For tory over time. Investors understand that to be competiexample, establishing advisory relationships with investtive, they have to incorporate the value of future growth ment bankers early on – and opening up dialogue with into any valuation, but the clearer the view of future ideal long-term investors – can help position the business growth the more they will be inclined to pay. to maximize return on an eventual transaction further THE MARKET IS INEFFICIENT down the line and is the best-known way of flushing out E-commerce companies don’t face a level playing field strategic buyers willing to pay pre-emptive valuations — when seeking out private equity capital because the and thus avoid lengthy transactional processes. market is inefficient. Companies with profits less than With a strong record or roadmap to profitability, $10 million will face a smaller pool of private equity a defined growth trajectory and an understanding of investors. Why? Many private equity funds have a what late-stage investors are looking for in investment minimum investment size that prohibits them from inprospects, e-commerce business owners will be well-posivesting in smaller businesses. Simply put, private equity tioned to maximize the value of their companies. RL funds need a certain scale to generate dollar returns on Ken Wasik is a Managing Director and Head of Consumer their investment. Products and Specialty Retailing at Stephens Inc.’s investment On the other hand, given an e-commerce company’s banking division. He advises high growth branded companies unusual ability to quickly scale, many late-stage investors on how to fund rapid expansion and maximize goals. will become interested at around the $2 million profit 24

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Disrupting the




In the span of 24 hours in late June, a series of events shook the retail industry. Kroger gave investors a nasty surprise by slashing its full year profit forecast in anticipation of increased price competition. Lidl opened its first U.S. stores and gave customers and competitors a view of its approach to private brand centric, extreme value retail. Then, in the most significant development of the two decade e-commerce era, Amazon acquired Whole Foods. While Kroger’s dour outlook, Lidl’s arrival and Amazon’s mega-deal dominated conversation, lesser developments involving two e-commerce startups highlight an equally large, if somewhat less visible challenge for brands and CPG retailers. Two onlineonly startups operating under the names Movebutter and Brandless think the current model of selling consumer goods is broken, filled with layers of unnecessary expense and outdated shopping methods. Movebutter and Brandless are both pure-play e-

commerce operators, touting value pricing on limited assortments of own brand, high quality, socially conscious products whose minimalist labels are reminiscent of the early days of private label. Chai Mishra co-founded Movebutter in 2015 with Sebastian Werz, both former students at the University of California at Berkeley’s Haas School of Business. Mishra was born in India and helped his father with the family trading business. While working for a farmto-table coffee company in Germany, Mishra said he realized that the supply chain for coffee (and most other food) was overly complicated and contained too many middlemen. Eventually he moved to America to go to school and work in food distribution before launching Movebutter early this year. Movebutter’s value proposition is rooted in thinking that the current distribution system is broken, so it touts the elimination of middlemen, overhead and waste as drivers of its approach. The company’s other claims are more grandiose and utopian, centering on making, “the best food in the world accessible and affordable to everyone. Regardless of who they are and where they live.” Mishra’s perspective on the industry and new approach has found appeal with an interesting collection of investors. The group, disclosed when the company announced a recent funding round includes Y Combinator, Liquid 2 Ventures, a seed-stage VC firm co-founded by Hall of Fame NFL quarterback Joe Montana; Matthew Bellamy of rock band Muse; Kima Ventures; Altair VC; The San Francisco 49ers; First Round Capital’s Dorm Room Fund; The House Fund; Beluga Capital; Fundersclub; and the Marzotto family, owners of Hugo Boss. Movebutter CEO Chai Mishra grew up in a home in which working with retailers and suppliers was the family business.


Retail Leader.com JULY/AUGUST 2017

Talking With… T

David Brennan D G General Manager Achievers A

The Achievers employee recognition and engagement platform for retail is a comprehensive engagement solution that provides real-time engagement measurement and insights. Through the Achievers program, retailers can reinforce company values, capture employee feedback, promote recognition frequency and drive business outcomes. Achievers Corp. is Blackhawk Network company.

Retail Leader: What emerging trends have you seen in the recognition industry? Is measuring ROI of recognition programs becoming a priority? David Brennan: Rewards & Recognition (R&R) is no longer a “nice to have,” but has become an essential component of leading organizations’ broader engagement strategies. We’re also finding that a number of companies are moving away from the traditional concept of R&R and towards stand-alone social recognition programs untethered from a rewards component, where recognition is the primary driver of desired behaviors, rather than the promise of monetary or other material rewards. Additionally, many of our customers are tying recognition directly to key business initiatives and measuring the resulting value on investment of this specific and strategic recognition campaigns. We are also seeing some very interesting developments with regards to people analytics and how some of our most forwardthinking customers are using recognition data to inform important HR decisions and give them incredibly granular employee performance and engagement data and insights. RL: What risks do retailers face if they fail to include Recognition and Rewards in their toolkit? DB: Retailers risk being left behind. They risk being outperformed on a number of levels and in a number of key business areas. All those areas that we know R&R has an impact: retention, engagement, customer satisfaction, revenue growth. Overall performance. Those are some pretty significant areas of impact. So if you are a retailer and you’re

getting left behind in those areas, I would suggest that you might want to give R&R another look. Beyond that, organizations risk being seen as old-fashioned and having their employer brand be negatively impacted as a result. In the current labor market, as defined by an ongoing war for talent, especially among millennials, and by the increasing transparency brought about by social networks like LinkedIn and Glassdoor, your employer brand is more important than ever. RL: If you had one piece of advice to offer employers in regards to R&R, what would it be? DB: If you’re not already doing it, the time is now to begin thinking about how to link your R&R program to your company’s key strategic goals. If you’re not using R&R to move the needle in those areas that are most important to your business, you’re not getting the kind of ROI that you should. If delivering great customer experience is most important to your business, design rewards and recognition programs that tie to key metrics like NPS and CSAT. If increased sales are what you’re after, design a strategic recognition program to incentivize your sales team. There are a number of ways to leverage Rewards and Recognitions programs to drive real business value and if you don’t have one already, you should be looking for a provider who is able to help you design those kinds of programs up front. n



The minimalist design of Brandless, left, and Movebutter, above, packaging is reminiscent of the early days of private label.

MOVE WHAT? The story behind how Mishra and Werz came up with the name “Movebutter” speaks to the mission statement of the company. “We wanted a name that makes people happy and butter makes people very happy,” Mishra said. “But beyond that we wanted a name that was new and it made people go, ‘Wait, is it really called that? What is this again?’ Because the industry that we are dealing with is a dinosaur. It’s old, it doesn’t move a lot. Every retail industry has moved on to e-commerce, groceries not so much. So we wanted a name that was dynamic and different and didn’t sound like a supermarket name.” Mission accomplished with the name, and now Mishra is trying to educate shoppers about the three “E’s,” the problems it solves for them, including: 1. Economics: Less overhead means lower prices for consumers 2. Experience: Clicks are better than trudging to the grocery store 3. Ethics: Less food is wasted and better food is more widely available to all As far as handling product sourcing, food safety, compliance issues and all the related order fulfilment challenges? “We wanted to be 100% sure that food safety, compliance and fulfillment would not be an issue,” Mishra said. “And we have achieved a less than 1% failure rate. We tested every single part of the value chain for two years. Right before the food gets shipped to the customer, a Movebutter employee has to approve it in the warehouse. We created new, proprietary packaging and shipping methods with Fedex. We know that we can ship food to a customer in 28

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Georgia in July and the food stays cold and fresh for 72 hours. Plus, shipping is free for customers.” Mishra has also positioned Movebutter in David vs. Goliath terms, a sort of anti-big food view that has an appeal to certain shopper segements. “We’re taking on the entire, ancient trillion-dollar supermarket industry,” Mishra said. “We will have very high quality food and everything is farm to fridge. We are actually able to do this in a sustainable way. We are actually making money. We don’t hold any inventory. We don’t actually package the food ourselves. Everything that comes into our warehouse is prepped to go out to a customer immediately.” The company now has customers in all 50 states served by three warehouses strategically located across the country. Everything that Movebutter sells is organic, non-GMO, and fair trade. Mishra characterized the assortment as “Whole Foods quality, but much closer to Trader Joe’s or Safeway pricing.” Mishra said the company has started out with 500 SKUs (for now), and the assortment is about 65% fresh, and 35% non-perishable.

NO BRAND TAX Movebutter’s assortment is all private label and that’s a key reason why the retailer is able to offer low prices, according to Mishra. “We are able to drive higher density to our suppliers. At the same scale of customers, we are able to drive a lot more density to suppliers. Our economics are better and food is cheaper for the customer,” Mishra said. The approach described by Mishra and private label emphasis is very similar to how Brandless goes to market. “Brandless was founded on the view that modern consumption doesn’t make sense,” said Ashley Grabil, the company’s director of communications. “We are combining the quality of Whole Foods, the fair prices of Ikea, the convenience of Instacart and the social consciousness of Tom’s Shoes. We like to say if those companies had a baby it would be Brandless.” The company also could be described as Dollar Tree meets Trader Joe’s because the limited assortment consists primarily of food and consumable items offered at a single price point. Ahead of the company’s launch planned for midJuly, Grabil said the initial product offering would consist of roughly 200 items spread across the categories of food, beauty, housewares and personal care, all offered at $3 or less. The single price point approach is possible, according to Grabil, because “we removed all the inefficiencies of a broken CPG system.” Chief among those “inefficiencies” is removal of what Brandless derides as the brand tax, essentially the costs that are added to national brands distributed through traditional

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Ido Leffler and Tina Sharkey founded Brandless despite having limited experience in the food and consumables world.

means, promoted and sold through physical stores. “We are very much a brand, but we are trying redefine what that means and debunk the myth that better costs more,” Grabil said. The current CPG distribution model is archaic and the industry is yet to have its Air BnB or Uber moment, a reference to the disruptive effect those companies had on the lodging and taxi industries, according to Grabil. If Brandless has removed inefficiencies it appears to have created others related to fulfillment and convenience, something that could also be said for Movebutter’s approach. For example, in a world where shoppers expect immediacy, be it one hour Amazon Prime delivery or the convenience of click and collect at physical stores, Brandless is betting its customers will accept delayed gratification. For example, at launch Grabil said it will take 24 to 48 hours to process orders and then shipping will take an additional two to three days from facilities located in California and Indiana. In theory, it could take a customer nearly a week to receive an order, but Grabil said that would be a worst-case fulfillment scenario. As is the case with other retailers, shipping is free for shoppers who achieve a minimum order threshold that Grabil declined to disclose. The company is also testing a membership program that lowers the free shipping threshold and increases the company’s societal impact. For example, Brandless donates a meal to Feeding America for every order placed, and that donation increases under the membership model. Legacy retailers selling national brands don’t like hearing their business model referred to as archaic, ancient or broken, but that message may resonate with shoppers eager to try a new approach. That proved to be the case with the meal kit providers who burst onto the retail scene several years ago and caught conventional grocers flatfooted. Now, meal kit providers are siphoning trips and sales away from physical stores 30

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with market leader Blue Apron poised to go public this year with sales on a trajectory to surpass $1 billion. Movebutter and Brandless aren’t there yet, but every order they fulfill, is one less trip a shopper makers to their local food retailer. For both companies to be successful they will have to do what all retailers do: generate trial, repeat purchase, increase shopper frequency and transaction sizes to leverage expenses over a broader base of sales to produce profits. Whether online or in store, the fundamentals of growing a retail business are fundamentally the same. In the case of Brandless, those fundamentals are well understood by chief merchant Rachael Vegas. She joined the company in March 2016 after spending the prior ten years in key merchandising roles at Target, the last five of which involved senior leadership of key food and consumable categories. Vegas remained in Minneapolis along with the Brandless merchant team, a logical move considering the Minneapolis area, much like Bentonville or Cincinnatti, is home to many CPG companies’ account teams focused on serving Target, Walmart and Kroger. The vision for Brandless came from the team of Ido Leffler and Tina Sharkey, two executives with limited experience in the world of food and consumables. Leffler co-founded Yoobi, a company that creates bright, vibrant stuff for the school, home and office market that also employs a give back philosophy. He also the co-founded Yes To, Inc., Cheeky, and Beach House Group and has served as an advisor to startups such as Dollar Shave Club and Birchbox. He also co-authored the book, “Get Big Fast and Do More Good.” Sharkey was previously a Venture Partner at Sherpa Capital, Chairman and Global President of BabyCenter, a Johnson and Johnson company. She led AOL’s network programming, social media, and messaging businesses. Prior to AOL, she co-founded iVillage, built Sesame Street Online, and helped create a new home shopping channel for QVC. While Brandless and Movebutter are both aiming to disrupt the grocery sector, they are hardly alone and Mishra offers the industry a wake up call. He contends people are buying fewer groceries and two forces are at play. “Customers are looking for a better shopping experience and they are looking to reduce their trips to stores. And groceries are the only thing that they still have to buy in physical retail. We are building a more engaging food experience online than what exists in physical retail,” Mishra said. “No, you can’t smell or touch the peaches, but we can tell you more important significant information about your food. We can trace the peach back to the ground. We can tell customers how to use that peach, how to cook with it, what to buy with that peach, and a million other things. The physical retail grocery experience has really fallen behind when it comes to this.” RL

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Magic of Ma



Alibaba is a hard company for most Americans to understand. It is not a retailer in the classical sense, but it calls itself the world’s largest retail commerce company. It doesn’t operate physical stores or sell products directly to consumers, but its various Web sites are places where hundreds of millions of shoppers go to buy things, purchasing merchandise valued at $547 billion last year. There really is no equivalent to Alibaba in the U.S. because the Chinese company was born online in 1999 and quickly became a mobile first company because Chinese consumers leapfrogged the desktop to mobile evolution that occurred in the U.S. The best way to think about Alibaba is as the owner of a digital mall where buyers and sellers congregate to conduct commerce. However, unlike a physical mall where a shopping center developer leases space, Alibaba provides users of its platform all manner of marketing, logistics, payments and sales support services. It would be like a mall owner providing a tenant with cash registers, supply chain services, customer support and order fulfillment. The approach has made Alibaba a dominant force in China’s online retail economy and one of the world’s largest companies with annual revenues of $23 billion. However, that figure doesn’t tell the company’s true impact on the China retailer market or the growth potential that exists for U.S. suppliers as Alibaba continues to execute its strategy. The gross merchandise volume (GMV) of $547 billion the company facilitates on its platform make Alibaba the world’s 21st largest economy, according to Ma. Within three years Ma expects Alibaba’s GMV will top $1 trillion as the growth of China’s middle class continues to fuel a consumption boom. By 2036 the company will be the world’s fifth largest economy, serving 2 billion consumers, creating 100 million jobs and supporting 10 million businesses to be profitable on its platforms, according to Ma. Those are big numbers and to get there Alibaba needs a lot of help from U.S. retailers and suppliers.


Retail Leader.com JULY/AUGUST 2017

Alibaba founder Jack Ma.

OPPORTUNITY CALLING There are already about 100,000 brands, 7,000 of them from the U.S., selling on Alibaba platforms, but getting to $1 trillion in GMV will require even greater involvement from U.S. retailers and suppliers whose products are highly desired by Chinese consumers. Ma readily concedes that a key reason why is the perception among Chinese shoppers that U.S. goods are better, safer and more unique. It is why the company held its first supplier summit called Gateway ’17 in Detroit in late June, to educate suppliers about the China opportunity, highlight demand trends and explain how Alibaba facilitates cross border trade. The genesis for the event had come two years earlier when Ma outlined Alibaba’s strategy during a speech at the Economics Club of New York, according to company president Michael Evans. “Our U.S. strategy is not to sell products to U.S. consumers. Our U.S. strategy is to connect retailers, brands and small businesses with the Chinese consumer,” Evan said. “Our edge is a massive base of consumers in China, more than 500 million of which are on our platform. As

that consumer base moves in the middle class, one thing we know, based on our data and activity on our platform today, is that they are more and more focused on buying high quality American products.” Evans is a former longtime partner at Goldman Sachs who also won a gold medal for Canada’s Olympic rowing team in 1984. He joined the Alibaba board in 2014 when the company went public and assumed his current position in 2015. “The most important thing for small businesses is to learn about the consumer opportunity in China. Very few of them know anything about it. Very few large corporations who are also on our platform know that much about the consumer opportunity,” Evan said. “We want people to understand the sheer magnitude of the opportunity, what Chinese consumers are looking for and which categories are most interesting and start to understand solutions that are best for them to connect to a Chinese consumer.” A key category is groceries and fresh products in particular. China’s middle class and the growing upper middle class have a real appetite for U.S. grown fresh products and will pre-order products such as cherries or apples from Washington. “One of the most interesting opportunities in grocery is fresh. The demand for fresh product out of the U.S. in fruit, vegetables and fish is enormous,” Evans said. “That’s going to be a big additional component of what we are doing in groceries.” A few years ago, Ma recalled a promotion involving lobsters from Canada in which 97,000 live lobsters were sold in one day. “For almost three weeks after that there were no lobsters in the Canada market,” Ma said.

GLOBALISM’S FUTURE Much of the appeal for the 3,000 attendees at Gateway ’17, an event targeted at smaller businesses, was about seizing the opportunity today that China represents for future growth. To make that case Ma used his own life story as a metaphor for the type of hard work and perseverance required to succeed in business. “In my early 30’s I was considered to be a loser,” Ma said, recounting frequent encounters with rejection, even after he founded Alibaba. He applied to a university three times and failed so he and four friends applied for police officer jobs. All were hired but Ma. When a fancy hotel opened in his hometown he and a cousin applied for waiter jobs and the cousin, who Ma said still works at the hotel, was hired because he was taller and more handsome. When Ma and 23 other friends applied for a job at KFC Ma was the only one who wasn’t hired. Ma found his calling as an English teacher at a university where he remained for six years before he discovered the Internet in 1995 during a visit to Seattle. He then persuaded 18 of his friends that the Internet

was going to be a big deal and that Alibaba was going to build one of the top 10 sites in the world. Ma and his crew scraped together $50,000 to get the company off the ground but everyone thought they were crazy, largely because the Internet was practically nonexistent in China in 1999 with only about 10 million users. Today there are more than 700 million. “Very few people believed we would make it happen because we didn’t have high resumes and most of my colleagues were students and friends. Only three people knew anything about computers and none of us were very successful,” Ma said. “We had no relationships and we didn’t have great talents. No one believed in the Internet or e-commerce in China. That was the thinking at the beginning,” However, Ma saw the future even though it was hard to convince others of the change that was coming. No one would listen to Ma or co-founder and vice chairman Joseph Tsai when the pair went to Silicon Valley to raise capital. Ma said they met with 30 venture capital firms. “People didn’t even want to listen to us. They said, ‘this guy is crazy,’” Ma said. “We are very optimistic and we believed in the future and the Internet. We believed if we do not succeed someone else will. We know that we have to be humble and serve our customers. If the investors don’t like us but the customers like us then we have the future,” Ma said.

JACK’S WORLD Globalism has become a politicized word with negative connotations, but Ma doesn’t see it that way. His view, because he is an optimist, is one of opportunity and growth with a broader universe of companies able to participate in global trade. That worldview is one of the reasons Ma pledged to President Donald Trump that Alibaba would create 1 million U.S. jobs as a result of increased hiring by American companies to keep up with demand for their products in China.

JULY/AUGUST 2017 Retail Leader.com


> COVER STORY “I am a strong believer of globalization and free trade,” Ma said. The nature of that trade is going to look a lot different because of the internet and companies like Alibaba. Two hundred years ago global trade was controlled by emperors and kings and for the past 20 years it has been dominated by 60,000 big companies, according to Ma. “Young people, small businesses, women and developing countries had no chance even though world economies grew very fast because of globalization,” Ma said. “What if we can support 60 million small businesses so they can buy and sell and go global?” It’s not a crazy idea, especially coming from someone who envisioned China’s digital future well ahead of others. With the number of Internet users worldwide approaching 2 billion, and many of them on mobile devices and under the age of 30, Ma is convinced smaller companies will be the future. “For the past 100 years everything was about size and standardization, but the in the next 30 years the world is shifting from standardization to personalization. Big companies are going to face huge challenges,” Ma said. “Small guys, we have problems, but big guys they have bigger problems than we have,” he added, apparently still including himself among the universe of small companies.

102 YEARS One of the most important things to know about Alibaba

AMAZON BORROWS ALIBABA IDEA One week after Alibaba hosted its first ever event for U.S. suppliers in Detroit, Amazon hosted an event with a nearly identical format and mission in New York City. Regardless of whether the timing was by design or coincidence, both companies are making an appeal to suppliers to use their platforms and related services to reach consumers. Alibaba’s event on June 20 and 21 featured top executives from the company, including founder Jack Ma, elaborating on the growth potential for U.S. suppliers in China. Ma and others implored the roughly 3,000 attendees not to miss out on the opportunity of a lifetime: to sell U.S. made products to the emerging middle class of consumers in China who are forecast to be the engine of global growth for decades to come. Amazon’s event, branded as Boost with FBA, in reference to the company’s Fulfillment by Amazon service, drew a smaller crowd of about 1,000 attendees to Pier 94 in Manhattan. Founder Jeff Bezos wasn’t on hand, but attendees did hear from 17-year Amazon executive Tom Taylor who founded the FBA service a decade ago and also oversees payments. With FBA, sellers on Amazon allow the company to store and ship their products from Amazon’s fulfillment centers. That makes the products eligible for free two day or same day shipping, which increases their appeal to Prime members. FBA delivered more than 2 billion items in 2016, according to Amazon.


Retail Leader.com JULY/AUGUST 2017

is the company’s 102 year philosophy and attitude toward success. When the company was founded in 1999, Ma came up with the idea of building a company to last 102 years that would span three centuries until 2101. It made for a novel source of inspiration to keep a growing and increasingly successful company focused on the long term. “We will never say we are a successful company because we will not be successful until we survive 102 years. We just finished 18 years so there are 84 years to go but in the next 84 years anything can happen. When you get a feeling of being successful, that’s when trouble comes.” A lot can happen over the next 84 years, but 30 is the figure Ma likes to use when describing the more predictable future. The American economy was the engine of global growth the past 30 years, but China will be the engine of the future as consumption among its population of 1.4 million people grows and its population of middle class currently pegged at 350 million doubles in size during the next five years. It is a massive opportunity Ma and other speakers at Gateway ’17, including UPS CEO David Abney, implored suppliers to take advantage of. Abney used to have special upside down world map in his office to remind him of how others view the U.S. “To the rest of the world the U.S. is not the center of the universe and we see that more than ever today,” Abney said. “China has a larger middle class than the total U.S. population with a real desire for U.S. goods and services.” The country already has 102 cities with a population of more than 1 million residents, compared to only 10 in the U.S. and by 2030 it will be home to one third of the world’s largest cities, according to Abney. “If you are serious about international growth you cannot ignore China,” Abney said. Plenty of companies are paying attention to China, which is why official government forecasts put the value of U.S. imports to the country at $8 trillion over the next decade. Yet Ma thinks the figure will be more like $10 trillion. “Chinese consumers are crazy about American products and everything big companies have been able to do in the past 20 years small businesses are able to do today,” Ma said. Currently Alibaba delivers about 60 million packages a day, but in 10 years Ma thinks that figure could be 1 billion packages a day. “Our goal is making sure in the next 10 years anyone anywhere in the world can place an order online and within 72 hours they will receive it,” Ma said. That’s about the time Ma has indicated he may no longer have the strength to lead a company that this year will entail him spending about 1,000 hours on an airplane. He thinks he may go back to teaching, something he really hasn’t stopped doing since founding Alibaba. RL


Power of the PLATFORM


Alibaba claims to be the world’s largest retail commerce company and that statement is true as long as the determination of size is based on the metric of Alibaba’s choosing. Walmart is generally regarded as the world’s largest retailer and for good reason. It easily outdistances competitors with annual revenues of nearly $486 billion and a footprint of 11,600 stores and Web sites operating in 28 countries. It has a massive workforce of more than two million employees and profit of $13.6 billion. By comparison, Alibaba is downright puny with revenues of only $22.9 billion. By that measure, it can’t even claim to be the largest retailer in China. That distinction falls to rival JD.com, a company in which Walmart acquired a 12.1 percent ownership stake, with revenues of $37.5 billion. Alibaba’s claim of dominance stems from its use of gross merchandise volume, or GMV, to describe its scale. The company’s GMV last year was a staggering $547 billion compared to JD.com’s GMV of $95 billion. Neither Walmart nor Amazon use the GMV metric in their financial results because their operating model and approach to financial reporting is different from Alibaba and JD.com. The Chinese competitors function as platforms, Alibaba more so than JD.com, who facilitate commerce between buyers and sellers. That’s why Alibaba refers to itself as a “retail commerce company” rather than a retailer since it isn’t the actual seller of product. Amazon straddles both worlds in that it is a first party seller, like Walmart, but also generates considerable GMV because more than half of the items it sells worldwide are from third party sellers. Amazon earns a fee on each of those sales and those fees are reflected in the company’s financial results, however Amazon doesn’t share a GMV figure like its Chinese rivals. Doing so would provide a more accurate representation of the company’s true impact on the overall retail market. The fees earned on services provided to platform users to generate GMV can be substantial. For example, Alibaba produced a profit of $6 billion on revenue of $23 billion

last year, while Walmart produced retail sales the old fashioned way — buying, distributing and executing transactions in physical stores — to generate a rate of profitability significantly less than Alibaba’s. Amazon’s profit is less than half of Alibaba’s. Alibaba is a dominant force in China and founder Jack Ma has said the company will surpass GMV of $1 trillion in the next three years. Meanwhile, competitors are looking to find their footing. Amazon doesn’t disclose results for China, but its international division, which accounts for 32 percent ($43.9 billion) of total revenues, had an operating loss of $1.3 billion last year, double the prior year’s loss of $700 million. JD.com, the company Walmart has been steadily investing in since first disclosing a 5.9 percent ownership interest last June, has lost money each of the last five years. Walmart operates 439 locations in China but when discussing the performance of the business tends to use broad statements or provide percent change figures, which lack context because it doesn’t disclose sales figures. Despite the lack of visibility, Walmart is making interesting moves in China that are potentially more significant than anything it has done domestically with the acquisition of Jet.com or other niche players. Most notably, the investments in JD.com that began last year when Walmart struck a deal to have JD.com take over its e-commerce operations gave Walmart and Sam’s Club access to the JD.com platform and a massive distribution network. JD.com is a little like the Walmart of China in that regard since it has invested huge sums since 2007 to develop a network of 256 warehouses in 54 cities encompassing 60 million square feet. JD.com also operates 6,906 smaller delivery stations and has a joint venture with a crowdsource delivery company called New Dada that offers one hour delivery from 80 Walmart stores. Alone, Walmart and JD.com have their challenges, but together the companies offer a unique collection of capabilities that give Chinese consumers a viable option to Alibaba and could pose a real threat to Jack Ma’s $1 trillion GMV aspirations. RL


Annual Revenues Percent Change Net Income Percent Change Cash and Equivalents Number of Employees

(FY ended 3/31/17)

(FY ended 12/31/16)

(FY ended 1/31/17)

(FY ended 12/31/16)

$22.9B 56% $5,989B (-42%) $21.3B 50,092

$136B 27% $2,371B 296% $19.3B 341,400

$485.9B 0.7% $13.643B (-7.15%) $6.8B 2,300,000,000

$37,465B 43.5% (-$549M) 58.2% $2.8B 120,622

SOURCE: Company Reports

JULY/AUGUST 2017 Retail Leader.com



Building Brands THE ALIBABA WAY


The Lion Brand Yarn Company enjoys broad retail distribution in the U.S. where the craft and hobby market is well established. The company’s products are not sold in China, but that could change soon. “We’re really not doing anything in China now,” said Evan Blumenthal, director of global business development with Lion Brand Yarn Company. “We did a small test about five years ago with a partner and offered products in their (online) stores, but we just showed up and expected that to make a difference. We really didn’t invest enough to tell our story.” Blumenthal expects to develop Lion Brand’s China strategy in the next six months, which is why he was among the roughly 3,000 attendees at Alibaba’s inaugural Gateway ’17 conference. He wanted to better understand the opportunity in China, where rising incomes are creating new opportunities for all types of U.S. suppliers, especially those in the hobby and craft business positioned to capitalize on Chinese pursuit of leisure activities. While the company’s eventual strategy is a work in progress, Blumenthal already knows it will look different than the approach in the U.S. where 90 percent of sales are B2B. “The way we go to market in the U.S. is not the way we have to do it in China. Our strategy will be e-commerce first in China,” Blumenthal said. “When we launched our U.S. e-commerce business in 1996 it Evan Blumenthal, Director was essentially an online version of a Global Business Development, Lion Brand Yarn Company. catalog, but we evolved it to become a place to provide content and inspiration and offer free patterns as opposed to just selling product.” The blending of commerce and content is a trend seen worldwide, but it works especially well in China with consumers who may need to be educated about unfamiliar brands and products. That was the case with Ocean Spray when the company decided to sell cranberries online. The only problem with that idea is that cranberries are not indigenous to China so Ocean Spray had to invent a Chinese word for cranberry and it began by selling through Costco’s store on Alibaba’s Tmall platform in 2014. “It was a way to test and learn and understand the marketplace,” said Cheryl Sullivan, Ocean Spray’s director of e-commerce. “We started selling direct in October 2015 with a flagship store on Tmall because it is a great way for us to reach a vast audience and tell our story. We have a direct relationship with consumers and can teach them


Retail Leader.com JULY/AUGUST 2017

about how cranberries are grown by our cooperative of 700 growers.” The strategy appears to be working with 70 percent of the company’s sales in China coming from e-commerce, according to Sullivan, an e-commerce veteran who spent 12 years with toymaker Hasbro’s ecommerce unit prior to Ocean Spray. Ric Kostick, Founder and CEO, While Ocean Spray’s 100% Pure. China strategy was intentional, Stadium Goods market entry was more opportunistic. The consignment retailers of used sneakers and streetwear opened a store in Manhattan in October 2015 and soon became aware of the sales opportunity in China. “Our first month in business a customer spent $10,000 with us on product to resell in China,” said co-founder and CEO John McPheters. Not long after that Stadium Goods set up shop on Alibaba and began direct sales to China. “There are a lot of products that Chinese consumers still can’t get because supply has not caught up with demand.” One category where demand for U.S. products is especially strong is for beauty products. That’s why vertically integrated beauty products manufacturer and retailer 100% Pure recently established a storefront on Alibaba’s Tmall. CEO Ric Kostick had been using Alibaba’s platform to source packaging for his cosmetic products since 2004. The company’s U.S. retail operation currently consists of 12 stores, eight of which are in California, but 70 percent of sales volume is done online. Even though Kostick expects to operate about 50 stores in the U.S. in four years, he also expects the company’s business in China to grow dramatically. “Our business in China will be bigger than the U.S. in four or five years,” Kostick said. RL

John McPheters, Co-Founder and CEO, Stadium Goods.

Retail Pulse

the heartbeat of the marketplace

Milk it! With a focused and diligent effort, new product opportunities and success lie in dairy.


very year thousands of new products are launched, few survive and only a handful hit blockbuster status. With a 90 percent new product failure rate in CPG, dairy manufacturers need to be diligent and deliberate in their new product launch efforts. And retailers need to support them. Because when a new product hits — and lasts — everyone involved wins.

Percent of new launches with year-two growth of greater than 20 percent. CAtegoRy



Milk Sour Cream Yogurt Frozen Novelties

28.7% 27.2% 25.0% 26.5%

32.9% 40.0% 26.1% 38.5%

Source: IRI Unify™, Total US Multi Outlet + Convenience

Find the Sweet Spot

only milk found the sweet spot of fewer than average John CRawfoRd, IRI, Vice new items launched, with those items delivering a Prioritization is driving down the number of President of Client Insights, Dairy greater than average contribution to overall milk new product launches. Data indicate nearly a sales. Most dairy categories fall either in the hone 30 percent drop in dairy new product launches spot of needing to launch fewer, more productive new items, or the in just two years, from 2014-2016. To find the sweet spot, there stall spot of launching fewer and unproductive items. needs to be a focus on the number of new items introduced When a product shows promise, ongoing support is critical and their contribution to sales. from manufacturers and retailers alike. Year-two growth cuts Maximizing new item contribution is essential and involves across many dairy categories. Within dairy, year-two growth close analysis of risk versus reward. Considering costs and comrates of greater than 20 percent are becoming more prevalent. petition, manufacturers can find the sweet spot and deliver retailers enticing products that deserve precious space in the cooler. Historically, the dairy segment — like other categories — someRide the AttRibution wAve times boasts wins, but success rates have fluctuated in the past few Consumers today want to know what’s in their products, where years. Most recently, milk is the champion. For the past two years, they came from, how they got there and anything else a manu-

Relative to the dairy average, only milk fell in the sweet spot from 2014-2016. 2014 - 2016

Risk Spot

Hone Spot

Above Average Items / Above Average Contribution

Above Average Items / Below Average Contribution

New Item % Share Of Category

Yogurt Frozen Novelties Processed Cheese

Fresh Eggs Margarine

Ice Cream



Sour Cream Whipped Topping

Cottage Cheese

Stall Spot

Below Average Items / Below Average Contribution Source: IRI Market Advantage™


Natural Cheese Cream Cheese


Retail Leader.com July/August 2017

Sweet Spot

New Item % Contribution

Below Average Items / Above Average Contribution

Total Dairy from 2014 to 2016

11,818 New Items

$ 7 BN+ in sales contribution


Data & Insight Provided By

with 5.4% average annual contribution to total sales

of new launch dollars came from items carrying an added benefit claim on-packet


Year-2 high Growth Rate claim Index

with claims grew ≥20% in year 2



without claims grew ≥20% in year 2

Leading innovators

Source: IRI Unify™, Total US Multi Outlet + Convenience

facturer or retailer is willing to share. Many respond well to positive claims and attributes, seeking authenticity and purity in the products they choose for themselves and their families. Transparency is key, and communication with personalized marketing and merchandising is critical. Surprisingly, across dairy categories there are few commonalities in messaging, claims, packages, forms and sizes in new product introductions. Data indicate the only common claims across most dairy categories are natural and no/low fat. In a market where consumers have shown again and again that they want information to make calculated, thoughtful decisions, dairy categories are missing a big opportunity to connect and build loyalty. Also surprising, few dairy categories make consistent protein, calcium or non-GMO claims in new product launches. Trends show that brand launches touting added benefits generally report higher year-two growth versus non-benefit launches. Dairy manufacturers and retailers may consider protein and calcium obvious dairy attributes, but consumers may not. Opportunities abound here to expand messaging and communication with shoppers, most of whom are ripe and ready, actually seeking products touting benefits to help them with their health and wellness efforts.

Stack the INNovatIoN oddS

New product development is difficult and costly, but all is not lost. Dairy manufacturers can stack the innovation odds in their favor by testing well and often. Retailers can collaborate, offering invaluable insight on their shoppers’ trends and behaviors, and in-store support that can make or break a new introduction. With both manufacturers and retailers taking vested interest in new product success, opportunities await for success in dairy. Best practices point to these four phases: evaluate: Is there a viable market for a new product concept—is there white space? Does it hold consumer appeal? Does the attribute mix reinforce the value proposition? capture: Identify the right consumer for trial and communicate to them with targeted packaging and messaging. Draw attention and align with the rest of the portfolio to make a strong retail presence. Plan: The go-to-market strategy should be precise and focused on best-practice marketing. track: Watch in-market performance early and often to ensure long-term success. Who is trying the product and who is driving repeat purchases? Where is volume sourced and is it cannibalizing? Is advertising resonating and social media engagement strong? In dairy, manufacturers and retailers have a lot to be gained by true collaboration. There are opportunities to win and milk this segment for far more success. RL

2016 Top Dairy New Product Launches 1








Nestlé Outshine Coconut Fruit Juice Novelty 6Ct 16.1oz

Chobani Simply 100 Fat Free Strawberry Chocolate Truffle 4.2oz









Wells Dairy Weight Watchers Chocolate Fudge Novelty 6Ct 21oz

Silk Original Milk Substitute 192oz









Ben & Jerry’s Brownie Batter 16oz

Chobani Flip Low Fat Peanut Butter & Jelly 5.3oz




Nestlé Coffee Mate Natural Bliss Rfg Salted Carmel Coffee Creamer 16oz



Magnum Double Raspberry Novelty 3Ct 9.12oz

Yoplait GO-Gurt Low Fat Strawberry Cotton Candy 32oz








Midwest Foods Association Large White Fresh Eggs 18Ct





Source: IRI Market Advantage™, new products that completed their first year in calendar 2016.

July/August 2017 Retail Leader.com






The retail industry gained a more comprehensive provider of category sourcing solutions in June when Efficient Collaborative Retail Marketing (ECRM) acquired RangeMe, a hot new online product discovery platform. The deal brings together two companies known respectively for their innovative and technology driven approach to facilitating merchant and supplier interactions. ECRM disrupted the traditional trade show business in the mid-90s with a model that matched buyers and sellers at category focused events. In the three years since RangeMe was founded the company has quickly attracted major retailers and suppliers to its new item introduction and product discovery platform. The combination of the like-minded companies has huge implications for how retailers and suppliers engage with one another. That’s why Retail Leader spoke with ECRM CEO Greg Farrar and RangeMe founder and CEO Nicky Jackson about what the deal means for how trading partners interact in the rapidly evolving consumer packaged goods world.

Retail Leader: How did the marriage of ECRM and RangeMe come about?

Nicky Jackson: I was introduced to Greg and the team about two years ago before we launched in the U.S. It was only about 12 months ago that we connected face-to-face and then we just continued the conversation from there. Greg Farrar: Nicky is being a little humble. When I met with Nicky I instantly recognized what they were planning to do was going to be a strong strategic fit with us. It would enrich our value proposition to our manufacturer and retailer customers. I immediately said, “We should acquire you.” It was a little early for that discussion at that moment but we kept in touch since then. RL: Where do things stand now as far as integrating the companies to bring the benefits of the combined organization to market and what are those benefits? GF: The market will start to see the

benefits quickly. ECRM’s traditional business is going to benefit from RangeMe’s help and vice versa.

NJ: There is definitely a great amount of synergy between RangeMe helping retailers manage the process of new product discovery and ECRM helping in the area of strategic alignment, face to face meetings and relationship building. Those synergies are going to be evident straightaway. RL: How so? GF: We will use the RangeMe platform to help accomplish the

ECRM mission of helping make the buying and selling process more efficient and effective. We are going to be able to provide an end-to-end solution, everything from understanding what the retailers’ goals are for their categories, to helping them assess products and suppliers and using the RangeMe tools to do that. We will ensure that manufacturers are ready to do business with retailers and the RangeMe platform will provide insights into that. And we’ll ensure the manufacturers are fully educated on what the retailers are wanting to accomplish. That way when we match them together during one of our Efficient Program Planning Sessions (EPPS) both sides will be fully prepared, educated and mutually aligned. RL: Do you think you will be doing more or less of the live EPPS events now that RangeMe’s digital platform is part of ECRM? GF: We absolutely are going to be doing more events and

ECRM CEO Greg Farrar


Retail Leader.com JULY/AUGUST 2017

RangeMe is going to help us be able to do that. RangeMe has about 65,000 manufacturers participating in its product discovery platform and that number will continue to grow. We have a lot more retailers that we can serve and RangeMe is going to help us

get deeper into the workflow processes and serve them in a more granular way than we have before. The demand will grow for us to do more sessions because some of our sessions cover multiple categories. Ideally we would like to have one session for each category, but the biggest driver of that is retailer and manufacturer depth of coverage. You have to have enough manufacturers to satisfy a buyer and vice versa. The RangeMe platform will further reduce some of the inefficiencies and friction of bringing manufacturers and retailers together and that will create extra interest and demand. NJ: To add to that, technology enablement is very important,

but the physical meetings and actual relationships are key part of it. That is what ECRM brings to the mix. We have had feedback from our biggest retail partners who are loyal participants in the planning sessions ECRM provides and they kept saying I wish I could invite suppliers on the RangeMe platform to attend the EPPS sessions. A merchant can find a product innovation on the platform, connect and message but there is going to be a point where they need to meet face-to-face to do planning for their category review cycle. There definitely is a need for more sessions that are category specific because there is so much interest in innovation that we will be able to increase specialization. RL: RangeMe was only founded a couple years ago so how were you able to get such a large universe of suppliers on the platform in such a short period of time? NJ: RangeMe helps retailers manage new items so any new

supplier to Target, Whole Foods, Ahold, Albertsons, Sephora or any of the retailers we partner with submits their product through RangeMe. That is how we’ve had such a groundswell of innovation and suppliers on the platform and we’ve also been growing very quickly. We have 1,000 new suppliers sign up every week and we don’t see that slowing down. RL: Why is that? NJ: Because for retailers innovation is king and being on

the RangeMe platform gives suppliers an opportunity to be discovered. For retailers, it gives them the tools to navigate the complex world of innovation without leaving their desk to drill down to find the right products. RL: So the key to getting so many suppliers on board was getting retailers to use the platform? NJ: It was a chicken or egg situation, but what’s been exciting for us is the ability for retailers to source innovation at scale and expedite the time it takes a product to land on a shelf. Within the platform, a buyer can evaluate a product within 30 to 60 seconds and instantly connect. We are seeing great success stories of products landing on shelf from suppliers who had previously tried to connect with retailers for several years without any success. That is the core of why we do what we do.

RL: ECRM also does retailer specific events with companies such as Walgreens and Walmart. What is the outlook for retailer specific custom events? GF: We’ve been doing those type of events for several years

and what we are excited about is RangeMe will be able to make those events richer. RL: ECRM’s tie up with RangeMe seems like a natural evolution if you think about the origins of the company. ECRM was an original disruptor of how suppliers and retailers connected and an early adopter of technology to facilitate events. GF: That’s right. We really are continuing our heritage of

leveraging and integrating technology to serve our customers. Charlie Bowlus founded our company in 1994 and over time he came to regard ECRM as a technology company. He pioneered the use of tablet computers that were provided to all of the attendees on site loaded with all the tools and utilities needed for their meetings. We’ve evolved to iPads loaded with our Connect app and our tools on the Web site have also evolved. That’s why RangeMe is such a fabulous fit because we have a similar view of the marketplace and their culture of service is similar to ours. RL: Many suppliers are challenged to understand retailer priorities and retailers aren’t always effective at communicating their strategies in a way that is actionable for suppliers. What’s the role of ECRM and RangeMe to satisfy that need? NJ: There is a huge need for education and content that we

can give to the community because a lot of the most innovative suppliers are entrepreneurs who don’t necessarily come from the CPG space. GF: All of the major retailers have a story they want to tell

the marketplace about what they want to accomplish. That is something we help them do and RangeMe will help us do that. It helps them get their story out and then suppliers are educated in a unique way about how the retailer wants to be approached with that strategy in mind so they can customize their offering to the retailer. That is very central to what this combined entity will continue to do as we move forward. RL

RangeMe CEO Nicky Jackson




The stakes to earn shopper trips and grow transactions at retail have never been higher, which is why Ari Kertesz is a man on a mission. In the role of Vice President Large Format Retail Sales at Anheuser-Busch InBev (AB InBev), Kertesz wants retailers to understand that the beer category is their best friend when properly managed. “Whenever you win with the beer category you have a very high chance of winning with the total store because beer is a destination and one of the main reasons why people choose where to shop,” Kertesz said. With a household penetration rate of nearly 60%, AB InBev data show that 56 percent of shoppers cite beer as a reason for their trip. An analysis of transactions shows that baskets with beer in them are 61 percent larger than those without. While it is easy to make the case for the importance of the beer category, managing the complexity of the business is anything but. A proliferation of local and hyper local brands, shifting demand drivers, an array of packaging configurations and countless seasonal, sports and entertainment driven promotional opportunities make beer one of the most complex categories. To capitalize on those complexities and help retailers “win with beer,” Kertesz has brought new joint business planning (JBP) and category management processes to AB InBev. “We were doing very well, but there is always room for improvement because we can play an even bigger role in helping develop the beer category. You cannot take brand loyalty for granted,” Kertesz said. He joined AB InBev in September 2016 to lead the sales relationship with the top retail chains in the U.S. market and since then, “I’ve been taking a lot of time to understand our retailer Ari Kertesz


Retail Leader.com JULY/AUGUST 2017

partners’ strategy, where they want to invest and what is important to them. We can do more together such as joint programs and customized solutions.” Doing more begins with having the right joint business plan for each retailer based on the role the beer category plays in their overall strategy. This customization approach began with the top 10 accounts last year, was recently expanded to 20 and soon will be in place with AB InBev’s 30 top clients. “Some retailers win because they have the best range and best options and offer almost every beer imaginable. Others win with low prices, broad selection, convenience and high traffic. Others may have small stores with a simple as simple assortment, but have very good prices on a few SKUs that may drive 70 percent of volume,” Kertesz said. “We are trying to be more proactive in challenging our clients so we make sure they win leveraging their positioning and their strategy and the different possibilities that the beer category allows for them.” A fundamental change in category management is helping retailers optimize assortments and drive growth. The approach is rooted in building a base, or core assortment, of national brands supplemented by regional, local and hyper local brands for which demand can vary widely from store to store. To manage this variability of demand, among other nuances of the category, AB InBev has category teams that work on a daily basis with large retailers, according to Kertesz. The brewer also has a team dedicated to e-commerce that focuses on emerging digital and home delivery opportunities. “E-commerce is a very frequent topic in top to top discussions. Retailers have seen what has happened with other categories so they want to be proactive with beer,” Kertesz said. Although he’s been with the company less than a year, Kertesz is no stranger to the beer business or the science of process improvement as a means to drive sales growth. He began his career in 1995 as a consultant for Booz Allen Hamilton and in 1999 he joined McKinsey and Company. Kertesz spent 17 years with the global management consulting firm, becoming a senior partner in 2012 and working with AB InBev the past five years. He co-founded McKinsey’s Consumer Practice in Latin America. He became a full-time employee of AB InBev one month before the company completed its acquisition of SABMiller in October 2016, giving it pro-forma revenue of roughly $55 billion. RL

COMMUNITY INSPIRATION EDUCATION BENCHMARKING VISIBILITY Everything you need to drive marketing effectiveness.

Sept. 26-28, 2017 | Rosemont (Chicago), IL Path2PurchaseExpo.com Sponsors Include:

Featuring Keynotes from:

A Letter from the President and CEO Leslie G. Sarasin

Today’s shoppers feel entitled to information access about the product they are considering and they assume their unique needs should be listened to and addressed.


Taking It Personally


here are levels of relevancy to any truth. One level is the simple cognitive recognition of a fact. This is when you read or hear a statement and give assent to its legitimacy, acknowledging that the information you received is likely true. That very same truth reaches a far deeper relevancy when there is the sobering acknowledgement that the facts apply directly to you. For example, it is one thing to hear a doctor say, “Cancer must be taken seriously.” In this case, you’d likely agree that cancer is a serious threat to human health and you might elect to read up on the subject a bit, perhaps make a financial contribution to cancer research, and maybe even ask a friend or two about it. However, your response to this rather generic pronouncement would be limited and likely would not affect your normal routine very much. However, it is quite another circumstance to hear a doctor say, “Your cancer must be taken seriously.” In this case, I’d be willing to bet that your research time would be much more intense, behavioral changes would increase, your schedule would be completely revamped as you did everything you could to seek proper treatment and the number of people you talked to about it would magnify. When the truth becomes personal, changes take place. For years now, we’ve been talking about how the digital age has contributed to consumer empowerment, often manifested as the rising shopper expectations regarding both transparency and personalization. Today’s shoppers feel entitled to information access about the product they are considering and they assume their unique needs should be listened to and addressed. No longer satisfied with a simple ‘buy it and try it” attitude, con-

Retail Leader.com July/august 2017

sumers seek a deeper involvement in the retail process. They want to be engaged and included in the experience. A friend of mine describes it this way, “I don’t want to just buy a dress, I want to have a say in the color, fabric and cut of it. If I’m spending my money, I want the dress to be for me.” I believe the same is true of food shoppers. They are looking for ways they can be engaged in the food chain and have a say in the products they would like to purchase. And I believe they will continue rattling the food chain until they get the products, the service, the convenience they want, provided in a safe, economic way in accordance with values they hold.  Ask retailers today and they will tell you about consumer empowerment. It is a documented fact supported within countless pieces of consumer research, including the most recent version of FMI’s U.S Grocery Shopper Trends, which focuses on the rising customer expectation of transparency. My contention is that the food industry needs to more quickly move this truth out of the realm of cognitive assent and have it more deeply embedded in the fabric of our beings. In other words, we must acknowledge that customer empowerment isn’t a general truth, but rather a personal truth that calls for us to deepen our research, change our routines, and rearrange our schedules. It will tax us and complicate our operations. It will disrupt our normal workflow, but I submit that relevant truths always do. Taking the truth of consumer empowerment both seriously and personally will force us to change our thinking such that we cease considering our shoppers as our customers and begin recognizing them as our partners in the retail enterprise. Shoppers want to be involved in the food they buy and we must make it easier for them to have that experience. FMI

Supermarkets Can Offer Health in Every Aisle By Susan Borra, RD, Executive Director, FMI Foundation & Chief Health and Wellness Officer


hoppers have expanded their value equation when it comes to food selection. While taste, price and convenience are still important, there is a growing trend towards health and wellness being an equal, if not a more important, value in food purchase decisions. Today many food retailers see their mission to be a key partner in health and wellness in the communities they serve. This vison is backed by FMI’s U.S. Grocery Shopper Trends 2017 research that 45 percent of consumers perceive their primary food store as being an ally to help them achieve their wellness needs. Coupling this with the fact that 88 percent of shoppers also believe that the food they prepare at home is much healthier than the food they eat away from home, food retailers are in an excellent position to be a trusted health and wellness partner to their customers. Each household defines health and wellness uniquely and with many consumers seeking assistance in their health and wellness journey, food retailers are responding. Last year, 74 percent of retail executives told us they use consumer wellness and family health strategies to help their stores stand out from the competition and 76 percent use solutions for family meals (breakfast, lunch, dinner) to build a competitive advantage. Food retailers are offering assistance in many ways: providing healthy options in the fresh and private brands arenas; highlighting nutritionally superior selections in center store; and developing healthy, creative meal solutions in fresh prepared departments. In addition, many food retailers say that a strong consumer health and wellness program, featuring dietitians, will be a significant growth opportunity for their brand in the years ahead. Dietitians currently serve in many capacities in food retail, from providing guidance to healthier food choices, to showing shoppers how to prepare healthy, quick and delicious meals. In some cases, the dietitians are teaming up with the pharmacists to help customers with individual health needs that require special dietary guidance. In other instances, the dietitian works closely with the culinary team to develop healthy and tasty offerings from the fresh prepared department or with the store brand team to help improve the nutrition profile of private brands Food retailers, especially those with dietitians, pharmacies and even clinics providing medical services, are uniquely positioned to be a one stop shop for health and wellness and this gives shoppers another great reason to visit their grocery store each week. FMI

By the Numbers

45% 45% consumers perceive their primary food store as being and ally to help them achieve their wellness needs.


88% of shoppers believe that the food they prepare at home is much healthier than the food they eat away from home.


74% of retail executives say they use consumer wellness and family health strategies to help their stores stand out from the competition.

76% of retailers use solutions for family meals (breakfast, lunch, dinner) to build a competitive advantage.


Source: FMI’s U.S. Grocery Shopper Trends 2017

July/august 2017 Retail Leader.com


Navigating the Curiosity to Comfort Crux By Mark Baum, Chief Collaboration Officer, Senior Vice President, Industry Relations


s an avid climber, I strive for the summit, but appreciate and respect the process in helping me “send the crux” in any climb. My quest also requires gear — and lots of it — so in addition to the thrill of experiencing the natural world, I get nearly equal satisfaction shopping outdoor retail outlets. For me, the draw is the ability to test my dynamic ropes or belay devices in the store on a climbing wall, or practice my strategic footing on sharp inclines before purchasing new boots or crampons. The in-store experience is entertaining, and also critical to ensuring my comfort level (and safety) for an actual outdoor adventure. The difference in food retail is that I’m not going to literally sample every morsel before I make a purchase, but I can identify immediate, convenient solutions in a mealtime crunch or delight in finding new products. Our U.S. Grocery Shopper Trends 2017 research suggests that food retail remains at a critical juncture where consumers need and want to be involved in their food experiences, similar to shoppers’ involvement in shaping the apparel industry. I’ve always insisted that ‘food is fashion’ and our members are witnessing it firsthand. One of our committee members recently reminded me that if consumers can customize their own shoes, which arbitrarily go on their feet, then consumers will continue to expect food manufacturers and retailers

Comfort in Online Shopping ...

is expected to reach

100 Billion in the next 10 years.


Retail Leader.com July/august 2017

to allow them to be part of the food-making process, affecting their bodies over the short-and long-term — the ultimate manifestation of personalization. And, that has implications for the future formulation and curation of products which will have consequences for the future of brands. Still, a contributing factor to the challenges ahead for food retailers getting to better know their respective customers, is ongoing channel blurring and fragmentation. This metamorphosis of the food retail landscape is most evident with regard to the further decline of traditional supermarkets as a primary store. While less traditional retailers enjoy more grocery traffic and shopper loyalty, our Trends data note that eight percent of shoppers still claim to have “no primary store.” This is particularly significant because this year we learned how comfortable Millennials have become with using online shopping for their grocery needs. This move from curiosity to comfort in shopping patterns online is expected to reach $100 billion in the next 10 years, according to our recent findings with FMI’s research partner, Nielsen. The Digitally Engaged Shopper exploration identified that younger, newer and more engaged digital shoppers adopt grocery related digital technologies more quickly and will hasten the expansion of digital grocery shopping further. The need for urgency is paramount for all food retail business owners in light of the need to interpret online shopper data patterns and respond; this is arguably the ascent in our journey to universal digital adoption. Therefore, from a business perspective, FMI is putting more consideration and resources into the position of the CIO/CTO as a strategic enabler in today’s retail landscape, a departure from their traditional role as the interpreter of techno-talk or the head of a capital-hungry cost center. We will further challenge CEOs and other C-suite executives to co-lead technology discussions and decisions in the board room, and in addition, better meet the changing needs of today’s digitally engaged consumer. With the help of strategic partners, such as our most recent exploration at the FMI Executive Leadership Forum in June with Nielsen, RangeMe, SAP, The Kroger Co., Cisco and Brookshire Grocery Company, FMI offered more resources to focus on critical omnichannel infrastructure areas, specifically, digital store operations and commerce; supply chain; marketing and merchandising; and fresh. I’m confident our industry will adapt and take comfort in the traditionally uncomfortable, just like our curious younger echelon of consumers has done. Together, we will navigate this crux in the commerce route together. FMI

The Future of Government Relationships By: Jennifer Hatcher, FMI Chief Public Policy Officer


ne of the most critical steps in effective advocacy with lawmakers is being able to distinguish yourself as an honest, educated broker of the industry you represent. FMI’s government relations experts have decades of government and industry experience that we tap every day to educate policymakers on Hatcher the potential impact of policy decisions on our members’ businesses, customers and communities. As educators on behalf of the retail and wholesale food industry in Washington, as well as for our members, we have learned how to translate the complexities of the industry and the complicated procedures of Congress for audiences of all types. But in order to represent food retail well, we have to know our members’ stories, hear from operations experts, tour new concept stores and distribution centers, and reduce the complexity to clear examples.

“Government relations professionals need to be issue experts, who can figure out how to make very complicated concepts digestible for everyone. Our jobs are about knowing the members we represent, and educating both the voter and the lawmaker.” Walker

—Hannah Walker, FMI Senior Director, Technology and Nutrition Policy

Like grocers and retailers, government relations professionals are in the business of people. Building and maintaining relationships is important to successfully advocate for or against an issue or idea. Government relations specialists must think strategically about how to communicate, both with lawmakers and the people they represent. Navigating an issue through the legislative and regulatory processes can be time-consuming, but with the diverse forms of communication outlets available, at least getting the word out on a position it has also become quicker and perhaps more efficient.

“With the rise of technology use, there is a continued need to build relationships and tell the grocery industry’s story of the impact of specific issues on customer service and role of food retailers in the community.” —Rob Rosado, FMI Senior Director, Food and Health Policy


With all of the tools and technology we have available at our fingertips, is investing in one-on-one communication still worth it in the long run?

“Technology has made one of the most difficult parts of government relations (connecting people who care about an issue with their lawmaker) one of the easiest. It may be too easy. In the future, industries are going to have to demonstrate not only that they can produce “numbers”, but that Harig those “numbers” aren’t just the result of the ease of communications. Government relations professionals are going to find it incumbent on them to demonstrate that the people they represent vote and create jobs.” —Andy Harig, FMI Senior Director Sustainability, Tax and Trade

Andy Harig continued on that sentiment:

“Remember that even in a technology and data-driven environment, government relations is ultimately about people — telling the story of the people you represent and making a connection with the lawmakers, staffers and officials you’re hoping to influence.” In the grocery industry, relationships and trust are the basis of a business model. Even in today’s rapidly changing environment, it is clear that people are still the most important asset in any business. FMI July/august 2017 Retail Leader.com


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The RL ReseaRch RepoRT the black friday of summer:

Are you a member of Amazon Prime?

(Respondents who answered “yes” by household income) 70%

Prime Power The third annual Prime day is right around the corner and speculation has already started on what will be offered during the summer retail event. Prime day exists to promote Amazon’s Prime subscription service, driving new audiences Amazon’s loyalty program. Prime day is for Prime members, many of whom will sign up for a trial of the service so they can get the deals. once signed up, many of them stay as Prime subscribers. Last year it was the biggest day in Amazon’s history: Amazon’s traffic was up 36%. It sold 90,000 TVs and thousands of Kindle Paperwhites, Fire TV Sticks and tablets.

Just how good are the deals? Prices for key shopping categories were consistently lower for holiday shopping events like Black Friday and Cyber Monday than on Prime day according to a recent pricing study. Across the categories and listings reviewed in the study, 74% were priced lower on Black Friday than Prime day, and 72% were priced lower on Cyber Monday. The only category reviewed in the study that was priced lower, on average, on Prime day than Black Friday or Cyber Monday was Television sets. despite these figures, Prime day is undoubtedly growing. 58% stated that they plan to shop Prime day sales, up from the mere 34% that participated last year.




40 30


20 10 0

Less than $25,000



More than $100,000

How long have you been a member of Amazon Prime?

Who are “Prime” targets? In a nationwide survey of 1,200 consumers, responses indicated higher income shoppers are more likely to be Prime members. with that said, Amazon is looking to grow the other income groups’ adoption by offering things like monthly billing. The survey indicated that in the short time it has been offered, 30% of respondants are billed monthly. Mission accomplished? In the chart to the right, the number of people who have been Prime members for two years or less would indicate the plan to drive memberships on Prime day is working for Amazon. other tactics to broaden adoption and drive loyalty are also gaining traction—68% of those surveyed indicated they take advantage of the additional benefits of membership in the form of video streaming and photo storage.











8% 6%




0 Less than a Year

1 year

2 years

3 years

4 years

5 years

6 years

7 years or more

Did you shop on Amazon Prime Day last year? Do you plan to shop on Prime Day this year? 60%



plan to shop in 2017





plan to shop in 2016



July/August 2017 Retail Leader.com




Category Management



When he coined the phrase “Category Management” nearly 30 years ago, even then USC professor Brian Harris could hardly have imagined the impact his creation would have on the retail industry. Category management launched hundreds of new careers on both the retail and brand sides, spawned dozens of consulting and technology firms and generally shook up the world of retail. While the practice of category management has served the supermarket industry well, the problem is customers are shopping less in the channel, according to FMI, losing share to limited assortment and discount retailers, organic/specialty stores and e-commerce. In addition, there has been a long period of deflation, dramatically changing demographics of key shoppers and a squeeze on margins throughout the store. Now Harris, shoppercentric marketing trailblazer Win Weber and most others agree it’s time for at least an evolution - and maybe a revolution - in the way retailers think about marketing and merchandising. The industry needs to reevaluate the old, generic category-bycategory approach that restricts the ability of trading partners to satisfy shopper needs while reaching their sales and profit goals. Perhaps more important, category management in its current form doesn’t allow for efficient support of e-commerce, which is growing in importance. We need to support an approach that systematically deploys the enhanced insights that are attainable with today’s technology solutions. This methodology must go well beyond product and category optimization to be customer-centric for the entire shopping experience. And, it must take into account a total store, crosscategory methodology to marketing and merchandising. To embark on this Total Store Optimization approach, retailers should directly translate the actionable shopper insights into price, promotion and assortment targets that make sense for categories across the entire store. Some categories are better at driving price perception and volume, while others are more suited to driving revenues and profits — the retailer should adopt a portfolio approach that enables them to achieve their varied objectives. The key is to balance all activities between the store, categories and individual products, with the aim of satisfying shoppers’ needs for value. There are several critical tactics retailers and their trading partners need to collaborate on, starting with aligning prices across the store with value from the shopper’s perspective and implementing a mechanism that will create the biggest opportunities for the whole store to profit. They need to take local competition pricing into consideration and be willing to lower prices to improve value perception. For assortment, they need to determine which catego-


Retail Leader.com JULY/AUGUST 2017

> By Graeme McVie ries require more depth and breadth to satisfy shopper needs. For promotions, they should adopt a three-pronged strategy: Stop (identify which promotions are not working and stop running them) Fix (adjust promotion mechanics to improve shopper engagement) Slant (direct promotions towards loyal customers and eliminate cherry picking) Retailers and manufactures have a finite amount of promotional funding available and it should be allocated in the most productive way — going a step further, loyalty cards or customer identifiers enable promotions to be targeted towards the most loyal customers. The Total Store Optimization approach recommends optimized prices for all items simultaneously across all categories and provides optimized assortment recommendations across all categories that incorporate demand transfer and halo effects. It also performs total store promotion evaluation across all promotions simultaneously, leading to dramatically improved sales and profits. The most effective way to pursue Total Store Optimization is to take a phased approach: Crawl (make the most impactful changes and build momentum), Walk (tailor category targets and objectives and implement total store price, promotion, assortment and personalized marketing decisions) and Run (evolve the organizational structure, roles and responsibilities to be shopper-centric). This will take the retailer from category focus to shopper focus and deliver results in months before being fully implemented in a year or two, assuming buy-in from the management team and collaboration with trading partners. Win Weber said at a recent event; “Considering the magnitude of change to Shopper-Centric Retailing, and thinking about what is best for the industry going forward, the continued use of the term category management can best be compared to putting a new paint job on a Model T Ford. This term should now be placed in the annals of history.” The Total Store Optimization approach, with its customer-centric focus and deployment of actionable insights at the total store level, is the next step in the shopper-centricity journey, positioning retailers for the future — beyond category management. RL Graeme McVie is Vice President & General Manager of Business Development at Precima.

Is your business ready for Lidl? Lidl has launched its first stores in the US market, with plans to open 600 more over the next few years. With their launch, Lidl’s transformative private label strategy will be rolled out to US markets on the East Coast, the South, and the Midwest in what could be the most significant disruption to the US brick-and-mortar grocery industry over the past decade. Market Track is closely monitoring Lidl’s launch, and is the go-to source for insight and information on Lidl advertising, promotions, and pricing, including: •

Analysis of Lidl promotions, from print feature ads to digital promotions

Tracking Lidl creative advertising in broadcast and digital media channels

Monitoring Lidl eCommerce activity, from site assortment to price trends

markettrack.com/lidl-in-the-us 800.235.3781

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RL - July/Aug 2017  

RL - July/Aug 2017